Q&A Time: Natural Gas, Electronic Arts and Changes to the Healthcare Sector

Question:

I just sold all of my stocks going nowhere and decided to buy natural gas.  Heard T. Boone Pickens on the news saying he’s changed from wind to natural gas and having a hard time selling natural gas to our Congress. Sounds like it could work if reasonable people would listen. Your thoughts?

Answer:

While we agree that natural gas would be a cost effective alternative, we think buying natural gas is a mistake at this time. Right now our country does not have the infrastructure to support natural gas. The oil shale fields produce an abundance of natural gas, but there is a significant problem in transporting it from North Dakota to Georgia. While it may be a good thing in the future, we do not think we are there yet.

There is also a difference between buying the commodity or stocks, and we would need to know what exactly you bought to give a true opinion. We also do not suggest buying what is most abundant as there is no shortage, thus you will never make money. We feel it will take a while to build the infrastructure needed.

If you were truly sold on natural gas, we would recommend buying ancillary companies that would benefit from the growth, such as Cummins, Inc. (NYSE: CMI) as they are building trucks to order, either diesel or natural gas, or infrastructure companies like Fluor Corp. (NYSE: FLR) who build the refineries needed to support natural gas. Unfortunately, there are no pure play companies for natural gas.

You mentioned that you sold your stocks going nowhere. We realize that the markets will be volatile for the foreseeable future—at least until the election—so if it makes you sleep better at night to take a little bit off the table, then do so. Our clients are invested in stocks because they can afford to.  If it doesn’t make a difference to your lifestyle to cut back, then do so if you cannot emotionally handle the volatility.

Alternately we would suggest moving into more conservative stocks with low betas that pay dividends. Beta is a measure of volatility. Essentially, beta is the tendency of a security’s returns to respond to swings in the market.  A stock with a beta of one will generally move with the market, while a stock with a beta of less than one should be less volatile than the market. But remember that is both directions. Ideally, a stock with a beta less than one will not climb as high as the market, but it also will not fall as low as the market. Combine that with a dividend, and you should do OK.

Question:

My son and I are trying to find some stocks he’d be interested in tracking. He’s looking at EA Games…mostly because he’s been obsessed with the Madden NFL releases each year. So what do you make of his pick? Any other “gaming” suggestions?

Answer:

Electronic Arts Inc. (NASDAQ: EA) is a pure play company as they only develop, market, publish and distribute games. It is a solid company with sound financials. While Nintendo is the largest gaming company, they make consoles and other entertainment equipment as well.  Electronic Arts currently meets our criteria for financial strength and safety. However, the company’s earnings have been volatile because as the gaming consoles change, so must the games to keep up with demand. The company is not that expensive when you normalize the earnings. It has recently been through a rough patch.

We believe we are in a product cycle turnover for gaming consoles, so now may not be the best time to buy the stock. However, if you are buying the stock as a way to interest your child in investing, we feel this would be a good pick as we think it will be around for a while.

Question:

When I asked a prospective financial planner for a copy of his ADV part II, he said he would provide it only after I hired him. Is it asking too much to know his fees and disciplinary action before I become a client?

Answer:

We feel that is not too much to ask. However, the law states that you can terminate your relationship with an adviser three days after the contract is signed without penalty, provided they give you the ADV part II.

The ADV Part II is a public document and often used as a marketing piece for many advisers. There are several sections throughout the document, including conflicts of interest, how the adviser gets paid, and the educational and disciplinary background of the adviser.

You can go to the U.S. Security and Exchange Commission’s website at SEC.gov, and under the education menu, select “Check Out a Broker or Adviser.” From the next screen, select “Research Investment Advisers.” You’ll need either the individual’s or firm’s name, and the zip code.

We would suggest you do this first before engaging in any relationship with an adviser or broker. We would also be a little suspicious of the adviser who would not be willing to share this information before you become a client.

Question:

Are you making any changes in the Henssler Portfolio after the result of the Supreme Court’s decision on the Patient Protection and Affordable Care Act?

Answer:

We are making changes; however, we can only share once the trades have been made. The ruling on the Patient Protection and Affordable Care Act answered some questions for the Healthcare sector, but many still linger, including the ways in which insurers will compete with one another from pricing to plan offerings.

We recently sold UnitedHealth Group (NYSE: UNH).While many of the Affordable Care Act’s major changes will not take effect until 2014 and more than 30 million new customers will eventually enter the insurance market, UnitedHealth Group’s profitability will likely be reduced in a variety of ways, from new taxes and forced expenditures to covering individuals with pre-existing conditions. The Henssler Portfolio Committee thoroughly analyzed the United Kingdom’s, Germany’s, and Switzerland’s health care systems and determined companies, such as UnitedHealth Group, would likely be harmed longer-term by the passage of the health care act. No decision has been made for the reinvestment of proceeds from this sell.

At Henssler Financial we believe you should Live Ready, which includes understanding your investments.  If you have questions regarding your holdings, the experts at Henssler Financial will be glad to help. You may call us at 770-429-9166 or email 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. 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.

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