Archive | Investing

RSS feed for this section

Investing in the Age of the Frugal American

The February 13 issue of Barron’s made a statement that caught my eye:  Americans are paying down their mortgages.  (See “Paying Down the Mortgage.”)

50% of all refinancings now result in smaller loans that the previous mortgage.  Rather than using their homes as a virtual ATM machine, extracting equity (if you have any) to meet current expenses, Americans are actually retiring their mortgage debt early.  It’s a remarkable change in behavior for a nation of consumers who, just a few short years ago, had a well-deserved reputation for wanton frivolity in their personal finances.

As Barron’s pointed out, paying down your mortgage at, say, 4% can be considered an “investment” when bonds yield barely 2%.  But more than this, it is a change in sentiment brought about by changing demographics.  America’s Baby Boomers, the largest and richest generation in history, are entering a new phase of their lives.  With retirement approaching fast, the Boomers are adopting the fiscal habits their parents were known for.  (We all eventually become our parents; it just took the Boomers a little longer than past generations.)

A role model for the parsimonious

The Boomers are the engine that has made the U.S. economy (and by proxy world economy) go over the past 30 years, and their reticence to spend will have a real impact on economic growth.

What does this mean for investors?  Surprisingly, the news isn’t all bad.

True enough, top-line revenue growth for companies that depend heavily on the American market will almost certainly be modest in the decade ahead.  Earnings per share growth, where it happens, will have to come from share count reductions through stock buybacks and from revenue growth in emerging markets.

The good news is that investors can still make a decent profit under these conditions, assuming they choose their investments wisely and pay a reasonable price.  With less need to expand their businesses, many American companies are finding themselves with unprecedented levels of cash on hand. Some—such as notorious tightwad Apple ($AAPL)—are simply stockpiling the cash (Apple’s cash balance is estimated to be an astonishing $100 billion).

But others, including Apple’s rival Microsoft ($MSFT), are using their excess cash to reward their shareholders with share buybacks and, even better, dividends.  Microsoft raised its dividend by a full 25% last year, and more increases are expected in 2012.

A better example might be that of tobacco “sin stocks.”  Unlike Apple and Microsoft, which still have robust and growing demand for their products, American tobacco firms have faced slowing demand for their products for decades.  But with no need to spend cash on investment and no need to advertise, tobacco stocks have still proven to be fantastic investments, with total returns beating the sox off the S&P 500 over the past decade.  And nearly all of this is due to their rock-solid dividends.

I consider dividends to be the key to profitable investing in the years ahead.  There will be periods when speculative growth stocks are more attractive, and we happen to be one this quarter (seeSin Stocks Trail Their More Virtuous Peers as an example).  But for the core of your portfolio, stable, dividend-paying stocks are an attractive option in a world of slow growth and bond yields of just 2%.

If you liked this article by Sizemore Insights, you’d probably enjoy The Sizemore Investment Letter, our premium members-only newsletter. Click here for more information.

Disclaimer: This material is provided for informational purposes only, as of the date hereof, and is subject to change without notice. This material may not be suitable for all investors and is not intended to be an offer, or the solicitation of any offer, to buy or sell any securities nor is it intended to be investment advice. You should speak to a financial advisor before attempting to implement any of the strategies discussed in this material. There is risk in any investment in traded securities, and all investment strategies discussed in this material have the possibility of loss. Past performance is no guarantee of future results. The author of the material or a related party will often have an interest in the securities discussed. Please see Full Disclaimer for a full disclaimer.

Read full story · Comments { 3 }

Risk Aversion Ad Absurdum

Barron’s ran a featured story by Kopin Tam in last weekend’s edition titled “Just Don’t Lose It” that was telling.  Tam pointed out that, even after the best January in well over a decade, investors weren’t embracing equities, and neither were their financial advisors.  Only 44 percent of financial advisors planned to increase their clients’ exposure to stocks in 2012 compared to 63 percent this time last year.

