Common Stock Chat

This page is set up for those that want to chat about various common stocks.

There are no rules–other than the usual–no politics.

33 thoughts on “Common Stock Chat”

  1. October 28, 1929– About 90 years ago, is known as ‘Black Monday’ in financial circles.
    The US stock market had peaked the previous month, on September 3, 1929, with the Dow Jones stock index reaching a record high of 381.
    But throughout September and October, nervous investors began pulling their money out of the market.
    And over a three day period in late October (including Black Monday), the market lost more than 30% of its value.
    Ninety years later, I thought it would be prudent to look at three key insights from that historic crash, starting with:
    1) Stocks are more overvalued today than they were in 1929
    Back in 1929, the price/earnings ratio of the average company trading on the New York Stock Exchange was about 15.
    In other words, investors were willing to pay $15 per share for every $1 of the average company’s profit.
    That’s not high at all. In fact, a Price/Earnings ratio of 15 is completely in line with historic averages.
    Coca Cola’s Price/Earnings ratio back in 1929 ranged between 15 and 18. Today it’s 30… meaning that investors today are willing to pay roughly twice as much for each dollar of Coke’s annual profit.
    Coca Cola is actually quite an interesting case study.
    If we just go back a few years to 2010, Coca Cola’s annual revenue was $35 billion. By 2018 the company’s annual revenue had fallen to less than $32 billion.
    In 2010, Coca Cola generated $5.06 in profit (earnings) per share. In 2018, just $1.50.
    And Coca Cola’s total equity, i.e. the ‘net worth’ of the business, was $31 billion in 2010. By 2018, equity had fallen to $19 billion.
    So over the past eight years, Coca Cola has lost nearly 40% of its equity, sales are down, and per-share earnings have fallen by 70%.
    Clearly the company is in far worse shape today than it was eight years ago.
    Yet Coke’s share price has nearly DOUBLED in that period.
    Crazy, right?
    It’s not just Coca Cola either; the Price/Earnings ratio of the typical company today is about 50% higher than historic averages.
    (This means that the stock market would have to drop by 50% for these ratios to return to historic norms.)
    It’s clear that investors are simply willing to pay much more for every dollar of a company’s earnings and assets than just about ever before, including even right before the crash of 1929.
    2) Stocks fell by nearly 90% in 1929… and it took decades to recover.
    The ‘crash’ wasn’t isolated to Black Monday.
    From the peak in September 1929, stocks ultimately fell nearly 90% over the next three years. The Dow bottomed out in 1932 at just 42 points.
    42 is lower than where the Dow was trading in 1885… so the crash wiped out DECADES of growth. And it took until November 1954 for the Dow to finally surpass its high from 1929.
    If that were to happen today, it means the Dow would fall to just 2,700… a level it hasn’t seen since the early 1990s. And it wouldn’t return to today’s highs until the mid 2040s.
    Most people think this is completely preposterous.
    And to be fair, I think the government and central bank will do everything in their power to prevent a severe crash.
    The Federal Reserve has already announced that it will print another $60+ billion per month, which should be favorable for the stock market in the short term.
    But just because we can’t imagine something happening doesn’t mean it can’t happen. In fact it’s happening right now in Japan:
    Japan’s stock market peaked in late 1989 with its Nikkei index reaching nearly 39,000.
    Within a few years the Nikkei had lost half of its value and would ultimately fall by 80%.
    Even today, thirty years later, the Nikkei index is still 40% below its all-time high.
    There is no law that requires the stock market to go up. It can fall. And it can stay low for years… even decades.
    3) Adjusted for inflation, stocks have returned just 1.7% per year since 1929.
    It’s best to think long-term about any investment. Businesses take time to grow and expand, and patient investors who understand this tend to do well.
    But when thinking about the long-term, it’s imperative to consider the extraordinary effects of inflation.
    Every single year your money loses around 2% of its value. But over time those small bites of inflation fester into a major chunk of your investment gains.
    Consider that, even according to the federal government’s monkey math, the US dollar has lost 94% of its value since 1929.
    So even though the Dow is more than 70x higher than it was in mid-1929, when you consider the effects of inflation, stocks are only about 5x higher over the past 90 years.
    That works out to be an average annualized return of just 1.7%.
    Even over the past 20 years– if you go back to late 1999, the stock market has only returned about 2.2% per year when adjusted for inflation.
    Think about all the risks and wild market swings that investors have had to deal with over the past 20 years– all for a measly 2.2%.
    It’s interesting to note that, when adjusted for inflation, GOLD has outperformed stocks over the long run.
    When adjusted for inflation, gold has averaged a 1.8% return since 1929 (slightly higher than stocks), and a 6.7% return since 1999– more than 3x as much as stocks.
    But unlike stocks, people who own gold haven’t had to put up with the same risks. No shady brokers. No WeWork bullshit. No Enron scandal.
    They earned 3x more than the stock market– with the added benefit of being able to hold their investment right in their own hands.
    Please do your own deep due diligence before investing and NEVER follow someone blindly just because they are a good and convincing writer..l
    To your freedom,
    Nomad

