Most analysts say that pharmaceutical stocks and consumer staples are the best places to put your money during rising rates. But there is one stock that will benefit big time from higher interest that doesn’t fall into either of these sectors. The stock is Apple Inc. (AAPL).

Why Apple? First of all, it has no long-term debt. Second, the company has a huge amount of cash. No wonder why I referred to Apple as a money market fund a few months ago. Although many articles report that it has about $51 billion in cash, that number includes $25.391 billion in what Apple’s accountants consider long-term marketable securities. But Apple does have $11.261 billion in cash and cash equivalent securities plus $14.359 billion in short term marketable securities, for a total of $25.56 billion.

Apple’s weighted average interest rate has been dropping for the last three years, as have rates in general, from 3.44% in 2008, to 1.43% in 2009, to 0.75% for the current year. Of the $25.56 billion in what is essentially cash, total income based on the 0.75% weighted rate is about $191.7 million.

If the rate increased to 3% and assuming the balance remains the same (but it should certainly increase), interest income on effective cash would rise to $766.8 million, and at 5%, the income would be $1.278 billion, or $1.18 in additional earnings per share, currently at $15.15 per share. This additional interest is a pre-tax number, but based on the companys effective tax rate, additional earnings would still be close to a dollar a share.

Plus there are no other expenses incurred in generating this income. No salaries, no capital expenditures of manufacturing equipment, no purchase of raw materials, no office space rental, no nothing; just some electrons on a computer screen. Talk about easy money.

If you want to check out the lists of stocks which have a lot of cash, which can be downloaded, sorted, and updated, go to WallStreetNewsNetwork.com.

Disclosure: Author owns AAPL.

By Stockerblog.com

Before I acknowledge all the great articles Ive read over the last week or so, I want wish my readers a very Merry Christmas and Happy Holidays!



2010 was a great year for my wife and I and we have lots to be thankful for. I guess like many folks at this time of year, I find myself being very reflective, which is a good thing in my opinion. Over the last 12 months, I started this blog, met some respected bloggers in the Ottawa area like Canadian Capitalist, Big Cajun Man, Michael James and Larry MacDonald, got married and had an amazing honeymoon, travelled to foreign countries, saw my sister-in-law beat cancer, bought and moved into a new house and watched some of our close friends start families with happy, healthy children. It has been a very rewarding year.

My guess is as good as yours what will happen in 2011 but I must say Im looking forward to what that might be


Over the next couple of weeks, chances are youll see some random posts. I do hope to post Part 2 of my interview with Derek Foster before the calendar turns to January but other than that, no promises. Im going to take some time to unwind, settle into the new place, catch up with family and friends and simply enjoy the holidays.  The red wine is calling now…


Whatever your plans are this holiday season, I hope they keep you safe, happy and healthy. I look forward to sharing more of my financial independence journey with you in 2011.  I think it’s going to be a great year!

Merry Christmas!
Mark

Here are just a few of the excellent articles I read this week.

However, there is one type of income investment that is gaining favor with income investors, and that is the government guaranteed mortgage real estate investment trusts. These REITs purchase residential mortgage pass-through securities which are guaranteed by government-sponsored entities, and use leverage to increase the yield. An example is Capstead Mortgage Corp. (CMO), which generates a yield of 9.4%.

Capstone is a Dallas, Texas based REIT that has been around since 1985, and has paid quarterly dividends since 1987. The company invests in adjustable-rate mortgage securities issued and guaranteed by government-sponsored entities, either Fannie Mae or Freddie Mac, or by Ginnie Mae, an agency of the federal government. Technically, with the explicit and implicit guarantees of the U. S. Government, the securities in the portfolio have an implied AAA credit rating. Although after what happened to the rating agencies and many of the companies and securities that they rated as triple A, I’m not sure that AAA means as much.

However, that is probably the biggest risk of this type of investment. Will the government entities, and behind them, the US Government, continue to guarantee the timely payment of principal and interest payments on these mortgages (with an emphasis on the word ‘timely’)? Assuming the government does come through, then a major risk of this type of investment is eliminated.

What about the risk of rising interest rates? Remember, when interest rates rise, bonds drop in value. Hopefully, the fact that Capstead invests in adjustable rate mortgages, as opposed to fixed rate mortgages, will help to alleviate that risk. But there is always the risk of a sharp increase in rates causing the REIT to drop somewhat.

Capstead has a current price to earnings ratio of 9 and trades at 7.5 times forward earnings. Although heavily in debt to increase the payout, the company does have $3.82 in cash per share. The price per share is about 7% below the book value of 11.87. The third quarter 2010 earnings conference call will be held October 28, 2010 at 9:00 AM Eastern time.

