Stable hot stocks.
March 3, 2010 7:12 AM Subscribe
Smarty-pants MeFite investment gurus: Can you list a few of your favorite stocks or investments that, given a continued rebound in the economy, should see solid gains in the medium term? What are the positive attributes of these companies or investments that make you think so?
Absolute Return Funds aim to make a consistent return no matter the state of the market.
posted by emilyw at 7:39 AM on March 3, 2010
posted by emilyw at 7:39 AM on March 3, 2010
Also, the company's entire market value is $1.7 billion. My hunch is that there are many billionaires out there who would pay significantly more than that just to be able to say that they owned the Times, even if their profits on the paper were modest or nil.
Not to call you out personally, but this is a perfect example of why one shouldn't take "stock tips" from friends, your brother-in-law, your uncle, or some guy on MetaFilter.
NYT, The New York Times Company, offers two classes of shares: A and B. The A shares are publicly traded (as NYT). The B shares are not publicly traded and are controlled overwhelmingly by the Ochs/Sulzberger family. Their control of the B shares provides them nearly despotic control over the NYT Company, and, by extension, the paper itself.
Moral of the story: just because NYT's market cap is $1.7MMM does not mean it can be purchased for $1.7MMM. This is simply false information. While NYT may be a stock worth owning (I have no idea and frankly couldn't care less), this is not a reason for such.
posted by jckll at 7:41 AM on March 3, 2010
Not to call you out personally, but this is a perfect example of why one shouldn't take "stock tips" from friends, your brother-in-law, your uncle, or some guy on MetaFilter.
NYT, The New York Times Company, offers two classes of shares: A and B. The A shares are publicly traded (as NYT). The B shares are not publicly traded and are controlled overwhelmingly by the Ochs/Sulzberger family. Their control of the B shares provides them nearly despotic control over the NYT Company, and, by extension, the paper itself.
Moral of the story: just because NYT's market cap is $1.7MMM does not mean it can be purchased for $1.7MMM. This is simply false information. While NYT may be a stock worth owning (I have no idea and frankly couldn't care less), this is not a reason for such.
posted by jckll at 7:41 AM on March 3, 2010
Don't take stock tips from people on the internet. Read this, and educate yourself about the market.
posted by ocherdraco at 7:42 AM on March 3, 2010 [2 favorites]
posted by ocherdraco at 7:42 AM on March 3, 2010 [2 favorites]
Index funds should see a gain (continued, since they have been performing well) if the economy as a whole is rebounding.
Check out my favorite personal finance blog Get Rich Slowly for more information, the post today is about how it is folly to try to predict the market.
posted by treehorn+bunny at 7:46 AM on March 3, 2010
Check out my favorite personal finance blog Get Rich Slowly for more information, the post today is about how it is folly to try to predict the market.
posted by treehorn+bunny at 7:46 AM on March 3, 2010
jckill, hopefully we won't get into too much of a back-and-forth here, but Rupert Murdoch's purchase of the Wall Street Journal is one recent example of very rich guy paying a significant premium to buy an influential newspaper from a family that had controlled it for generations.
posted by thecolor12 at 8:06 AM on March 3, 2010 [1 favorite]
posted by thecolor12 at 8:06 AM on March 3, 2010 [1 favorite]
It is almost impossible for any kind of public or semi-public stock tip to be useful. Most economists and finance professionals believe the market is efficient or at least quasi-efficient. What that means is that a company's current stock price reflects all of the known information about that company. So, as soon as information about the firm becomes available, people buy and sell the stock and the information becomes incorporated into its stock price. Consequently, if a stock is really undervalued and some amazing stock wizard discovers this and then proceeds to write about it on the Internet or in a stock tip sheet, the rest of the market will quickly work to incorporate that knowledge into the stock price.
What this means is that even if someone here had a great tip to share with you (which is doubtful), by the time you tried to act on it you would be too late.
posted by bove at 8:10 AM on March 3, 2010 [1 favorite]
What this means is that even if someone here had a great tip to share with you (which is doubtful), by the time you tried to act on it you would be too late.
posted by bove at 8:10 AM on March 3, 2010 [1 favorite]
I have one word for you, plastics.