    1. Thanks for that chilling reminder, I’m staying in bed thank you.
      I think i can stop the bull market in one week, all i have to do is to invest 100k in the S&P index. Once i’m in the market, it’s guaranteed to drop.
      It may take a major European bank to shutter its doors to get me out of the market.
      Following blindly, Well, guilty as charged.
      When me and the missus are on 39th street and Broadway sipping our coffees and we see people from uptown start running down our street in drips and drabs and then huge crowds running wildly past us, Do we stop and think what’s happening ? or do we run with them thinking they know better?
      It’s hard to run against the crowd. I did that once in 2009 when i bought Mer-k and actually had the print low of $7 or $9 and change. I believed that after Lehman, the treasury would not allow ML to go under. What a roller coaster ride.
      I made my most of my money in Real Estate buying low and selling at the next top or keeping the rental properties. RE seemed to tank 2-4 years after a market crash and it stayed low for 3 years. That gave me plenty of time to cherry pick. My last buys were in 2010-2013. In RE no one manipulates the value from one day to another and you can’t just sell when you are panicky. I played with gold for awhile..last purchases were at 1,200.
      Sorry for the rant.

  2. Macy’s (M) had a nice break out today, up 5.4% to 16.71 on higher volume. The two key technical parameters from my perspective will be the 20 day moving average crossing above the 50 day, (should happen this week) and the down gap from mid-August that getting filled when the share price reaches 18.86. Also, the 200dma sits two full points above the gap fill, at 20.87… so its a nice technical set up going into the start of the holiday season.

  3. LTS – Ladenburg looking to sell itself and hired an advisor to do so.. I wonder what what a sale would mean for the baby bonds and preferred?

    1. 2whiteroses, On LTS, I have not verified but the following is from Richard LeJune on the SA HDO Chat: “No LTS.PA would Not be hurt if LTS goes private. LTS.PA has conversion rights to put shares at par subject to a share cap of 25 LTS shares. So unless LTS was taken private for less than $1 per share (which isn’t going to happen) , there is no danger to preferreds. “

      1. TNT – To be honest, I wasn’t thinking negatively should LTS get bought out… It’s such a dicey one as it is, I was wondering outloud whether or not there was a requirement for the notes to be assumed by a purchaser. Practically anyone would be a credit positive if they had to assume the outstanding.

  4. If you ever wanted to own Amazon (AMZN) shares tomorrow morning should provide a decent entry point, as the company reported earnings this afternoon that are being interpreted as a miss. After hours share price is off ~7% to 1655.

    1. AMZN feeling the pain in after hours, now down to about $1,648.

      I put in a lowball bid for a couple shares tomorrow opening, in the hope that some panic dumping ensures.

    2. If you bought AMZN at the open this morning …congrats… you’re probably feeling pretty good right now as shares are trading about 60 points higher. Looks like 1700 is a technical support level, although that may get tested again the afternoon if traders fade the rebound.

  5. My Macy’s investment is currently flat after being up almost 10% and am looking to add some more shares today. It remains to be seen whether Santa delivers a stocking full of sweets or a lump of coal on this one.

  6. MO Altria Group – Rumoured merger with PM as JUUL continues to get hammered from regulators and medical rumours.

    FDX Fedex – Previous earnings call hammered stock. Will the sell off continue or is it overdone.

    UNH / MRK / MDT – Best of the beaten healthcare stocks.

  7. AAPL trading flat on lower volume today, after launching some new products. This not a positive signal for the company, although these launch events have seen diminished effect on stock price over the years.

    Meanwhile Macy’s (among other retailers) continues its post-Labor Day run…trading up 4% today. Macy’s goes ex-dividend on Thursday which may create a buying opportunity.

    Both stocks are consumer driven, but at these price levels Macy’s is more of a value bet and Apple is more of a momentum play.

    1. There’s a big rotation going on right now… Value is making a push while Momentum is getting hammered. That’s a major reversal and it’s three straight days. HUGE if it sticks. That probably signals that Q4 may get ugly again. JMO

      1. Agreed, somebody is rotating something. Probably just rebalancing ahead of the slow October period / window dressing the 3rd quarter. My biggest gainers of over 150% like V and MA are not having a good few days, but I’m not worried. I’m taking these 2 to the grave. Meanwhile. T is crushing 52 week highs and some ute’s are also doing very, very well like DUK. I love playing both sides of the fence.

