Chowder's  Instablog

Chowder
Send Message
PRIMARY OBJECTIVE: ... Income Replacement! Escape velocity is the speed that an object needs to be traveling to break free of the planet's gravitational pull and leave it without further propulsion. This portfolio is looking for the point where the income being generated can allow the holder of... More
My blog:
Market Strategies
  • The Trend Is Your Friend 62 comments
    May 22, 2013 12:09 AM

    History usually repeats itself, or does it? From an historical point of view, it has usually been prudent to lock in profits at market highs, or after an extended up move in the market, and then wait for the inevitable pull back to re-enter your positions.

    Historically speaking, the concept of "Sell In May And Go Away" was usually a prudent market timing device, with the understanding that you were back in the market by November and on time to participate in the "Santa Claus Rally."

    In the past, it had been considered the smart play to anchor your expectations around certain price levels, capture your capital gains, and hold cash for the next pull back. Those conditions lasted so long that many investors, including a lot of professionals, are finding that this market is marching to the beat of a different drummer, and a lot of people are having difficulty coping with it. Too many people have locked in profits and are still sitting on the sidelines and playing the role of the Maytag repairman, as they wait and wait and wait for something to go wrong so they can act. Meanwhile, the market goes higher and higher and higher.

    This market has been relentless and continues to wear down the bears. This market continues to head higher and it is one of the most hated rallies in my memory. It is hated because it has been unpredictable. It is hated because it won't correct. More importantly, it is hated because there are a lot of under-invested skeptics wishing they owned more of what they own.

    The skeptics have waited and waited for the correction they know is coming ... one day.

    How high will the market go before that correction comes? And when it does come, how far will it drop? A 15% correction in the market, which will be a healthy correction by the way, will still see investors paying higher prices than they were willing to pay six months ago. How prudent will it appear at that time in taking profits and raising cash instead of having allowed your winners to run? The market hasn't even provided a clue, as of today, over whether a correction is in the cards or not. ... One day though.

    Here's an interesting fact! Since April 18, during the heart of earnings season, we have seen 9 of the 10 sectors in the S&P 500 reach 52 week highs. Small and Mid-Cap companies have also rallied broadly, confirming market strength according to Dow Theory Forecasts.

    People! ... It's all about the earnings!

    If earnings are being met or exceeded, and companies are confirming higher future earnings, the market ain't pulling back. Why would it? ... The more a company earns, the more valuable it is. The more valuable it is, the higher the expected returns. Seems like common sense to me.

    It will take an outside catalyst to derail this market. Until then, I'm letting my winners run.

    In 2013 the Dow has not had three consecutive down days. This breaks a 50 year plus record! The S&P 500 has yet to suffer a 4% correction so far in 2013. The S&P 500 is up 14 of the past 17 months and looks like it wants to keep going.

    Could it have something to do with company profits? You tell me.

    Dow Theory Forecast says it wouldn't be surprising to see a near term pull back, but in their opinion, they are saying there is "considerable upside" left in the market. Considerable upside was their term, not mine!

    The S&P 500 is trading at 15 times expected year ahead earnings which is below the norm of 17.6 since 1970. Therefore, valuations are not indicative of a stock market top.

    Chuck Carnevale, a Contributor to Seeking Alpha, wrote an article worth reading if you haven't already seen it. The title is:

    The Dow Hits All-Time Highs, But The Truth Is It Remains Cheaply Valued ...

    http://seekingalpha.com/article/1440051-the-dow-hits-all-time-highs-but-the-truth-is-it-remains-cheaply-valued

    Last week I read a report from subscription based "Lowry's New York Stock Exchange Market Trend Analysis". Lowry's monitors buying and selling pressure, which of course covers Institutional Investors. According to Lowry's, there has been a steady expansion in Demand (buying) and a contraction in Supply (selling).

    It felt good to know that Lowry's was confirming my own analysis from my ability to read a volume chart.

    According to Lowry's 80 year history, when buying power (Demand) is more than selling pressure (Supply), which we are currently seeing, and the market was in a sustained rally as it is now, that those indicators have shown that there is much more room for upside expansion.

    Lowry's, whom I have always thought to be conservative, say they think the market is going higher in the months ahead, and they say their data supports the move.

    Bull markets come to an end only when there is a persistent rising amount of Supply (selling) coming to market. We aren't seeing that yet. In fact, as I mentioned above, we haven't seen the Dow down for three consecutive days yet in 2013.

    We are in fact, seeing a decline in selling volume. The persistent decline in selling power indicates the bull market isn't even close to reaching a major top. With the uptrend in buying power and the downtrend in selling power, historically speaking ... these are ideal times to be buying! These are not ideal times to be taking profits and going to cash.

    I've been saying this for a few months now. These are ideal buying conditions as long as you continue to look for value, and that value is out there!

    At some point selling pressure will start to show up, so it's wise to continue to focus on high quality companies. Nothing has changed for me. My strategy continues to be to purchase high quality companies at a good value, reinvest the dividends and allow my winners to run.