For more high yield REITs, check out the free list at WallStreetNewsNetwork.com, which can be downloaded, sorted, and added to.

Disclosure: Author does not own the above.

By Stockerblog.com

Of course, there are mortgage income REITs with extremely high yields, such as Two Harbors Investment Corp. (TWO), which yields 16.9%, but I don’t think that kind of yield is sustainable; plus, the trust invests in mortgages that include Alt-A mortgage loans, subprime mortgage loans, and derivatives.

However, Home Properties directly owns and operates apartment communities throughout the eastern United States. The stock trades at 17 times forward earnings. The operating cash flow of $151.5 million significantly exceeds its dividend payouts of $87 million by over 70%. Home Properties yields 4.7%, much higher than some of its competitors, such as Apartment Investment & Management Co. (AIV) which yields 1.8%, and AvalonBay Communities Inc. (AVB) which yields 3.2%. On September 30, KeyBanc Capital Markets upgraded Home Properties from a Hold to a Buy.

Another residential equity REIT with a decent yield is Mid-America Apartment Communities Inc. (MAA), which pays 4.1%, and serves the Sunbelt area. The stock trades at 16 times forward earnings. The operating income of $129.8 million greatly exceeds the total dividend payouts of about $80 million. Jeffries recently initiated coverage on the company, giving it a Hold rating.

If you like the idea of investing in residential REITs, you should check out the free list at WallStreetNewsNetwork.com, which includes the stock symbols, market caps, forward PE ratios, and yields.

Disclosure: Author does not own any of the above.

By Stockerblog.com

The proliferation of fresh new breakouts among high ranked SEPA set-ups, suggest that this market may have even further to go on the upside. The majority of our portfolio holdings have held up well with only a few triggering stop-losses. Currently we are long 24 names, most of which are smaller than our normal weight position sizes. We are very close to moving to heavier weighted positions should our long-term model flash the all clear signal. This relatively rare bull signal may take some additional upside to trigger or perhaps a market pullback prior.

While the market could pullback and digest the recent run-up, I should point out that during the initial leg of a new bull market; pullbacks are generally contained to 3-5%.

There is plenty of headline risk brewing in the world. Whether it’s the troubled US Dollar, credit default swaps or the Greek debt crisis, a wall of worry may be just what this market needs to continue its climb.

Our current portfolio holdings include: AGP, ADTN, AKRX, BJRI, CACC, CNI, COHR, EZCH, FCFS, HRC, IFSIA, IIVI, INTX, LTD, MCRS, MDCO, PANL, PCYC, PLCE, SHOO, SOLF, SRCL, THI and VICR.

We took profits in the following names: LVS, KEI, EDU, MDCO (partial) and BIDU

Mark Minervini

Over the last few months, a few Globe and Mail articles have caught my eye regarding the need (or not) for cheques. These articles got me thinking, what about steady cheque provider (and distribution-payer) Davis + Henderson (DHF.UN) will they survive the evolving digital financial age?

A few months ago, the Globe released and has since republished an article about PayPal, perhaps the best-known online payment provider.

From slow beginnings, PayPal now has over 80 million customers and 8 million businesses using its service. Using PayPal or other web-based payment providers, there is little doubt real-time, pay-for-use transactions will become the norm.

From personal experience, I like PayPal. A few years ago, my wife and I were able to use it to secure a bed & breakfast reservation prior to our trip to Italy. The B&B didnt accept credit cards or personal cheques – PayPal and cash were their only acceptable forms of payment. The transaction went through flawlessly.

From what I understand, PayPal is making a huge push into the mobile world, implementing various code so payment methods can be executed on-demand by mobile applications. PayPal already has a presence on applications made for Apples iPhone and payment code was recently made available for the Google Android platform. BlackBerry, I also understand, is next in line.

Does the smart-phone revolution signal the beginning of the end for Davis + Henderson?

If so, I think it will be a long-time coming, mainly because DHF.UN has become a pretty robust organization. For one, they design and sell credit card programs. On behalf of Canadas financial institutions, they serve about 20 million individuals and some 2 million small business owners on this front. Secondly, Davis + Henderson works collaboratively with customers to provide web-based solutions that are flexible, scalable, highly configurable, and aligned to each customers unique business strategies and objectives. Thats a mouthful. In laymans terms they help businesses put in place payment workflows and reporting systems. Those services are not trivial and not cheap, and even as automatiion continues to mature, these systems would certainly contribute to Davis + Hendersons bottom-line. Thirdly, in Canada and the U.S., Davis + Henderson also provide retail lending, small business lending, commercial lending and real estate services. In short, they are much more than a cheque-provider, which is a great thing from a preservation perspective.

