Wednesday, January 28, 2009

Russia and China Boasting

Before I had a chance to write anything more significant, I thought I'd throw up a link to this interesting article at

China and Russia have heavily criticized Western economic policies at this year's Davos conference; not that we're perfect, but last time I checked, Russia is an authoritarian state that's also in a recession, and China's economy is grinding to a halt as our demand for cheap stuff dries up....

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Tuesday, January 20, 2009

If I had Dry Powder...

I'd be buying PNC today.

The shares are currently down 30% on general financial-sector weakness. However, (to my knowledge) there is no relevant bad news actually about PNC that has leaked today.

Other banks have reported lower earnings and bigger unrealized losses. State Street's shares have declined about 50% today after acknowledging about $9 billion of such losses.

I can't promise sunny skies for PNC, and buying National City certainly put them at a greater risk of reporting disappointing news, but for now, PNC looks like a gift today. Of course, my recommendations are never really "recommendations," and always thoroughly research your investments, but my instincts tell me that PNC's intraday decline is an overreaction.

Tuesday, January 13, 2009

Soda Stocks: Falling Flat or Plenty of Fizz?

As economic and stock market conditions continue to show little improvement, investors naturally look for safe havens to make investments. The good-times goal of appreciation of almost seems like wishful thinking; preservation of capital is the more important goal for many investors.

One usual area of perceived relative safety are consumer necessities. Companies like J&J, McDonalds, and Wal-Mart have attracted investors as stocks of more discretionary purchases (premium clothing, travel, premium restaurants) have tanked.

As an appreciator of many things fizzy, I decided to take a look at various beverage companies who may enjoy some benefits in a rough market as an area of perceived safety.

First is Coca-Cola (KO), a company that has been a longtime favorite of Warren Buffet. KO has actually fallen by an amount similar to the general market - shares are now down about 30% off of their 52-week high. Coke is one of the most recognizable brands worldwide, and shares have historically enjoyed generous valuations because of that valuable brand power. Though the stock's current PE of 17 doesn't seem cheap, it is compared to KO's 5-year average of 20. KO's PE is even higher if the time frame is expanded beyond five years; during the rougher few prior years, KO's PE was close to 30 for much of the time. (Full table here from Price-to-sales and Price-to-CF ratios are trading at similar discounts to historical levels, implying that KO could realize 30+% of upside if it were to trade back at historical valuations. In the mean time, the stock is currently yielding roughtly 4%, which isn't bad considering the pathetic yield in Treasuries at the moment.

Many parallels can be drawn between KO and Pepsico (PEP). KO's beverages do outsell Pepsi's worldwide, but Pepsico owns the valuable Lay's snackfood brands and has done well increasing sales of non-soda beverages. (Pepsi's purchase of Quaker Oats years ago brought the Gatorade brand under the Pepsi umbrella, and other drinks such as Tropicana juices are also great sellers). Pepsi is trading at cheaper valuations relative to KO and to its historical averages: PEP's PE is now 14.7, compared to a 5-year average of 20.6. PEP's P-to-S ratio is 2, compared to a historical average of 3. With strong brands providing stable sales, an investor should be able to park money in either Pepsi or Coke, enjoy respectable yields (Pepsi's is about 3%), and eventually sell the shares for a nice capital appreciation.

Looking beyond the two biggest players, there are some other noteworthy opportunities.