    When the bull wants to run, you load up and let him run.

    We are in what is called a Stage 2 uptrend. It is the strongest Stage 2 uptrend I've seen since the Tech Boom days. The difference here is that the companies leading the market now have earnings, whereas a lot of the tech companies back then didn't.

    We are seeing sectors like utilities, consumer staples, telecom and health care leading the market higher. These are Defensive stocks! They aren't supposed to lead, they are supposed to provide downside protection, hence the term Defensive. If Defensive stocks are going to lead the way, we have room to run.

    This type of Stage 2 uptrend doesn't come along often. When they do, we must take advantage of them. This is where the big money is earned!

    If you are still in the accumulation phase and you have locked in profits to raise cash, you have sold yourself short. You've left a good bit of money on the table in my opinion. (I'm not talking to those of you in retirement here.)

    That decent correction you are patiently waiting for may still have you buying at higher prices than you wanted when you started taking profits. ... It pays to follow your companies and the Condition of the Market, as opposed to looking at profits and worrying about them disappearing. If your companies are showing good fundamentals, and with the current market conditions being what they are, we're going higher.

    Lowry's says the market is still in the Primary Buying Zone, which typically offers an ideal balance of risk and reward for new equity buying. I would agree with that analysis.

Back To Chowder's Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (62)
Track new comments
  • raykrv6a
    , contributor
    Comments (3544) | Send Message
     
    Chowder.

     

    As much as I'm enjoying the market trend, I'm wondering how much I'll like the market when the party ends. It's almost too easy for good results these days.

     

    The period of time is like 2008-2009, great returns.

     

    22 May 2013, 12:54 AM Reply Like
  • SDS (Seductive Dividend Sto...
    , contributor
    Comments (4389) | Send Message
     
    Chowder,
    Thank you for the post. What do you use for reading volume?
    SDS
    22 May 2013, 01:01 AM Reply Like
  • Chowder
    , contributor
    Comments (14258) | Send Message
     
    Author’s reply » SDS, I simply look at the charts, both daily and weekly with the emphasis on weekly. Then, as a confirmation, like I really need it ... (HA!) ... I'll pull up the On Balance Volume indicator.

     

    In the chart that follows, the volume is shown just below the price chart. Red bars are selling, black bars are buying. The red horizontal line is the average weekly volume. Only once in the past year has selling been above average and that was the week of the Boston bombings. Once that situation was resolved, the buying showed back up.

     

    Then I look at OBV (On Balance Volume). It shows buying volume rising. If the indicator was heading down, it would infer selling.

     

    Look at the CMF Indicator (money flows). You can clearly see buying power.

     

    http://bit.ly/14vSWwH
    22 May 2013, 01:16 AM Reply Like
  • ghaukness0929
    , contributor
    Comments (201) | Send Message
     
    I like to add EMA's to my Vol indis. Then on my Ichimoku swing template I look for the coinciding of price spikes, but only with volume spikes over thier averages to avoid head fakes.
    31 May 2013, 09:22 AM Reply Like
  • SDS (Seductive Dividend Sto...
    , contributor
    Comments (4389) | Send Message
     
    Thank you!
    22 May 2013, 01:18 AM Reply Like
  • Winning Formula
    , contributor
    Comments (1193) | Send Message
     
    Thanks Chowder, I agree and thankfully have stayed 100% invested. A few of my "over-priced" positions were sold on the way up with the proceeds immediately re-invested into my remaining "fairly priced" positions. But in hindsight, all of those "over-priced" positions are now higher. Its painful for me to look back on these sales even though I participated in the following market gains by staying 100% invested in my remaining positions. This market reminds me of much of the 1990's were selling was usually a mistake. I think we got so used to operating in a bear market where where we bought the dips and sold the rips that its difficult to switch to bull market mode.
    22 May 2013, 07:30 AM Reply Like
  • Big Thunder
    , contributor
    Comments (1211) | Send Message
     
    chowder, another SA contributor suggested that the strength of defensives combined with the lagging of construction and machinery companies like CAT and DE tells a different story. What's your take on that?
    22 May 2013, 07:34 AM Reply Like
  • Chowder
    , contributor
    Comments (14258) | Send Message
     
    Author’s reply » Big Thunder, the tape don't lie.

     

    Anything we thought we knew isn't working. This is a different market and with the Fed adding $85 Billion per month into the economy, it's going to stay a different market from what we have seen in the past.

     

    I follow the tape and the tape says we aren't seeing selling pressure, only a persistent rise in buying pressure. Since the market is about supply and demand, the demand side of that formula is in charge, until it isn't. ... Ha!
    22 May 2013, 08:57 AM Reply Like
  • Big Thunder
    , contributor
    Comments (1211) | Send Message
     
    Thanks chowder. Between the partial sell-off of a mutual fund, a small inheritance, and the cash pile we've otherwise saved up, my husband and I have plenty of cash on hand and want to find good opportunities... and yet we've been halting and hesitant with buy decisions. I had been having the growing sense that any correction is going to be a short-lived phenomenon in this market environment, and now you've posted this piece about low selling pressure. Sounds like we should get on with it.
    22 May 2013, 10:02 AM Reply Like
  • Chowder
    , contributor
    Comments (14258) | Send Message
     
    Author’s reply » Keep in mind, you don't want to chase after the market. Focus on quality and focus on getting a good price. Since you still feel a little uneasy, buy partial positions. There is nothing wrong with easing in. You've got to work within your comfort zone.

