The summer is here and many people over the next few months with be flying somewhere either partly as a tourist and perhaps to meet family. In general we like airplanes, they are sleek and there is something about them that we like. Should you invest in airplane stocks, if you are at the airport you can see how the lineups are for the various airlines. A little while ago: Ryan Gottschalk from Thompson Reuters looked at how are the airlines performing from an investor’s point of view.

Mr. Gottschalk focused on North American headquarter airlines and focused on key performance indicators:

Passenger load factor – the percentage of passenger miles travelled compared to the number of seats on the plane.

Revenue and Cost per available seat (ASM). The difference is the operating margin per ASM and the greater the number the better.

Company             Recent Close           Div Yield     Annual   Rev Per    Cost per      Operating

Pass L F    Avia Seat   Avail Seat   Margin

Alaska Air               64.29                     1.2%               85.1%          0.18            0.10             0.08

Spirit Airlines       44.30                      n/a                 86.7             0.15            0.12              0.03

Allegiant Travel    145.85                   1.9                  87.5              0.10             0.14           -0.03

Delta Air Lines         40.57                 1.1                   84.7              0.18             0.19           -0.02

Southwest Air          42.16                  0.7                 82.5               0.18            0.15              0.02

JetBlue                         17.31                  0.0                 84.0              0.15            0.15               0.0

SkyWest                      24.40                 0.7                 82.4              0.11            0.11               0.0

WestJet                        21.63                  2.6                 81.4              0.16            0.14              0.02

Air Canada                    9.67                 n/a                 83.4               0.16           0.17            -0.01

Hawaiian Holdings   37.67                n/a                 81.5                0.17          0.15               0.02

United Continental   44.06              0.0                 83.6                0.15            0.18            -0.03

American Airlines      31.80              1.3                  82.0               0.17            0.18               0.0

Linking to dividend paying stocks, while the above companies are interesting and airlines in general are a “sexy” thing to own, they are risky. Companies have leased planes; operating on tight margins and there tends to be other companies which have less risk. Sometimes it is better to look at the “sexy” companies but look to those with more consistent and stable earnings – including supplier companies which continue to make profits over the long term.

There are more questions than answers, till the next time – to raising questions.

 

 

 

Yesterday there was fireworks for the US celebrated another birthday. In real life the fireworks are from volcanoes. An interesting book to read about volcanoes is No Apparent Danger – The True Story of Volcanic Disaster at Galeras and Nevado Del Ruiz by Victoria Bruce, HarperCollins, NY, 2001. In this book, the volcanoes are in Columbia and centered around two eruptions during 1985 and 1993. People live nearby volcanoes because some of the earth is extremely productive to grow crops and while volcanoes are active, they do not erupt every year. In the book, it was amazing to think how little we know and how little monitoring there was among active volcanoes in the world. Hopefully, times have changed and we as a society actively monitor volcanoes. There are two types – one that have glaciers on them and some without. In the case of Nevado Del Ruiz, there was a glacier on top, the volcano became active, pressure built up from inside the earth and was finally released. The heat melted the glacier and the water rushed down the mountain, picking up mud and trees and plowed through a city before the forces slowed it down. In this case the city of Amero was buried in mud. In the case of Galeras went it erupted it threw rocks and ash into the air and if people were close they were injured or killed.

In reality, people did not know when a volcano is going to erupt, which lead to problems. If the volcano service says the volcano is becoming more active, then national banks stop giving loans. The farmers survived season by season on short term loans – what were they to do? In addition, tourism is stopped for safety; and companies who deliver goods will stop delivering. If the volcano does nothing, everyone near the volcano suffers economically; if the volcano erupts then the right call was made and people are safe.

