Interest rates are low which if you are a borrower and have access to low rates is wonderful; it is even better if your cash flows allows to easily pay off the loans. At some point, the fed is going to raise rates or maybe it will be after the presidential election. If conditions improve in the economy, the fed will want to raise rates which will have an impact on the stock market. If you could be guaranteed a 5% plus return by buying bonds, would you move some money into bonds? The answer is likely yes. There will be a variety of reports trying to figure out which companies could be the winners and  a report by Ian Tam under the heading Stocks that Could Benefit from Rising Rates was published in the Globe and Mail. Mr. Tam works at Morningstar Research.

Thesis: US companies in interest rate sensitive sectors.

Factors: some companies do better than others – financials, consumer cyclicals, and industrials

Ranking by Yield, Cash Flow to Debt; Industry-relative debt to equity; forward p/e

Limiting Factors:  market cap must be a minimum of $6 billion, dividend payout ratio of < 80%.

Rank    Company                          Ticker          Mkt Cap    Yield   Forward  Cash Flow Industry Relative   Payout Ratio

US Bil       %             P/E           to Debt       debt to equity           %

1.     Everest Re Group               RE-N              8.101         2.08        8.83           2.05            0.24                          13

2.    T Rowe Price                       TROW-Q      20.333        2.67       16.04           n/c              0                              40.35

3.     ADP                                       ADP-Q          38.932        2.36      25.05           67.88          0                              64.88

4.     Fastenal                                FAST-Q       12.310          2.67      23.27            n/c              0                              59.95

5.     Expeditors of Wash            EPD-Q           9.173          1.5        21.56             3.49            0                                31.22

6.    Foot Locker                            FL-N             8.716          1.6         15.58            5.16             0.08                         24.2

7.    Williams-Sonoma                WSM-N          7.362         1.74       23.11             n/c              0                               41.43

8.    Robert Half Int’l                   RHI-N            7.556         1.43       20.95          368.18         0                               31.09

9.    Genuine Parts                         GPC-N         13.772        2.72       18.97           1.8                0.26                         50.43

10.   Dick’s Sporting Goods         DKS-N            6.391       1.02       16.97            9.21             0.05                         17.61

Linking to dividend paying companies, all the above pay a dividend which allows many choices to make and changing the criteria will add or subtract other companies, the important aspect is to narrow your field and pick the best of the best. There are many choices within the dividend paying companies.

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

There are many ways to find value on the stock market and one of them is called EVA or economic value added. EVA is a measure of the economic profit generated by a business over a given time by business over a given time period. Nick Winch is an account manager for Inovestor Inc which has a program called StockPointer which can measure EVA. In an article he was looking for the best companies with the strongest EVA in the past year and in addition had to have positive EVA for the past 1 year and 2 years. The EVA is difference between its profit and cost of investments to make that profit. In the article US Creating Shareholder Wealth published on June 23 in the Globe and Mail, Mr. Winch showed the top 20, the list below is top 15.

Company                            Ticker       Mkt Cap      EVA         EVA/Mkt Cap       Dividend Yield           P/E

(S Billl)      ($ Mill)             %                    %

Gilead Sciences                  GILD-Q     178.410      14,632        8.20                 1.44                            13.78

American Airlines                AAL-Q        29.548        1.967        6.66                 .0.96                            9.33

Apple                                    AAPL-Q    734.244      21,092       5.31                   1.64                           15.75

Autozone                             AZO-N         21.092        1,094       5.19                   0.0                              19.73

Lockheed Martin                  LMT-N         60.544        2,853       4.71                   3.14                            17.36

Cigna                                      CI-N          42.776        1,918       4.48                    0.03                           20.93

Avago Tech                         AVGO-N        37.089      1,597        4.31                   1.15                            61.55

Mead Johnson                       MJN-N         18.481         785        4.25                    1.81                           25.63

Intergrys Energy                    TEG-N           5.672         236        4.16                    3.78                            22.66

Moody’s                                 MCO-N          22.271       922        4.34                     1.14                           23.38

Amgen                                  AMGN-Q       123.743     5,009      4.05                     1.97                           21.96