     

    Morningstar last week was forced to raise valuations on quite a few companies, some of which may still show up as being overvalued on F.A.S.T. Graphs.

     

    I knew the fair value ratings would have to be adjusted upward since the companies are continuing to grow their earnings.

     

    When you see a four star rating with M*, it means that the company is undervalued in their opinion. Here is a partial list of their four star companies:

     

    GE, SE, WFC, USB, RDS.B, KMP, APD, BAX, XOM, OKS and RCI.

     

    I own KMP and am considering APD. I want to check out RCI.

     

    Others that are rated three stars, but still selling just under fair value are:

     

    JNJ, PM, KMI, CVX, MCD, INTC, EMR, SYY, EPD, GD, GSK, and HCP.

     

    I own all except EMR, GD, GSK and HCP.

     

    I haven't done the research on some of those, but since they are selling under fair value, they may worth looking into.
    22 May 2013, 10:24 AM Reply Like
  • Big Thunder
    , contributor
    Comments (1211) | Send Message
     
    Agree completely, I don't want to rush in and chase the market. We just got in APD, KMI, and EMR this month, so we haven't completely been sitting on our hands... but we're in cash more heavily than we'd like (especially my husband, who would rather be 100% invested).
    22 May 2013, 10:40 AM Reply Like
  • Stephen J Melnykevich
    , contributor
    Comments (1321) | Send Message
     
    It's these type of comments, which examples of equities that are trading within value that are sooo invaluable to me.

     

    I want to say thank you again but I think the 10000x times I have before have become too redundant. How about I buy you a beer in the future. Or a Coke (glass bottle as per David).
    22 May 2013, 01:42 PM Reply Like
  • Chowder
    , contributor
    Comments (14258) | Send Message
     
    Author’s reply » I don't drink soft drinks even though I own KO and PEP. It'll have to be a beer and I don't own beer stocks unless you want to count the piece that MO owns. ... Ha!

     

    Speaking of which, I am enjoying a cold one now as I have been grillin' the last couple of hours.
    22 May 2013, 02:31 PM Reply Like
  • emac99
    , contributor
    Comments (610) | Send Message
     
    PEP is now also a 4*, Morningstar raised its FV from $75 to $88. I purchased more today.

     

    Long: PEP

     

    emac
    22 May 2013, 02:37 PM Reply Like
  • Stephen J Melnykevich
    , contributor
    Comments (1321) | Send Message
     
    Done.
    22 May 2013, 05:05 PM Reply Like
  • Chester the Income Investor
    , contributor
    Comments (462) | Send Message
     
    Chowder, I respect your writings very much. I was surprised to see you state that "This is a different market." With all due respect the past has shown that such comments tend to be indicative of a bubble and/or completely wrong, i.e. tech boom, tulip bubble, real estate bubble. This small investor ain't drinkin' the punch. :)
    23 May 2013, 09:22 AM Reply Like
  • Chowder
    , contributor
    Comments (14258) | Send Message
     
    Author’s reply » This is a different market. What makes it different isn't people chasing high PE companies, the latest technology, or speculating, it's that the Fed is pumping $85 Billion per month into the economy, and until that stops, or a target date is stated, the market is going higher.

     

    Tulips had no value other than what people perceived. The tech boom saw companies with no earnings being run up in value. The real estate boom saw real estate rise on speculation. This market is seeing companies with real earnings, and earnings that are rising leading the market.

     

    When you have the residuals of that $85 Billion and the money is going into companies with earnings, the bull can run a little more. That's what makes it different.

     

    I never said a serious correction wasn't coming. It will one day.
    23 May 2013, 02:29 PM Reply Like
  • rnsmth
    , contributor
    Comments (3337) | Send Message
     
    100% invested and reinvesting all dividends.

     

    That will be the case in strong and weak markets, I think. As long as dividends are increasing, I'm good to go
    22 May 2013, 08:13 AM Reply Like
  • Market Map
    , contributor
    Comments (842) | Send Message
     
    Over the years, my experience with Lowry's content has been favorable and they seem to be accurate and consistent in their analysis. Jeff Saut from Raymond James frequently sites the Lowry's research. This in a vast sea of frequently useless financial information and opinion.
    Although I don't utilize Lowry's in my own model, there is a phenomenon that people can monitor for confirmation of above average market returns going forward. It pinpoints 2 days in a row of NYSE up vol vs. dn vol > 90%. The last occurence was, I believe, Dec 31 and Jan 2 2013 ... I don't have my table of prior occurrences readily availalbe for display, but this measure does provide some quantification of price strength.
    22 May 2013, 09:01 AM Reply Like
  • Chowder
    , contributor
    Comments (14258) | Send Message
     
    Author’s reply » Jstr, I used to use Lowry's back in my trading days, but I don't use them any longer. A friend still subscribes and I read his copy last week. It was fun to see the charts indicating buying vs selling pressure and the advance/decline charts. Made me feel nostalgic for the trading days, and then I snapped out of it. ... Ha!