Linking to dividend paying stocks, the volcanos illustrate the effect of natural disasters and there are plenty of them around the world. When one happens, from a corporate point of view you want the company to be diversified so it can continue to make money as well as contribute to the cleanup. In many ways one would like quick warning signs, but usually the time frame is hours or day(s) not weeks. Often times the best corporate response is seemingly nothing happens over a long period of time – the company continues to do its thing to make money to pay its shareholders. Sometimes no news is good news.

There are more questions than answers, till the next time – to raising questions.

We know the markets go up and down, we never are positive when each happens. Thus part of investing is to buy holdings that will earn profits throughout the market cycles and rewards investors just for holding on to it. The classic companies for a variety of reasons tend to be utilities. One of the utilities is called Fortis and Jennifer Dowty (jdowty@globeandmail.com)  recently reviewed the stock.

The company is a North America utility with operations in Canada, the US and Caribbean.

Low risk regulated assets – 96% of its assets are regulated utilities. The great thing about regulators are they tend to be compensated higher than average wages which means they are more swayed by return on assets than trying to pay the bill on time. Return on assets tends to mean prices charged by the utility go up each year.

Diversified portfolio – the provinces and states where the utility has customers no single state(s) represent more than a 1/3 of its earnings. The world has to go into a downturn not just a single state.

Acquisition growth – the company recently bought a utility in Michigan called ITC which is expected to be completed by the end of the year.

Base rate growth – the base rate of growth has been 4.5%, with the ITC purchase it should move to 7.5%.

Capital investments – the company is spending $ 9 billion over 5 years

Reliable dividends combined with growth – the company pays 37.5 cents a share or $1.50 per year. In addition for the past 42 years the dividend has been increased annually. Management expects that to continue with a minimum 6% growth.

At the moment, the stock is trading along its historical PE Ratio average of 17 times.

Linking to dividend paying stocks, Fortis is a company which you are looking to own – through the regulation it continues to earn money and regulation helps ensures prices go up in the future. The company is diversified, recently became bigger and soon with be able to buy another company as the utility market consolidates.

There are more questions than answers, till the next time – to raising questions.

 

Last time the blog looked at fraud, today we are examining people some of the world’s greatest real life detectives and their toughest cases. The book is called the Super Sleuths written by Bruce Henderson and Sam Summerlin published by Macmillian publishing, NY, 1976. The book examines 13 of the world’s leading detectives and highlighting their toughest cases to bring justice to their city. In some ways we believe it should be easier today, however all the reasons why people commit crime in the past have not changed and it still takes a great deal of though and work to find the people responsible. Not all criminals leave huge clues, some leave precious few. However in the toughest cases, the resources of the department are focused on the suspect(s) which will mean somebody will find a clue to link the criminal.

In all the examples of the detectives from around the world, they all used time and good old fashion rules to eliminate the possibilities and be left with finding the criminals. Police need the help of citizens for clues, although police never expect citizens to give exact leads, but clues to narrow the list. If you were asked what was the person wearing that passed you when you had a break, you would likely have an idea but not remember everything (even if you know the person). The police use the clues and filter through what they know and the general public does not know. In one case, the police were looking through a white van in the city. The police were also looking for a person and each time they had a discussion with owners of white vans, they asked probing questions about who was driving and when or the vans normal routes in the city. Eventually they found their driver. In another case, the criminals ruled the area which meant even though people knew, they said little. In the case, the detective moved into the area and did routine things of eating out in the evening so people could see him. Eventually, people begin to tell him where to look to find the criminals. It took time, patience and gaining trust.

Linking to dividend paying stocks, while it is hoped you do not spend all your time looking for criminals, it is desirable to examine their skill set to help you do financial detective work. In the market, everything revolves around money – is the company making it; do they consistently earn a profit; how are they doing it; the more you are satisfied with their business model and execution of it, the more you are comfortable with investing in the company. Some are easier and over the years as you determine your formula – some of the sign posts with be simple. If the company does not make money, what do I do? or when do you sell (as well as buy) come into focus. With a dividend stocks, if the dividend becomes less do you want to own the stock? Knowing when to sell or exit or when the case is close is a good thing.