CH Robinson Worldwide      CHRW-Q           9.383         375     4.00                     2.37                           20.43

L Brands                                    LB-N          25.413          940     3.71                      2.34                           22.82

Boeing                                        BA-N        100.702       3,642    3.62                     2.51                           18.23

Linking to dividend paying stocks, there are many methods to try to figure out if the company is the one where you should place your money into. Great companies tend to be a the top of any list which is good, from the above most of the companies pay a dividend which means you have lots of choices even by defining must pay a dividend. In the market we all have perfect information looking backwards, when we look forward we know there will be ups and downs, but there are methods to protect yourself and one method is looking for dividends. If the stock goes down in price and continues to pay a dividend you will be earning something. If you look at Apple with which has the greatest market capitalization and EVA there is lots of protection for you.

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

Last weekend the summer was shining and off to the fishing pond was on the agenda. The song Gone Fishing was on my mind for two wonderful singers sang it – Louis Armstrong and Bing Crosby. My skills are limited for my attendance is more yearly than anything else, perhaps in the future it will change. After fishing with the group in which no fish were caught on my line, a radio interview caught my attention about how a fisherman fishes. The first step is look at the fishing spot – observe it and see where the fish would likely be, practice patience and seeing what is there. What you are looking for is the ideal place where fish tend to be. If you see a ridge near the drop off of the river bank or lake, the fish are hiding from the insects they eat but looking up to see them. If you think about the process there is a system to it, maybe later in the year the theory will be put to a test.

Linking to dividend paying stocks, with the stock market there are some ebbs and flows to it and many people have a system and once in while they all work. You can operate without one, and similar to going fishing you may catch you a fish, but not always. In reality all you need is a pole with a string and hook on the end. On the other hand if you have a system which allows you to fish where the fish should be or normally are, you will have greater success. Learning about the markets and aiming for consistency for a return on your investment can easily lead you to stocks which pay dividends and offer capital gains.

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

After viewing the paintings of the waterfalls, at the library a booked called The Dammed – Rivers, Dams and the Coming Water Crisis by Fred Pearce published by The Bodley Head, London, UK, 1992 was read. In the paintings the aspect was the beauty of waterfalls and the natural splendor of the waterfall. Another aspect to our civilization is taming those rivers to generate power and reduce flooding. Mr. Pearce focuses on the super dams around the world and are there a benefit or not and his conclusion is for many dams the negatives outweigh the positives.

Although damming a river can bring hydro electricity and many of us think of it as a relatively inexpensive renewable energy source which is good, the effects of the land may not be so good. In many areas of the world, dams are placed in what are considered to be non populated areas, however building the dam changes and often damages the economic activity that people over generations have figured out how to work with what they have. The issues are the lives of the people are often outside the cash economy which means it is hard to measure. The dams in the desert areas are particularly sensitive to this fact because part of the reason the rest of the people down the river exist is the silt moving down from the source of the river, when the river floods essentially gives a fresh layer of earth to the land or manure or natural fertilizer. When the silt is blocked, something has to replace the silt. At the moment, there is nothing.

Another big issue is salt. There is salt in all rocks, when the river flows the salt is washed to the sea. When the river stops flowing, the salt stays on the land and plants do not grow in salty soils. This means the farms lose their agricultural production, the lands become barren and the population is worse off. Badly designed or operated irrigation works create waterlogged soils, which speed up the process. If the water table rises close to the surface, the sun will burn it off and a white salty crust remains. Once that happens few plants if any will grow leading to deserts. The desert means worse storms and an increasing desert.

The last big factor is by slowing down the water allows the water to pool and which allows mosquitos to increase. In some parts of the world, mosquitos carry malaria which causes death to the population. Millions have died from the disease.

If the land is in the temperate zone, the sun will have less of an effect however there will be changes in the land for the land has to react to the river not flowing as it did it in centuries past.

Linking to dividend paying stocks, some of the best are utility stocks because they have dammed the rivers and producing relatively inexpensive hydro with a captive distribution system and a regulatory system which regularly increases prices – as an investor what is not to like. As an effect on the environment, the effects are less in temperate climate zones.