I wasn’t particularly surprised to read these statistics.  After all, the financial wealth of this country is dominated by the Baby Boomers, the largest and richest generation in history.  The Boomers lived through the biggest bull market in history (1982-2000), but they also saw a decade’s worth of returns go up in smoke in 2008.  At this stage of their lives, they don’t feel like they can afford the risk of another meltdown.  I get that.  Even while I myself am bullish, I understand Boomer risk aversion.

This is where it gets weird: it’s not the Boomers that are skittish. It’s their children.

As Tam writes, “Risk aversion is particularly acute among ‘Generation Y’ investors born after 1980, who have decades to go before they retire but are especially reluctant to invest… As a result, this cohort allocates roughly 30% of their money on average to cash, more than any other age group.”

Far from being the reckless risk takers that youth are wont to be, this generation is showing a level of risk aversion I might have expected from an elderly retiree that lived through the Great Depression.   Fully 40 percent of the Gen Y investors said they would “never feel comfortable investing in the stock market.”

I can’t say that I don’t understand the general squeamishness with equities these days.  The same Barron’s article noted that the average daily move in the S&P 500 was 1.44 percent in the second half of 2011.  That’s nearly double the 0.75 percent average that has prevailed since 1928.

Still, when I see this kind of pervasive fear in the market, particularly among those who should normally be aggressive, I can’t help but be bullish.  Bearishness has reached the level of the absurd.

For the past two years, I’ve advocated investing in high-quality, dividend-paying stocks, and I continue to recommend these as the bedrock of a portfolio.   The alternatives for most conservative investors are sparse.  Cash pays nothing in interest, and most bonds pay only slightly more.  Meanwhile, the cash levels of U.S. companies are at an all-time high, and dividend payouts are hovering near all-time lows.  Conservative investors can assemble a portfolio of stocks that will out-yield a bond portfolio today and that will almost certainly benefit from rising dividends in the years to come.

For more aggressive investors, the time has come to “risk up” by buying the sectors that took the biggest beating in 2011.  I am bullish on Europe (see “Going Long on Two Euro Stocks”) and emerging markets (see “Emerging Markets Will Make a Comeback in 2012”).  And while I don’t make a habit of recommending commodities, I would have to add commodities to my list of cyclical sectors likely to do well in 2012.

If you liked this article by Sizemore Insights, you’d probably enjoy The Sizemore Investment Letter, our premium members-only newsletter. Click here for more information.

Disclaimer: This material is provided for informational purposes only, as of the date hereof, and is subject to change without notice. This material may not be suitable for all investors and is not intended to be an offer, or the solicitation of any offer, to buy or sell any securities nor is it intended to be investment advice. You should speak to a financial advisor before attempting to implement any of the strategies discussed in this material. There is risk in any investment in traded securities, and all investment strategies discussed in this material have the possibility of loss. Past performance is no guarantee of future results. The author of the material or a related party will often have an interest in the securities discussed. Please see Full Disclaimer for a full disclaimer.

Read full story · Comments { 0 }

The 10 Best Stocks for 2012

Charles Sizemore, the winner of InvestorPlace’s “10 Stocks for 2011” contest, offers his favorite stock for 2012.  Read about Charles’ pick and the other contestants below.

Wondering what the best stocks to buy for next year are? Well, look no further than the 10 Best Stocks for 2012.

This InvestorPlace feature lists 10 long-term investments from a group of money managers, market experts and financial journalists. The 10 Best Stocks for 2012 is meant to provide buy-and-hold picks you can purchase now and sit on for a year — ideally, winding up richer on the other side.

The buy list this year is a diverse group of stocks — from banks to technology, from emerging markets to Dow components, from old favorites to a stock that went public just a few months ago.

Throughout the year, the writers will regularly offer updates on the good, the bad and the unexpected as it relates to their best stock for 2012. We’ll find out in a year who had the best pick — but first, let’s examine each writer’s recommendation and what made them pick their stock as the best investment for the New Year:

Best Stock for 2012: Turkcell

Turkcell TKCMoney manager and stock picker Charles Sizemore, CFA, picked Visa (NYSE:V) as the single-best stock to buy and hold for all of 2011 — and thanks to market-trouncing returns of 40% year-to-date, his Visa pick was the winner among 10 picks in our similar contest last year.

