What’s on Your Mind?
Canadian Stocks, Value Stocks and Small-Cap Stocks
In Case You Missed It
Every so often, I compile the responses to the survey at the bottom of each issue of Cabot Wealth Advisory and from our welcome survey, which is sent to new subscribers. This week, it was time to read the results and there were some very interesting responses. Most responses were complimentary and some contained specific questions or requests for information, which is what I’m going to address today.
A few readers asked whether we cover Canadian stocks traded on the Toronto Stock Exchange (known as the TSX) and the answer to that question is yes. Canadian stocks traded on the TSX are included in the Dick Davis Digest and Income Digest recommendations. Cabot publications focus on stocks of companies located anywhere in the world, as long as their stocks are traded on U.S. exchanges. Here’s an example of a stock traded on the TSX that was featured in Dick Davis Digest in December of last year:
“In the first nine months, Russel Metals, Inc. (RUS.TO 17.65 Toronto) earned $200 million, or $3.15 a share, up sharply from $85.9 million, or $1.36 a share, a year earlier. All three segments earned more: metals service centers, energy tubular products and steel distributors. Revenue jumped 28.7 percent, to $2.5 billion. Its costs grew by a lower 21.2 percent. Only the net interest cost rose faster than revenue. But this is a tiny cost, given the firm’s low debt. In the first nine months, cash flow more than doubled to $227 million. This greatly exceeded net capital spending of $14 million and dividend payments of $88.5 million. The company used $46 million of extra cash flow to buy its own shares. The plunge in the price of oil and gas could hurt demand for energy tubular products, especially in Alberta’s oil sands. Demand by conventional producers in the U.S. and Canada should hold up better. Russel’s outlook is favorable. The company has raised its dividend every year since 2002. While we don’t expect it to do so in 2009, the dividend of $1.80 a share yields 11.11 percent. Buy.” Advice For Investors, http://www.adviceforinvestors.com/, 800-804-8846, 52 issues/updates, 12/3/08
A few other readers were interested in conservative investing strategies, much like the value investing system that’s practiced in Cabot Benjamin Graham Value Letter. Here’s what I wrote about that investment advisory last July:
“Cabot Benjamin Graham Value Letter, launched in 2003, uses the teachings of Benjamin Graham, the father of value investing, in a system that safely builds long-lasting wealth. Unlike Cabot’s growth publications, the letter doesn’t use market timing, instead relying on a 76-year-old system, followed by investors such as billionaire Warren Buffett, to pick undervalued stocks and hold them as they reach a specified valuation.
“Value investing is about finding stocks that the market has not correctly priced … in other words, a stock that is worth more than is reflected in the current price. Value investing has been proven to work well over time if you buy carefully, follow a proven system and hold for the long term. Most subscribers to Benjamin Graham Value Letter are looking for ways to safely build wealth over the long term. They want to go on vacation without worrying about their stocks.
“The main goal of the Cabot Benjamin Graham Value Letter is to provide you with exceptional stock recommendations using the techniques pioneered by Benjamin Graham. Our second goal, no less important, is to give you the confidence to buy those stocks and the patience to hold them to fruition. If we can achieve those goals, we’re confident you’ll achieve yours, and together we’ll have a long and prosperous relationship.”
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Other readers wrote in asking for more information about small-cap stocks and since I just did a Q&A in this space last month with Cabot Small-Cap Continental’s editor, Thomas Garrity, I’ll include some of it below. The full text can be read in the Cabot Wealth Advisory archives.
“Question: Why do you prefer to invest in small-cap stocks? What benefits do they offer investors?
“Answer: The obvious reason for investment in small- and micro-cap stocks would be that they have a proven and long history of outperforming all other asset classes. The last statistics I saw on the performance of small-cap stocks showed that during a 79-year period, returns on small-cap and micro-cap stocks have outperformed large-cap stocks by 165% and 437% respectively.
“The second reason may sound a little silly, but I’ll tell you anyway. When I was a kid my dad used to take me with him to the dump to unload unwanted junk from our station wagon. On returning from the dump, we’d have more stuff in the car than we started with! In a nutshell, I like productive insight, finding the true value of something that someone has neglected and failed to correctly appraise, and small-cap stocks fit into that perfectly.