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

Last week at a visit to an art gallery one of the attractions was a number of paintings of waterfalls. It was not surprising artists paint waterfalls, the moving water, the fall of the water, the misty atmosphere and the change in landscape are all points of interest. Most of us have our favourite waterfalls be the national in scope or somewhere in the hills near our homes or favourite vacation areas. At the art gallery, I was able to pick out a waterfall which I had visited in the past – Niagara Falls which many people do and seeing it is easily done. One of the reasons it is easy is the approach to Niagara is from top of the falls – only by boat do you see the bottom.  Depending on how you approach – the river rapids are seen from both above and below the falls; the water is moving swiftly; and the falls take up a great deal of space. Some of the other waterfalls in the paintings seemed to be approached from the bottom for there are few roads at the top.

Linking to dividend producing stocks, our perspective is what this column is about. If the painting was from the bottom looking to the top, it may not have been recognized. We all bring biases, whether we admit it or not, this can be very good but it should not limit us to one perspective or approach to investing. Capitalize on both capital gains and income.

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

There are many strategies in the world of investing, how to buy low and sell at a high price and one of the strategies is The Contrarian method as described by Benj Gallander in The Contrarian Investor’s 13 published by Viking Canada, Toronto, 2002. The author writes the Contra the Heard Investment letter and have been doing so for over 15 years. The title of the book refers to 13 rules which will help you to invest or examine companies that are undervalued and should rise in value over the coming year or two.

Rule 11 is Practice Patience. Having patience is easier said than done, it is increasingly hard with the internet and always being on. However, you need patience to buy, to hold and to sell. The race is not to the swiftest.  Remember haste makes waste. On the Contra list there is about 175 stocks, most will not be bought or sold. If you do fewer but better trades leads to more success. Take time to analyze why changes happen? did something happen to change your analysis?

Whenever you buy a stock, you should have an exit plan or when to sell. There are 3 reasons to sell a stock: the company was misjudged and should not have been purchased; there are tax advantages; and the company is now reasonably or overpriced. If you are setting prices when selling use .4 or .9 to sell and on the buy side .1 or .6.  Once it is sold, you might watch the price for 3 months to see if you generally sell too soon or get it about right, if you sell too soon add 10% to your targets and you will be within range.

Rule 12 is Make Numbers Your Friends.

Companies produce an Income Statement and Balance Sheet every year, the income statement indicates the profit and loss for an operation. The balance sheet shows how well the business did over the course of the year. From the income statement and balance sheet comes ratio analysis which allows you to compare with other companies and offer clues where the company is headed towards. Doing this part of your homework allows you to know when to avoid buying the shares.

Rule 13 is Calculate Your Results. You should know how well you are doing.

Linking to dividend paying stocks, now matter what system you use, elements of all rules will come into play. Besides expecting more, why are you picking that stock as opposed to another? if you do your homework, you will know when to sell or not to sell. There are some great companies that have existed for 100 years, but there are many that are no longer to be found.

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

There are many strategies in the world of investing, how to buy low and sell at a high price and one of the strategies is The Contrarian method as described by Benj Gallander in The Contrarian Investor’s 13 published by Viking Canada, Toronto, 2002. The author writes the Contra the Heard Investment letter and have been doing so for over 15 years. The title of the book refers to 13 rules which will help you to invest or examine companies that are undervalued and should rise in value over the coming year or two.

Rule 7 is Never Use Stop Losses. Stop losses are devices that will trigger prices to get out of the stock. The problem is the stock tends not to act rationally and if there is a wild swing or larger swing in prices than you anticipated the price you were thinking of exiting is not the price you actually exit at. A better idea is to maintain a diversified portfolio with no single company greater than 10% of your portfolio. If something goes down 10% in value, review the reasons why you bought it and do they still stand? Focus on where the stock is going from where it is and what are the alternatives you could be investing in.

Rule 8 is Look to Hit Home Runs in the Stock Market. When you buy, what is your expected return? If you aim for 400% and get 100% that is still good. If you aim for 4% and gain 2% have you done that well? Most professional investors lose money of 40% of their trades, but they hit home runs on a few and that makes up for the others – let the profits run is a good thing to do.

