Question:
If you were going to buy five stocks in the Dow, what would they be?
Answer:
As a long-term play, we like Microsoft Corp. (NASDAQ: MSFT). The company is a cash cow in that its profit is considerably higher than the cost of its capital. The stock has a price to earnings ratio of 10.2, so it is relatively inexpensive. Microsoft appears to be moving its software suite to the cloud, which is where technology is heading. The company also has a dividend yield of 3%.
We also like 3M Co. (NYSE: MMM) for many of the same reasons. It has a P/E of 11, a dividend yield of 2.5%. We believe Hewlett-Packard Company (NYSE: HPQ), another Dow component, is trading below the company’s true value. However, there are still some questions to be answered. Until the company can show an ability to grow again and management can give clarity as to a long-term plan, we would stay away. International Business Machines (NYSE: IBM), on the other hand, is a company that we deem a buy. The company looks relatively inexpensive, trading at 13 times earnings , and also just reported solid quarterly results.
However, if you are looking for international alternatives to some of the Dow members, you may want to consider Royal Dutch Shell plc ADR (NYSE: RDS) as a play against Exxon Mobil Corp. (NYSE: XOM); Siemens AG (NYSE: SI) for General Electric Co. (NYSE: GE); Novartis AG (NYSE: NVS) as a play against Johnson & Johnson (NYSE: JNJ) and Unilever plc (NYSE: UL) over Procter & Gamble Co. (NYSE: PG).
Question:
I read an article on MSN this week about credit card check out fees. Do you think big-time retailers will actually do this? How will adding fees impact their stock?
Answer:
We do not believe your big-box retailers are likely to do this. We think if a store were to pass along the credit card charge fee to the consumer, the store is likely already discounting the merchandise. Consumers may be more likely to see the charge at boutique stores or antique shops where they have unique merchandise that will not be available elsewhere. Often these type of stores already offer a slight discount for cash transactions. Traditional brick and mortar stores are already facing stiff competition from online retailers. We believe most know if they attempt to pass along a credit card charge fee to consumers, that consumers would have no problem shopping elsewhere.
Question:
I often listen to talk radio, and each morning they give a stock market update. The station is local to Atlanta and they give an update on “your local portfolio.” The main company that interests me is Suntrust. I know you have shied away from banks lately but their numbers are always steady. What do you think of them? They also mention companies like Delta and Synovus. Is there any benefit to looking at local companies? Are they easier to keep up with or what are some good Atlanta companies if this is a good idea?
Answer:
Georgia has several strong publicly traded companies; however, by considering only a “local” portfolio, you may fall prey to a familiarity bias. Because you see the company around town and may even have friends work for the company, you feel you know the company better than you really do. In our opinion, there is no advantage to considering only local companies.
A considerable amount of the FDIC’s bank closures were in Georgia. Generally, you should not want to invest in an industry with such known troubles. SunTrust Banks, Inc. (NYSE: STI) is not in bad shape. It has a tier-1 capital ratio of 11.1%, measuring how much money they have to cover their losses. Their non-performing assets to loan ratio is 1.5%, indicating they do not have a lot of junk to write off. The stock is not expensive, trading at 8.15 times earnings. The dividend yield is only 0.68%, which is not very attractive. Overall, SunTrust does not meet our financial strength criteria. On that alone, we recommend avoiding it. However, if you own SunTrust, we believe it should be OK to hold.
Delta Airlines, Inc. (NYSE: DAL) has done well in the past 12 months, and is at a two-year high. The company recently met analysts’ expectations in their last earnings report. However, airlines always face rising fuel costs and increased competition. To counter that, Delta is looking to cut overall capacity by 4%, which means they will not likely be able to grow earnings. We do not recommend owning Delta.
At Henssler Financial we believe you should Live Ready, which includes understanding the fundamentals of your stock holdings. 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.
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.