There are more questions than answers, till the next time – to raising questions.

For a long time if you ever went into a doctor’s office or went into someone’s home it was not hard to find a Reader’s Digest. From the format of the Reader’s Digest, eventually large coffee table books were produced and one of many is Fakes & Forgeries, edited by Brian Innes, Reader’s Digest, Pleasantville, NY, 2005.

Phony Prehistory – one hopes this gets harder every year as we know more and more, but there are museums dedicated to prehistory which means there are budgets to be spent and are the bones really old?

Bogus Identity – if you do not like your name, it is possible to change it and start again or pick your new relatives or use someone else’s identity to pay for an upgrade in your lifestyle.

The Confidence Tricksters – the game runs longer perhaps even months to soften the victim up; they try to lure the person into the net and leave them much poorer and scarcely wiser. One excellent example is the movie The Sting.

Faking for a cause – this is when forgery is used or can be used for the greater good. If you watched movies about the Crusades you would have heard fragments of the true cross – the reality there was enough scattered to reassemble more than one cross. In war time the use of black ops or forgeries is a given between passports, currency, giving false information and printing currencies of the other side to make it worthless.

Suspect Science – medicine has a long history – people generally will pay for things to take away the pain. Some works, some works once in a while and some may feel like it works and some are there to make money for someone else.

Linking to dividend paying stocks,  there are numerous ideas that come onto the market and some of them are or pretty close to be frauds. The trick is therefore to invest in what already makes money; not what could make money under specific conditions. There are reasons why stocks are priced at pennies per share and there are reasons why dividend stocks trade much higher. The question for you is at the end of the day do you want real money or pretend money? if real money keep the overwhelming majority of your funds in these types of investments. If pretend money, do not use greater than 2% of your portfolio.  The idea is to preserve capital, but people are people so lose some that is life.

There are more questions than answers, till the next time – to raising questions.

For a long time if you ever went into a doctor’s office or went into someone’s home it was not hard to find a Reader’s Digest. From the format of the Reader’s Digest, eventually large coffee table books were produced and one of many is Fakes & Forgeries, edited by Brian Innes, Reader’s Digest, Pleasantville, NY, 2005. If you have some money, there is always people trying to get a piece of it. If you own something valuable, then there are others trying to copy it. Much of civil society is based on trust, you trust nothing deliberate will happen to you as you go through your day; you trust when you buy something at a store it is what it reports to be; we generally trust various newspaper outlets. We trust that people are reasonably honest and sometimes if we do not, people will say I need to shake their hands and look them in the eye. Trust and honor are wonderful ideals and more often that not we need them, they are also can be turned around to the worst aspects of humanity. In the Reader’s Digest book are a number of chapters – Funny Money, Fake Art, False Papers, Phony Prehistory, Bogus Identity, The Confidence Tricksters, Faking for a Cause and Suspect Science.

Funny Money or Counterfeit Money – As long as people have accepted money for payments, someone has been trying to counterfeit it. Most of the time, it is only a small amount but once in gets into the system, the system there is little that can be done. Once it gets into the system and it unnoticed – the money will have passed multiple hands making it hard to trace. However, with the treasury office making improvements every year it gets harder, but not impossible. In 1992 if you added up the sums of every bank robbery in the US there were $63 million in losses; in you looked at the financial statements they had $4.2 billion in fraud. The person who steals with a pen steals more than the person who steals with a gun. In terms of the copying bank notes there were some who could nearly match the treasury staff.

Fake Art – as soon as art prices begin to appreciate there will be copies. It is normal for young and old people to sit before a painting of one of the greats of the past and learn what were they thinking and how did they do what they did. It seems in the average museum there is at least one copy on the walls. For paintings that sell for millions, the investigation into the painting will be what did the painter use in painting? Now days artists can walk into a store and buy paint, what did the masters do? And many masters had apprentices working for him – he was the creative, not all the time the worker.

