John D. Thomason's  Instablog

John D. Thomason
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I am a retired (as of September 2001) IT manager. While I have always followed the markets, during my IT career my market research time was limited. Upon retiring, I have focused full-time on the markets and my own market education and growth. I have evolved my investment/trading strategy over... More
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  • Hard Times For Exelon And NuStar 0 comments
    Nov 6, 2012 1:50 PM | about stocks: EXC, NS

    Two of my stocks have fallen on hard times lately, Exelon (NYSE:EXC) and NuStar Energy (NYSE:NS). EXC posted decent earnings, all things considered, but comments from the CEO about a possible dividend cut being required to maintain the firm's investment grade rating have tanked the stock recently. With the shares now yielding over 6%, and an ex-dividend date coming up (11/13/2012), I added shares at just over $32 Monday (11/5/2012). I believe the shares are a buy here for long-term investors, and even if the dividend is reduced, it won't be cut too drastically, I'm betting. A utility has to pay a decent dividend; otherwise, why would anyone ever buy a utility stock?

    NuStar's recent earnings were a disappointment, no doubt, but I still believe in the firm's eventual recovery from the disastrous foray into asphalt. Significant purchases of NS units in September by William Greehey, chairman of NuStar's parent company - NuStar GP Holdings (NYSE:NSH) -- at the depressed prices seen recently tells me that management believes in the recovery scenario. Still, with the distribution coverage coming in at only .68x based on Distributable Cash Flow for the recent quarter, I have not added more shares yet on the most recent swoon. I added at $48.65 when the shares swooned earlier a few weeks ago, and I was congratulating myself briefly as they quickly rose back above $50. This time, with the shares barely above $46 and today (11/6/2012) being the last day before the next ex-dividend date, I may add more -- certainly if I can buy under $46. If the stock pops back up over $47 or close to it, I probably will pass. If I buy more, it won't be a lot more - I'm close to being maxed out NS. Certainly at some point the distribution has to be covered if it is to be sustained, and until that happens, the income is not safe.

    Life as a value investor is tough. Value is usually not found in the absence of concerns. Yet, I believe it is the only way to invest. If you buy Colgate Palmolive (NYSE:CL) at $110 or 3M (NYSE:MMM) at $95, to name two exemplary firms and their recent price highs, with yields well under 3%, you are aiming for mediocrity at best. Your chances of making money in a two to three year time frame are much better with EXC at $32 and NS at $45 than with CL at $110 and MMM at $95, both of the latter firms being priced for perfection at those highs. Of course, any stock can blow up, so no matter how much of a bargain a troubled stock seems to present, an investor has to limit the position size to avoid a portfolio disaster if the unthinkable happens. You can take a portfolio hit on 2% to 3% of a portfolio without too much grief, but not on 20% to 30% of a portfolio.

    Just remember, one cannot claim to be a true value investor unless he/she is somewhat uncomfortable after making a purchase.

    Disclosure: I am long EXC, NS.

    Stocks: EXC, NS
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