Question:
Dr. Gene said something about “find a German health insurance company,” while discussing the stock of United Health Care. There are over 200 of them.
Answer:
True, there are more than 200 German insurance companies, but few are publicly traded. Of the few that are public companies, many of them are supplemental health insurance. These are not as profitable as health insurers in the United States. They also do not have a large market share in their sector.
Question:
I’m looking to increase my position in basic materials, but nothing looks attractive to me. Is it just not the time to buy, or am I overlooking someone? Seems like the high quality names are closer to their 52-week highs…DuPont, Dow, Eastman…guidance please!
Answer:
You are correct in that many companies in the Materials sector are near their highs, but have pulled back about 6% off their 2012 highs. We feel it is not a good time to buy. Many companies did well during the energy crisis and the run on commodities. Now that both energy costs and commodity prices are falling, the stocks have come down as well.
We prefer to gain exposure to the sector through the Materials Select Sector SPDR (NYSEARCA: XLB). There are a lot of companies to choose from in a sector that carries such a small weight in the S&P index. Basic Materials makes up only 3.39% of the S&P, and there are nearly 40 companies in that sector. It is a very volatile sector as a result of its tie to commodities. With its weight, we feel it is not a sector for a large portion of your portfolio.
If you are looking for a Materials stock, we suggest looking for one that is tied to an industry that is growing. In the past, we have owned Ecolab Inc. (NYSE: ECL), who develops and markets products and services for the hospitality, food service, health care and industrial markets. We feel it would grow based on the strength and growth of the restaurant industry. However, we do not currently own it. Potash Corp. (NYSE: POT) and Mosaic Co. (NYSE: MOS) should do well in the long term because we feel there will be a demand for more food.
Question:
Would it be a good idea to pull equity from my house and invest it? If I can get a mortgage in the 3.5% to 3.75% range, I should be able to make more than that in the market right?
Answer:
We do not feel it is a good idea to take money from your home equity. People got in trouble treating their homes like a piggy bank. It worked in theory when the value of your home continued to rise. However, now that property values have eroded, many owe much more than the home is worth.
If you have been in your home more than 20 years and had significant equity built up, it is tempting to take some equity and invest it in a dividend paying portfolio yielding 4.5%, considering we do not know what will happen with taxes. However, a mortgage deduction may not offset the taxes you may owe on dividends. We suggest avoid taking the risk. If you were in a jam and needed the money, we suggest looking at a reverse mortgage. For the average investor, we suggest leaving the equity where it is—in your home.
At Henssler Financial we believe you should Live Ready, which includes understanding the investments you have, and the risks involved. If you have questions regarding your investments, the experts at Henssler Financial will be glad to help. You may call us at 770-429-9166 or email at experts@henssler.com.