Saturday, December 23, 2006

Extended family makes stock picks

The Holidays bring together families. In-laws, cousins, aunts and uncles, nieces and nephews, as well as a few close friends gather and, at times with little in common, make conversation for hours as they wait for food, eat food, and digest food. What to talk about? Politics and religion are generally best avoided. Anything intellectual is not often common ground. Children are a great topic but how long can that go on. Remembering what happened in 1994 when John dropped the gravy bowl kind of comments get old too. So what's left. There's cars, sports, Donald Trump, cooking, the weather in St. Louis compared to Buffalo, television programs, movies, and the market. Yeah the stock market where your brother-in-law always is willing to give a supposedly informed opinion and your 26 year old niece already makes money having something to do with investments.

And the stock picks for this year are:

Uncle Charlie: "You can't go wrong with GE. So what if it was flat as a pancake for the last three years. It's a great American company, it pays a good dividend and it's finally beginning to get back on track. Hell, they have more than 10% earnings growth every year but ever since Jack Welch left they lost their buzz. But trust me, you can't keep a good company down. Buy it and hold on and you'll put your grandchildren through college."

Nephew Paul: "Apple is it. Every kid in college either has an Apple PC or wants one. Dell sucks. Gateway's gone. Sony's blown it. HP has come back, but on Dell's back, not Apple's. The only problem is that they are so creative that they are coming up with better PC's and better Ipods so often that you're always wanting the next one. But that's not their problem. It's mine. So what if the stock has gone up a lot. It's come down from its high almost 10% in the last week. Get on this train before it leaves the station for good. Sorry Charlie, GE looks good but Apple's the future."

Next door neighbor Sal: "You guys are talking about things that everyone knows about. You don't make real money like that. My buddy Anthony tells me he makes a killing every year on stuff no one knows about. He says buy Wabash, that's WNC he says, and you'll double your money in a year. With a name like Wabash you can see why they're overlooked. Wabash, ever heard of it. I thought so. He says it makes trucks used in construction and it's in Ohio. I'm in. Just watch. Anthony does his homework."

Cousin Kate: "I got one like that too. My friend in Houston says buy IESC now. Don't hold back. I don't know what IESC stands for but has something to do with fixing electronics systems. She says because it went bankrupt a few years ago ago and didn't make any money this year that nobody likes it. But her friend Josh works there and he's pumped. Double your money at least he says, so I got you there Sal."

Niece in the investment business: "Sal and Kate, don't take this personally but you guys are nuts. Do you know anything about these companies? Double your money or more in a year is a big red flag to start with. No investment pro knows about this but Anthony and Josh do. That might not be the way the market works. What do I like? Big financial stocks look good to me. Sad to say maybe but these middlemen pass risk in other directions and take a cut on everything. Some like Goldman Sachs and Morgan Stanley are stocks that have gone through the roof this year but others like JP Morgan Chase, while going up, still have legs. JPM has done ok, it pays almost a 3% dividend, is in lots of good businesses, and most importantly has a CEO that knows how to reward investors. Since it was announced that he would become CEO 15 months ago the stock is up around 40%. He worked with Sandy Weill for lots of years and always made money for shareholders, and did the same at Bank One. Big investors pay more for good proven management which JPM finally has. They don't need extraordinary earnings growth because they will get p/e multiple expansion. This has more potential than GE and less risk than Apple. And don't even think about those Wabashers."

Informed brother-in-law: "Get creative folks and think about the simple buy low sell high concept. What's low right now and it's something that everyone needs. Homebuilders have been clobbered. Now's the time to buy. You say now I'm nuts. This situation right now means consolidation is coming. The top 10 homebuilders have only a 15% share of the total market. No Samsung or Toyota is coming in. They could go down more for sure, but you can always buy more if they do, because they will go up eventually and go up a lot. I like Hovanian which is trading at around 5 times current lower earning and has traded as high as 19 times earnings within the past 5 years. These aren't tech stocks. They're simple. It's easy to see why they are down so much now and why they will go back up when things shake out in house prices. So buy good quality, and buy low."

Cousin Fred: "I've had enough. Whenever folks start talking like they know all this stuff about the stock market, it's just gambling time. Just go up to the reservation and be done with it. The hotel rooms are nice and almost free, so if you want you can just send your money down on the elevator and watch a good movie."

Sister-in-law Edna: "No more nonsense. Come eat dessert."

(Disclosure -- the writer, right or wrong, owns a few shares in all companies mentioned)

1 Comments:

Anonymous Anonymous said...

I'm with Fred.

3:55 PM  

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