A Rock-Solid Stock Recommendation

A month ago, I wrote an article about the energy problem in the U.S. that, in my opinion, has been caused by our government’s lack of action to produce any kind of energy plan during the past 35 years.  I quickly learned that a lot of other people have similar concerns, and many of you were kind enough to send me your thoughts.  I will forward your comments along with my issue, “Tired of Business as Usual,” to a few of our Representatives and Senators in Congress to let them know that we care. Below is a potpourri of the emails that I received.

Readers’ Respond

“Your comments on government inaction and energy tend to make me angry as well. Where has Congress been since the wake-up call of 1973? Brazil is the only nation to respond and they are doing well for it. So what has happened here? The apparent answer is not pretty.

“Do you have any idea how much tax revenue comes through the oil and gas industry? Why on Earth would anyone in government vote to make big cuts in that revenue stream? How are they going to replace it with wind? When they can figure that out, you’ll see wind on the fast track. Consider ethanol. It costs $140 to make $100 worth of ethanol. Taxpayers subsidize the rest. That’s no answer. But when money goes thru government, government profits. Typically 50% ‘administrative’ cost. That’s good business for government.

“Yes, solar and wind have made some gains, but the dent they make in the overall energy pie amounts to crumbs. You’re right. Pressure from citizens is the only thing that will get our elected Senators and Representatives moving (they don’t even seem to care that their approval rating is only about 10%). Unfortunately, citizens are too busy fighting and arguing … liberal vs. conservative, Democrat vs. Republican, haves vs. have nots (IRS says 50% of population pays 3% of personal income taxes … they want all they can get when someone else is paying for it), culture vs. culture within the US who won’t even speak a common language, etc.

“I really hope the citizenry gets informed and active for the right reasons, realizing we have to work together to solve the problems and ‘there ain’t no free lunch’ because there IS a limit to the money supply. Government debt hurts the people just like household debt hurts the family.
 
“Sorry if I sound cynical. I love this country and get angry at the people who don’t seem to care about all the good people who make it great. I really appreciate the exceptional team of people at Cabot. You are all ‘Olympians’ in my book.”  

W.W., Vancouver, Washington

“I enjoyed reading your email of information and perspective.

“The greatest source of Wind is in Congress!

“On a serious note, I am convinced that the management of the nation’s business is beyond the ability of those in Congress. The very best and brightest among us are not interested in politics for a host of reasons, i.e. partisan toxicity, personal attack and abuse, duplicity, deception, etc. There are exceptions of course, but politics attracts very cunning and manipulative individuals, with a questionable value system.

“It has been said, and attributed to different Founding Fathers, that we would have the government we deserved. That is exactly what we are experiencing. The acumen and interest of the average citizen pertaining to government is dismal at best and the political establishment is exploiting that condition for their own interests.  The list of abuses and corruption by those in Congress is endless.  The politicians have hijacked the country. It is paramount for partisan politics to dominate votes. With them, it is all about control and power.  They operate and perpetuate a political bureaucracy totally separated from the people. There is a total disconnect.

“I am finishing reading a book about what transpired in Philadelphia when our Constitution was formed by the Founding Fathers. There were many issues and considerations proposed and debated by the participants but one theme was constant. They were very apprehensive about the people being able to govern themselves and hold together the States. Many also believed that the Republic that was established would not last longer than 10 years.

“I continue to believe that the USA is the greatest country in the world with all of the unique attributes it affords one to live their life.  No other country can match the USA on the whole, but our political system is dysfunctional and corrupt. The American voters need to demand better government. That begins, by not electing and re-electing the same incompetents.”

V.C., No. Scituate, Rhode Island

— Advertisement —

Avoid the Headlines, Find the Next Leaders

Don’t let the headlines distract you. Michael Cintolo isn’t getting sidetracked. Instead he’s busy preparing his watch list of stocks for the next bull market. Mike is the analyst and editor of Cabot Market Letter, which has repeatedly brought subscribers the leaders of every bull market since its inception in 1970.

Mike has guided Cabot Market Letter through the recent stock market storm by using Cabot’s proprietary market timing indicators. Mike’s been advising subscribers to stay largely in cash but he knows the market won’t stay down forever. As it turns around, he’ll be ready with a great list of future bull market leaders. Past winners include:

Crocs – up 307%
Yahoo! – up 316%
XM Satellite – up 396%
Apple – up 746%
Amazon.com – up 1,290%

Click the link below to get on the right side of the market and to start building your list of future leaders today.

http://www.cabot.net/info/cml/cmlim01.aspx?source=wc01

“The first 2 paragraphs of your letter blew me away. It’s a powerful message. When is someone going to step up and face these problems? I’ve got 10 grandkids and want to see them live the kind of life we have been lucky to live. Also, 8 of the 10 are boys and I would hate to see them get involved in an unnecessary war.”