This year, Charles gets a purer play on emerging markets with telecom stock Turkcell Iletisim Hizmetleri AS (NYSE:TKC), a mobile phone operator more commonly known just as “Turkcell.”

Yes, there is unrest in the Middle East and in the euro zone right now. But as Charles writes, this means you can buy a great company at a fire-sale price.

“If you believe, as I do, that Turkey has one of the brightest futures of any country on the planet, then the crises on Turkey’s borders should be viewed as a phenomenal opportunity to buy shares of some of Turkey’s finest companies,” Charles writes. “And my choice for 2012 is Turkcell.”

Read Charles’ complete recommendation on Turkcell.

Best Stock for 2012: Caterpillar

Caterpillar Inc. (NYSE:CAT)Investor and CBS MoneyWatch columnist Dan Burrows picked industrial giant Caterpillar (NYSE:CAT) as his best stock for 2012.

His reasons? Dan says CAT stock was oversold during the summer volatility, has good fundamentals (including retail sales that grew 31% in October) and a bargain valuation with a forward price-to-earnings ratio of about 10.

“Wall Street’s mean (and median) price target for Caterpillar currently stands at $114.50, according to Thomson Reuters data. Add in the 2% yield on the dividend, and the stock offers an implied return of 28% in the next 12 months or so,” writes Dan. “Not too shabby for a company with a market cap of more than $58 billion.”

Read Dan’s complete recommendation on Caterpillar.

Best Stock for 2012: FedEx

FedEx FDXCNNMoney’s Paul R. La Monica said, “When I was asked to pick one stock to write about for InvestorPlace that I was confident would do well next year, I immediately started thinking of companies that should benefit from a steadily improving U.S. economy.”

At the end of his deliberation, Paul settled on FedEx (NYSE:FDX).

Don’t think this is just a play on a broad-based recovery, though. A discounted P/E ratio vs. rival UPS (NYSE:UPS), a strong dividend history, recent rate increases and the lack of competition from a U.S. Postal Service in disarray are all reasons to be bullish on FedEx.

“FedEx may not be flashy. But that’s kind of the point,” Paul writes. “In a market where volatility seems to be the new black, you could do a lot worse than a stable blue chip with steady earnings growth.”

Read Paul’s complete recommendation on FedEx.

Best Stock for 2012: Hershey

Hershey HSYRenowned trader, journalist and money manager Jon Markman has a sweet play for you in 2012: confectioner Hershey (NYSE:HSY).

Why this consumer stock? Well, because in the short-term Jon is decidedly bearish on just about all corners of the market. The euro zone debt crisis will continue to rock Europe and subsequently affect nations that export goods there or rely on plush government subsidies from the content.

In fact, Jon thinks that in the short term, “the simplest trades next year will likely be short iShares Europe (NYSE:IEV), short iShares Emerging Markets (NYSE:EEM) and short solar energy equipment producers like First Solar (NASDAQ:FSLR).”

But what does this mean for buy-and-hold investors? Simply put, get defensive with consumer staples stocks.

For those who think that chocolate is discretionary, Jon adds, “Well, try explaining to my daughter that chocolate isn’t a household staple.”

Read Jon’s complete recommendation on Hershey.

Best Stock for 2012: Capital One

Capital OneBanks aren’t exactly super popular right now, so it might surprise you to see senior analyst Philip van Doorn of TheStreet picking Capital One Financial (NYSE:COF) as his best best for 2012.

But a closer look at the stock shows a lot to be bullish about, even as the rest of the financial sector melts down. Namely, strong fundamentals and a historically low valuation and book value.

Capital One also has two very important mergers in the works that will provide future growth beyond its generally well-run banking operations.

Philip is adamant that this is not just a dumpster dive, saying “the most important factor in Capital One’s strong performance this year is its outstanding earnings performance.” Compared with the big banks on Wall Street, COF is in a class of its own.

Read Philip’s complete recommendation on Capital One.

