Don't Believe the Hype, But...

So after the market has increased in value now for roughly 6 days, a lot of naysayers are starting to come around and say that we "may have hit the bottom". People are looking for more signs than a group of fourteen year old girls in an Ouija board. I don't believe the hype, until my friends at the paint company tell me that production is up, I am going to have a hard time believing it. There is just too many people on unemployment, too many scared to purchase more than anything besides the necessities. I won't believe it until consumer spending is up for a couple of quarters.

BUT,

The savvy investor, the contrarian, and myself know (I am the dumbest of the three) that if you wait too long you may miss the bounce. So I have begun the search for more good stocks. It is a gamble, no doubt. I have two ultimate criterion. 1] The potential company must be one that will exist when this economy has finally turned. 2] The potential company must be one that will be profitable when this economy has finally turned. Sorry GM doesn't qualify.

My favorite way to begin a stock search is through the magic formula screen. I have talked about it before, recommended buying the book, and believe in it's methodology. I won't go into full on stock research in this post, but will say that my findings turned up several good prospects including: CALM, MLHR, MSFT, PCU, PM, RIMM. Until I plow through their latest financials I won't recommend anything. Also there are a few perennial industrial powerhouse stocks that are 'relatively' cheap including LECO and EMR among others.

I will start doing the numbers because I am beginning to feel like it is a good time to start looking to buy. We will see how it goes.

My own private market update

Well after I lost roughly 46% of what I had put away in my Roth IRA I have been slowly climbing instead of digging with a portfolio shuffle that I think will work for both the short term and long term. I am now firmly only at a 26% lost. That means I have raised my funds roughly 20% from there worst point in the past 2.5 months. How did I do it, mostly buying two stocks that are a couple of the only companies that will do well in this economy Kroger (KR) and Walmart (WMT). Not to mention timely purchases of Baldor (BEZ), Philips Morris International (PM) and Vanguard Total Market Etf (VTI). I am buy no means a savvy investor again (was I ever) but I resolved late last year to make conservative long term purchases in the market. Also, I am going to go forward with an investing strategy which I will explain someday in a later post but the biggest impact is going to be anchoring ETF's like VTI and smaller investments for long term stocks using principals that I have laid out over the past year in this blog.

I haven't even begun adding to my 2008 Roth yet, so a big plop of money is going to get infused soon into my future funds and a close scrutiny of the market will litter my posts once again.

So if you could only choose one?

Coming back from the Philippines I realized that the world smokes. Smokes cigarettes that is. I know it is a bad thing, and I don't do it, but that doesn't mean I won't invest my future on someone else's habit.

With all that said, if you could only choose between investing in two stocks in the world, what would you choose, Altria [MO] or Philips Morris International [PM]? This whole thought process was triggered in my brain when I saw something on Bernanke again and remembered this guy only invested in one stock his whole life, the old Philips Morris company. So I began researching what Philips Morris has become today, Altria and PMI. What I found is that it is truly a tale of a value stock versus a business with a bright future.

Altria (~$21 per share) is now basically just the US cigarette market, lawsuits and all. To me the stock looks really good, it's trading at a $1 over one year lows and has an annual dividend of $1.16 (5.5%). Their story over the long term would seem to look as a long growth stock. It has been anchored down by lawsuits and government taxes in the states for the past 10-15 years now and it has affected the stock price. However, this is a S&P 5 star rated stock, which typically is tied to a low price to earnings, a good credit rating, and a strong cash flow, which this stock has. The US is a mature marketplace, and they do predict a slight fall in sales volume, but they have been diligent on price increases, stock buy backs, and seem to be still a hugely profitable company. Two aspects I look for in stocks are a good return on assets, 24.5% here and profitability, 21%. I tend to think these are good measures of efficiency for a company. Anything over 15% for both measures is really, really good. Some analysts are speculating a price per share of $26 in a year which is 23% increase from the current price plus a 5.5% annual dividend, that is 28.5% increase in value over a year. I know that is a really positive outlook, but the potential is there. The downfall is that Altria is now basically a new company again, and they haven't been always known as being the most truthful company in the past (although I have never really heard of them lying about their financials), so all of this could be just a big promotion to get investors investing. Another note is the wondering of whether the US marketplace will really grow at all or just level out. If that is true then think about this company as a pure dividend play that isn't a bank, energy, or oil company.

Philips Morris International (~$55.50 per share) is basically cigarettes around the world. The company was split from Altria so that it would be insulated from lawsuits and really grow from the rapidly expanding world market. I perused their most current financial reports and really only care about one thing, year over year revenue growth in each of the various geographic marketplaces. See when a company is this new, I don't trust the basic financial figures other than net revenue and growth. Look at it yourself here, notice the year over year net revenue increases of over 20% for Eastern Europe, Western Europe, and Latin America, and 13% for Asia. Asia being the biggest potential for huge growth in the next 10 years. Combine that with a decent dividend (3.3% currently) and a 4 star S&P rating, and the company looks like it has some potential. However, PMI recently purchased Rothman's Inc, a major player in cigarettes in Canada. It now makes this 'legal insulated' company now susceptible to lawsuits. I think that the current stock price is a little high, but after a pull back, it may be an excellent Bernanke-ish play for the long term.

So if you had to choose between these two stocks, which would you choose? Ben?