Tag Archives: author

DHS: Strong Dividend, Intelligent Holdings, Solid Sector Allocations

Summary The dividend yield is a strong 3.41%. The holdings include several established dividend champions which gives the portfolio a more durable feel. The sector allocations look respectably defensive which is a positive when I would consider the market to still be moderately expensive. The Federal Reserve pushing short rates higher could help the financial sector generate more interest income. The WisdomTree Equity Income ETF (NYSEARCA: DHS ) hits very well on 3 of 4 categories. The only weakness in this fund is the expense ratio. The dividend yield, holdings, and sector allocations create a very compelling trio of factors in favor of the ETF. Expenses The expense ratio is a .38%, which is fairly standard for several of the WisdomTree (NASDAQ: WETF ) funds I’ve looked into. Dividend Yield The dividend yield is currently running 3.41%. This is simply excellent, no complaints there. Holdings I grabbed the following chart to demonstrate the weight of the top 18 holdings: (click to enlarge) General Electric (NYSE: GE ) has had a disappointing several years as their strong dividend has not been matched with solid share price growth. However the company has been very active in looking for solutions and even took measures as extreme as turning one of their departments into Synchrony Financial (NYSE: SYF ). To be fair, it is unclear to me why the finance division that turned into Synchrony Financial was supposed to fit with the rest of the company at GE. Exxon Mobil (NYSE: XOM ) and Chevron Corp (NYSE: CVX ) both get heavy allocations and have huge dividends. Oil is extremely “out of favor” right now, but I expect an eventual comeback. If it never comes, at least the oil for my truck will be fairly cheap. Two of the highest holdings go to the telecommunications sector with AT&T (NYSE: T ) and Verizon (NYSE: VZ ). I’ve found those allocations to be fairly risky given the aggressive competition in the telecommunications industry, but there are some positive aspects to doing a heavy allocation here as it aligns part of the risk with the investor’s expenses. If T and VZ are having a hard time covering their dividend, it would indicate that the profits within the telecommunications industry had dried up and would suggest that the investor is probably saving a chunk of money on their cell phone bill each month. McDonald’s (NYSE: MCD ) is another holding that I think should be represented in most dividend growth portfolios in one way or another. While their burgers have left a great deal to be desired over the last few years, they have still been able to remain relevant because they collected a large amount of high quality real estate. Over the last earnings report things began to look materially better for this real estate giant disguised as a seller of cheap burgers. Phillip Morris (NYSE: PM ), Altria Group (NYSE: MO ), and Coke (NYSE: KO ) all sell products that kill people, but they continue to deliver sales and earnings and the earnings are used to pay some fairly attractive dividends. I know some investors might think I’m crazy for tossing Coke in there with the tobacco companies, but high fructose corn syrup has quite a few very damaging health effects and heart failure is a major source of death in the United States. You won’t see me protesting the stable dividend though. Sectors Financials get a heavy weight which might be a good thing with the Federal Reserve working so hard to raise rates and justify paying interest on excess reserves when the rest of the world is shifting towards further rounds of quantitative easing or NIRP (negative interest rate policy). We have learned over the last few years that negative nominal returns and negative real returns are very possible because simply holding onto cash creates other problems. It turns out that protecting cash is not free and that banks can be pushed to accept negative interest rate policies. That’s interesting and it suggests there will be quite a few books on macroeconomics that need to have chapters replaced. The heavy allocations to consumer staples and energy look good in my opinion since I like the defensive nature of the consumer staples sector and appreciate the energy exposure as demonstrated in my comments on XOM and CVX. The three defensive sectors are consumer staples, utilities, and health care. Those three are all present in the top 6 allocations, so this looks like a respectably defensive fund. Since P/E ratios are fairly across most of the market, I prefer a defensive portfolio to an aggressive portfolio. Conclusion Great dividend, mediocre expense ratio, great holdings, and great sector weightings make a fairly attractive portfolio. If the expense ratio were lower it would get some very serious consideration from me. This fund simply performs great on several metrics.