“As the U.S. enters a new chapter, I believe that investments in small-cap stocks will be better positioned to deal with the economic uncertainty that lies ahead. We know now that bigger doesn’t necessarily mean better. The best investment choice is the one that’s most likely to be nimble and adapt to change, and for this reason I feel that small-cap stocks have a distinct advantage.
“Question: What is your outlook for small-cap stocks in 2009 and beyond?
“Answer: Small-cap stocks traditionally follow a price pattern into the New Year. In late December, there’s usually some year-end tax selling followed by a nice bounce in January. In addition, small-cap stocks also follow a cyclical rotation whereby investors move out of large-caps and into small-caps. This phenomenon historically provides for very early profits for small-cap stocks out of the chute. I believe that small-caps stocks for 2009 in general will deliver market returns of between 7% and 12% at the very least.”
I also want to thank all of our readers who took the time to answer the survey. We enjoy hearing from you and knowing what you want helps us better serve you. I want to especially thank those who wrote in some very kind words, like the following:
“As someone who is completely new to investing, I feel very fortunate to be able to learn from experts such as yourselves. From everything I’ve read, it seems that the most important thing is to educate oneself, which is exactly what your newsletter does.”
“I have thoroughly enjoyed reading the emails every day and have saved them to read again! I have already sent the link to several friends and they have subscribed as well. Great info, timely info, and necessary info!!”
“I think it’s the clearest, cleanest advisory letter out there!”
We really appreciate your comments, questions and suggestions, so keep them coming via our survey at the bottom of this and all issues, email or our blog, http://www.iconoclast-investor.com. We look forward to hearing from you!
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If you want to safeguard your money and patiently wait for solid stocks to climb higher in price, this letter is for you. Editor J. Royden Ward says now is the time to buy, especially because many great stocks are so inexpensive. He even called this an once-in-a-lifetime buying opportunity.
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In case you didn’t get a chance to read all the issues of Cabot Wealth Advisory this week and want to catch up on any investing and stock tips you might have missed, we have links below to each issue.
Cabot Wealth Advisory 1/12/09 – The Bailout Index
On Monday, Paul Goodwin wrote about a new index created to track the stocks of the companies being helped by the U.S. government’s bailout plan. Paul also wrote about the advantages to being an individual investor versus being a big mutual fund. Paul discussed a stock idea from the emerging markets that’s slightly off the radar. Featured Stock: Chemical and Mining Company of Chile (SQM).
Cabot Wealth Advisory 1/15/09 – Turning Problems into Solutions
On Thursday, Timothy Lutts described how he turned a small problem into a solution and how this can be done on a much larger scale. He used the example of when high gasoline prices helped push people and the auto companies in the direction of fuel-efficient vehicles. Tim also had some strong opinions on a better way to handle the government’s program to switch analog television users into digital viewers. Tim wrapped up with a Green investment idea that was recently featured in Cabot Green Investor. Featured stock: AeroVironment (AVAV).
Cabot Wealth Advisory 1/16/09 – GM’s Short-Term Memory
On Friday, Brendan Coffey wrote about the reasons it’s taking GM so long to get the Chevy Volt into production and why he’s not waiting with bated breath for that time. Brendan also wrote about why he thinks the current low gasoline prices are really a false reading on the amount of oil that’s left in the ground. Lastly, Brendan discussed some winning Green stock picks from last year and why he’s optimistic about 2009.
Until next time,
Editor of Cabot Wealth Advisory
Editor’s Note: The #1 question we get from readers is, “How can I get into a winning stock earlier?” We’ve got the answer. It’s Cabot Small-Cap Confidential and it’s the best guide available to help you get into stocks while they’re still in the single digits and hold on until these stocks double, triple and more. Editor Thomas Garrity is a research junkie; each month he provides subscribers with an incredibly detailed portrait of a small-cap company that he thinks is poised to explode. Enrollment is strictly limited to 500 subscribers, but the bear market has left some spots open, so click the link below to get started today. There are a limited number of subscriptions available and after they’re filled, names will go on a waiting list. These stocks are cheaper than ever so there’s never been a better time to subscribe.