     

    I recalled I didn't want to work that hard any longer and trading was work!

     

    I forgot all about the 90% volume days concept and for the life of me can't recall the significance of it. Use it or lose it. I lost it.

     

    I think it had to do with reversal patterns, something similar to buying or selling climaxes, and if so, we aren't there yet.
    22 May 2013, 09:26 AM Reply Like
  • billinsd
    , contributor
    Comments (2409) | Send Message
     
    Chowder,
    As discussed previously,I have taken some profits as I am still unemployed.
    The bull market has been so juicy,Im earning more than when working !
    While I am primarily a dividend/income/growth investor, my gains have been too significant to ignore.
    Just returned from a wonderful week in Key West,paid for by this bull run.
    How much longer will it continue ?
    Im not sure,but if I lock in realized gains at 50% of unrealized gains,that ratio works for me.
    Meeting with my accountant today to increase my contributions to uncle.
    Thanks for all of your help
    22 May 2013, 09:27 AM Reply Like
  • Cheesecake7
    , contributor
    Comments (131) | Send Message
     
    The best I can say is that I have been adding and not unhappy about that. I do fear the "correction" aspect that will surely occur at some point. However, maybe I will be better positioned to weather the storm when it occurs. I won't fight the trend.
    22 May 2013, 11:07 AM Reply Like
  • Stephen J Melnykevich
    , contributor
    Comments (1321) | Send Message
     
    What everyone fails to realize is this.

     

    If the market corrects, you will be buying stellar companies with increasing earnings at a lower price. If it continues to rise until the selling catches up whether that be in a week or in several months you will still be invested and earning your share of that profit/return. It's a WIN/WIN.
    22 May 2013, 01:45 PM Reply Like
  • Larry Harnar
    , contributor
    Comments (338) | Send Message
     
    @chowder,

     

    I've thought about taking profits on so many occasions, but I'm glad I've held so long.

     

    I've been adding fresh capital to my portfolio every month, and trying to put that into quality stocks that will weather a downturn and rebound on the other side.

     

    Next month, when the cash hits the account, I'm planning to add more (DLR) immediately and watching (CAT) (BBL) and (IBM) for a dip to increase my positions.

     

    Dividends are set to reinvest and I'm keeping a long term view of this market.

     

    Here's my dividend portfolio for anyone that wants to follow along:

     

    http://bit.ly/M86nrV

     

    Larry
    22 May 2013, 03:23 PM Reply Like
  • Chowder
    , contributor
    Comments (14258) | Send Message
     
    Author’s reply » Larry, good for you! Keep the longer term view. A lot of people are going to be talking about market corrections, taking profits, holding cash, etc. For one in retirement, it's the prudent thing to do.

     

    For one still in the accumulation phase, keep accumulating quality. My attitude is that I want to keep adding shares, adding shares, adding shares.

     

    Dividends are based on shares. The more shares I own, the more that dividend income grows.

     

    I took a look-see at your link above and if I may, I'd like to add a comment. It's not a critique, so please don't take it that way.

     

    With the market setting new highs, I thought I read that you were increasing your risk. I have to think about that. As the market heads higher, until today, I was only willing to add to my conservative positions.

     

    I think the time for risk is in the early to mid stages of a market turnaround, not at ever increasing all-time highs. I don't know, just some random thoughts mentioned aloud.

     

    It may turn out okay for you, and I hope it does. I just never thought of increasing my risk level at all-time highs. Well, not since the tech crash where I got my hat handed to me on a paper plate. ... Ha!
    22 May 2013, 04:15 PM Reply Like
  • Larry Harnar
    , contributor
    Comments (338) | Send Message
     
    @chowder,

     

    Thanks for the response. No offense taken at all. I appreciate your insight. I'm definitely still learning here.

     

    As far as taking on more risk, do you mean adding cyclicals like CAT and BBL and tech like IBM?

     

    Larry
    22 May 2013, 04:22 PM Reply Like
  • Chowder
    , contributor
    Comments (14258) | Send Message
     
    Author’s reply » Yes on the cyclical's, and GES as well.

     

    Now don't get me wrong, I don't see anything wrong with easing into cyclical's at this time, but the higher the market goes, the more I focus on my conservative holdings.

     

    In the event the market does correct here, I am confident my core positions will weather the storm more that the cyclical's will. This is important because the conservative, high quality companies may not have to make up as much ground on a rebound. ... Just a thought.