12 Top Picks From Buffett And Others

Summary Here is what top funds own in the latest quarter. Opportunities remain in these positions. Here are some of the best ideas. Media General (NYSE: MEG ) While the long term is what really matters, Warren Buffett has returned 1,826,163% since 1965 which is a strong start by any measure. If he can keep this up in the second half of his career, he could literally end up with all of the money currently in the world. Buffett’s Berkshire Hathaway ( BRK.A / BRK.B ) owns 3.4 million shares of MEG. It is up over 4% since this position was first disclosed on StW . If you would like to read more about it, you might like Catalysts Drive Media General’s 20% Upside . Additionally, we discussed it in Is Nothing Sacred? Rangeley Podcast #2 . It currently costs under $16 and will probably be sold for over $17 in a deal announced before yearend. Take the probability of loss times the amount of possible loss from the probability of gain times the amount of possible gain. That is what we’re trying to do. It’s imperfect, but that’s what it’s all about. – Warren Buffett It has been a busy quarter for Berkshire. They doubled their position in Phillips 66 (NYSE: PSX ). Berkshire’s Todd Combs and Ted Weschler added to Axalta (NYSE: AXTA ), Liberty Media ( LMCA / LMCK ), Liberty Global ( LBTYA / LBTYK ), 21st Century Fox (NASDAQ: FOXA ) and Charter (NASDAQ: CHTR ). Folks in Omaha are substantially overlapping with John Malone these days. In terms of stock sales, Berkshire reduced its exposure to Chicago Bridge & Iron (NYSE: CBI ). A number of other positions were the result of corporate events as opposed to active trades. For example, Buffet now owns over 325 million shares of Kraft Heinz (NASDAQ: KHC ) as a result of the successful completion of the merger between Kraft and Heinz. Berkshire has held onto the 59 million shares of AT&T (NYSE: T ) that they received as a result of its acquisition of DirecTV. John Malone, the perpetual new ticker generator, recently created the new Liberty Global Latin American ( LILA / LILAK ) tracking stocks. Berkshire received these as a result of their Liberty Global stake. The Berkshire portfolio is active in terms of ongoing corporate events in the latter half of 2015. They own 10 million shares of Charter after increasing the size by 21%. Charter is wading through the regulatory process of acquiring Time Warner Cable (NYSE: TWC ). They own 4.2 million shares of Precision Castparts (NYSE: PCP ) which Berkshire is in the process of acquiring. There is a $4.02 net arbitrage spread which offers a 6% annual return if they close the deal by next March. No impediments are expected to delay or threaten the deal’s closing. They own 30 million shares of Suncor (NYSE: SU ) which recently launched an unsolicited offer for Canadian Oil ( OTCQX:COSWF ). While Buffett is not a fan of hostile bids, his portfolio companies do not necessarily share his dislike. M&T (NYSE: MTB ) is a 5.3 million share position for Buffett. It is integrating its recently completed acquisition of Hudson City Bancorp. Liberty Global is buying Cable & Wireless ( OTCPK:CBWYY ). Berkshire owns 19 million shares of Liberty Global. Finally, Berkshire has about 11 million shares of General Electric (NYSE: GE ) which is refocusing on its industrial portfolio through a series of major asset sales. What’s next after the PCP deal closes? Another collaboration with 3G on the horizon? We could see another food or beverage deal within the next year that breaks their prior record for scale. ChipMos (NASDAQ: IMOS ) Seth Klarman , one of history’s greatest investors, added 14%% to his position in IMOS, taking it to about 3.8 million shares for his fund, Baupost Group. IMOS is up by over 19% since it was first disclosed on StW . For background reading on this idea, please check out 30% Underpriced? How Is The Market So Wrong About ChipMOS? It is still a compelling long opportunity worth substantially more than it costs. Value investing is at its core the marriage of a contrarian streak and a calculator. – Seth Klarman Greenlight RE (NASDAQ: GLRE ) David Einhorn’s annual returns have been about 19% per year. I highly recommend his book, Fooling Some of the People All of the Time , to any investor, especially one interested in short ideas. Greenlight is down over 17% this year. One way to get exposure to a potential recovery would be to buy Greenlight RE . Its book value per share was $23.29 at the beginning of the quarter. When someone doesn’t want you to look at traditional metrics, it’s a good time to look at traditional metrics. – David Einhorn Allergan (NYSE: AGN ) Stephen Mandel, who used to work as a consumer analyst at Julian Robertson’s Tiger, added 13% to his Allergan position. His hedge fund, Lone Pine Capital, owns about 2.6 million shares. AGN is in a deal with Pfizer (NYSE: PFE ) in which AGN holders will get about $363 per share in PFE equity. Even with a wide spread, the deal is worth between $310-325 per AGN share. Pershing Square Holdings ( OTCPK:PSHZF ) Bill Ackman’s Pershing Square is down about 25% year to date. One way to get exposure to a potential recovery is via a long position in Pershing Square Holdings. Its NAV/share was $19.92 while its price was $19.45 as of November 17. Aercap ( AER ) Lee Ainslie has compounded at around 14% per year for two decades. He added 9% to his Aercap position which now stands at 4.9 million shares in his hedge fund, Maverick Capital. For background reading on AER, I recommend Aercap: An Incredible Bargain Hiding In Plain