False Papers – today people use computers, a few short decades ago people used to write letters. If someone became famous, those letters could be sold. If the person reached well into public life then the value increases for there is more goodwill and desire to see the person’s letters. This led to forging the letters and manuscripts of writers.

Linking to dividend paying stocks, there are many pretenders but few methods which  use the advantage of compounding interest to the shareholders advantage. With profitable companies, they should be around for a number of years or centuries. If there is profitability you can rest assure they are doing something right and good and more importantly fighting fraud, not starting it.

There are more questions than answers, till the next time – to raising questions.

 

If you are a young person wanting to be a trail lawyer or if you or someone you know is going through a trial then the book The Smoking Gun written by Gerry Spence published by Scribner, NY, 2003 should be read. Gerry Spence is regarded as one of the US best trial lawyers, he has written other books, there are some youtube videos, and he is worth checking out. The case outlined in the book is one that took place in Oregon. A person was shot which was not good and on  the surface it looked like either a mother or her son shot the man. The prosecutors believed or wanted to believe the mother and son should be found guilty. Mr. Spence believed once you skim the surface, the facts were different – it was an accident and the wife of the man had shot her husband.  The book has many twists and turns to it, but what it shows is the relatively easy methods the state tried to find the lady and her son guilty. It starts with the state prosecutor having the resources and the goodwill of the taxpayer. It was aided by sloppy police procedures (one time 5 police cars were sent to the lady’s home – when asked by the defense how often does the police sent 5 cars for a relatively minor infraction. The answer of course was almost never – you can reach your own conclusion what the police were doing); aided by trying to hide information which was suppose to go to the defense. One of many examples is the polygraph test – the result was not what the state wanted. In the court they tried to say it was not that important, however the procedures of that DA in every other case was they relied on the polygraph. Somehow in this case, it was a useful tool not to be relied on and no report was to be found.

The more important aspect for going to trail is understanding what is in store for the participants. In many ways it is a mini-war (although one hopes that after the trail is over the lawyers can resume their normal civil relations). The two sides have a fundamental passionate belief their side is correct and wish to win; they also only have their credibility on the line – do they follow the correct procedures? do they tell the truth? Both crown and defense will bring witnesses to either say the person is good or you might wonder. For during the trial and likely after it lives will be changed. When the lawyers look back, there were many reason not to go forward, but perhaps broader or big picture issues were in the background. In the book, Mr. Spence offers hints of the amount of work ( for every hour in court, 10 hours of research); when to ask questions; and equally important when to keep your mouth shut.

Linking to dividend paying stocks, everyday in the markets people have views of stocks. Some look favorably to them, some the opposite view based on the same research. Only time will tell who is correct. Every large investor has some losers in their portfolio which they just were wrong. If you have no losers, you are not investing or are very lucky. Most people know at least one person who bought stock in their company and their company’s fortunes went south (it happens). The clues that something is wrong with your investments are magnified after it goes wrong; which is why for each of your investments you should know why you own the stock. If it is for dividends – will they be paid or are they expected to be paid next year? If no, move on to the next company.

There are more questions than answers, till the next time – to raising questions.

 

 

One of the many strategies to invest in the stock market is to invest in companies trading at lower multiples than their peers or competition. There can be reasons why the companies are trading at lower prices such as margins have fallen; the business model has changed and the company has not changed enough; new management is needed; the company has too much debt; the sector is out of favor; and a host of others. One idea is to combine value metrics with quality earnings metrics and choose the best of the companies.

Julie Michaels of CPMS Morningstar Research examined companies and used the following criteria:

Price to trailing earnings (ratio of a company’s latest price to its trailing 4 quarters of operating earnings per share). This number can be interpreted as the multiple that investors are willing to pay for a firm’s reported operating earnings.

