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Energy Transfer Equity (ETE) Back in Second Place

What a year. At one point, I was down 70% on my recommendation of Energy Transfer Equity (ETE) and smack dab in last place in InvestorPlace’s Best Stocks for 2016 contest. As of this afternoon, I’m in second place… and with half the year left to go, winning is still a very real possibility. Go ETE!


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Stocks That Are Fit for a President


Photo credit Donkey Hotey

I wrote a tongue-in-cheek piece for InvestorPlace on 12 Stocks Fit for a President. The following is an excerpt:

We’re in the middle of a presidential election year, and what a campaign it’s been so far. It’s looking like our choices will be two of the most polarizing political figures in modern history. But no matter who wins in November, we all have to get up and go to work the next day.

We also have portfolios to manage.

So, in the spirit of the 2016 election, I’m going to propose a portfolio fit for a president. And by “fit for a president,” I mean that the stock shares its name with a former commander-in-chief.

This probably isn’t the most scientific way to build a portfolio. But can you credibly say it’s any more ridiculous as a basis for investment decisions than the Hemline Indicator, the Super Bowl Indicator, or the Bangladeshi Butter Indicator?

Alas, Donald Trump’s companies are not publicly traded, and there’s no public company with “Clinton” in its name. Though there is a Sanderson Farms (SAFM), so perhaps the market is telling us to expect a Bernie Sanders upset in November.

Hail to the Chief … I guess.

Presidential Stocks: Washington Real Estate Investment Trust (WRE)

George Washington is the father of our country, the leader of our war of independence against Great Britain and our first president. He’s also the only person to be elected to the presidency with a unanimous vote of the Electoral College.

I’m not sure what President Washington would think of our nation’s capital, which bears his name. But as a successful businessman, he’d know a good profit opportunity when he saw it. If there is one sure bet in this life, it would be that the government will continue to get bigger. And as government grows, so does the city that supports it.

Washington REIT (WRE) is a real estate investment trust that focuses on office, retail and apartment properties in the Washington DC area. It’s a small-cap REIT with a market capitalization of just $2 billion and a respectable dividend of 4.1%. George Washington himself preferred to invest in farmland, but you could do a lot worse than Washington DC real estate.

Presidential Stocks: Carter’s Inc. (CRI)

Poor Jimmy Carter gets even less respect than Gerald Ford, whom he succeeded as president. Carter’s presidency was best remembered for runaway inflation, the Iranian hostage crisis, and that unfortunate sweater he wore during a fireside speech encouraging Americans to turn the thermostat down. But Carter wasn’t all bad. Some of the reforms and deregulation that Reagan is known for actually started under Carter’s administration. Whether Carter is actually smart enough to appreciate the pro-business accomplishments of his presidency is debatable, however.

Regardless, Carter’s, Inc. (CRI) is a stock you ought to keep on your radar. It’s one of the biggest makers of baby clothes in the world. That hasn’t been a great business to be in lately, as American births have been trending downward since 2008. But with millennials starting to enter their family formation years, I expect Americans births to start ticking up again, and soon. And when they do, you can bet that you’ll see a sustained bump in sales for Carter’s and its peers.

You can read the rest of the article… and all 12 presidential stocks… here: 12 Stocks Fit for a President

Disclaimer: I built a portfolio of 12 stocks with no other criteria than sharing a name with a past president. This is a spoof. For crying out loud, please do not consider this serious investment advice.

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Energy Transfer Equity: Back in the Race

In early February, it was looking ugly for me in InvestorPlace’s Best Stocks for 2016 contest. I was down 70% year to date… and squarely in last place. My what a difference a few months can make. I’m now in 4th place and very much back in the race.


Jason Moser is off to a great start in Ellie Mae (ELLI), up over 50%. But we still have a good eight months left in 2016… and I like my chance in Energy Transfer Equity (ETE).

May the best stock win!

