hi, paul prior to your post I added a package of stocks to increase my equity exposure: KFT, NWL, SVM, RYN, RIG, DO and added to existing positions in CX, C. Monday I'm adding to PFE, starting BMY and UU. I continue to trim the REITs but not fast enough given their continued appreciation.
These moves reflect my belief that the global recovery seems real and sustainable and that I should move in the direction of my normal investment posture which is to be fully invested in common stock. Currently, I have sizable positions in short-term bonds and cash. I too would prefer better prices on these purchases, but I don't think I'm going to get them. I wasn't jumping up and down at the purchase possibilities 1-2 years ago when I was buying, and one can hardly be excited now with prices up 30+ percent.
I've exited my electric utility positions in AEP and TE purchased in 10/2002 at 52% and 12% total returns respectively. I will exit my 3/2003 buy of DUK as well in 4/2004... currently, I'm sitting on a total return of 35% there. The economic outlooks look just as bad now as then for these companies, and their credit ratings have deteriorated since then.
I'm still holding and not adding to Safeway (SWY) which I have large losses in (38%). I'm getting weary of betting against Walmart, but I'm not getting out at these valuations. I've cut my expected earnings growth to 3% on it, so I may lighten on price bounces.
With regard to my buys:
I added Rayonier to Plum Creek. RYN is REITing at the end of the year, dividend yield should be comparable to PCL's. These are starter positions for me. I would like to have substantially more money invested because I like the businesses, but their recent economic performance is puzzling, and the valuations seem miserly from a buyer's perspective.
I added United Utilities PLC, a regulated UK water and electric company. Senior debt is rated a3/bbb+ by moody's/s&p. My dividend expection is $1.50 for a yield of 8.7%. The company had a substantial rights offering early in 2003, so beware.
I added Pfizer (PFE) and Bristol Myers (BMY). BMY yields 4.3% and I'm expecting 12% earnings growth at PFE. I accept the widely held belief that the pharmas are priced reasonably. We'll see.
I added the drillers Transocean (RIG) and Diamond Offshore (DO). They have pretty good balance sheets, but economic performance recently hasn't been good. They are trading near 5 year lows. DO allegedly has mostly finished a substantial CAPEX program freeing up future cash flow.
Regarding Kraft Foods (KFT): this seems okay to buy at with an earnings yield of 6% if you accept management's expectation of 8% earnings growth and senior debt rated a3. It's less appealing when you consider that earnings are only supposed to grow 1.5 percent in 2004 and you're buying into a minority ownership position to Philip Morris and you are vulnerable to Walmart squeezing supplier margins further.
Regarding (Newell Rubbermaid) NWL: I don't quite get why earnings are supposed to be flattish in 2004. For me this is somewhat of a faith investment in the CEO, Joe Galli. Earnings yield is about 7%, dividend yield about 3.7%.
That's all for now. Again, these buys are more of a macro call on my part. I don't really like the prices... I just can't find stuff I like better.
Stocks discussed:
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