Question:
As we start 2014 is old tech dead? You always talk about Oracle, IBM and EMC, but Facebook and Twitter both had their IPO in 2013, I think these are the wave of the future. Is now the time to jump on the bandwagon?
Answer:
The problem we have with Facebook, Inc. (NASDAQ: FB) and Twitter, Inc. (NYSE: TWTR) is that they have yet to establish good reliable earnings. Proponents that pound the table on these stocks are assuming Facebook and Twitter can expand their footprint to other areas like Google (NASDAQ: GOOG) did. To do that, we believe a company needs to have earnings and financial worth. That’s not to say they won’t be able to do so. Both companies could be around for a while, if they purchase the right assets. Currently, we think there is just too much risk. Facebook is trading at 140 times earnings.
With technology, you have to consider how fast it moves. Google entered the market 10 years ago—making it a relatively new company. Through their acquisitions, they now have the third largest market cap in the world. However, BlackBerry Ltd. (NASDAQ: BBRY) also debuted 10 years ago, as the hottest commodity in technology, allowing people to get email on their phones. BlackBerry is almost gone today.
We still prefer the big technology companies like International Business Machines (NYSE: IBM). It has continued to grow at 10% to 15% a year and pay a dividend. Currently, we believe the growth is in the cloud and who can leverage it the best. The larger technology companies that are more hardware oriented stand to do well, in our opinion.
Question:
I have a question about BP stock. Lately, they have switched to American Depositary Shares. Do I have a reasonable option to change to something else, without taking a tax hit? Current value is about $45,000. I have been reinvesting dividends since 1985, although I took the cash dividend before that. To add some additional detail – The original shares were actually Atlantic Richfield, which became BPAmoco around mid-2000. Of course, it took a hit after the spill.
Answer:
Since 1977, BP Plc (NYSE: BP) has traded on U.S. markets as American depositary receipts (ADR). ADRs allow foreign equities to be traded on U.S. stock exchanges. An American depositary share (ADS), on the other hand, is the actual underlying share that the ADR represents.
Any sales transaction is likely to cause you tax consequences if the shares are not held in a retirement account. As for how much tax we are talking about, that would depend on your cost basis. Given that you have multiple purchase points throughout the years, as you have reinvested dividends since 1985, it should take a significant bit of calculation to know your cost basis. You may be able to identify some of the different tax lots and find shares that have losses to offset your gains—perhaps some shares purchased before the spill.
While we understand your reluctance to want to pay taxes, most investors never really hope for a loss.
Question:
I always hear people talking about buying gold instead of stocks. This morning I noticed Yahoo finance puts the price up for crude oil on their site. I think oil could be a good play. How do I actually buy it?
Answer:
We recommend you gain exposure to oil via an exchange-traded fund (ETF). The United States Oil Fund LP (NYSEARCA: USO) tracks the price of the futures contract for light, sweet crude oil traded on the New York Mercantile Exchange. If you were interested in natural gas, we suggest the United States Natural Gas Fund LP (NYSEARCA: UNG), which tracks the price of natural gas, as measured by the changes in the futures contract on natural gas traded on the New York Mercantile Exchange. ETFs allow you to gain exposure to almost any commodity without having to invest directly in futures contracts. The ETF tracking errors are relatively low.
We prefer, however, to own a stock rather than a commodity. Exxon Mobil Corp. (NYSE: XOM) is a diversified energy company that pays dividends and grows earnings.
Question:
I heard United Community Banks is close to repaying their bailout money back. This made me think, with tapering on the deck, what is your outlook for the financial sector, particularly banks? Won’t the Fed’s decision have a major impact on them?
Answer:
The Federal Reserve hasn’t allowed some banks to pay back their debt. They say they want the banks to be well capitalized, but we also wonder how much control over the small banks the Fed will lose once the debts are paid.
In late December, the American Bankers Association filed suit to temporarily block Volcker Rule restrictions. The Association, which represents community banks, believes small banks will suffer because the final version of the Volcker Rule requires them to divest their holdings in some CDOs, and the exclusion of trust-preferred securities from tier-1 capitalization. Regulators are reviewing the challenged aspects of the rule. Even with the Volcker Rule in effect, banks are in a good position to have more transparency.
At Henssler Financial we believe you should Live Ready, and that includes consulting experts for financial matters you do not understand. If you have questions regarding your financial situation 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.
