Question:
One of my broker’s new picks is Shaw Communications. What is your opinion on the company? Should I let him buy shares for me?
Answer:
Shaw Communications (NYSE: SJR) is one of the largest cable and media companies in Canada. They offer all the traditional services, cable, dish, and internet. With more than 3 million customers, the company’s customer base can be seen as captive. However, they are feeling more and more pressure from competition from the traditional variety and the new forms of entertainment services, including Google TV and Apple TV.
The firm is in the middle of a huge capital spending campaign trying to improve its technology, which is a concern for The Street. This could put pressure on its huge dividend of 4% and projected dividend growth of 5% to 10%. Currently, free cash flow growth looks sustainable.
Shaw faces the same pricing pressures as their U.S. peers with the advent of bundling. The stock is touted as a take-over candidate, given its size of just under $11 billion and its geographic location. Shaw has less regulatory issues than its U.S. peers. An entry into the wireless market is a potential catalyst and source of angst because of the high entry cost. The firm won an auction of wireless spectrum in 2009.
Even considering its 30% run up during the last year, we do not recommend Shaw as a buy. The catalyst for the company seems to be only speculative in nature.
Question:
I’ve recently had a career change and have gone into teaching. The school system that I work for offers a 403(b) plan. Is this type of plan a good way to save for retirement?
Answer:
403(b) plans are substantially similar to 401(k) plans. Named after the section of the IRS code that allows for them, they provide tax-advantaged retirement savings for government and non-profit entities. The rules are the same. As a participant, you can contribute up to $17,500 in 2013. If you are 50 or older, you are eligible to contribute up to $5,500 in catch-up contributions. Earnings grow tax deferred and contributions reduce your taxable income. Many plans also have Roth features for after-tax contributions that should grow tax free.
Because these plans are designed for governments and non-profits, many do not have matching employer contributions like most 401(k) plans.
Over the years, 403(b) plans have become better, but you should carefully read your plan summary description and disclosure documents, as 403(b) plans can have considerably high fees. The accounts are structured as individual accounts, which can significantly increase administrative costs compared to a 401(k), where it is considered a pooled asset for one company. Often there may be three or four different administrators for one company, so you may have a choice. This is why it is so important to read the plan documents. Generally, there is only one 401(k) plan administrator for a company.
Since you have just begun teaching, you may be able to roll an existing 401(k) into your 403(b) plan. Likewise, if you were to leave, you should be able to roll your 403(b) into your new employer’s plan. However, the plans must first allow such rollovers. The details are generally at the individual plan level. From a tax standpoint, the advantages are the same.
Question:
I bought Potash at the beginning of the year. What a wild ride. I know you once liked this stock. Where is it going? I’m down close to 30%. Do I stick it out or find something else? Do you like Scott’s Miracle Grow—as a stock, not in your garden Gene!
Answer:
We do not recommend shares of Potash Corp. (NYSE: POT) at this time. Just last week, shares plunged nearly 25% after Russia’s Urakali announced that it would be pulling out of its sales partnership with a Belarusian potash producer, which would break up one of two groups in a global cartel commanding two-thirds of the market. The fear now is that an increase in supply could drive potash prices lower by as much as $100. Potash Corp. stands to be hit hardest in the situation as the company derives 42% of its sales from the production of potash. While potash plays a critical role in farming and animal feed, we would prefer to wait until there is more clarity surrounding the effects of the Urakali announcement prior to putting money in this stock. On the bright side, the shares yield nearly 5% after the stock’s recent pullback.
Scotts Miracle Grow (NYSE: SMG) is a more consumer-oriented maker of consumer lawn and garden products. The company is highly leveraged with a debt-to-equity ratio of more than 130%. The company’s top three customers—Home Depot, Lowes and Wal-Mart—account for more than 60% of revenues. We believe this is too concentrated. If one retailer were to dump Scotts Miracle Grow products, the company would suffer. We also find the company expensive on a price-to-earnings basis; therefore, we do not recommend Scotts Miracle Grow as a buy.
Question:
I know Green Mountain Coffee had some issues for a while. The stock seems to be doing OK this year. Would this be OK to buy nowadays?
Answer:
Specialty coffee maker, Green Mountain Coffee Roasters (NASDAQ: GMCR), has tripled since the middle of 2012. Its recent partnership with Starbucks has also given the company a boost. We are a bit weary of the hit-or-miss products like Keurig single cup brewing systems. Consumers can be very fickle, which could become a disaster for Green Mountain. The stock is pricy, trading more than 29 times earnings; therefore, we recommend waiting for a better entry point. If you own it, you may consider trimming your position.
Question:
I bought C.R. Bard about two months ago. I’m happy to say it’s been going up. What is your long-term outlook for the company?
Answer:
C.R. Bard (NYSE: BCR) is a solid medical device company in our opinion. It is currently pricey, trading at 19 times earnings, with a low dividend yield of 0.7%. The company has experienced some adverse effects from the 2.3% excise tax included in the Affordable Healthcare Act. Most estimate that the tax will cost the company around 15% of bottom line earnings. We recommend avoiding the company for now.
At Henssler Financial we believe you should Live Ready, which includes understanding your investment holdings. If you have questions regarding the stocks or mutual funds you hold, 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.
