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A stock that makes me go ewwwww / Great deals on trucks / Operation retire when I'm 90

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July 23, 2008 – Comments (8) | RELATED TICKERS: SCI , NSANY.DL , GE

As one can tell from my personal investments in casinos, alcohol, and tobacco I am usually not averse to investing in areas that other investors find repulsive, but I think that I may have met my match.  With its stock off 30% so far this year, a number of hedge funds have started building positions in Service Corp. (SCI).  For those of you who are not familiar with the company, Yahoo! Finance describes it as "as a deathcare products and services provider."  Basically they operate funeral homes.  The thesis behind an investment in Service Corp. right now is that its business will grow significantly as Baby Boomers begin to die in greater numbers.  After falling consistently for the past forty years, the National Funeral Directors Association estimates that the U.S. death rate will rise to 9.3 per thousand people in 2020 and 10.9 per thousand in 2040 (from a base of 8.1 per thousand in 2006).

This sounds like a very solid theory, in fact I am surprised that hedge funds would look for this sort of long-term investment (perhaps they're just waiting for the pop when others catch on to this trend) but even I would have a tough time rooting for people to kick the bucket so that the revenue of a company that I am invested in could grow.  I remember when I first found out what Service Corp. did all the way back in college (yes I did actually attend and even graduate college and yes it was a long time ago).  I was at a job fair my senior year, making the rounds and speaking with all the usual suspects in Richmond, Virginia including Circuit City, CarMax, Capital One (thank goodness I didn't end up at any of those places) when I cam to a company called Service Corp.  I thought to myself, "Huh I've never heard of them before.  I wonder what they do.  So I picked up one of their brochures.  Once I figured it out I was like "Oh, no thanks." and quickly walked away.

Another interesting thing that I picked up on from this article is that Service Corp. invests the money that it makes from selling funeral services and plots in advance (aka pre-need sales) in three trust funds which currently have in the vicinity of $3.5 billion in assets.I could probably invest in a company like this if I really thought that it was a slam dunk, no-brainer home run type of investment...but I wouldn't like it.  For now, I'll just buy it in CAPS.

Service Corp. Lures Hedge Funds as Boomer Deaths Position Stock

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The price of gas has dropped slightly over the last couple of weeks in my area.  I actually filled up my tank with regular at less than $3.90 per gallon this morning ($3,87 to be exact).  This is good news for beleaguered consumers, but I personally expect this relief to be short-lived.  I strongly believe that the days of really cheap gasoline are long gone.  Every time you grumble as you fill up your car or truck, be thankful that you don't live in Norway.  Despite the fact that the country is currently the world's fifth-largest oil exporter and the fact that it has an extremely strong currency, Norwegians pay the highest prices at the pump in Europe.  Diesel (diesel cars are much more popular in Europe than they are here) costs 14.23 kroner, or $2.82 dollars, per litre.  A litre is the equivalent of approximately a quarter gallon.  Using my higher math skills, I have calculated that Norwegians have to pay approximately $11.28 per gallon for gas.  Yikes!

In oil-rich Norway, petrol prices most expensive in Europe

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Auto Industry News

Well, Nissan (NSANY) finally bit the bullet this month and introduced the most aggressive incentives that I have seen it offer in the 12 plus years that I have spent in the auto industry. Not surprisingly, its most aggressive incentives are available on pickups and non-crossover SUVs. If anyone needs a new truck and they like Nissans and Infinitis now is definitely the time to get one.

It introduced a new volume-based dealer cash program on Nissan division vehicles in July that enables U.S. dealers to earn up to an additional $5,000 per unit on SUVs and pickups. The new program is such a dramatic enhancement over its June program that I had to triple check to make sure that I had the right information. We're talking about a total of $10,000 in cash incentives on the 2008 Armada and Titan now. I've never seen Nissan offer anything close to this. It also has 0% financing (which it hates to offer) for up to a staggering 72 months on Infiniti trucks.

Two takeaways from this piece of information. 

1)  Expect Nissan to report awesome sales of trucks when it publishes its U.S. sales results next Friday (8/1).

2) Don't be fooled into thinking that Nissan is doing awesome in the U.S. by these results, it is paying handsomely for these sales which is likely to hurt its margins.

 It's always interesting to hear what a company's CEO is thinking. Nissan head Carlos Ghosn doesn't see the slowdown in auto sales getting better in 2009. While if true this certainly is disappointing for anyone who is invested in the auto sector, Nissan is in much better shape to weather this storm than some of its competitors like the traditional "Big 3" domestic companies...GM, Ford, and Chrysler.

Nissan's Ghosn sees no 2009 U.S. auto recovery

  

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Quick Hits

A number of the companies that I am invested in have knocked the cover off of the ball lately.  My investment plan appropriately titled "operation retire by the time I'm 90," is coming along nicely :). 

Philip Morris Net Tops Estimates on Indonesia, MexicoPM's net income rose 22% for the quarter.  Its EPS came in at $0.83, beating analysts' estimated by $0.03.  It also raised its yearly guidance to $3.32 - $3.38/share from its previous estimate of $3.18 - $3.24. 

CNH Reports Record Second Quarter Net Income of $347 Million, Up 52%, Highest Quarterly Results in CNH History:  This jibes with what I wrote about AG yesterday and is is probably good news for DE.  I remain extremely bullish on the ag sector.

