1) What has happened to GE's stock? It just does not move. The company's fundamentals look good and it pays a fairly nice dividend but has limited upward movement. Please advise. — Bob
There was a time in the late 1990s when GE was the one stock that everybody owned. It was the largest component of the S&P 500 and the company's diverse assortment of businesses made it appear naturally hedged against almost any economic development.
In recent years, however, the company has lost some of its Wall Street sizzle. GE no longer commands the valuation premium it did when Jack Welch was running the ship. While they still make quite a bit of money, $4.6 billion dollars in the second quarter alone, the stock suffers from being too widely owned with no real catalyst to drive it higher. It's not growing fast enough to be a growth stock, and it's not cheap enough to be a value play. Until management makes some radial changes, such as spin-offs or divestitures, I think the stock will be a market perform at best. My hedge fund has no position in GE at this time.
2) With the baby boomers retiring in the next few years, how should anyone play the adult retirement community stock wise? Buy the builders? Buy the service providers? — Steve (Solana Beach, CA)
Markets have a tendency to anticipate news rather than reflect it. Obviously, we've known about the baby boomers imminent retirement for decades, and many of the stocks you'd expect to benefit already have. The homebuilders, as measured by the PHLX Housing Sector Index (HGX), have risen over 60% in the last two years, far outpacing the Dow, Nasdaq and S&P 500.
Recently, however, this group has begun to falter, falling some 10% in the last two months. Other housing-related issues, namely mortgage REITS along with government-sponsored issues like Fannie Mae (FNM) and Freddie Mac (FRE) are also weak, leading me to avoid the sector altogether.
For a pure-play on the retirement housing, consider Equity Lifestyle Properties, Inc. (NYSE: ELS), a real estate investment trust (REIT) that owns and operates resort and retirement oriented properties. The company's Chairman is Sam Zell, a hugely successful real estate investor and frequent guest on "Your World with Neil Cavuto." Zell himself owns over 51,000 shares of the company. My hedge fund has no position in the stock.
You might also look at American Land Lease (NYSE: ANL), another real estate investment trust that focuses on retirement communities. The company currently owns retirement properties in Florida, Arizona, and New Jersey and pays a dividend to shareholders of 4.21%. My hedge fund currently has no position in the stock.
3) Would you recommend investing in gold? — James (Sylvania, OH)
Energy might be getting the headlines, but it's not just crude prices that have been on a tear. In the metals markets, both copper and platinum have recently traded at all-time highs, and gold prices have also risen sharply. I happen to think gold still has room to run. The yellow metal traded at $800 back in the early 1980s, making it very easy to imagine it trading at $500 or higher today.
What's caught my eye has been impressive performance of many gold stocks. Names like Goldcorp (GG), Glamis Gold (GLG), Royal Gold (RGLD) and Barrick Gold (ABX) have all attracted my attention as exhibiting strong group movement and a firm underlying bid. The S&P 500 is flat for the year, but most of these names have jumped double-digits over the last few weeks alone.
Because they tend to anticipate strength in the underlying metal, my hedge fund has taken positions in gold-linked funds we wrote about in this space last month ("Your Questions Answered — August 31st"). Both streetTRACKS Gold Shares (GLD) and iShares COMEX Gold Trust (IAU) can be bought anytime during the trading day and will follow the price of gold almost tick-for-tick.
4) If I expect the value of my home to decrease in value over the next 1-2 years because the market is overheated and interest rates are rising, how do I protect my equity? Are there broad-based funds that short the housing market to hedge the loss?
Beginning the the second quarter of next year, the Chicago Mercantile Exchange is planning on launching futures contracts based on the home prices of 10 U.S. cities. If you think your Boston condo is set to fall in price, you'll be able to sell short a futures contract and, theoretically hedge your real estate exposure. Hedgestreet.com, a fully-regulated, internet-based trading exchange, already offers small-size contracts that allow one to speculate or hedge on home prices in six major U.S. cities. Of course, real estate is a highly localized market. No futures contract can offer a perfect hedge against the risk that your particular home will fall in value.
The real money in real estate has always been made by those who bought homes they could afford...and sat on them for decades at a time. You've got to live somewhere, and I happen to think attempting to jump in and out of the equity in your home is a fool's game. Providing you own a property that's within your means, I think "buy and hold" is the strategy that will serve homeowners best over time.
5) If the economy is due for a slowdown, what areas and stock am I to avoid and what areas can I count on for price appreciation? Thanks, Mark
It might surprise to you learn that, even as a professional investor, I spend very little time thinking about the strength or weakness of the economy. The fact is that we don't trade "the economy" — we trade the market, and that's what your focus should always be on. The best indicator of the market...is the market, not economic reports or pin-striped pundits.
Not knowing anything about you, it's hard for me to give "off-the-cuff" investment advice. It's not good for you and it's not good for me either. In the end, you must be able to make your own investment decisions based on independent thinking and research, not just off a "tip" from someone on TV!
However, I can tell you a bit about how I'm tweaking my hedge fund's portfolio right now.
Oftentimes knowing what to avoid is even more important than knowing what to buy. Right now, I'm avoiding most retailers, including Wal-Mart (WMT), Gap Inc. (GPS) and Costco Wholesale Corp. (COST). I'm also steering clear of insurance companies, like XL (XL) in the wake of this season's deadly hurricanes. Other "well-known" names like Dell Inc. (DELL), Fannie Mae (FNM) and Microsoft Corp. (MSFT) aren't on my list...or in my portfolio...either.
What is? Well, energy isn't dead yet. And you'll find great strength in foreign stocks, specifically countries such as Japan, Brazil, Korea, and India. I've also added to positions in several recent IPOs, names like StoneMor Partners (STON), which operates 132 cemeteries, Warner Music Group (WMG), a major music company that represents artists from Ray Charles to Cher and ITC Holdings Corp (ITC), which owns a electricity distribution grid. As always, invest and trade in accordance with your own financial situation and tolerance for risk.
Tune in to a special LIVE Business Block this Saturday beginning at 10am ET for the latest on Hurricane Rita's path and its possible economic impact with the entire FNC business team.
Jonathan Hoenig is managing member at Capitalistpig Hedge Fund LLC and is a markets columnist for Smartmoney.com. He appears regularly on FNC's business program Cashin' In.