Cadburry spun off Dr. Pepper Snapple Group (DPS) about a year ago as capital markets were freezing and a highly-leveraged private equity buyout was no longer an option. DPS was initially sold around $25/share; after touching $27 soon after the spin off, shares sunk during general market weakness and now trade for around $16. DPS has a narrower focus than KO and PEP, with a much more limited brand spectrum and operations in only North America, Latin America, and the Caribbean. (DPS also engages in some bottling and distribution activities, while KO and PEP sell primarily syrups and let bottlers do the less profitable work). However, DPS looks very cheap compared to its two bigger peers, which may even make it a takeover target. DPS is expected to earn about $1.75/share this year, giving shares a very attractive 9 P/E. Price to sales are just 0.7, compared to PEP's 2 and KO's 3.2. Price-to-Cash Flow for DPS is just ten, providing a buyer with a steady stream of cash from its investment. With a market cap of just $4 billion, compared to KO's $100b and PEP's $80b, DPS may seem too attractive to pass up soon. (KO actually currently has $8b of cash sitting on its balance sheet, so a buyout wouldn't need any additional financing). Investing solely on the basis of expecting a buyout is risky, but DPS's fundamentals justify buy shares nonetheless.

Hansen Natural (HANS) is a maker of energy drinks, notably the Monster brand. HANS is a faster growing company than the soda makers, but skeptics often worry that energy drinks may be a fad. As a consumer, I can understand both bullish and bearish arguments about the business model - I do buy and love energy drinks, but I have cut back consumption as cheaper alternatives (coffee) exist. Also, energy drinks are becoming commoditized; I saw 99 cent energy drinks popping up in convenience stores in Pittsburgh, which should erode market share from the $2.29 Monster. HANS has done a good job of widening distribution and introducing new beverages (coffee-like drinks, etc.), but I have to believe that the growth will fizzle out eventually. Since the topic of this post is safety stocks, I'll exclude HANS - but there is a good chance that it may outperform KO, PEP, and DPS if management continues to execute well.

Lastly, I'll throw Jones Soda's name into the blogosphere. JSDA is a maker of relatively expensive, high-quality sodas. JSDA has had some successes getting their sodas into more stores, but the company isn't profitable and trades at $.38 for a reason. However, JSDA might work out as a very speculative bet. Jones Soda drinkers are often very fond of the brand, and thanks to wide distribution in Starbucks in the past, it has become somewhat of a household name. A recovery is clearly priced in as being unlikely, but if management can turn the company around, take it private, or sell out, there could be huge upside.

In conclusion, KO and PEP provide great places to park money in a wild market. DPS trades at a cheaper valuation than KO and PEP, and should recover strongly or be bought out. HANS has been one of the hottest stocks of the past half-decade, but such companies often fizzle out. And, if you're too cheap to fly to Vegas, buying JSDA might mirror betting on a single number in roulette; you'll likely lose, but any winnings should be big.

Wednesday, January 7, 2009

I'm back... Looking at 2008, and Looking to 2009

Reflections on 2008:

The presidential candidate promising “change” has now promised to deliver more of the same (but worse)… bigger deficits, bigger government, more spending, and more bloat

I changed my major from finance to accounting due to my observations and expectations about the job market in two years. Accounting seems like a much safer choice

The stock market performed poorly during the year, and even more poorly during certain months (October). I lost a lot of money.

Looking forward to 2009:

I’ll begin regularly posting again!

It’s now the time of year when Whacks Wax is in full swing. I’m hoping it’s a good winter, as I’d like to be able to reinvest some business profits back into the market.

Things may get better…

But right now, predictions are looking gloomy. Major blue-chip companies like Alcoa and Intel are announcing job cuts, revenue decreases, and decreased expectations.

I expect general economic weakness for a while, but there are opportunities for good investments in individual companies/investment vehicles in the short term. (Of course, I’ll be writing about those!)

All things considered, I had a great 2008 from the viewpoint of a 19-year-old college student. The market sucked… but spring semester, my internship, and fall semester were all great. I obviously hope for a better market (or at least better individual performance!) during 2009, but it’s wonderful to be able to step back from the doom and gloom because of current position in life. Obtaining and internship this summer might be a little difficult, but at least I’m not getting laid off from an actual full-time job…

So check back in regularly, as I will begin posting the same stock, commodity, and market analyses that I had prior to my publishing slowdown this fall.

Search StudentStocks or the web. Thanks for your support!