Question:
With natural gas prices near an all-time low and oil prices at an all-time high, how do I play this? I don’t believe natural gas will stay this low for long. What is your advice for energy holdings?
Answer:
Natural gas prices have fallen so far so fast, we would not recommend speculating on natural gas because most likely you will lose. We recommend an energy stock that has exposure to both natural gas and oil services. When natural gas prices come back, you should make money on it. Another choice to consider is a pipeline stock. As a third choice, consider a stock that uses natural gas as an input, like Potash Corp. (NYSE: POT) in the Materials sector. We believe that we’ll see a push for industry to begin using natural gas as it is less expensive and a cleaner burning fuel.
Question:
What do you think of AFC Enterprises, Inc? Also has Amazon stock had its run?
Answer:
AFC Enterprises, Inc. (NASDAQ: AFCE) is best known as the developer and operator of Popeyes Chicken & Biscuits the Popeyes Louisiana Kitchen restaurants. The company manages two business segments: franchise operations and company-operated restaurants. It was one of the worst run companies for a long time. In recent years, the company’s management has appeared to get the business in order. The company’s debt load is in check, and they have room for growth. They are not as financially strong as a company we would own, but the company is worth a look. In our opinion, it is a riskier bet. However, the company has taken steps to get their financials in order, and they do have a good product.
Amazon.com, Inc. (NASDAQ: AMZN) is a widely known retail website that focuses on selection, price, and convenience. It also manufactures and sells Kindle devices. However, it baffles us as to why this company trades at a P/E ratio of more than 135. The company’s revenues are growing, but their margins are shrinking. The company has grocery store-type margins. It is a force to be reckoned with, but it still trades at a high P/E ratio. We do not recommend buying it, because if they lose their premium, they will never get it back. We do not understand that if revenue is expected to grow 30% this year, and it grew 40% last year, why it is not falling to the bottom line. One unique item that most do not realize is that Amazon will be a force in cloud computing, which may be why it trades at such a high level. As an investor, if you own it, we would taking a profit and perhaps holding on to a little. We do not recommend buying it.
Question:
Looking at Europe’s crisis, it is easy for us to say “cut spending.” However, the reality is if our federal government cut spending 20%, our economy would be hurt badly. While we need to get our country’s debt under control, how should we invest now?
Answer:
Carefully. We have long stated that investors should want to own companies that have been there, done that, but also will capitalize growth opportunities around the world, are diversified by product and geographic location. At the end of the day, we believe these companies allocate capital properly and increase shareholder value. For these companies, it is about return on invested capital. They want to make more than the cost of that capital. The companies we seek to own have done that consistently over time.
We have stringent criteria on the financial strength side, but there are also companies outside our criteria that have done well. Companies must perform well to achieve the A ratings for financial strength. You have to do your research; know what the company makes; believe in what they make; know that they have good management, and buy it at a good price. A good company is not necessarily a good stock.
While an investor can get 1% on a CD at a local bank, the rate of inflation is above that. We believe you have to have money working for you. We believe you should buy stocks that will appreciate in value and generate cash flow.
At Henssler Financial we believe you should Live Ready, which includes researching the best values for your portfolio. If you have questions on your holdings, the experts at Henssler Financial will be glad to help. You may call us at 770-429-9166 or e-mail at experts@henssler.com.
Disclosures:
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing.