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Apple STILL so cheap, it’s actually ridiculous…


I wrote earlier this year that Apple is so cheap, it’s actually ridiculous. I still feel that way, and after a lousy start to the year, the market seems to be coming around to my view. Apple (AAPL) shares have enjoyed a nice rally of late, and I expect a lot more to come. Excluding the oil sector, Apple is one of the cheapest large companies in the world, trading for half the market’s earnings multiple, and sits on a mountain of cash large enough to pay its dividends at current levels for the next ten years… even if Apple were to never earn another cent of profit.

At any rate, Barron’s had an interesting take on Apple this week (see Jack Hough’s  Why Apple is Worth $150 per share.)

Hough’s basic argument is that Apple should not be priced as a high-growth tech company. Instead, because of the stickiness of its ecosystem, it should be valued more like a cable TV company. As Hough writes,

Maybe it’s time to start measuring Apple against companies with similar financial attributes, rather than smartphone sellers. Based on a survey, Needham analyst Laura Martin, who initiated coverage with a Strong Buy rating on Tuesday, calculates a yearly customer churn rate of 12% for the iPhone ecosystem, or an eight-year average stay, on par with cable companies. Applying a cablelike valuation to Apple would put shares at about $180. Martin expects the stock to move toward that level over time, beginning with a rise to $150 over the next year.

I agree, and I would add that these figures are close to Carl Icahn’s target of $200 per share.

I don’t do precise price targets. But I know a cheap stock when I see one, and Apple fits the bill.

Charles Sizemore is the principal of Sizemore Capital, a wealth management firm in Dallas, Texas.

Photo credit: obihirorabbit

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The Bond King Speaks


Barron’s did an interview with Bond King Bill Gross in this weekend’s issue (see “Why Interest Rates Must Rise.”) While I find his incessant Fed bashing to be tiresome, Gross is still a living legend, and I take his views on market seriously. Here are a few nuggets from the interview I liked.

On running an unconstrained bond fund:

A manager of an unconstrained fund not only has more choices, but has to accept more risk. The unconstrained universe was born six or seven years ago from the idea that interest rates would bottom at some point, and bonds no longer would provide a decent return; in fact, returns might be negative. From conception, these funds were relatively neutral, duration-wise. To the extent that duration is minimized, a greater emphasis must be put on other elements of return, including credit, volatility, currency, and liquidity.


On the role demographics will play in the future:

Structurally, demographics are a problem for global growth. The developed world is aging, with Japan the best example. Italy is another good example, and Germany is a good, old society, too. As baby boomers get older, they spend less and less. But capitalism has been based on an ever-expanding number of people. It needs consumers.

Another thing happening is deglobalization, whether it’s Donald Trump building a wall to keep out Mexicans, or European nations putting up fences to keep out migrants. Larry Summers [former secretary of the Treasury] has talked about secular stagnation, or a condition of little or no economic growth. At Pimco, I used the term “the new normal” to refer to this condition. It all adds up, again, to very slow growth. The days of 3% and 4% annual growth are gone.

Interestingly, Gross and I are fishing in some of the same ponds, buying closed-end funds and mortgage REITs:

Nuveen Preferred Income Opportunities fund (JPC) holds bank preferred stock, and sells at a 6% discount to NAV. It is preferable to a large preferred-stock ETF because the mild use of leverage produces a higher yield. JPC currently yields 8.5%. I also like the Duff & Phelps Global Utility Income fund (DPG). This is a global utility-stock closed-end fund trading at a 14% discount to net asset value. It yields 9.2%.

Another example of letting others borrow for you is Annaly Capital Management (NLY]). Annaly and American Capital Agency [AGNC] are bank-like real estate investment trusts without a bank infrastructure. Annaly is levered four to six times—less than banks, which are levered eight to nine times—and invests in government-guaranteed mortgages. It borrows money in the overnight repo [repurchase agreement] market. It yields about 11% because of leverage, not risky assets. The concept, again, is letting corporations borrow for you to produce a return higher than the 1% to 2% return the bond market gives you today.


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