     

    You do what you think is right. Your objectives, which I have no clue about, may dictate the exact strategy you wish to enforce.
    22 May 2013, 04:29 PM Reply Like
  • Larry Harnar
    , contributor
    Comments (338) | Send Message
     
    @chowder,

     

    I see what you are saying. Yes the cyclicals will probably exhibit higher levels of volatility in a downturn. That may be painful in the short term.

     

    I've been using fastgraphs to try and identify value in this ever rising market and the four areas that stand out to mean are energy, cyclicals, financials, and some tech.

     

    So, I've been trying to add new cash to those areas when I can. I think I can do okay if I stick to quality dividend growth stocks in these areas and spice things up a bit with the occasional basket case stock like (BP) or (GES).

     

    Thanks again for your prompt and personal response.

     

    Larry
    22 May 2013, 05:02 PM Reply Like
  • Giorgio il Buffone
    , contributor
    Comments (8024) | Send Message
     
    Chowder,

     

    I'm not in the accumulation phase, so I realize you're not talking to guys like me.

     

    I've however been slowly raising cash for months by peeling off carefully selected positions which have gone too far too fast. I always try to keep 10-15 percent cash for buying opportunities, and my cash hoard has risen to around 20+ percent right now.

     

    That 10+ percent or more correction will come sooner or later , it always does. The Fed might provide the impetus this time, but who knows? Not me.

     

    I have to add that my cash doesn't sit idly however. I sell puts and collect juicy premiums while I wait. If the market corrects, a lot of my puts will be exercised and I'll be the proud owner of some new positions at lower prices. If it doesn't correct anytime soon, I'll just sell more puts until it does.

     

    On an unrelated tangent, what do you thingk about NBC getting the rights to the EPL games?
    22 May 2013, 06:20 PM Reply Like
  • Chowder
    , contributor
    Comments (14258) | Send Message
     
    Author’s reply » I think that might help promote the sport here in the States, something that is going to happen sooner or later whether people are ready for it or not.

     

    There is too much money involved not to come here and it's why more and more American owners in other sports are showing an interest in EPL. Hell, Manchester United is worth twice what the Yankees are worth!

     

    I continually rag on my brothers about the World Series only allowing maybe Toronto to participate. I think baseball should be sued for using that name when the World isn't invited. ... Ha!

     

    At least when World Cup play comes around, there are teams from all over the world. That makes sense to me.

     

    Goodbye and good riddance Sir Alex! Mourniho is gone and I'm dreading it if it's to Chelsea. I'm thankful that Arsenal squeezed in and qualified for Champions league. And where in the world did Wigan come up with a Championship in tournament play when they are getting relegated from EPL? Blows my mind.

     

    Looking forward to the transfer window. Wenger says he's going to spend money. I'll believe it when I see it. If we kept Van Persie, Nasri and Fabregas, and all it would have taken was money, then we could have been top of the table. No doubt in my mind. Damn tight Frenchman, lighten up.
    22 May 2013, 08:19 PM Reply Like
  • Chowder
    , contributor
    Comments (14258) | Send Message
     
    Author’s reply » Oh! I forgot to mention, I'll be in Washington DC in two weeks for the Germany vs USA World Cup Friendly. ... Whoot! Whoot!
    22 May 2013, 08:20 PM Reply Like
  • diddyp20
    , contributor
    Comments (57) | Send Message
     
    Hello Chowder,

     

    Wenger sold them because we needed money to pay our annual stadium debt and stay current with players' wages.
    With the new kit and stadium deals, the stadium is covered and I am sure he will spend wisely this summer.
    We cleared more than 16 players in the reserve. That shows hi new intention! I'm pretty sure next season will be ours!
    23 May 2013, 01:47 AM Reply Like
  • Giorgio il Buffone
    , contributor
    Comments (8024) | Send Message
     
    Chowder,

     

    I'm witholding judgment until I see what happens in the inevitable shakeout.

     

    One result will be the end of dedicated soccer channels like Fox Soccer and FS plus and it will require more searching to find the games I want to watch.

     

    I'm also concerned that stuff outside of EPL league games (like the FA cup, League cup, Champions/Europa Leagues etc) will be harder to find in the future, but we shall see.

     

    But enough of the non-stock talk. In stock related items, I sold some OTM puts for MANU at 17 and the stock's surprisingly been holding up over 17 even after being ousted from all major cups and Sir Alex's departure.
    23 May 2013, 06:19 PM Reply Like
  • Chowder
    , contributor
    Comments (14258) | Send Message
     
    Author’s reply » You know what Giorgio, I retract my statement! I think it's horrible that NBC will be broadcasting games.

     

    The soccer pub we go to will open the pub for 7:45 AM matches on Saturday and Sunday mornings. We're sitting in the parking lot at 7 AM tailgaiting, waiting for the pub to open. They don't open for early matches when shown on ESPN 2. They won't open for NBC matches either. They will show the matches in the afternoon which occur during the week.