Best Stock for 2012: Mako Surgical

Mako SurgicalDavid Gardner knows a thing or two about picking stocks. As co-founder of The Motley Fool, he is the brains behind the innovative Motley Fool CAPS rating system. And from his own research and what other investors are saying, David thinks he has a quite a pick for 2012 in Mako Surgical (NASDAQ:MAKO).

What makes Mako special? It’s an innovative medical device company that has revolutionized joint replacement. It’s not profitable yet, but the potential is huge, and stories of treatments and recovery are quite dramatic.

“It’s a long way from here to there, but for the speculative portion of your portfolio, MAKO could richly reward a little patience,” David writes.

If you don’t mind taking a little risk with your investments in 2012, consider this up-and-coming medical company.

Read Dave’s complete recommendation on Mako.

Best Stock for 2012: Microsoft

Blogger, author and founder of Stockpickr James Altucher joined a similar InvestorPlace.com feature in the beginning of 2011, picking one stock to buy and hold all year. Back then, he picked Microsoft (NASDAQ:MSFT) — and his choice is the same a year later.

Similar to his previous write-up, the highlights of this year’s recommendation include:

  • 8x earnings
  • Huge stock buybacks
  • Secret weapon: Skype replaces all smartphones within next five years

The idea of Skype taking over the mobile market is intriguing, considering voice represents so little of what we can do with our smartphones these days.

Read James’ complete recommendation on Microsoft.

 

Best Stock for 2012: Arcos Dorados

Arcos Dorados ARCOJosh Brown, adviser at Fusion Analytics and the author of The Reformed Broker blog, picked freshly minted Arcos Dorados (NYSE:ARCO) as his top pick for 2012. ARCO is the largest McDonald’s (NYSE:MCD) franchisee in the world with more than 1,750 locations, largely in Latin America.

Arcos Dorados went public in April and has been up and down ever since — not a newsflash, considering the volatility of the market in general. But in the new year, Josh is expecting the stock to take off due to four factors:

  1. Expanding consumer spending in Latin America
  2. The ferocity of McDonald’s as a global brand
  3. Growth within a defensive sector
  4. The comeback potential for emerging-market equities in 2012

If you’re sick of trying to bargain hunt in struggling U.S. blue chips, and if you aren’t afraid of looking for growth abroad, ARCO could be your best bet in the new year.

Read Josh’s complete recommendation on ARCO.

Best Stock for 2012: Alcoa

Alcoa AAAs with previous picks Caterpillar and FedEx, InvestorPlace.com editor Jeff Reeves has leaned in favor of broad economic recovery with his recommendation of aluminum giant Alcoa (NYSE:AA).

Not only will growth in demand and higher prices result in bigger Alcoa profits, but overly negative sentiment has provided a great entry point, Jeff writes.

“Yes, big problems persist in the global economy, and aluminum demand and prices remain weak as a result,” he writes. “However, Alcoa hasn’t seen the $9 level since spring 2009. Are the macroeconomic fears really worse now than in 2009?”

In addition to valuation, Jeff likes Alcoa’s improving earnings, dividend potential, streamlined operations and hope for better margins in 2012.

Read Jeff’s complete recommendation on Alcoa.

Best Stock for 2012: Banco Santander

Banco Santander STDAccording to longtime stock picker, financial columnist and money manager Jim Jubak, your best bet for 2012 is a European bank. Really!

It’s an aggressive play, but Jim’s faith in Banco Santander (NYSE:STD) comes from a lot of number crunching — and the idea that as bad as things are over in the euro zone, they aren’t as bad as you think.

“The worry about European banks right now is that they can’t raise capital in the financial markets,” Jim writes. “During the past two quarters, Banco Santander has very clearly demonstrated that this bank doesn’t fit that profile of worries.”

It has attractive assets to sell if it has to, Jim says, and that’s on top of accessing credit markets just fine at the present — on top of $8 billion in free cash flow that shows a nice cushion for STD. The only catch is that Banco Santander holds almost $50 billion in Spanish government debt.