Sight, 40-50% Upside (For Starters) , winner of a recent Seeking Alpha investing competition . Danaher (NYSE: DHR ) Dan Loeb has annualized at over 20% for over 20 years. In a new position, his fund, Third Point, owns 2.3 million shares of DHR. DHR underwent a complex series of transactions this year. The split into two companies will be finalized by the end of next year. The two key managers, Mitch and Steven Rales, will each serve on both boards. This is crucial as they have proved to be among the very best asset allocators among many corporate insiders. It is up over 13% since it was disclosed in StW earlier this year. For further reading on this idea, I recommend Better Than The Berkshire Hathaway? Danaher’s Value . Our philosophy is to be opportunistic all the way across the capital structure from debt to equity, across industries and different asset classes. – Dan Loeb Altera (NASDAQ: ALTR ) John Paulson was the single greatest exploiter of the price opportunities presented by the housing finance bubble. What is he up to this year? In a new position, his hedge fund, Paulson & Co., recently bought about 3.5 million shares of ALTR. The $1.45 net arbitrage spread currently offers a 7% annual return if the deal closes by next April. It is up over 28% since first discussed on StW . If you want to learn more about this opportunity, then click on 6% Yield From Intel’s Deal With Altera . Baker Hughes (NYSE: BHI ) Jeff Ubben is one of the greatest activist investors of all time. His ValueAct Capital owns over 37 million shares of Halliburton (NYSE: HAL ) and 23 million shares of BHI. He supports their merger and could substantially benefit from the 73% annual return from the arbitrage spread if the deal closes by next March. Cigna (NYSE: CI ) Leon Cooperman’s Omega Advisors has earned an annualized net return of about 11% since inception. His fund owns about a quarter of a million shares of CI. He will benefit from a 42% annual return if CI’s sale to Anthem (NYSE: ANTM ) closes by next August. Time Warner Cable One of Chase Coleman’s forefathers, Peter Stuyvesant built the wall in Wall Street. He has compounded at over 21% since inception. TWC is a new position of Chase’s Tiger Global hedge fund. He newly owns about 580,000 shares. The $17.83 net arbitrage spread offers a 26% annual return if the deal closes by next April. It is up over 35% since we disclosed our position in this equity. You can read more about it here . Humana ( HUM ) After Larry Robbins came out of Leon Cooperman’s Omega Advisors, he turned Glenview Capital into a spectacular success. With over 6.6 million shares, his largest position is HUM. After adding 1% to this position over the quarter, it is now about 6% of his portfolio. Robbins has probably been the greatest beneficiary of the Affordable Care Act, racking up massive profits on his investments in health insurers. There will be more to come if the Aetna (NYSE: AET ) deal to acquire HUM slips past its antitrust review. There is a 38% annual return if it closes by next August. As he also owns 5.5 million shares of AET, his position in the combined company will still be substantial if and when the deal closes. Briadcom (NASDAQ: BRCM ) Andreas Halvorsen’s Viking Global has returned an average of 13% over the past ten years. One big new position of his is BRCM. He owns almost 24 million shares. He will benefit from a 13% annual return if BRCM’s sale to Avago (NASDAQ: AVGO ) closes by next February. It is up over 13% since we disclosed our position in this equity. You can read about the details here . Solarwinds (NYSE: SWI ) Andrew Spokes’ Farallon Capital is one of the largest and best funds that focuses heavily on risk arbitrage. His fund recently started a new position in SWI. Today, he owns about 2.4 million shares. The arbitrage spread offers an annual return of about 13% if it closes by next March. It returned about 22% since we disclosed our position in this one. If you are interested in learning more, you can get the details in this edition of M&A Daily . Icahn Enterprises (NASDAQ: IEP ) Carl Icahn has defined the role of activist investor since it was called “corporate raider”. I prefer the name “owner”. His Icahn Capital owns 115 million shares of IEP; the last I heard, he is satisfied with management. IEP is 28% of the portfolio, up 2% in the past quarter. IEP is down about 28% since I disclosed it as a short earlier this year. I like Icahn. However, he is on the long, long list of people that I do not want to pay a premium for. There’s a strategy behind everything. Everything fits. Thinking this way taught me to compete in many things, not only takeovers but chess and arbitrage. – Carl Icahn Exits One of the big exits of this past quarter was DirecTV, which was sold to AT&T . This was a top position of many funds including mine. Next Ideas What are the best ideas for 2016? We will disclose our #1 candidate in early December on StW . Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

NYSE Crackdown On… You