     

    I don't want to sit at home when watching most of these early matches. I want to be trashtalking with my soccer buddies as most of them are either Man United or Chelsea fans.
    23 May 2013, 06:40 PM Reply Like
  • maybenot
    , contributor
    Comments (6512) | Send Message
     
    Chowder -- thanks for sharing your insight/views re watching the volume of selling and buying. Another tool to use.

     

    Staying fully invested and reinvesting every dime I get.

     

    Thanks again.
    23 May 2013, 12:03 AM Reply Like
  • Kathy 1
    , contributor
    Comments (837) | Send Message
     
    Chowder: Comments about how morningstar rates
    their, 3 and 4 stars? From your above quote " When you see a four star rating with M*, it means that the company is undervalued in their opinion. Here is a partial list of their four star companies:

     

    GE, SE, WFC, USB, RDS.B, KMP, APD, BAX, XOM, OKS and RCI.

     

    I own KMP and am considering APD. I want to check out RCI.

     

    Others that are rated three stars, but still selling just under fair value are:

     

    JNJ, PM, KMI, CVX, MCD, INTC, EMR, SYY, EPD, GD, GSK, and HCP.

     

    I own all except EMR, GD, GSK and HCP."

     

    Chowder I have used this rating as a low level screening,not really knowing what the star rating means: GREAT INFO on the "M* " symbol.
    ..... bought CVX before I read this, wondering about the 3 stars.
    Thanks, K.
    26 May 2013, 09:23 PM Reply Like
  • Chowder
    , contributor
    Comments (14258) | Send Message
     
    Author’s reply » The 3 star rating means M* thinks the company is fairly valued. They think fair value for CVX is $125.00. Value Line and F.A.S.T. Graphs seem to think CVX is undervalued at this point.

     

    I know that M* has raised valuations on several companies this past week. I don't know if they are re-evaluating CVX yet or not.
    27 May 2013, 07:39 AM Reply Like
  • Kathy 1
    , contributor
    Comments (837) | Send Message
     
    Chowder, thank you for the clarification and quick response.
    27 May 2013, 02:49 PM Reply Like
  • Cheesecake7
    , contributor
    Comments (131) | Send Message
     
    Question: Even if a company is fair valued it may be a great company to collect dividends on. Isn't it still possible that price appreciation could occur as the company continues to grow? I guess what I am driving at is that with all things not everything stays at some set stationary and a company may just be building to a newer valuation?
    27 May 2013, 11:19 AM Reply Like
  • Chowder
    , contributor
    Comments (14258) | Send Message
     
    Author’s reply » I'll be addressing that in the next instablog, I think. Short answer is yes.

     

    It's difficult to buy quality companies at what most people would consider undervalued. Like most things in life, quality has a premium.

     

    I have no problem paying fair value for quality companies.
    27 May 2013, 02:35 PM Reply Like
  • OntheRock
    , contributor
    Comments (270) | Send Message
     
    I just added to my RCI position last week. I started the position in the mid 30's, and regretted not having bought more. But I'm glad to see that M* still thinks it's undervalued (so does FastGraphs).
    27 May 2013, 10:38 PM Reply Like
  • kolpin
    , contributor
    Comments (1375) | Send Message
     
    chowder--as the resident utilities guru, is the trend still my friend in this sector? they've been pulling back lately, and I wonder if they'll revert back to fair value now. I'm also curious how they'll fare as interest rates rise--though perhaps that won't be for another year or so.

     

    I'm eager to acquire more utilities, but have struggled to find any that are undervalued. I did buy a small position in NEE by accident last week during the morning flash crash. I had set a limit buy order for $68 back in November, and it was filled as shares tumbled. too bad I didn't set my limit order for $35! :-)
    28 May 2013, 12:57 AM Reply Like
  • Chowder
    , contributor
    Comments (14258) | Send Message
     
    Author’s reply » I believe SO is coming down to fair value. I don't know how they will fare in a high interest rate environment. People seem to think they will struggle. People didn't think they had room to run either, but they did. So, I don't know what they will do. My job is simply to own the most financially sound of the Utes and continue to build the number of shares I own in order to increase the amount of income they throw off.
    28 May 2013, 01:16 PM Reply Like
  • Contraria2
    , contributor
    Comments (533) | Send Message
     
    If SO drops a tad more I will add some. Same for D and LNT.
    28 May 2013, 10:18 PM Reply Like
  • Chowder
    , contributor
    Comments (14258) | Send Message
     
    Author’s reply » With regard to utilities, when you take into consideration the run they have had the last two years, I think it's important to understand that total return over the next couple of years may be low.

     

    I didn't get into utilities for their price appreciation, that was a surprise actually. I got into them for their safe dividends and dividend growth. This is why I picked the more financially sound utilities. I wanted to stack the odds in favor of those who could afford to keep raising the dividend.

     

    I'd be more than happy with 2% to 3% price appreciation as long as I get 4% dividend growth, or better.

     

    Since I am still in the accumulation phase, that means I'm still trying to acquire shares. The higher prices have made it difficult to maximize the number of shares I receive per dollar amount.

