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correction coming? Some stocks I like right now



June 15, 2009 – Comments (7)

Well I guess I have rarely posted stock picks.  I've made some on my CAPs portfolio, and thats gone pretty well, and I've made some general commentaries...

... the most noteable general commentary was my blog in very late february or very early march about a mark-to-market accounting bounce.  Anybody who would have followed that liberally would be far, far more than double their money now.  If i'd have very liberally (like all-in) followed my own advice there I owuld be comfortably better than 3x my money right now.  oh well.

I cannot promise that any pick I make will work out, and while alot of bloggers are so very DEFINITIVE with their predictions, I refuse to post with that kind of tone.  Because at the end of the day it would hurt me to cause someone else to lose their money.  So I'm going to post some stocks that I really, really don't think will lose anybody money, and which I think have enough upside potential for people who are looking to make a really good return to be interested in.

Here goes.

1.  This isn't a stock, its a variety of stocks from one category.  BDCs, or business development companies, have been as beaten and battered as any companies in this recession/bear market.  Some - like MCGC, ACAS, ALD and more have seen their fortunes dented quite considerably.  Ohters, however, have come through the misery thus far with dividends still intact, debt covenants not violated...  These BDCs do not represent the deep, deep value that companies like ACAS MIGHT represent (if ACAS can get things worked out), but they have some advantages over their more damanged bretheren.  Many of them are in a position to make investments right now, ... and now is a great time to invest, folks, with the price of everything beaten down. 

I cannot predict the future, and even if every stock in my real world portfolio is up except 2 (so about 58/60), I will eventually fail and fail royally with a stock call.  I urge everybody to consider this.

All that noted, the yeilds of these stocks are in double digits - more than 10%, their price/book values are less than 1, and they are the companies in their industry that are doing the best, or right among the best.  Here you go, a list of tickers with price/book and forward p/e

ARCC.  Ares Capital.  18% current yield, price/book 0.7.  Stifel Nicolaus (2 years running they've been awarded for best accuracy among analyst firms) has them as their favorite BDC.  I like Stifels summaries.  Ares is very far, by my judgement, from being a bankruptcy risk, yet they are trading well under book value and near a 20% yield.  And remember, as markets improve many BDCs will be able to mark their book value up (mark to market takes away, but it also giveth back.  mark to MARKET, after all, and markets fall and rise). 

I honestly believe anybody getting long ARCC at these prices will make money.

 FSC.  Fifth Street Finance.  11% current yield, price/book 0.75.  Stifel buy.  Yahoo analysts have it at a whopping 1.7!!   FSC has essentially no debt, and has recently taken steps with the SBA (small business admin) that might let it grow substantiallyh in the coming years.   As with ARCC above, I honeslty believe that people will make money on FSC in coming years. 

 PNNT.  Along with the 2 above, this is quite possibly one of the BDCs today in the very best shape.  13% current yield, p/book of 0.6.  Forward p/e of 6.  Yahoo analysts ranking only 3 (lower is better).  PNNT appears to be one of the very few (along with the 2 above) BDCs who are in a position to grow in the coming months/years. 

 Other BDCs with current yields that I own:  AINV, HTGC (another one in really good shape), PSEC (raised divi for 17 straight quarters).

Also look at (make sure you look thoroughly before buying):  GLAD, GAIN, KCAP.  There might be even more!

The BDC model, like the REIT model, requires that dividends b epaid of the company has profits.  Basically, BDCs pay 90% of profits out as dividends to avoid being taxed themselves.  For a short period of time BDCs can pay the dividends as 90% stock/10% cash, but as far as I know the BDCs recommended above are paying the listed yields as cash. 


General Electric.  I like Immelt.  I like that he wants the industrial division to dwarf the finance division as time goes by.  I like that he's bullish.  I wouldn't be surprised to see him remembered as a better general than Welch, write that down, i'm the first guy to say it. 

GE is forever in my view.  If its finance division lost billions it would still make billions, and its finance division is projected to be profitable in 2009 and 2010.  Its at the apex of clean energy in many areas, its ability to do R&D is matchess.