How to decide which companies fit or where to look for homeruns?

The Contra method starts with companies who have fallen 33% in one year or have an upside of 50%.  Once you have the list, the next step is eliminate those over $25 a share. If you are after capital gains stocks between $10 and $25 is easier to achieve it.

The next step is to eliminate those companies who have not been listed on the stock exchange for 10 years. This does a couple of things – it allows you to investigate further; it allows you to have the expectations the shares should go up it is a matter of when or does the company need to do something – get debt under control? meet new competition? commodity cycle?

The names need to be decided how many shares would you being willing to buy? Contra uses what they call a Point Tally System but it can be adjusted to meet your requirements.

Stock Watch List – which are the good potential or alternatives.

Price is what you pay, value is what you get.

Rule 9 is the Search for Beautiful Black Swans.

At Contra they use $25 minimum, but that can and does include blue chip stocks which have rebounded. It is noted that when blue chip stocks run into serious trouble, they will fall from inflated heights, particularly during downturns when they tend to fall the most. This is when it is important to decide do they rise again or why did they fall?

It used to be that you need to use the post office for information to be sent to you, now we have the internet and access to great amount of information including SEDAR and more information will be seen on the exchanges you trade on.

Rule 10 is the Develop the Ten-Day Buy. During December is the deadline for tax-selling, which means if you sell your losers you can offset them against your winners. The deadlines tend to depress stock prices which means it is a great time to buy. After the deadline passes, stocks in general tend to rise at least a 1/4 of a percent.

More in tomorrow’s post

Linking to dividend paying stocks, with the Contra Method, a process or ability to narrow the selection is always the key. The contra method is about stocks under $25 but you can change it to whatever you wish. If you start with those that pay a dividend, and expected to continue, you will find a wide variety of companies. Sometimes the capital gain will be a factor in investing, sometimes the dividend but with the dividend it is about protecting your investment as well as getting paid.

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

There are many strategies in the world of investing, how to buy low and sell at a high price and one of the strategies is The Contrarian method as described by Benj Gallander in The Contrarian Investor’s 13 published by Viking Canada, Toronto, 2002. The author writes the Contra the Heard Investment letter and have been doing so for over 15 years. The title of the book refers to 13 rules which will help you to invest or examine companies that are undervalued and should rise in value over the coming year or two.

Rule 1 is Prepare to think Different. The focus is on out of favour companies or when the rest of the world is focusing on the new and exciting, the focus is what was new and exciting and can those companies become new and exciting again. The key is to develop guidelines to those companies that are out of favour and try to understand what needs to happen for the rest of the world to see why there is value in the companies. For example – at the moment interest rates are low, those with higher levels of debt are seen to be taken advantage of the economic climate. If interest rates go up, those companies with high debt will lose some of their value; the restructuring will add the value back and all will be good. The question is why are the companies out of favour?

Rule 2 is Recognize that Conventional Risk-Reward Relationships are Often Bogus.  The essence of investing is to exam the risk-reward ratio. If you invest, what is your expected payback? The essence of Contra methodology is to seek out those opportunities when the risk-reward ratio is out of whack or not the norm. There are many types of risk – capital, inflation, interest rate, liquidity, reinvestment which means there are many ways to measure risk. There is standard deviation from the norm; beta, the time value of money, probability, and asset preservation. The most important lesson to learn is learning to maintain and grow your assets because if your assets go down 25% you need to grow them 33% to come back to equal. A drop of 33% means a comeback of 50% to comeback to even (those are very good returns and you are just getting back to even). Use the tools available to you such as compound interest

Rule 3 is Diversify, But Beware of the Devil of Over diversification. In order to reduce risk, you do not want all your eggs in one basket or you need money in more than one basket. How many is an interesting question and by being in too many baskets – one assets tends to perform or works in tandem with another. The rule of 72 is important – divide the return you are receiving by 72 to determine how many years it will take to double your holdings. If you receive 2% then the number is 36 years; if you receive 8% then it is 9 years; if you receive 20% then it is 3.6 years. The higher the number the more difficult it is to do it the following year.