“If you think Spain will have to write off part of that debt, then Banco Santander sure isn’t the pick for you,” Jim writes. “If you think Spain is in better shape than Italy (or Greece), I think that in Banco Santander you’re looking at one of the best performers in 2012.”

Read Jim’s complete recommendation on Banco Santander.

Disclaimer: This material is provided for informational purposes only, as of the date hereof, and is subject to change without notice. This material may not be suitable for all investors and is not intended to be an offer, or the solicitation of any offer, to buy or sell any securities nor is it intended to be investment advice. You should speak to a financial advisor before attempting to implement any of the strategies discussed in this material. There is risk in any investment in traded securities, and all investment strategies discussed in this material have the possibility of loss. Past performance is no guarantee of future results. The author of the material or a related party will often have an interest in the securities discussed. Please see Full Disclaimer for a full disclaimer.

Read full story · Comments { 0 }

When in Doubt, Follow the Greats

Stocks fell sharply as we started trading this week on fears that Europe’s sovereign debt crisis was again spiraling out of control.  Of course, I could have used that same opening sentence at almost any point in the last 10 months and it would have been equally true.  The remarkable thing about 2011 is that it has been largely devoid of any real news.  The macro concerns driving the market haven’t changed much in two years—and yet we continue to see some of the most volatile daily price swings since the Great Depression.

The art of investing is an exercise in making decisions under conditions of uncertainty.  But today, it seems that the cloud of uncertainty is a little thicker than usual.  Despite having two years to discount the likelihood and consequences of default by one or multiple “PIIGS,” the market’s persistent volatility shows that investors are as uncertain as ever.

I’ve been consistently bullish for most of the past year, arguing that the low prices on offer more than compensated investors for the risk of meltdown.  But I’m also the first to admit that the volatility of recent months has thoroughly frayed my nerves.

During times like these, I like to do what your college professor might have called “cheating.”  I like to look over the shoulders of other investors and see what they are doing.

As I wrote last week in an article on Warren Buffett’s recent acquisitions, you should never mindlessly ape the trading moves of another investor.  But studying the moves of successful investors can be an effective way to step back and get a little perspective on your own trades.

With all of this said, today I’m going to take a look at the portfolios of three of my favorite institutional investors: Mohnish Pabrai, Joel Greenblatt, and Prem Watsa.

Mohnish Pabrai

We’ll start with Pabrai, the author of the must-read The Dhandho Investor and a well-respected value investing guru.  Based on his SEC filing for the 3rd quarter, Pabrai went on a buying spree in the financial sector.  After initiating a massive position in Bank of America ($BAC) and adding to his already-large positions in Wells Fargo ($WFC) and Goldman Sachs ($GS), Pabrai’s weighting to the financial sector jumped from 39 percent of his portfolio to a whopping 58 percent with a fair bit of the reduction coming from basic materials. Materials dropped from 46 percent to 33 percent of the portfolio (see Pabrai’s portfolio here).

Though his returns are not reported, we can assume that Pabrai’s high allocation to financials has hurt his returns this year.  He wouldn’t be the first.  John Paulson’s flagship fund was at one point down by nearly half this year due to his high allocation to financials and his use of leverage (see Don’t Mess Up Like Paulson).  Still, Pabrai has proven to have a sharp eye for value over the years, even if he—like many other high-profile value investors—tends to be a little early.

Joel Greenblatt

Moving on, let’s now take a look at what Joel Greenblatt is buying these days.  Greenblatt runs Gotham Capital and is the author of the eminently readable The Little Book that Beats the Market.  Unlike Pabrai, Greenblatt tends to have a relatively high portfolio turnover.  He made few major moves in the third quarter, though he was a net buyer and added to his already large holdings in technology and industrials (see Greenblatt’s portfolio here).

Greenblatt is conspicuously under-allocated to the financial sector because much of the money he runs today follows his “magic formula,” which stresses high returns on capital.  Suffice it to say, the big banks are a little light on profits these days, so financials are not showing up on Greenblatt’s screen.  But with more than 40 percent of his portfolio invested in the cyclical technology and industrials sectors, Greenblatt is every bit as aggressively invested as Pabrai.