  8. A few comments: Income related: For those who are talking equities, need to hone up, looking to build in a possible new skill set and are good self-directed students. This is actually no more difficult than understanding the preferred details. Hope it is useful to some!
    1) Take a look at selling calls on something you hold? I have held SIL and published this a few months ago as being cheap. It was a good bet. I’m out now. Did not sell calls at that time.
    I looked at selling calls on a new silver or gold holding and a good candidate is CDE. I learned to appreciate the commodity managers in the global mining space as the toughest bunch of manager hombres around. These companies have proven they can manage thru all cycles. IE: RIO just paid out a special dividend and all their balance sheets are wrung OUT. I am usually 6 – 12 months early, but my planning would be to collect the divys and option premia while waiting. (etf: PICK or GUNR if you want some ag in there)
    Regarding selling call options: If they get assigned, it can guarantees a profit and you can re-enter if you choose or roll up and out of the money along the way. I think selling calls is the BEST way to SELL stock.
    So my example: look at a holding some CDE now ? , buy at $5.40 , sell options at $6 to Sept 20 at $.10. Receive 1.85% on investment cash up front now. If called at $6 on Sept 20th with no roll out = 12.9% or 70 cents/ $5.40 per share. Boom: On $10,000 = $1,290 and out of the position in fifteen market days. If not called 1.85% in fifteen trading days and cost basis down to $5.30.
    Skill Set:
    Sell options again? (Do this in a tax sheltered account, all short term, ordinary income)…
    roll or stay naked?
    Roll up and further out of the money if the stocks begin to wave up? Don’t forget you CAN roll if prices start to go up (calendar call spread, standard electronic entry on all brokerage sites) not just on expiration date. Best to roll before option goes in the money and the volatility is beginning to price up calls further out.
    PS: You keep the divy if xdiv date occurs before an in the money call assignment may be made on you.

    That’s really about it. No more detailed than preferreds, calls, floats, resets, etc.
    It is a safe, conservative and prudent approach to the market of equity if you ARE going to hold equity anyway.
    Sideways and down markets are best for call option strategies. Commissions apply too.
    Usually have to request options trading on your account…stick to ‘covered calls’ only!
    2) Big oilys look like their 60% retracement since Xmas has happened, but is lost in the news morass. Some decent spasms since then, someone is accumulating? I like the yields and their balance sheets can ride a LONG time. Still hold IPPLF and FRHLF in the Land of the Grandmother, monthlies and hardy as a cabbage plant. Bot some RDS.b and BP and looking to just watch now…maybe sell some covered calls! All in Roth about 8% of portfolio.
    “As long as we are here the Story is not over. We can change the entire thing.”
    Happy Investing

  9. I bought a small amount of FL (foot locker) yesterday. >4% dividend with only a .32 payout ratio.

    Stock is down 45% from recent highs on China and recession fears. Could be a value trap.

    1. August has traditionally been a good time to invest in retailers Jacob, and you’re getting into FL at a reasonable price close to a major support line at 32.91, which is the 200 month moving average. There may be a better entry point if the market melts down again, but technically it looks good.

              1. Good job Jacob. Gutsy call on that one. Maybe you should consider giving TGT a shot going into next quarter’s earnings. What a year they’ve had. Going from ~65 to just cracking 109.00/share.

                1. TGT valuation seems full right now with a PE at 18.

                  I was considering using my M proceeds to buy TLRD (tailored brands) but it seemed too risky… glad I didn’t! They announced div suspension today and stock is down 25%.

  10. Interesting to see JNJ up on lower than expected judgement in OK. I have been hesitant to consider drug stocks between the liability risk and political ramifications. MMM is interesting at this level, but with their lowered outlook and continuation of trade war, they may have a bit further to fall.
    Any thoughts?

    1. furcal, I get my exposure to the drug industry through a fund, HQH, which gives me diversification and a nice yield. Between the talcum powder and opioid lawsuits, things could get dicey with some individual firms, especially JNJ.
      I’m not smart enough to know when is the bottom on any issue so if I like it, I’ll buy a small position (1% or less of my stock portfolio) and watch to see if I should add over time or admit I made a mistake and get out. A full position in my stock account is 2 to 3%. This keeps the land mines (unanticipated blunders) from being fatal.

      1. JV, A few weeks ago I looked at the 4 main healthcare cef’s THQ THW HQL HQH and went with THQ since it pays monthly (as does THW vs quarterly for HQL and HQH) and THQ had a very nice cushion with nearly $2 in UNII. I have been trying to avoid cefs with negative UNII.

        Further discussion on healthcare cefs welcome in case I am missing something obvious, per usual.

    2. Hi Furcal,

      I would be interested in MMM at 125 – that would give them a P/E of about 15. Speaking of litigation, I’ve seen commercials about ‘defective’ 3M military earplugs.

      1. Jacob, thanks, I know MMM had some environmental litigation risk, was unaware of the airplug issue. I have starter position from 165 but am not averaging down at this point.

Leave a Reply

Your email address will not be published. Required fields are marked *