G.D.

“If we do not get rid of the current destructive partisanship in Congress, a la Pelosi, Reid and co., you can kiss our country good bye. The far right is almost as bad as the far left.  We must get statesmen to run, and be elected to office. The incumbents are there forever and look after themselves first, last and always.   They throw just enough “pork” (earmarks!) back to keep ’em elected and they become wealthy.

“Very unhappy in Tallahassee, FL with our Congress.”

C.M.

“I believe that we need to drill for our own oil, and I doubt that it will take 5 years to get into production.  It appears that there is a lot of oil in various places in our country.  One very important factor is that it would reduce the amount of money going to our friends (?) in the Mideast. That would slow down the depreciation of our money overseas.  Thanks for your thoughts.”

R.N.

Bumps in the Road

My wife and I took some time off last week to travel to the Western part of our country, specifically New Mexico and Arizona.  We usually stick to the East Coast when traveling, so going beyond our boundaries was quite a treat.

We were not disappointed!  The vastness of the mountains, deserts and canyons is beyond description.  In one short week, we visited state and national parks, museums and observatories, canyons and craters, and hiked several miles a day.  I arrived home exhausted, but the trip exceeded all of our expectations.

Our trip reminded me that this is a great country to live in.  We have virtually everything at our fingertips.  And the daily “bumps in the road” that we all encounter shouldn’t throw us off track or divert us from our life’s plan.

Speaking of “bumps in the road,” Congress has been wrestling with the proposal put forth by Ben Bernanke, Henry Paulson, Chris Cox and company to rescue our troubled banks and financial institutions.  Liquidity in the financial system has now become a huge problem, rather than another “bump in the road.”  

Timothy Lutts eloquently wrote about our debt and liquidity problems on at least a couple of occasions recently.  I will not attempt to add my two cents, because he and our readers have clearly emphasized the problems’ importance.  Hopefully, Congress will act diligently to reach a reasonable solution.  Then we can all breathe a sigh of relief and go back to our daily routines.  I, for one, hope that the stock market will also get back to some normalcy, so we can all start to recoup the investment dollars we lost in 2008.

— Special Offer —

THE VALUE INVESTING CONGRESS IS ALMOST SOLD OUT! RESERVE YOUR SEAT TODAY!

4th Annual New York Value Investing Congress, October 6 & 7, 2008 in New York City

Don’t miss your chance to learn from BRILLIANT INVESTORS including:

  • Bill Ackman
  • Mohnish Pabrai
  • Leon Cooperman
  • David Einhorn

… and many more!

CABOT WEALTH ADVISORY READERS GET A SPECIAL $200 DISCOUNT!

Register by 9/28 by clicking here and using the discount code N8CWA3 to receive $200 off the regular registration fee!

At the beginning of August, Cabot Benjamin Graham Value Letter featured four buy recommendations that collectively have outperformed the stock market indexes by a noticeable margin.  I’m featuring one of the stocks here because it’s still clearly undervalued.

Colgate-Palmolive (CL) was founded in 1806 by William Colgate in New York City and, after many mergers, acquisitions and transformations, has grown into the leading worldwide manufacturer and seller of toiletries, detergents and other household products.  The company dominates the toothpaste and soap sectors and derives 67% of its sales outside of North America.

Four years ago, management initiated a four-year plan to become more efficient and more profitable.  The company’s four-year restructuring plan has been a huge success.  Costs have been reduced, new and innovative products are being created, advertising and marketing are focused and efficient, and profits are up.  Management will continue to focus on keeping costs low, marketing efficiently and developing new products.

Colgate’s earnings per share increased 17% and sales increased 16% during the first half of 2008.  Profit margins remained steady despite higher raw material costs.  I believe new products and further expansion into developing countries will produce strong growth in the future.

CL shares sell at 17.6 times forward (next 12-month) earnings per share (P/E), which is very reasonable for a top-quality worldwide leader.  The 10-year average P/E for CL is 21.  The company recently raised the dividend, which now yields 2.2%.  CL’s stock is selling below my recommended Maximum Buy Price for the first time in years.  I fully expect CL shares to advance to my Minimum Sell Price within one to three years.

http://www.cabot.net/info/bgv/bgvir01.aspx?source=wc01

Sincerely,

Roy Ward
For Cabot Wealth Advisory

Editor’s Note: J. Royden Ward is the editor of Cabot Benjamin Graham Value Letter, which selects undervalued stocks using the criteria of the father of value investing. Colgate-Palmolive was featured in the Cabot Benjamin Graham Value Letter in August and will be followed there until it reaches its Minimum Sell Price. Click the link below if you’re interested in learning more about it or other value stocks.

LINK

Comments