And its still at about a 13 year low.  And its much, much bigger than it was 13 years ago. 

I refuse to believe that if you buy GE now you'll lose money. 


DOW.  Dow Chemical is still at a 15-20 year low.  If they reinstate the dividend it would be ~10%.  They will live, they (in my view) will be $40 again someday. 


These are just thoughts, I may be wrong on any one of them, but ... honestly, I doubt it.  I back this with the fact that I am personally long (and recently or semi-recently buying) all of the above (except hte list of BDCs mentioned in passing, I am long only some of htem).

happy hunting.

7 Comments – Post Your Own

#1) On June 15, 2009 at 2:59 AM, awallejr (35.12) wrote:

I believe there are legs to BDCs too.  ACAS, I am not sure how the dividend will impact it short term once the shares are distributed (it will be 10/90 cash/stocks). 

As for GE, sorry, Immelt should be on Cramer's wall of shame.  He took a $40 company to under $6 and pretty much lied to everyone about the dividend.

DOW I like and own in real life.

I really get tired of hearing these CEOs lamenting how they couldn't have foreseen this economic collapse.  When you are being paid MILLIONS of dollars you better damn well know your business and its prospects.  Carl Icahn's contempt for CEOs in general has merit.

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#2) On June 15, 2009 at 3:02 AM, checklist34 (98.65) wrote:

i stand by my very long term (think 20 years) vision of immelt -vs- welch.  welch left a bit of a cooked books contrived company (as in immelt spun off insurance to ditch the book cooking divisona nd wrote off a couple billion to do it).  Welch was about wall street, immelt will be about manufacturing.  Immelt will win, GE is a good buy.

glad to hear someone else belive in BDCs.  I;m personally really really long ACAS from far lower (like 5x lower)prices.  It'll work out, but fromn $3.75 its more cloudy than from $0.75.

good luck to all

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#3) On June 15, 2009 at 3:11 AM, awallejr (35.12) wrote:

I think GE will do fine long term too, but I won't give Immelt a pass.  Afterall he still killed the stock to under 6 bucks and flat out lied on several occasions.

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#4) On June 15, 2009 at 3:12 AM, MAURIZIO400 (56.00) wrote:

thanks for sharing.

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#5) On June 15, 2009 at 9:09 AM, ATH001 (< 20) wrote:

Thanks for your thoughts Checklist, also really enjoyed your Optimism piece on the other blog about the Positive Affirmation. You're on a Roll today, keep it up.

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#6) On June 15, 2009 at 4:08 PM, jstegma (28.58) wrote:

I agree that Dow and GE are good long term plays.  I'm looking to buy them when we get a reasonable pullback. 

There is just too much bullishness on stocks right now.  People are bullish on stocks a lot more than they are on the actual economy.

Don't agree about Immelt though.  He screwed up big time when he wasn't honest with shareholders.  He won't be able to match Welch or even come close.  He may have inherited a company with a culture of meeting the number come hell or high water, but it isn't like he took over and put a stop to it.  Instead, he met the number until the temperature got a little too hot and the water got a little too high, and then he gave the shareholders some lies to hold them off.  I still remember the motherf*cker being interviewed about which was the priority the AAA rating or the dividend if it should come to that.  The answer was "both will be maintained" - absolutely to the extent he wouldn't even answer the question.  It was a double lie.  So as far as Immelt is concerned, he's a liar and I don't trust a word he says.  He lied to me as a shareholder and cost me thousands of dollars personally.  The only thing good I'll ever be able to say about him is "I'm glad he's dead."  So I guess I don't really have much good to say about him for the moment.

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#7) On June 16, 2009 at 10:50 PM, checklist34 (98.65) wrote:

Hey all,

    My comment on Immelt is based on his recent declaration of his intent to make GE a company that derives the vast majority of its revenue and profit from manufacturing, not from services, finances, etc.

    Welch built it into a bit of an insurabank, and may have used whats now Genworth to cook the books a bit, and Immelt sort of got handed a mop with which to clean the floor.

     stegma, thanks for the color on Immelts mistruths, and I'm sorry to hear about your loss. 


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