Annaly: Can You Invest In It And Still Sleep Well At Night?

Annaly Capital Management

Have you ever had a very bad experience with Mortgage REITs? Just last year, it was painful to watch as Annaly (NLY), American Capital Agency Corp. (AGNC), Armour Residential (ARR) and others declined 25% or more in just two months. I understand why we have such distaste for them. It could be because of similarly bad experiences or maybe we just don’t like to see such volatile moves. Or perhaps we avoid them because they are so difficult to understand that they keep us up at night if we own shares in any of them… even if just a few shares. They certainly aren’t the traditional dividend growers that have increased dividends over long periods of time but hey, they do pay some seriously high dividends in normal economic environments. Should we be investing in them?

Investors who don’t know or understand them should certainly not invest in them!! As Peter Lynch has often been quoted as saying:

Invest in what you know

It is one of Lynch’s investment principles, and is the concept behind his book, One Up on Wall Street. As investors, we would be wise to follow that advice. But we do have options.

Google Android Dominates the Global Smartphone Market

Scared face

Today I published an article on Seeking Alpha praising the dominance of Google’s Android operating system over Apple’s and others and offered a thesis as to why that will continue going forward. (Read Article)There were quite a few opinions to the contrary, as I expected, so I am following up that article with a few comments on the comments.

First, let me start by saying Seeking Alpha outlines many reasons why someone would be interested in writing articles on Seeking Alpha. One of those reasons is to offer up an article to a sounding board of 3.2 million people. I admit, I am not a good writer, and unfortunately, I don’t have an editorial board to confer with. Therefore, I admit, I’m often curious to get feedback from the masses. People I don’t know, who don’t hold back….at all. My friends and family could never be so direct.

So because Seeking Alpha doesn’t allow an author to put the cart before the horse by floating a ‘draft’ of an article before it gets published, articles get published that could probably use some editing. Kinda like apps on Android 😉

Facebook: A Great Company, But The Pullback Doesn’t Make It A Great Buy Yet

Facebook logo
  • Great companies are relatively easy to identify but they can go through challenging periods and expensive valuations.
  • In Facebook’s case, it is difficult to evaluate a proper price target because of its short history.
  • Relative to peers and optimistic estimates, the stock currently looks expensive.
  • The pullback may not be over, so investors would be prudent to wait until there is confirmation of another upward trend.

 

How can you go wrong investing in Apple (AAPL), Google (GOOG), General Electric (GE), or Microsoft (MSFT), you might ask? They are great companies with competitive business models and we could assume they are going to be around for a very long time. But sometimes, all of that good news is already reflected in the price. With Facebook (FB), that certainly seems to be the case.

Industry Analysis using Porter’s Five Forces Model

Porters Five Forces: Industry Analysis

Frameworks

There are a number of different frameworks available for business analysis. One of the most recognized of these frameworks is called Porter’s Five Forces and is used to analyze the five forces that determine the competitiveness and attractiveness of a particular industry, to identify the major players in the industry, and to summarize the interaction amongst all the players. The framework is named after Michael E. Porter, a professor at Harvard University whose core field is corporate strategy. He is considered by many to be the father of corporate strategy due to his early and insightful work on the subject. Porter’s five forces is not a blanket solution for understanding a company’s place in its industry, and it does not necessarily require in-depth quantitative analysis. That being said, the more detailed the analysis, the higher the benefit you will obtain from a deep understanding of an industry. It is however, a simple but powerful framework, which if applied correctly, can help you identify opportunities and threats within an industry.

Getting Past Premium Bond Prices

The look of an investor evaluating bonds trading above par

Investing in fixed income seems to be straightforward: An investor buys a bond with a face value of $100, receives semi-annual coupons for the life of the bond, and receives the face value of the bond at maturity.

Besides the investor looking to ‘trade’ bonds for a quick profit, most bond investors are looking for either income, preservation of capital, or a combination of both. For these investors, if bonds were always trading at 100, life would be easy. If a bond always traded at 100, for example, the expected return on that bond would equal the amount of the coupon.

But bond prices fluctuate just like any other security, and although they do not have the price volatility of equities, bond prices can deviate quite a bit from their initial issue price, affecting the expected return, or yield to maturity on the bonds.

It is this deviation from par that many bond investors find challenging. Ironically, the problem isn’t so much when prices are below par, but rather, when the price of a bond is above $100. You see, many investors are philosophically opposed to paying more than $100 for a bond. The concept of paying $110 for a bond today and receiving only $100 at maturity, even if maturity is many years away, would imply a loss of capital of $10. The coupons received over the years are either forgotten or ignored.

Ford: Waiting Until It Hits $15 May Result In A Missed Opportunity

Ford

Crown Crafts: Increasing Brand Awareness While Riding A Wave Of Consumer Confidence Results In 44% Upside Potential

Nojo Pic

Crown Crafts: Increasing Brand Awareness While Riding A Wave Of Consumer Confidence Results In 44% Upside Potential

Crown Crafts (CRWS)has had relatively flat revenues for the past 10 years. It’s expertise in designing some of the best bedding in the infant and toddler market is lost under the veil of licensing. But no more, the company has almost doubled it’s share of company branded sales over a 4 year period from 20% of total revenue in 2009 to 37% of total revenue in 2013. A recent trip to Babies R’ Us and Wal-Mart confirmed the increase in shelf space attributed to Crown Craft’s brands. And now that the company has improved its margins through the use of cheaper raw materials, the only thing missing is revenue growth. Revenue growth that will be directly incremental to profit and earnings.

Unfortunately, the birth rate in the U.S. has slowly declined to a multiyear low due to the financial crisis, weak labor market, and falling consumer confidence. But now that the economy is starting to pick up, consumer confidence, which is a harbinger of birth rates, has shown evidence of optimism among the U.S. population. While the labor market chugs along slowly, we may be at the beginning of a possible increase in birthrates, which, when combined with greater brand awareness, can finally push revenues past the $100 million mark. Add a shareholder friendly dividend policy initiated in 2010, and the stock could provide a total return of 45%.