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Best stock to DCA into

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December 09, 2006 – Comments (0)

The best direct purchase plan I've yet seen would have to go to Banco Popular (BPOP). They don't charge for account setup, or for share purchases. In fact, when reinvesting dividends, they give you a 5% discount on share purchases, taking the average share price for the month. They conduct all share purchases on the 15th of the month, so you can't time your purchases for after a big drop, but this isn't exactly a very volatile stock.

BPOP is deep value right now. It's had two tough quarters. It is an Income Investor recommendation, and I believe it has an economic moat and can recover. That having been said, the business value is definitely under pressure. Credit quality is going down, and its rate of loan chargeoffs has increased. There are problems with its portfolio of mortgages and consumer loans. That said, they have been able to contain costs.

Separately from that, the share price is also under pressure because of accounting problems at other Puerto Rican banks. BPOP has had no accounting problems. Their CEO has been very forthright about the bank's difficulties, and their executive pay is very reasonable.

This is an excellent stock to dollar cost average into. However, it's going to require patience. And, of course, there is the risk that management could fail to dig the company out of its current rut. There is the risk that the yield curve could remain flat or inverted for a prolonged period, which would be bad for all banks. I've got my fingers crossed.

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