     

    I'd love to see the utilities pull back in price, as odd as that sounds. However, when I say my main priority is to build an income stream that is reliable, predictable and increasing, I mean just that. So, for the most part, I ignore share price and I don't stare at my profits. It's all about the income babee. ... Ha!
    29 May 2013, 08:14 AM Reply Like
  • kolpin
    , contributor
    Comments (1375) | Send Message
     
    thanks chowder--I'll also be psyched to see utility stock prices to come back to earth in price as well. I'm not expecting much capital appreciation in them over the next year or two, but I'd like to avoid depreciation! :) I've set my limit orders for another 5% drop below where many of them reside.
    29 May 2013, 12:22 PM Reply Like
  • rnsmth
    , contributor
    Comments (3337) | Send Message
     
    So, if on the trend is your friend whether is up or down :)

     

    I am looking forward to dividend re-investments during this downdraft
    29 May 2013, 11:08 AM Reply Like
  • Chowder
    , contributor
    Comments (14258) | Send Message
     
    Author’s reply » As I mentioned in the article, I wouldn't be surprised to see a correction, but the trend is still intact. As long as the Fed continues to pump money into the economy, we should see prices head even higher.

     

    I'm looking forward to this correction as I get ready to reinvest dividends starting next week.

     

    Several of my utilities are due to pay dividends in June and I would love for those dividends to be reinvested at lower prices. In fact, I wouldn't mind adding to some utilities and I've had to hold off due to the high prices. Utilities aren't growth companies, so you have to be careful what you pay for them if you care about share price appreciation.

     

    The market can correct 15% and the uptrend will still be intact. Think about that. ... Ha!
    29 May 2013, 11:47 AM Reply Like
  • tikigod18
    , contributor
    Comments (1328) | Send Message
     
    Chowder,

     

    "Several of my utilities are due to pay dividends in June and I would love for those dividends to be reinvested at lower prices."

     

    I know I am being lazy by asking, but I will ask it anyway. Which utes do you know that are distributing in June? I. too, am watching for SO, WEC, etc., but think they may not be close enough for my price, but then "what IS the right price?" I bought O when it was "overpriced" and it has remained overpriced forever!!

     

    Thanks!!
    30 May 2013, 07:40 AM Reply Like
  • Chowder
    , contributor
    Comments (14258) | Send Message
     
    Author’s reply » Half of the utilities I own pay their dividend in June, but you have missed the cutoff date to qualify for the dividend on some of them.

     

    Those paying in June are SO, D, AVA and UNS.

     

    D, which is my favorite utility goes ex-dividend on June 5. UNS also goes ex-dividend on June 5.

     

    I see where Berkshire Hathaway purchased a utility company yesterday. It's nice to know they were listening to me. You'd think with as many as I own, they would have purchased one of mine. ... Ha!
    30 May 2013, 07:48 AM Reply Like
  • tikigod18
    , contributor
    Comments (1328) | Send Message
     
    I own AVA and UNS already, so I am not worried about ex divvy dates on them. Also own PPL, POM......ummm, maybe I own enough, lol

     

    I do like SO and WEC for the long term though. I am not interested in price appreciation, just divvt increases, in fact have been annoyed at the "reit-run" the last 6 months. I want more shares, not higher prices.
    30 May 2013, 09:15 AM Reply Like
  • bluebird40
    , contributor
    Comments (30) | Send Message
     
    Chowder, thank you for another excellent article. I always learn from your instablogs and comments. You are very generous!
    30 May 2013, 06:37 PM Reply Like
  • Alex_P
    , contributor
    Comments (251) | Send Message
     
    Thanks for one more invaluable article Chowder!
    31 May 2013, 03:20 PM Reply Like
  • Kathy 1
    , contributor
    Comments (837) | Send Message
     
    Hi Chowder, comment if it is appropriate: watching SO, wanted to know why the price is dropping ($4 all the month of May)
    found this link,: http://bit.ly/17eoHhG

     

    Standard and Poors rating is the only comment I could find.
    Is this a buying opportunity? Thanks.
    1 Jun 2013, 05:16 PM Reply Like
  • Chowder
    , contributor
    Comments (14258) | Send Message
     
    Author’s reply » Kathy, most utility companies saw their share prices drop in the past week or two. We witnessed fast money rotating out of the sector and locking in profits.

     

    I don't pay much attention to activist news articles, their rhetoric is worse than what we get from the talking heads on the financial networks.

     

    Yes, I think SO is a buy at this time. In fact, Morningstar added it to their portfolio this past week and sent out a news flash to subscribers, calling it a buy.

     

    Here is part of their analysis:

     

    We think this well-positioned juggernaut from the Deep South could be an attractive investment for those seeking dividends and capital preservation in volatile markets. Enviable regulatory relationships and rate structures, along with a commitment to the pure-play regulated utility model, make Southern one of our favorite utilities and its dividend one of the best bets in the sector. Despite slower usage growth, we think Southern can still achieve consistent dividend growth of 4% through 2017.

