Question:
My father-in-law, who works for a bank, mentioned to me that the FDIC is combining certificates for GE Money Bank and GE Capital. I believe I own CDs through both. What should I know about this, and how can this affect my CD holdings?
Answer:
In recent month we have seen the FDIC combine certificates used to determine insurance on CDs issued by certain entities. Many banks have acquired smaller banks, and have been allowed to continue using the FDIC certificates of the acquired business to issue new CDs. This has allowed the new merged banks to issue more insured debt and broadened the liability of the FDIC. However, it seems the FDIC is working to correct this by combining those issuers with multiple certificates to force them to use only one; thereby, lowering the amount of insured debt some banks are allowed to issue. This has the potential to drive client CD holdings above the FDIC limit, as the combinations are not being widely reported.
As in your example, until recently GE issued CDs under GE Money Bank and GE Capital. However, the FDIC recently combined the two certificates. This forces the company to issue CDs under a single insurance and limits insurance to $250,000 maximum instead of the $500,000, if the two certificates had continued separately.
For those holding large CD positions in their portfolio, we recommend you ask your bank to check that you are under the FDIC insured limit. If you do find yourself above the insured limit as a result of combined certificates, generally, you are insured separately for six months from the date of the merger. The rules, however, are very vague. We suggest investors be very cognizant of which FDIC certificates your investments fall under.
Question:
I’m looking at both Fresh Market and Whole Foods. Do you favor either?
Answer:
We favor neither, as we find them very expensive. Whole Foods Market Inc. (NASDAQ: WFM) is a good company, which we wouldn’t mind owning as it meets our Henssler criteria for investment. However, it is expensive, trading at a price-to-earnings ratio of 36.25 compared to its five-year historical average of 29.49. Price aside, we consider Whole Food’s to be a financially strong company and best of breed in the organic food market. The Fresh Market, Inc. (NASDAQ: TFM), while similar, is considerably smaller having 113 stores nationwide as compared to Whole Food’s 311 stores across the United States, Canada, and the United Kingdom. The Fresh Market does not meet our criteria for investment based on financial strength. To add to it, we also find it to be priced high as it trades at 47 times earnings.
Question:
I’m hearing more and more about cloud computing and how the cloud is going to save tech. What companies stand to benefit, and where will I get the best bang for my buck?
Answer:
Cloud computing is where users can access and store their data and other computer applications on virtual servers over the Internet. The often-bandied about names for who stand to benefit from the cloud computing shift include the Apple Inc. (NASDAQ: AAPL), Microsoft Corp. (NASDAQ: MSFT), International Business Machines (NYSE: IBM) and Google, Inc. (NASDAQ: GOOG).
From a valuation perspective, we recommend Microsoft, given it trades at just 11 times earnings, pays a dividend of 2.6%, and has the financial wherewithal to compete with anyone. From more of a pure-play perspective, we suggest EMC Corp. (NYSE: EMC). EMC provides enterprise storage systems, software, networks and services. The company’s products store, retrieve, manage, protect and share information from all major computing environments and mainframe platforms. Analysts largely expect the company to post 15% earnings growth going forward, with much of that growth coming from the company’s 80% stake in VMWare, as it continues to benefit from the adoption of cloud computing.
VMWare is the leading provider of virtualization software solutions, which enables organizations to aggregate multiple servers, storage infrastructure and networks together into shared pools of capacity that can be allocated dynamically and securely to applications as needed.
We also like Eaton Corp., (NYSE: ETN), a global technology company in electrical components and systems, as they play a critical role in backup power for data centers.
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. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