Based on Rob Carricks recent Globe article, cheque-writing has declined sharply in the past decade. In 2009, 935 million cheques were cleared through the Automated Clearing and Settlement System, down from 1.4 billion in 2000.

I know around our house, cheque-writing is a rare event. We use cheques to send optional cash purchases to the stock transfer agents (i.e., Computershare) and thats pretty much it. Any bill payments or financial transfers are done online. I even paid for my NFL Pool this year, to a co-worker, through email money transfer. (In case youre guessing, I’m not doing very well so far…)

In closing, because DHF.UN is a diversified enterprise; theyve been around for a 100 years, theyll probably be around for decades more. However, in our ever-evolving digital financial age, where anything seems possible, businesses like Davis + Henderson who relied heavily on tools of yesterday to provide revenues must continue to focus on innovation, services and tools for tomorrow, or get left behind.

Are you bullish or bearish on Davis + Henderson?
Do you still use cheques around your house?

One thing is for sure, it’s the end of the workweek and the beginning of the weekend. To all my fellow bloggers and readers out there, enjoy!

Cheers,
Financial Cents

Here are some interesting facts about Malaysia:
1. It the 34th largest economy in the world by purchasing power parity.
2. It has an inflation rate of only 3.8%.
3. The country has only 5.1% of its population below the poverty line.
4. The unemployment rate is only 3.5%.
5. The main countries that it exports to are the United States, Singapore, Japan, China, Thailand, and Hong Kong.
6. It has the largest number of industrial robots in the Muslim world.
7. It is negotiating free trade deals with Pakistan, Australia, New Zealand, the United States, Singapore, Thailand, and Chile.
8. It is number 32 of all countries in terms of GDP.

Here are some Malaysian companies which might be worth taking a look at:

Kuala Lumpus Kepong (KLKBY.PK) is a Malaysian diversified and agricultural company in the businesses of plantations, manufacturing, retailing and property development. The stock has a PE ratio of 18.

Malayan Banking ADR (MLYBY.PK) is Malaysias largest bank holding company. The stock has a PE ratio of 14.

MBF Holdings Berhad (MBFBF.PK) is an investment holding company which is involved in credit card and payment services, trading and manufacturing, property and hospitality, plantations, heavy equipment, and financial services. The stock has an extremely low PE of 0.15.

Nestle Malaysia BHD (NSLYF.PK) manufactures and distribute chocolate and candy.

Sime Darby Berhad ADR (SMEBF.PK) is involved in plantations, properties, heavy equipment, motor vehicle, energy and utilities, and general trading and services.

Tenaga Nasional Berhad (TNABY.PK) is a Malaysian electrical utility involved in the generation, transmission and distribution of electricity to residential, commercial and industrial customers. The stock has a PE of 12.

Telekom Malaysia Bhd (MYTEF.PK) is the major telecommunications company in the country. The stock has a PE of 17.

Amsteel Berhad ADR New (AMSBY.PK) is involved in the businesses of property development, operation of hotels, oil palm and rubber, manufacture and sale of steel related-products, security services and security-related equipment.

Boustead Holdings Berhad (BSTHF.PK) is a diversified Malaysian holding company involved in plantations, finance and investments, real estate properties, manufacturing and trading, the service industry and Boustead Emastulin, their automotive division.

Genting International PLC (GIGNF.PK) is involved in the business of developing, operating and marketing integrated resorts and casinos in Australia, North America, South America, Malaysia, the Philippines and the United Kingdom.

Other ways to invest in the country include the iShares MSCI Malaysia Index (EWM) ETF, which is up 18% for the last three months.

There is also the Malaysia Fund Inc. (MAY), a closed end fund that invest in Malaysia stocks. It is up over 23% for the last three months.

There is even a regular mutual fund, the Malaysia Fund (XMAYX), with an almost identical name, that specializes in investing Malaysian stocks. The fund is up aout 12% for the last three months.

If you like stocks in Southeast Asia, check out Thailand Stocks, Singapore Stocks, and Vietnam Stocks. And if you like other stocks from around the world, check out WallStreetNewsNetwork.com.

Author does not own any of the above.

By Stockerblog.com.

Here are some Singaporian stocks worth examining:

Capitaland Ltd. (CLLDY.PK) is a Singapore real estate company. The stock has a price to earnings ratio of 15.

City Developments (CDEVY.PK) is in the Singapore real estate business. They have paid dividends eight years in a row. The stock has a PE ratio of 16.