Prem Watsa

Finally, let’s take a look at Prem Watsa.  Watsa is the CEO of Fairfax Financial Holdings and is considered by many to be the “Warren Buffett of Canada.”  He has certainly earned the nickname.  He and his team have grown Fairfax’s book value per share by 25 percent per year for the past 25 years.  He was also one of the few managers that made money during the crisis year of 2008.  Not a bad run indeed.

Watsa’s portfolio moves will certainly raise a few eyebrows. In the 3rd quarter his added to his already large position in battered BlackBerry maker Research in Motion ($RIMM). He also increased his position in Citigroup ($C) by 50 percent.  Overall, his exposure to the financial sector rose from 9 percent to 24 percent in the third quarter (see Watsa’s holdings here).

Watsa was a slight net seller in the 3rd quarter, though the composition of his portfolio hardly suggests excessive bearishness at the moment.  More than 80 percent of his equity holdings are in technology, financials, and telecom.

As a caveat, there is a limit to what you can glean from reading SEC 13-F filings.  For example, only long positions are reported; short position and derivatives hedges are not.  And Prem Watsa, for example, does indeed hedge his equity positions.  Still, his willingness to be so heavily invested in some of the most volatile sectors would imply that he’s not quite as bearish as some of his public comments would suggest.

So there you have it.  Given the recent volatility, it’s entirely possible that the Dow has moved 100 points in the time it has taken you to read this article.  That’s nerve-racking, of course, even for an experienced investor.  Still, I see compelling bargains at current prices, and I consider the pervasive fear and bearishness among rank-and-file investors to be a contrarian bullish sign.  And when I start to get that feeling in the pit of my stomach, I take comfort in knowing that I’m on the same side of the trade as some of the brightest value investors in the business.

If you liked this article by Sizemore Insights, you’d probably enjoy The Sizemore Investment Letter, our premium members-only newsletter. Click here for more information.

Disclaimer: This material is provided for informational purposes only, as of the date hereof, and is subject to change without notice. This material may not be suitable for all investors and is not intended to be an offer, or the solicitation of any offer, to buy or sell any securities nor is it intended to be investment advice. You should speak to a financial advisor before attempting to implement any of the strategies discussed in this material. There is risk in any investment in traded securities, and all investment strategies discussed in this material have the possibility of loss. Past performance is no guarantee of future results. The author of the material or a related party will often have an interest in the securities discussed. Please see Full Disclaimer for a full disclaimer.

Read full story · Comments { 3 }

Warren Buffett Buying the Sizemore Investment Letter’s Picks

Lest I be accused of hero worship, I’ll spare readers another Warren Buffett lovefest article.  Yes, Buffett is a living legend, and yes, he is arguably the best investor of all time.  But these facts are nothing new, and there have already been more articles than I can count written about the man and his methods over the years.  Buffett has been elevated to something akin to a demigod in the minds of many value investors, and the art of investing like Buffett is a subject that has been thoroughly beaten to death by the financial press.

With all of this as a caveat, I’ll let readers in on a little secret:  I do like to keep tabs on what Buffett is buying or selling.

It is never a good idea to blindly ape the trades of another investor—even one with a track record like Buffett’s.  Due to the time lag in reporting with the SEC, an investor you follow may very well have sold the position you are copying by the time you buy it.  And what makes sense in that investor’s portfolio might make no sense at all in yours.

Still, given Buffett’s penchant for long investment time horizons, he’s a little easier to follow than most.  And, again, his track record over the years make him a man worth watching.

Imagine my pleasure this afternoon when I saw Berkshire Hathaway’s updated portfolio holdings for the third quarter of 2011 (see Warren Buffett’s portfolio).  Three out of Buffett’s five new additions were Sizemore Investment Letter recommendations.

Buffett initiated positions in SIL recommendations DirecTV ($DTV), Intel ($INTC), and Visa ($V).  His other two additions were pharmacy chain CVS ($CVS) and defense contractor General Dynamics ($GD).