     

    The essential ingredient for success at a regulated utility is a positive relationship with regulators. Regulators determine a utility's rate mechanisms, capital base, and allowed return, which together translate into revenue collected from rate payers. Southern has remained on constructive terms with regulators largely because of its low-cost generating fleet, its commitment to customers, and the business-friendly atmosphere of its service territory. Its favorable rate structures allow Southern to capitalize on still above-average population and economic growth in the Southeastern U.S.

     

    The company's customer growth averaged around 1.7% a year in the decade before 2009, driving electricity demand increases of about 2% annually. Although usage dropped substantially in 2009 because of weak industrial demand, industrial users are the least profitable customers. Industrial usage recovered more than 7% in 2010 and a further 3% in 2011 before flat-lining thus far in 2012. Weather-normalized residential demand has proved resilient, and commercial demand has not weakened as much as we had feared.
    Furthermore, regulation means that Southern is able to make up for some of its lost revenue through future rate increases. The latest rate case in Georgia proved that Southern is still on constructive terms with regulators despite trying economic times. Continued support for the company's new nuclear construction at Plant Vogtle in Georgia and its costly integrated coal gasification combined-cycle plant in Mississippi are further indicators of regulators' commitment to economic development and infrastructure modernization. The current dispute around when Southern may collect revenue tied to financing the new coal plant does not, in our view, threaten the company's ability to complete the project and collect its full allowed cost--it merely delays that recovery. We do, however, project that the company will eat some of the cost overruns at Vogtle, though the issue remains unresolved.

     

    Southern generated 7.5% of its consolidated income from competitive power supply in 2012. However, unlike many merchant power producers, Southern Power operates with a highly conservative framework. Management typically builds or buys a plant only if it has long-term, fixed-price contracts with investment-grade counterparties already in place. This leads to a risk profile closer to its regulated utilities than to independent power producers. Southern has begun exploring the development of both brownfield and greenfield renewables as well.
    3 Jun 2013, 05:24 AM Reply Like
  • raykrv6a
    , contributor
    Comments (3544) | Send Message
     
    Morning Chowder.

     

    I agree that SO and other utilities are decent investments with regulation driving income. I invested in the utilities I use just because they were in the news requesting 8-10% annual rate increases. On top of that, they stick he consumer with the highest rates and give industry the lowest rates.

     

    I've made a lifetime of utility bills with my investment.
    3 Jun 2013, 09:58 AM Reply Like
  • jrepasch
    , contributor
    Comments (2563) | Send Message
     
    Kathy,

     

    I just checked S&P's rating as of May 31st by Justin McCann. S&P has raised the rating to a buy. Their 12 month target is 49.00. I'm considering placing a limited buy order at around 41.85. Maybe I'll get lucky.

     

    Luck to you too.

     

    joni
    3 Jun 2013, 10:31 AM Reply Like
  • Kathy 1
    , contributor
    Comments (837) | Send Message
     
    Chowder, the morningstar subscriber info on SO utility is helpful.
    In trying to complete my own due diligence, you have reminded all of us an important part of the investing task: consider the SOURCE!
    Thank you again for your excellent source and knowledge. Kathy.
    3 Jun 2013, 02:08 PM Reply Like
  • Kathy 1
    , contributor
    Comments (837) | Send Message
     
    Joni, Appreciate the information. I have read buying is often lower in the morning, but is also up and down more at the end of the day. ?
    I just signed on to S&P, because of your comment.....Thank you and good luck. Either way you win in the long run with a quality stock. Kathy
    3 Jun 2013, 02:17 PM Reply Like
  • Chowder
    , contributor
    Comments (14258) | Send Message
     
    Author’s reply » Kathy, SO like most utilities have risks. The activist article touches on some of those risks. The M* article and others that I have read suggest that companies like SO and D are already working on plans to overcome the changes that will eventually hit the utility sector one day.

     

    I happen to think that the high quality companies will adjust to the changes better than others, just as T and VZ adjusted better to the changes in the telecom sector better than most companies. I don't expect the changes in utilities to come with the speed of those that came to telecom.

     

    Change happens. It's why I continue to suggest that people focus on quality.
    3 Jun 2013, 02:18 PM Reply Like
  • Kathy 1
    , contributor
    Comments (837) | Send Message
     
    Thanks again Chowder. Great info.
    3 Jun 2013, 07:43 PM Reply Like
  • Cheesecake7
    , contributor
    Comments (131) | Send Message
     
    So daresay, where is the quality that will soon be in an uptrend and a possible bargain for a thrifty spender? Some of these stocks still seem pricey to me.Thanks for your time. I have been looking at KMI for some stability. I have also looked at SO. I guess I fear the rotation out of utilities too. There has been a pretty big drop in XEL. I guess I don't like being on utility downside.
    3 Jun 2013, 10:18 PM Reply Like
Full index of posts »
Latest Followers

StockTalks

More »

Latest Comments


Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.