Cosco Corp. Singapore Ltd. (CSCMY.PK) is in the shipbuilding and ship repair business. The stock has a PE of 26.

DBS Group Holdings (DBSDY.PK) is a bank holding company which owns DBS Bank, which is the largest bank in South East Asia by assets. It has a PE of 26.

Genting Singapore PLC (GIGNY.PK) operates casinos around the world. The stock has recently generated negative earnings.

Grand Banks Yachts ADR (GBYLY.PK) manufactures and markets three different series of yachts. It trades rarely in the US on the Pink Sheets, and little financial data is available on the company.

Keppel Corp. LTD SPON (KPELY.PK) diversified conglomerate in the business of real estate, marine, and infrastructure industries. The stock has a P/E of 11 and has paid dividends at least twice a year since 2001.

Neptune Orient (NPTOY.PK) is a container shipping global transport company. It owns American President Lines also known as APL. Latest reported earnings were negative.

Singapore Airlines (SINGY.PK) is the major airline. The PE ratio is 25.

The Singapore Exchange Ltd. (SPXCF.PK) is Singapore’s major stock exchange, where equities, bonds, and derivatives are traded. The stock has a very low PE of 1.85.

Singapore Telecommunications ADR (SGAPY.PK) also known as SingTel, provides telecommunication systems and services in over 20 countries. The P/E is 13.

United Overseas Bank (UOVEY.PK) is Singapore’s largest bank in terms of domestic customer loans, credit cards and market capitalization. The PE ratio is 13.

You can also invest in a Singapore ETF, the iShares MSCI Singapore Index (EWS), which is up 12% over the last three months.

There is also The Singapore Fund, Inc. (SGF), a closed end fund that invests in Singapore stocks. For the last three months, the fund is up 18%.

If you would like to see stock lists from other countries, check out WallStreetNewsNetwork.com.

Author does not own any of the above.

By Stockerblog.com.

This past Saturday, the Globe and Mail ran an article largely about foreign content reminding investors to think and act globally when building their portfolios.

This article got me thinking – how much outside Canada should you invest in?

Overall, global/international funds did not do well over the last 10 years. You’d be hard pressed to find many global funds or ETFs for that matter that delivered anything more than a 3% return. Many experts advocate international content is a critical portfolio building block, but I don’t necessary buy into that (more in a bit). In trying to clarify their stance, the Globe article didn’t really hit the mark; it was quite broad when it came to suggestions:

When Rob Carrick (article author) used several asset allocation calculators offered by online brokerage firms to build a portfolio for a long-term growth-oriented retirement portfolio, it suggested “content, including both bonds and stocks, ranged from 50 to 57.5 per cent.”

The article went on to state:
“For a more conservative balanced portfolio, the suggested foreign weighting ranged from 25 per cent to 35 per cent.”

Further, the article introduced Sean Cleary, a finance professor at the Queen’s School of Business in Kingston, who said if he wasn’t so gung ho on Canada right now he would have “a breakdown of 20 per cent Canadian stocks and 80 per cent global. Instead, he now suggests a 50-50 split.”

Humm.

So, within this one article, there are suggestions to hold between 20% and 80% of your portfolio in foreign content.

Not exactly a recipe is it?

Personally, I side with Canadian Couch Potato in what he prescribes in many of his model portfolios. Check him out. It’s a great site and wealth of information. He has done a great job outlining how much and what foreign holdings you should hold in your portfolio.

For example, his “Global Couch Potato” portfolio gives you lots of exposure to stock markets in all developed countries as well as stability in the form of Canadian bonds – a requirement in my opinion for all investment portfolios. Foreign content in the Global Couch Potato is 40%, hence the name.

In our age of desired, reliable income, I would think most investors would do quite well with his “Investors-Aid Income Couch Potato” – a style that favours large-cap and dividend-paying stocks. Global equity only consumes 10% of this portfolio and instead, focuses on Canadian bonds and Canadian equity. You could always increase the equity holdings and decrease the bonds holdings to match your investment risk. I’m a huge fan of this one, again, check it out.