Rule 4 is Don’t Expect Mutual Funds to Perform as Well as Stock Market Averages. Using Mutual funds can be a very good thing to invest in and there are many kinds and many different varieties. Instead of owning one or two stocks in a sector, you can own a basket of them so there are many advantages. The disadvantages tend to be costs (or fees), the funds tend to be short term oriented – to do well and have more people put money into them, and many will do as well or below the index.

Rule 5 is Do Not Practice Dollar Cost Averaging. Dollar cost averaging is set aside a set amount of money to be continually invest in stocks and mutual funds. The theory is over the long term, you will be buying into both bulls and bear markets but the value of the investments will go up. The key is to be selective in the funds you pick, because the market goes up and down, but there are some funds which it can be more useful for example monthly income (only invests in bonds or stocks which will give your a monthly income); it works well with index funds because the losers are taken out and replaced by winners; but for growth funds they go up and down and it takes a lot to break even.

Rule 6 is Be Skeptical of the Tried and True. One of the beliefs of the stock market is the efficient market theory, people are buying and selling for good reasons and generally prices will be what they should be. Often times this is true until people decide stocks are too high and sell. Then there is multiple opportunities.

Another belief is buying and holding for long periods of time. If you look at the stock market names of 50 years ago, some will be the same, but many are gone. If you held the existing ones for 50 years, you would have done very well, the problem is how do you know which is which? If you own a stock which has increased 10 times, there can be greater opportunities for you.

The best advice is be willing to buy and hold and be patient, but when the opportunity is ripe, sell and pursue other opportunities.

The other rules will be in tomorrow’s post.

Linking to dividend paying stocks, if you concentrate of these type of securities, while you are holding you also get paid a dividend which means your total return increases. As long as the company can pay or is profitable it is worth holding, when times change or competition changes, you can move to new opportunities.

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

When the airplanes hit the twin towers of the World Trade Center one of the hardest hit firms was a firm which was making money as a bond trader – Cantor Fitzgerald occupied floors higher than where the planes hit and lost many of the people who made money for the firm. In a book called on top of the world – Cantor Fitzgerald, Howard Lutnick & 9/11 – A History of loss and renewal by Tom Barbash published by HarperCollins books, NY, 2003.

In the financial services industry the biggest asset is your people for over the years they have built relationships with other people and institutions and there is a high degree of trust factor. Although everything is recorded, trades were done when people say agreed and billions of dollars moved between firms. In the bond business, it was essentially unregulated and Cantor stepped in to ensure institutions could trade bonds and knew what the prices were. The firm bought and sold the bonds, trying to remain with no inventory and would make a little money on the transactions. Given the market was in the billions, those fees provided upper income lifestyles to those who worked in the firm. With Cantor, there was an element of trying to hire the best on the street and bringing in family members to work. The result was many people spent their off hours together, particularly where family is involved. In early 1990’s the World Trade Center was a target of a bombing but within a few days, things were back to normal, this gave the firm the expectation they could regroup if something was to happen.

When 9/11 happened, besides the people there was a very real possibility the firm would not open – in the financial services industry it is about the credit which the firm has at the banks. Losing your credit is losing the ability to operate. Cantor as a firm was the biggest firm in bond trading, if it did not open its competitors would step in and they would never regain their prime position. This meant many long hours – using multiple locations, high learning curves to get the firm up and ready. It also meant dealing with people who wanted things to be back to the way they were September 8th.

Linking to dividend paying stocks, in the case of Cantor it is a partnership company however the process speaks to backup plans and crisis management. The easier aspect is getting the company up and working, the harder part is dealing with the expectations of people and everyone comes from a slightly different perspective. In Cantor’s case, the firm said they would take responsibility for the families, but what did that mean? did that mean everyone is still on the payroll? is the paycheque still coming in? Given the firm was worried it might or might not survive and the need to recreate all the files for the firm time needed to pass, for others they wanted less time and a conflict would play itself in the press. Cantor’s case is the same for all firms – time expectations for things to happen is what needs to be planned for and remember people are people.

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