GE Presents Dividend Opportunity:  Yeah, I know that GE Capital is big and it is a bit of a black box, but this company is involved in so many sectors that I am bullish on that I don't care.  Earnings of the company's Infrastructure unit rose by 24% in last quarter.  Plus, the company derives more than 50% of its revenue from outside the United States.  It currently yields 4.5% with a safe payout ratio of only 52%. 

ConocoPhillips 2Q profit soars: Nice

U.S. Mortgage Applications Index Fell 6.2% Last Week: A few yucky quotes:

-  "Mortgage applications in the U.S. dropped 6.2 percent last week, led by declining demand for loans to purchase homes as interest rates jumped. "

-  "There's certainly no sign of recovery at this point,'' James O'Sullivan, a senior economist at UBS Securities LLC in Stamford, Connecticut, said before the report."

-  "The average rate on a 30-year fixed-rate loan jumped to 6.59 percent last week from 6.22 percent, today's mortgage bankers report showed. The rate is the highest since the week ended July 20, 2007. At the current rate, monthly borrowing costs for each $100,000 would be $638, up $70 from the 2008 low in January."

-  "Mortgage rates ``are higher now than when the Fed started to ease policy,'' Morgan Stanley market strategist Gerard Minack wrote in a note to clients today. ``Problems amongst lenders and the global credit system have blocked the pass-through of lower official rates,'' Sydney-based Minack wrote." 

Home Prices Tumbled 4.8% in May as U.S. Banks Rein in Lending:  Falling for the 12th time in the past 13 months, home values were 4.8% lower than a year ago in June.  This is the largest year-over-year decline in the history of the data.  After adjusting for inflation, real home values are down in every region.  More yuck.

Deej

Long PM, DE, GE, COP

8 Comments – Post Your Own

#1) On July 23, 2008 at 3:33 PM, Imperial1964 (97.93) wrote:

In my area one of the Nissan dealers is offering to give you a free Nissan if you buy a Nissan.  They didn't say anything about the offer only applying to certain models, so I suspect it applies to all?  But they also didn't say you would get a Nissan identical to the one you bought.

One of the local GM dealers is offering $25k trucks and SUVs for $17k.  I've heard rumors of half off certain Dodge pickups in another region.

If I could get a base model, 2008 dealer inventory, full-size pickup for around $8-9k cash, I'd consider raiding my "Buy the market bottom" fund.  But I just sold my clunker and bought a nice '89 model Dodge that I hardly drive as is.

Long PM with plans to look into GE and COP.

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#2) On July 24, 2008 at 12:15 PM, DemonDoug (92.48) wrote:

Deej, with SCI, 3.5B in trust funds is more than their entire market cap.  I thought that when a company had something like 40% of it's worth in cash or investments, it was classified as a mutual fund company?  (I remember Google had this problem a few years back, they had to go buy some companies because they had too much money.  nice problem to have!)

Otherwise looks like a decent bet.

PM = best investment in the market right now for LTBH if you can get it at under 50/share.

Regarding GE: I think you are way way underestimating their possible losses from the financial division.  Imagine if GE's division wasn't named "GE Capital," but instead was named "Wachovia Bancorp."  Think they could take a $9B hit and keep raising that dividend?

Imagine if a company like Siemens owned Wachovia - the only word I can think of is "ouch."

I would not be surprised if GE either cuts or does not increase their dividend.  Remember, the fallout from all this finance mess is going to take years, not weeks or months (or even days as the market's stupid rally thinks everything is just fine and dandy).

COP: an oil company making a lot of money.  and investing in potential actual viable alternative fuels (like oil from algae).  Maybe the best conglomerate oil company out there.  I like them better than XOM and BP at least for sure.

Long PM

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#3) On July 24, 2008 at 7:15 PM, isakshu (< 20) wrote:

Here's a big question for you - where did you find the data around the $5,000 dealer volume rebate?  I've read through a number of call transcripts, articles, and general press and have yet to find anything concrete that this exists. I'm not saying it doesn't - I've seen numerous discounts including this $5k, I just can't find anything else supporting it. 

And yes - I am going to use this in my current car negotiation :)

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#4) On July 24, 2008 at 7:32 PM, isakshu (< 20) wrote:

Here's a big question for you - where did you find the data around the $5,000 dealer volume rebate?  I've read through a number of call transcripts, articles, and general press and have yet to find anything concrete that this exists. I'm not saying it doesn't - I've seen numerous discounts including this $5k, I just can't find anything else supporting it. 

And yes - I am going to use this in my current car negotiation :)

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#5) On July 24, 2008 at 7:38 PM, isakshu (< 20) wrote:

Here's a big question for you - where did you find the data around the $5,000 dealer volume rebate?  I've read through a number of call transcripts, articles, and general press and have yet to find anything concrete that this exists. I'm not saying it doesn't - I've seen numerous discounts including this $5k, I just can't find anything else supporting it. 

And yes - I am going to use this in my current car negotiation :)

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#6) On July 25, 2008 at 10:32 AM, TMFDeej (99.46) wrote:

Hi isakshu.  I work in the auto industry and this incentive is available to dealers that hit certain sales objectives.

Deej

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#7) On July 25, 2008 at 10:32 AM, TMFDeej (99.46) wrote:

Hi isakshu.  I work in the auto industry and this incentive is available to dealers that hit certain sales objectives.

Deej

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#8) On July 25, 2008 at 6:13 PM, isakshu (< 20) wrote:

Another good question for you - any idea on when this volume incentive ends?  I am just checking to see if I need to be high tailing it in this weekend or if I can hold out for next Wed/Thu for end of the month negotiations...

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