This leads me, to, well, me. Personally, I don’t focus too much on the global market. Not because I don’t think they’re aren’t good opportunities for ownership “out there”, I’ve simply been busy focusing on home and growing my portfolio on Canadian terra firma first. The way I see it, if I plan to retire in Canada, I might as well invest in Canada. I’m also a big proponent of owning what I consume – I typically buy companies that I consume services from. I have a cellphone, I buy BCE. I need to heat my home, I buy Enbridge. I need to bank, I buy CIBC. I watch TV…you get the picture The benefits of owning primarily (not exclusively) Canadian dividend-paying companies is I also take advantage of the Canadian dividend tax credit. That’s right, I get a discount for owning and holding Canadian companies. I think of it as a great, long-term home renovation tax credit for building my investment house instead of my one-time backyard patio. On the foreign side, I own Johnson & Johnson and Coca-Cola stock, but the sum of those two holdings only constitute about 10% of my portfolio. Going-forward, my plan is to continue to buy more companies made in Canada but also a few more U.S. companies such as Procter & Gamble – all the while maintaining about 10% foreign content.

No doubt, it’s a very big world out there and like the Globe article suggests, you should probably have some piece of it in your investment portfolio. However, I wouldn’t go so far as to suggest global content, including bonds and stocks should be over 50% let alone what Sean Clearly hinted at, 80%. This seems to be way too much and far too risky, at least for me. I like my chances with mostly Canadian stocks and bonds. Our country has all the resources everyone seems to want and need. Why put most of your money elsewhere?

How much of the big world do you own in your investment portfolio?
Why so much, why so little?

Everybody should always consider buying a house. Owning a home can be the ‘American Dream,’ and it’s always been that way. Here’s why.

1. The mortgage interest deduction. You can’t deduct your rent payment. Whereas the interest on a mortgage is deductible and probably will be one of the last tax benefits to be taken away by Congress, unless we are lucky enough to go with a straight flat tax.

2. No rent increases. Unless you have an adjustable mortgage, which I would never recommend anyone get, your cost to stay in the house is fixed for thirty years or less. Thirty year mortgages with no prepayment penalties are the way to go because you can ‘create’ your own 15 year or 20 year mortgage by paying additional principal each month; and if you run into financial problems and can’t make those higher payments for a certain period of time, you just stop making those over-payments.

3. Not at the mercy of a landlord. Who would you rather have control over when you need to move, your landlord or yourself? If you are on a month-to-month, and your landlord’s brother-in-law is coming in to town next month and needs a place to stay for a year, you will get a thirty day notice telling you that you now have to start looking for a new place, get an estimate from movers, pack your stuff up (boy do I love packing for a move NOT), and then actually moving. Even if you have a one or two year lease, the landlord can still do the same thing prior to 30 days of the end of the lease.

4. Has bailed out many retirees. I keep hearing about retirees who lost most of their earnings in their stock portfolio after the market crash, yet because their house was paid off or almost paid off, were able to sell their home, buy a much smaller place, have plenty of cash left over, even after the real estate crash.

5. You can do what you want with it. Suppose you want to paint the interior of your house purple with pink polka dots. If you rent, your landlord will go nuts. Same if you want to knock out one of the walls to open up the living room area. When you own your own home, you can be the one to go nuts.

6. If you can’t afford it, you can walk away from it. Many people weren’t aware of this until the big real estate crash that started in 2005. Now the whole world knows. Almost every mortgage is a non-recourse loan; doesn’t matter whether its a conforming loan, a non-conforming loan, an FHA loan, or a VA loan. What non-recourse means is that the bank can’t come after your personal assets if you walk away from the loan and the sale of the house can’t satisfy the balance due on the mortgage, unlike an auto loan or a credit card debt, which are recourse loans.

7. The return over long periods of time far outpaces any other investment. This is probably the most important reason of all. Let’s look at the hard numbers. One of the major mistakes that almost every major publication has made is comparing the growth of real estate versus the growth of the stock market, without taking into consideration that with real estate, buyers only put up a small portion of the purchase price.
Almost nobody pays all cash for real estate; almost everyone puts down 10% to 25% of the purchase price (and I hear that some lenders are starting to offer 3% again). As for stocks, almost everybody pays all cash for stocks; the percent of people who buy on margin is very small, especially when you consider all the 401k and mutual fund investors.
So if you really want to compare apples with apples, you need to compare how and how much people invest in the asset. Let’s look at a period when we’ve had a couple market drops in both stocks and real estate. How about from January 1987 to this summer.
The average annual return of the S&P 500 through May of 2010 is 5.9%. The average annual return of the Case-Shiller Real Estate Composite 10 Index over the same period is 4.0%, assuming homeowners pay all cash. However, if you assume that the homeowner puts up a down payment of 20% with a 5% mortgage, the real life average annual rate of return is 10.4%, almost double the return on stocks.

All that being said, I don’t believe anyone should consider their home as an investment. A source of emergency funds, if absolutely necessary, but not an investment. If you can afford a home, seriously consider buying one.

By Fred Fuld at Stockerblog.com