Question:
How much money do I need to have to put down to buy a house?
Answer:
Most lenders want at least 20% of the purchase price of the home as a down payment. While there are ways to buy a home with less, we recommend waiting until you have 20%. Some Veterans Administration loans for qualified veterans require as little as no money down, and Federal Housing Administration (FHA) mortgages may require down payments of as little as 3%.
Some lenders will accept less than 20% down, but they will likely require private mortgage insurance (PMI), to insure against default of the loan. PMI premiums range from $45 to $65 for every $100,000 borrowed. These additional insurance premiums can increase your monthly housing costs and are no longer tax deductible as of 1/1/2014. You may be able to negotiate with the mortgage lender into charging you a higher interest rage in lieu of PMI. The cost would be about the same to you, but because it would be all mortgage interest, it would be tax deductible.
Question:
We have an investment in Woodward Inc. We were wondering if we should hold on to it or opt for a bigger name like Honeywell.
Answer:
Woodward, Inc. (NASDAQ: WWD) is a mid-cap company that designs, manufactures, and services energy controls and optimization solutions for the aerospace and energy sectors. It pays a dividend of 0.7% and is expected to grow earnings by 10%. It is trading at 21 times earnings, which makes the company expensive. It has a price-to-earnings to growth ratio of 2.
Honeywell International, Inc. (NYSE: HON) is considerably larger and more diverse than Woodward. It has a lower beta of 1.1 vs. 1.4 of Woodward. It is also cheaper, trading at 16 times earnings. Of the two, we recommend investing in Honeywell.
Question:
I hear a lot about Google, Amazon, Facebook etc. But I rarely hear about Yahoo! as an investment. Is it not a major player anymore?
Answer:
Yahoo! Inc. (NASDAQ: YHOO) delivers digital content and experiences, across devices and globally. In recent years, the company has lost its luster. They have outsourced their search functions to Microsoft Corp. (NASDAQ: MSFT), so they have to share the ad revenue that search generates. Yahoo is still a widely recognized company with high quality content. Yahoo! Finance is one of the best free sources for financial information.
Yahoo trades at 25 times earnings, but stands to make a considerable amount because of its 24% stake in Alibaba, a Chinese e-commerce company, whose IPO is scheduled for August of this year. We do not recommend holding Yahoo stock at this time. We feel between its limited revenue from searches and the Alibaba IPO, an investment would be a speculation.
Question:
Can you explain dollar cost averaging?
Answer:
Many investors dollar cost average their money into the market and not know it. Dollar cost averaging is the process of investing the same amount, or investing money over periods of time. Instead of taking all your money and putting it in the market at one time, you systematically invest either monthly, quarterly or at some regular interval.
For example, let’s assume you intend to invest $500 into the market each year for five years. In the first year, the market is selling at $5 a share and you buy 100 shares. The next year, the market drops 50% and is selling at $2.50 per share. So you purchase 200 shares for the same $500. In year three, the market is down to $1 a share, and for the same $500 investment, you get 500 shares. In year four, the market comes back up to $2 a share, so a $500 investment buys you 250 shares. Come year five, the market goes back to the original price of $5 a share. So for five years the market has done essentially nothing as it is selling for the same price it was five years ago. However, you own 1,150 shares, valued at $5,750, but you only invested $2,500.
That’s why it’s dangerous for people to say, “Well the market over the last five years is the same as it was when I started.” It doesn’t mean you didn’t make money. In this example, you’ve more than doubled your money in a market that declined 80% from the top and rallied back to a breakeven point. This also illustrates why we believe investing in the stock market should be a long-term investment.
Dollar cost averaging eliminates the emotional decisions of when to buy. Greed makes people want to buy when the market is up, and fear makes them want to sell when the market is down. Dollar cost averaging lets you automatically invest that same amount each period, so that you’re continually investing, whether the market is up or whether the market is down.
If you’ve got a 401(k) and you are investing 3% of your pay each period, you are dollar cost averaging. Every time they take that 3% out of your paycheck and they invest it in your allocation, you are dollar cost averaging into the market.
Question:
I’m always on the lookout for companies to invest in. A contract for ABM Industries (facilities management) came across my desk, so I looked them up. Steady price, decent PE, dividend. So, is it worthy of investment?
Answer:
ABM Industries (NYSE: ABM) provides building and facility solutions that include cleaning, maintenance, security and parking. It is an outsourcing company that can do well when the economy is down, as companies will find it cheaper to outsource the jobs rather than maintain a full-time building staff. The company can also do well in a strong economy as their services let a company maximize their efficiencies.
The stock pays an increasing dividend of 2.4% with good coverage. It has a beta of 0.95, so it is a relatively stable company. It doesn’t meet our criteria for financial strength, but the company has contracts that range from one to three years, so it has a good stream of recurring revenue. We feel this company could make a safe industrials play for an investor.
Question:
I have a small investment in Total System Services. I’m reading all different info everywhere I turn. Barron’s says it’s undervalued. But the CEO unloaded a ton of shares…Yeah he filed a legal SEC filing, but that still unnerves me. Should I bail?
Answer:
Total System Services, Inc. (NYSE: TSS), is a global payment solutions provider that provides services to financial and non-financial institutions. The company looks attractive relative to peers with a P/E 15.1 vs. the peer median at 16.6. Earnings growth is the big concern, as it trails its peers 10.4% to 20.6%.
Although the company’s shares are a little pricier than the market, we don’t have much issue with investing in the company because it meets our strict investment criteria, its growth prospects are pretty good, and profitability healthy.
I read the same Barron’s article you did. The author of the article was comparing Total System’s 45% stake in China UnionPay to Yahoo’s stake in Alibaba, and called China UnionPay the “Visa of China”. Essentially, Barron’s was saying to invest in Total Systems primarily for the upside that China UnionPay could deliver. However, we generally don’t want to invest in a company because of its investments in other companies. We prefer to invest in a company for its core business not for some ancillary reason. That said, Total Systems is one of the largest processors of credit and debit card transactions. For those of you that have watched Visa and MasterCard’s stock price in the last five years, payment processing is a pretty good business to be in. Total Systems is up about 130% over that time, while Visa Inc. (NYSE: V) is up 250% and MasterCard Inc. (NYSE: MA) is up 300%.
Basically, these companies get a small piece every transaction without ever having to take on the credit risk. After growing the number of accounts on file by 9% annually over the last five years to about 540 million accounts, that’s a lot of potential transactions for Total Systems.
Regarding the CEO selling tons of shares- that’s been going on for years. He’s been awarded stock options, exercises them, and sells a portion as part of his compensation. For top level executives, this is a very common form of compensation because it benefits them only if the share price is going up.
The 90,000 shares recently sold by Board Member John Turner, was only 6% of his total portfolio and he remains the largest insider/shareholder. We feel that this was a natural move to do. If he is the largest shareholder, he has all of his eggs in one basket. When the chance to sell some of his shares arises, as an investor seeking a diversified portfolio, he sells his shares. We recommend investors have no more than 10% of their portfolio in any one company—much less the company you work for.
Revenues for the company are expected to pick up in coming years, but not to peer levels (13% vs. 15.3%). Overall the stock is attractive as the price is low for its expected growth. The company meets Henssler’s investment criteria, so we would be OK with an investment in the company.
At Henssler Financial we believe you should Live Ready, and that consulting experts when it comes to your investments. If you have questions regarding your stock 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. 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.