Summary The NYSE thinks it knows what is good for you. It is going to ban a number of current trades. Some I like and others I don’t, but none should be banned. The NYSE vs. Traders The New York Stock Exchange (NYSE: ICE ) did not like what you did in August. There was all kinds of nonsense what with the buying and selling and prices going this way and that the exchange plans on cracking down early next year. Specifically, it is concerned with “price swings”. It is not taking it any more. To that end, the exchange is banning a number of popular trading tactics starting early next year. Scapegoat #1: Stop Orders On August 24, 2015, there were some such price swings in securities including JPMorgan (NYSE: JPM ) and General Electric (NYSE: GE ). One of the first scapegoats was the “stop-loss order”. A stop order is an order to place a market order once a given price is reached. For example, someone could buy a share of GE at a $30 per share with the instruction to sell it at whatever price one can get if it first goes beneath $25. While fewer than 0.3% of NYSE trades are such orders, they were thought to compound the problems in August generally and the 24th in particular. I have never made a stop order. I am certain that I never will. If I want to sell something at $25 that currently costs $30 I would not buy it at $30. That ends my interest in making such orders. But I am delighted if other people want to. In fact, many of the things that would drive a given price down to people’s stop-losses are what might interest me in buying. My colleague Andrew Walker says that he looks for opportunities, “where no one else is looking or where everyone else is panicking”. If people want to sell because a price is lower, that is fine with me. I am grateful for the liquidity in just such circumstances. In short, I try to avoid panicking, but I am staunchly pro-panic. Scapegoat #2: Good Till Canceled Orders The NYSE’s second boogeyman is the good till canceled order. Unlike stop-losses which I never use, I always use good till canceled. The distinction of one trading day versus another is wholly arbitrary to me. Essentially, I am completely price-sensitive but time-insensitive. If I find something that is meaningfully undervalued, then I want to buy it and I will still want to buy it on Tuesday. Yes, I could keep re-typing the same offer each morning at 9:30 AM, but why? If your investing philosophy is as antithetical to mine on GTC orders as it is on stop-losses, then you should be delighted with my participation in the market. I am a liquidity provider to price-insensitive/time-sensitive traders who want to exploit momentum or candlesticks or whatever. The Real Solution You might be a fan or foe of these tactics (I use one of the two). But that is not the important point. If you don’t like using them, then don’t. If you think that someone using one or the other puts himself at a disadvantage, than take the other side of the trade. But what should the exchange do if they want rational, transparent, undistorted pricing? Nothing. Get out of the way. The best, fairest, fastest solution to getting good prices is allowing for bad prices. If a share trades of JPM or GE at $0.01 per share or $1,000,000 per share, then let the trade go through. Enforce all private contracts as they are, not as the probably should be. In the Great Depression, Herbert Hoover recalled Andrew Mellon’s advice, liquidate labor, liquidate stocks, liquidate farmers, liquidate real estate… it will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up from less competent people. In short, the solution to a high price is a high price and the solution to a low price is a low price. The worse thing that a government or exchange can do is to interfere with the market’s functioning so that prices are distorted. If they see an “unfair” price that is, to them, too high or too low and put a stop to it to protect one or the other party to the transaction, then they will discourage future market participants from correcting such anomalies. As for me, I buy or sell only when there is a price that is “wrong” and even “unfair”. My entire business is built around exploiting anomalies in the price system. Why would anyone ever want to pay a “right” or “fair” price? The provision of liquidity to the capital market requires the active participation of such exploitative characters. Is this selfish or unsavory? No. It is what allows people to rush out of the market if they are in a rush. It is what allows others to avoid risks that they are ill-suited to judge. It is what allows foundations and pensions and other important investors to provide for their beneficiaries when they need to. What is selfish and unsavory is when market participants demand a bailout. What they mean is that they want a do over at a price that they can live with. If they want a bailout, I am more than happy to offer a bailout as a market participant at a market price. I particularly like bailing out counterparties during maximum chaos and uncertainty. There is a perfectly functional, liquid market. Of course that is not what they mean. They do not necessarily like my price but instead want more money for themselves because they, er, um, just really want it. How is that not selfish? The market itself is the world’s fastest, most efficient and even ruthless regulator. People selling JPM or GE for $0.01 will have a whole lot less influence on markets in the subsequent days. People diligent enough to scour the markets for opportunities to buy during such opportunities will be enriched. They will increase their subsequent influence over the markets. They will motivate themselves and others to correct such mispricing in the future. The bureaucrats in the NYSE are too far away from the floor to realize that they are looking at a problem that is its own solution. Prices are supposed to swing. If you don’t like it, just let them swing and wait. If you do not distort the markets, they will swing back. Stability is a side effect of a freely functioning market, not something that can be achieved by artificial manipulation.