No really, instead of wasting time reading stock tips from random strangers on the Internet, I suggest investing some time reading The Four Pillars of Investing.
posted by COD at 8:29 AM on March 3, 2010 [1 favorite]
No really, instead of wasting time reading stock tips from random strangers on the Internet, I suggest investing some time reading The Four Pillars of Investing.
posted by COD at 8:29 AM on March 3, 2010 [1 favorite]
As everyone has already stated, no one can tell you what the next "hot stock" will be. However, you specified a certain condition--"given a continued rebound in the economy"--which changes things. Certain cyclical stocks/industries will currently be undervalued IF a recovery is guaranteed in the future. Probably things like REITs, financials, automotive companies, etc. Google cyclical industries.
But I wouldn't recommend making investment decisions that depend on you predicting the future better than everyone else.
posted by Durin's Bane at 8:44 AM on March 3, 2010
But I wouldn't recommend making investment decisions that depend on you predicting the future better than everyone else.
posted by Durin's Bane at 8:44 AM on March 3, 2010
the best single stock investment advice is to follow corporations that are innovating in your particular area of expertise. This way you'll know before the general public about a revolutionary company and you'll also know before the general public when their dominance is about to be supplanted by a new company.
posted by any major dude at 9:09 AM on March 3, 2010
posted by any major dude at 9:09 AM on March 3, 2010
Best answer: Vanguard 500 Fund. As long as the economy continues to rebound, it will go up; its low expense ratios also nearly guarantee -- unless you are an extremely savvy investor and have a brokerage with a very favorable commission structure -- that it will outperform what you can do on your own.
That said, I do personally dabble in individual equities from time to time, and have over short periods outperformed the S&P. I have no illusions that this isn't dangerous, however, and I only do it with very small amounts of money that I'm willing to lose, and I do it only when I see opportunities that I believe the market as a whole has overlooked or is being irrational about. My very strong advice is that you only buy individual equities under similar circumstances and you set 'ground rules' with yourself before jumping in.
One thing you might want to do and find instructive is to put together a 'paper portfolio' for a few months to see whether you can actually make money. Google Finance is good for this, although there are other tools (I've just used Excel sometimes). Simulate beginning with some amount of money, imagine what you'd actually buy, be sure to account for commissions and fees, and don't cheat. See what you make at the end and whether it would have outperformed the S&P. If it doesn't, put your money there.
posted by Kadin2048 at 9:14 AM on March 3, 2010
That said, I do personally dabble in individual equities from time to time, and have over short periods outperformed the S&P. I have no illusions that this isn't dangerous, however, and I only do it with very small amounts of money that I'm willing to lose, and I do it only when I see opportunities that I believe the market as a whole has overlooked or is being irrational about. My very strong advice is that you only buy individual equities under similar circumstances and you set 'ground rules' with yourself before jumping in.
One thing you might want to do and find instructive is to put together a 'paper portfolio' for a few months to see whether you can actually make money. Google Finance is good for this, although there are other tools (I've just used Excel sometimes). Simulate beginning with some amount of money, imagine what you'd actually buy, be sure to account for commissions and fees, and don't cheat. See what you make at the end and whether it would have outperformed the S&P. If it doesn't, put your money there.
posted by Kadin2048 at 9:14 AM on March 3, 2010
No specific stocks, but the auto industry in general is likely poised for a pretty nice recovery assuming an improved economy. People have been putting off car purchases for two years now.
Full disclosure: I work for a non publicly-traded automaker.
posted by downing street memo at 9:48 AM on March 3, 2010
Full disclosure: I work for a non publicly-traded automaker.
posted by downing street memo at 9:48 AM on March 3, 2010
I think we need some more info--it really depends what specific level of return you're looking for, your time horizon of closing out the position, and your risk tolerance.
posted by chalbe at 10:53 AM on March 3, 2010
posted by chalbe at 10:53 AM on March 3, 2010
jckll, I too think you were a little harsh.
just because NYT's market cap is $1.7MMM does not mean it can be purchased for $1.7MMM. This is simply false information.
Fine, but that's not what the poster said. He said that there would be people willing to buy it for "significantly more" than that, which is almost certainly true. The fact that the controlling shareholders are reluctant to sell is a somewhat independent factor. The underlying thrust of his comment was "in the worst case scenario, unless the family is willing to destroy the paper to save it, they will sell -- and the likely outcome of such a sale is higher than my basis." It's completely rational to see this, not as a guarantee of success, but as a plus. Which is all the poster said. Given that the controlling shareholders are reluctant to sell, you'd still rather pay a price lower than what a potential entity level buyer would pay than pay a higher price, right?