Price to trailing cash flow (ratio of company’s price to trailing 4 quarters of cash flow from operations)

3 month analyst estimate revisions (current consensus estimate for EPS versus 3 months ago)

Yield on expected dividends (estimated annual dividend rate expressed as percentage of the latest market price of the stock)

Ms. Michaels also added a number of other variables: the companies need to have a market capitalization of greater than the current CPMS median (be larger companies); the average daily value traded of stock be greater than $24 million); the dividend yield be greater than 2%; the quarterly earnings momentum (rate of change of quarterly operating earnings per share) greater than the current CPMS median; at least 3 analysts providing EPS estimates for the current year of the stock and 3 month estimate revisions greater than minus 5.0.

Company                           Mkt Cap   Price to       Price to     3M Analyst   Qtrly Earnings   Div

(US $ Bil)   trailing E       trailing CF   Estimate       Momentum    Yield %

Ford                                 53.593         6.18                 4.11              7.69             25.97                   4.45

GM                                   48.165         5.75                 3.74              3.10               7.94                  4.86

CenturyLink                   14.808         9.80                 2.74           ­-0.57             1.46                  7.96

HP                                     23.240         5.15                 2.56         -0.62               0.78                 3.71

Magna Intnl                     16.077         8.82                 5.91           1.65              2.68                 2.47

Travelers Co                   33.373         10.46               4.29           0.00                 1.23                 2.35

Oneok Partners               10.847       19.30               7.79           4.52                18.04               8.33

AT&T                               241.007         14.03              5.69         0.70                 2.73                 4.90

Best Buy                         10.402       11.20               6.11               1.74                 2.50                   3.48

American EagleOut     2.829         13.63               6.98             8.62                 6.50               3.20

Verizon                           207.483     12.63               6.12           -0.50                1.0               4.44

Linking to dividend paying stocks, there are a many companies on the exchange and a few pay dividends. Companies go through cycles, they go through enhanced margins, they go through the competition. Sometimes there are values and relatively easy money to be made. In this analysis the extra metrics were is the coming making money and will it continue to, if the answer is yes then the street will eventually reward it with a higher multiple on its earnings or higher stock prices. No one knows when, for the only perfect information is based on the past. By examining companies through a variety of lens you lessen the risk and potentially increase the easier money to be made.

There are more questions than answers, till the next time – to raising questions.

In 2009 George Clooney made a movie called The Men Who Stare at Goats which was based on a book by the same name written by Jon Ronson published by Simon & Schuster Paperbacks, NY, 2004. The story is a high ranking general in the US Army embraced the New Age creativity and wanted to see if it would work within the Army. The unit chosen was the Special Forces and they were to get in touch with their inner feelings, use their psychic powers (or be trained in them) and stare at animals in an effort to kill them. The general had seen and heard about the New Age and people around the United States were paying money to go retreats to come out as a better person. If you put them in context of the normal type of command driven structure of the army, then you begin to wonder what were they thinking? However, in all organizations somebody needs to look outside of their organization to see if other methods can be effective.

For example, if you went shopping in a mall, there tends to be one particular background music which is suppose to keep you in the mood to shop. It would be reasonable to consider if there was music to sooth the enemy or make them more vulnerable to gaining information from them. If someone has a true ability which could help your side and make the war end faster then it is worth considering. The book tries to understand what the army was trying to do since one of objectives was to walk through a wall. 99.9999% of us have to use a door.

Linking to dividend paying stocks, there are many theories about life and how to invest some seem as wacky as walking through walls, but every theory depending on the timing can work for a while. Over the long term there tends to be much easier methods – the main reason index funds work is the bottom performing companies are taken out and replaced by top performing companies; investing in dividends means buying profitable companies – over the long run the combination of the dividends and the stocks trading at a higher multiple or PE Ratio will result in wealth creation. Every once in a while it is important to be open to weird ideas, but try not to stray too far away from the simple and easiest methods.

There are more questions than answers, till the next time – to raising questions.