While I was not invited to Buffett and partner Charlie Munger’s strategy sessions before these purchases were made (I’m sure my invitation was lost in the mail), I have a pretty good idea of what Buffett sees in DirecTV, Intel, and Visa.  Each is a leader in its respective industry, and all three benefit from durable, long-term macro trends.

Let’s start with DirecTV, the world’s largest provider of paid satellite television.  Given that TV-over-internet options like Netflix ($NFLX) and Hulu are increasingly crowding the turf of traditional paid TV—and given that the paid TV market in the United States is already saturated—Buffett’s choice here might raise a few eyebrows.

I can assume that Mr. Buffett’s rationale was the same as my own:  DirecTV is a direct play on rising living standards in the fast-growing markets of Latin America, where it already has 11.1 million subscribers (vs. 19.8 million in the United States).  Latin American revenues were up 46 percent in the 3rd quarter, due primarily to subscriber growth.  But even in the United States—where everyone already has paid TV service in one form or another—revenues were up 8 percent.  Not bad, given the precarious financial situation of the average American.  DirecTV is also very reasonably priced at just 10 times expected earnings.

Moving on to Intel, my only question to Buffett is “What took you so long?”

Intel absolutely dominates the market for computer processor chips.  But this very strength is what has caused investors to shun Intel.  You see, the PC is dead.  Smart phones and the iPad killed it.  And given that Intel is still quite weak in the mobile market, the company is resigned to be a slow-growth behemoth.  Who wants to own a dinosaur like Intel?

That story would seem to make sense at first.  The problem is that it’s simply not true.

The PC is far from dead.  Smart phones and tablet computers are growing at a much faster rate, of course.  And the PC market does depend more heavily on the corporate and enterprise market, which is not in the best of shape in this economy.  But tablets and smart phones do not replace a computer for most users.  And in most emerging markets, PCs are still very much a growth industry.

Intel’s revenues and earnings are growing at 28 percent and 17 percent year over year, respectively.  And that is in near recessionary conditions.  Meanwhile, the stock trades at just 9 times expected earnings and yields 3.4 percent.  At current prices, I consider Intel a safer investment than most AAA-rated bonds.

Finally, we come to Visa.  Visa and rival MasterCard ($MA)—also a Berkshire holding—have become somewhat trendy of late, but it wasn’t like that for most of the year.  Regulatory uncertainty cast a pall over credit card stocks, as did fears of a consumer slowdown.  Yet investors who were, in Buffett’s words, greedy when others were fearful did quite well in Visa and MasterCard.  Both are among the best-performing stocks of 2011.

Visa and MasterCard benefit from two powerful macro trends—the transition to a global cashless society and the rise of the emerging-market middle class.  As electronic payments become a larger share of commerce, credit and debit cards—as well as newer payment methods such as PayPal—will increasingly replace cash and checks.  And while this process is well on its way in the United States and other developed markets, it is only just beginning in most emerging markets.  This is a trend that will be with us for a while.

Visa trades for 14 times expected earnings, which is a bargain for a company with Visa’s brand, financial strength and growth prospects.

DirecTV, Intel, and Visa are all long-term holdings of the Sizemore Investment Letter.  And while Buffett’s reasons for purchasing may have been very different from our own, we’re glad to see the Sage of Omaha sharing our enthusiasm.

If you liked this article by Sizemore Insights, you’d probably enjoy The Sizemore Investment Letter, our premium members-only newsletter. Click here for more information.

Disclaimer: This material is provided for informational purposes only, as of the date hereof, and is subject to change without notice. This material may not be suitable for all investors and is not intended to be an offer, or the solicitation of any offer, to buy or sell any securities nor is it intended to be investment advice. You should speak to a financial advisor before attempting to implement any of the strategies discussed in this material. There is risk in any investment in traded securities, and all investment strategies discussed in this material have the possibility of loss. Past performance is no guarantee of future results. The author of the material or a related party will often have an interest in the securities discussed. Please see Full Disclaimer for a full disclaimer.

Read full story · Comments { 0 }