And you missed the real mistake, which was to count the *equity* market cap as the total "market value" or cost of acquisition, while ignoring the debt that would have to be paid off or assumed.
posted by pete_22 at 11:19 AM on March 3, 2010
just because NYT's market cap is $1.7MMM does not mean it can be purchased for $1.7MMM. This is simply false information.
Fine, but that's not what the poster said. He said that there would be people willing to buy it for "significantly more" than that, which is almost certainly true. The fact that the controlling shareholders are reluctant to sell is a somewhat independent factor. The underlying thrust of his comment was "in the worst case scenario, unless the family is willing to destroy the paper to save it, they will sell -- and the likely outcome of such a sale is higher than my basis." It's completely rational to see this, not as a guarantee of success, but as a plus. Which is all the poster said. Given that the controlling shareholders are reluctant to sell, you'd still rather pay a price lower than what a potential entity level buyer would pay than pay a higher price, right?
And you missed the real mistake, which was to count the *equity* market cap as the total "market value" or cost of acquisition, while ignoring the debt that would have to be paid off or assumed.
posted by pete_22 at 11:19 AM on March 3, 2010
Best answer: Just as a counterpoint to some people here, I think the market as a whole may be largely "efficient" but individual stocks, especially ones with smaller market caps, are clearly not efficient, because the market is not paying attention (and sometimes no analysts are even covering these companies). I'm not speaking of penny stocks here, which are essentially never ever worth investing in, but some companies have a market cap that puts them in territory where it is essentially pointless for large investors to bother with them. These stocks are by their nature riskier, but if you truly devote yourself to methodical research, there is a possibility for great success here. The bulk of your investment would be better put in market ETFs though. I recommend Motley Fool's CAPS for stock ideas (and to test your own ideas in a recorded environment to figure out whether your methods are at all sound).
posted by haveanicesummer at 12:44 PM on March 3, 2010
posted by haveanicesummer at 12:44 PM on March 3, 2010
Best answer: If you want to find anything that this sort of advice/analysis has any chance of working I agree with haveanicesummer about investing in small cap stocks, which are the only thing that have a chance of not being efficient. (I would know, given that I spend a substantial portion of the time at my job testing whether or not a given stock was efficient and how quickly the price responds to new news.)
The sort of trends you might hope to get advice on, such as "I think that consumers will flock to durable consumer goods, since they have been holding off on making these purchases until the economy gets better" or "I think print media is dieing off and digital media providers will outperform them" etc, really don't have much chance at actually getting you to outperform the market on average (it is of course possible to get lucky and do better or worse than the market randomly; it's just hard to do it reliably)
Here is why:
You have to consider that for any large company you might think about investing in, there are analysts who specialize in that industry, know every major contract they are engaged in and every product in the pipeline, have sophisticated models to predict how currency fluctuations or weather might affect profitability, can come up with relatively accurate estimates of exactly how much the earnings per share will be.
Even if you were right about knowing an industry that is likely to perform well, it is unlikely that you'll be able to make money off it, since these institutional investors will also know the same thing, and will have driven the price up to the point where the expected payoffs for that stock are about the same as the expected payoffs of every other stock of comparable risk (even though the expected payoffs might be the same, the actual payoffs may be very different, but it is very hard to know how they will differ).
Here is an example of the sort of good advice that won't make you money:
The PBM industry is relatively unknown, but is poised to significantly increase revenues in the next two years. PBMs work to help employers and insurers keep down prescription drug costs by negotiating better prices with manufacturers and by managing the formulary status of drugs to control what copays and limits are associated with different drugs. Although some of there money comes directly in the form of fee per customer for managing the plans and as service fees for any prescriptions that are filled by mail (the latter fees go to the pharmacy if the prescription is filled in person). But if you actually analyze where most of their revenue comes from, it is from the spread between the price they negotiate with the manufacturer and the price they charge to the health insurance company. If you look even closer you'll find that the spreads they can generate for brand name drugs are only about $4 per Rx, but can be as much as $45 for a generic Rx (since there is a lot more room to negotiate for better prices with generic manufacturers who face competition). So even though generic drugs only make up a small amount of the prescriptions they fill, they make up almost 75% of net profit. Now getting to the exciting part, in the next 3 years, a large number of blockbuster drugs will have their patents expire. A huge amount, much more than any time in the past ten years. This is very good news for PBMs who will likely be able to significant;y increase their profits.
