Article by Investment U
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In focus this week: A natural gas stock that’s going up, your granny’s growth stocks, bond ladders and the SITFA.
One way to play this turn around is liquefied natural gas (LNG) and the companies that service it. Barron’s mentioned KBR (NYSE: KBR).
There may seem to be no bottom to natural gas (NG), but there is. In fact, there are several gas stocks that can do quite well despite the industry suffering through near historic low prices.
But, according to Barron’s the bottom is already here for NG and several analysts are calling for higher prices by the end of the summer.
One way to play this turn around is liquefied natural gas (LNG) and the companies that service it. Barron’s mentioned KBR (NYSE: KBR).
KBR is an engineering and construction company whose projects are necessary for LNG infrastructure. They already have a pile of signed contracts for liquefaction facilities for LNG producers and Aaron Visse, of the Forward Global Infrastructure Fund, said in the Barron’s article that KBR is a stand out in what could be the reindustrialization of America.
LNG will be one of this country’s leading exports for many years to come. Producers are literally standing in line to get their liquefaction and export facilities up and running.
Citi Group says this stock should be trading at a multiple of 15, much higher than its current 10, and although the gas business is in price limbo now, it will change and KBR will be one of the big winners.
Definitely have this on your bogey board.
Granny Stocks
Some of the stocks your grandparents would have owned have been on a tear this year: Colgate Palmolive (NYSE: CL), Disney (NYSE: DIS), McDonald’s (NYSE: MCD), Kimberly Clark (NYSE: KMB). Most blue-chip and large-cap growth indices are up 10% and 15% this year.
The strange part of this scenario is that when our economy shows signs of struggling to grow, growth stocks do very well. This year is no exception.
Ned Davis Research was quoted in the Journal as believing that as this economy wallows in slow to no growth, the blue chip and quality dividend stocks should continue to do well. It’s like a split between the security of cash and the riskier returns of a better market.
This sector could continue to grow even if the market hits another slump. So if you’re planning on riding this one out in some granny-like investments, you’re on the right track.
One other name Barron’s mentioned was Nike (NYSE: NKE). Take a look at this one.
Bond Ladders
Finally, someone other than yours truly is talking about preparing income portfolios for when rates move up.
When rates hit zero it was painfully obvious that the rush to income of all kinds was the first step to a disaster of biblical proportions. The buying pressure on anything with any income has driven prices on bonds and packaged income products through the stratosphere.
But get ready, when rates go up it all must come down and it will be something to watch. One of the only ways to protect yourself against the inevitable drop in value in an income or bond portfolio is to ladder your bonds in one form or another.
MarketWatch ran an article last week about doing just that, laddering.
It’s quite simple, really. You buy one bond with about a two- to three-year maturity, one at about five to seven, one in the 10-to-12-year range, then a 15-year, maybe a 17, and a 20-year maturity.
The idea is to have some money coming due every so often to allow you to buy back into a rising interest rate market.
My idea is a little more conservative. Set up your ladder so you have several bonds a year coming due, not one every few years.
Why the multi-bond-a-year set up? When rates move up, and they will, it will not take a few years for the market value of bonds and income investments to drop; you do know that bonds and stocks drop in value when rates move up. Well, now you do!
So if you have three or four bonds coming to maturity each year, you will have lots of fresh money coming in to jump on the higher rates that will be available when rates move up.
A traditional ladder only returns principal every few years. You could very likely miss a buying opportunity.
Of course, if you’re buying more bonds to fill this ladder you want to buy fewer bonds in each position so you can spread your money around on a greater number of bonds. That’s a good thing. It forces you to diversify over many bonds and not hold too much in one place.
As safe as bonds are compared to stock you still don’t want to get too loaded up on one place. Always a good idea.
It isn’t a perfect solution, but it helps smooth out the rough spots that are certain to come.
The SITFA
This week it goes to China. The economic giant may have crossed the line this week in their quest to feed the huge consumer appetite in their country.
One of the most popular products now in China, Helen Keller glasses.
Yup, a blind person is the name sake of an eye glass company. That is a little strange. A spokesman for the company said it is unusual but Keller is a highly respected figure in China and people like the link.
Isn’t that’s kind of like naming a prosthesis company after a track star.
Oh well. See you all next week.
Article by Investment U