So what I just told you above is true, based on independent research I've done recently (for non-investment related purposes). It is not a secret, but I'd bet its a relatively unknown phenomenon. (I hadn't even heard of a PBM until I started on this project).
With that said, I don't think it is a good investment decision, since I know their are analysts covering this industry very closely and there are investors ready to change investment decisions based on every little detail of the expected future profits of these companies. The first few people to have figured out the phenomenon I mention above might have been able to make a large profit, but by know I would guess that the stocks are all priced to take into account this future increased profit.
-----
What I mean to say is, like many others above, invest in a low fee diversified market fund. ETFs or low fee mutual funds. Try to get ones that cover a wide mix of things. Don't just invest in large cap stocks; unless you are very risk averse I would suggest adding in some exposure to small/mid cap equities, as well as at least a little world exposure (in case the US recovery lags behind other countries).
posted by vegetableagony at 8:41 PM on March 3, 2010
The sort of trends you might hope to get advice on, such as "I think that consumers will flock to durable consumer goods, since they have been holding off on making these purchases until the economy gets better" or "I think print media is dieing off and digital media providers will outperform them" etc, really don't have much chance at actually getting you to outperform the market on average (it is of course possible to get lucky and do better or worse than the market randomly; it's just hard to do it reliably)
Here is why:
You have to consider that for any large company you might think about investing in, there are analysts who specialize in that industry, know every major contract they are engaged in and every product in the pipeline, have sophisticated models to predict how currency fluctuations or weather might affect profitability, can come up with relatively accurate estimates of exactly how much the earnings per share will be.
Even if you were right about knowing an industry that is likely to perform well, it is unlikely that you'll be able to make money off it, since these institutional investors will also know the same thing, and will have driven the price up to the point where the expected payoffs for that stock are about the same as the expected payoffs of every other stock of comparable risk (even though the expected payoffs might be the same, the actual payoffs may be very different, but it is very hard to know how they will differ).
Here is an example of the sort of good advice that won't make you money:
The PBM industry is relatively unknown, but is poised to significantly increase revenues in the next two years. PBMs work to help employers and insurers keep down prescription drug costs by negotiating better prices with manufacturers and by managing the formulary status of drugs to control what copays and limits are associated with different drugs. Although some of there money comes directly in the form of fee per customer for managing the plans and as service fees for any prescriptions that are filled by mail (the latter fees go to the pharmacy if the prescription is filled in person). But if you actually analyze where most of their revenue comes from, it is from the spread between the price they negotiate with the manufacturer and the price they charge to the health insurance company. If you look even closer you'll find that the spreads they can generate for brand name drugs are only about $4 per Rx, but can be as much as $45 for a generic Rx (since there is a lot more room to negotiate for better prices with generic manufacturers who face competition). So even though generic drugs only make up a small amount of the prescriptions they fill, they make up almost 75% of net profit. Now getting to the exciting part, in the next 3 years, a large number of blockbuster drugs will have their patents expire. A huge amount, much more than any time in the past ten years. This is very good news for PBMs who will likely be able to significant;y increase their profits.
So what I just told you above is true, based on independent research I've done recently (for non-investment related purposes). It is not a secret, but I'd bet its a relatively unknown phenomenon. (I hadn't even heard of a PBM until I started on this project).
With that said, I don't think it is a good investment decision, since I know their are analysts covering this industry very closely and there are investors ready to change investment decisions based on every little detail of the expected future profits of these companies. The first few people to have figured out the phenomenon I mention above might have been able to make a large profit, but by know I would guess that the stocks are all priced to take into account this future increased profit.
-----
What I mean to say is, like many others above, invest in a low fee diversified market fund. ETFs or low fee mutual funds. Try to get ones that cover a wide mix of things. Don't just invest in large cap stocks; unless you are very risk averse I would suggest adding in some exposure to small/mid cap equities, as well as at least a little world exposure (in case the US recovery lags behind other countries).
posted by vegetableagony at 8:41 PM on March 3, 2010
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Also, the company's entire market value is $1.7 billion. My hunch is that there are many billionaires out there who would pay significantly more than that just to be able to say that they owned the Times, even if their profits on the paper were modest or nil.
posted by thecolor12 at 7:34 AM on March 3, 2010