|Jonas Max Ferris|
Question: What do you think about KO (Coca-Cola) and AAPL (Apple Computers)? — Lambert
Jonas Max Ferris: KO: Love the stock. AAPL: Love the business, not the stock.
Like Wal-Mart (WMT), Coca-Cola is one of those former mega-cap growth darlings from the 1990s — right before tech became the rage. The stock was classic Peter Lynchian “buy what you know” name-brand investing, and like most of the stocks of this ilk got so overpriced that there was nowhere to go but down.
Today KO is attractive as a safe way to earn perhaps 6 – 10% a year for the next few years (much like Wal-Mart today). The stock pays an above-market dividend yield of 2.7%, so even with little growth in the share price it’s an easy win over cash and bonds over the next decade. Executives at the company have been buying shares in KO in recent years, another plus. Expect about $60 a share for a few years.
Apple is a much more dynamic company in a strong growth phase — but it is also in a riskier business. While Apple has more or less locked up digital music players, with technology you never know who is going to take over with the next killer product in a few years (although with the iTunes service popularity, it would be tough to unseat Apple with a better and cheaper player alone).
When you invest (rather speculate at these prices) remember that Apple was once a hot growth stock in the 1980s with their innovative personal computers. Then the slow and steady move to Microsoft-Intel domination led to total stagnation in Apple stock for over fifteen years! Only recently with the iPod has Apple achieved growth once again.
The stock, at a near $60 billion market cap, more than reflects the future value of the iPod business. Apple would need another killer product for investors to make money on the stock from these prices. A neato, slimmer iPod won’t cut it — they’ll need that every year or so just to maintain the stock price. I don't think the video iPod or iPod phone will sell briskly enough to get the stock to continue up much higher longer haul.
I’d change my tune on the stock if Apple realizes they are not really a computer company anymore so much as a personal electronics design shop, and start making slicker looking laptops that are Windows-Intel based, a move CEO Steve Jobs is unlikely to make as his ego needs to prove Apple’s proprietary computer platform is better. PCs are still ugly, other than a few models from Sony. Consumers would likely snap up an iPod-slick PC laptop at a premium price — just as they did when Apple went into the already commodity digital music / MP3 player market.
Question: What are your thoughts on XLE: short-term and long-term? Thanks — James
Jonas Max Ferris: I used to love it, but I had to kill it.
I’m negative on XLE, the Energy Select Sector SPDR exchange traded fund, short and long term. I’d consider it after perhaps a 30-50% pullback — the sort of move that could lead to investors giving up on oil-investing entirely, sort of like what happened to tech a few years ago. This means a world with no flipping oil and gas price bugs on CNBC, no energy fund managers on TV, no new energy mutual funds being launched, and general fears of peak oil and $100 a bbl oil and $3.00 gas as dead as it was in 1998 — the start of the great move up in oil.
I recommended a global energy ETF (iShares S&P Global Energy Sector Index Fund -IXC) in the MAXadvisor mutual fund Hotsheet for 2004, but have since lowered my outlook on the entire sector to negative. While I bailed out too early, signs abound that energy stocks will underperform the broad stock market over at least the next three years — if not longer.
Back in early 2001 this fund had a mere $271 million, today it tips the scales at more than 10 times that amount — proof positive of the popularity of energy investing with investors. Trouble is, investors tend to be wrong.
If you simply must own energy, and could care less about my dire that warning oil stocks will tumble, your pick is about the best around. SPDR exchange traded funds are generally the cheapest around — preferable to iShares. Other non ETF funds to consider include: T Rowe Price New Era (PRNEX), Vanguard Energy (VGENX), Excelsior Energy & Natural Resources (UMESX), and on a speculative note GuinnessAtkinson Global Energy (GAGEX). Full disclosure — The founder of GuinnessAtkinson funds was a MAXfunds.com executive in the past (the company I founded). All are decent natural resource funds, some with more energy exposure than others. All have been listed as fund favorites in the natural resource category in my newsletter – though I am generally negative on the category.
Question: I have a townhouse that I just bought between DC and Baltimore. When I relocate with my job in 3-4 years, should I rent it or sell it? I love the area, so I do intend to come back to the area later, but I hope to upgrade the size and location a little by then. — S.R. (SGT, U.S. Army)
Jonas Max Ferris: The main question here is do you want to be a landlord? Assuming you don’t mind being a landlord (don’t underestimate this decision) or paying someone to do it for you, as you intend to change homes anyway when you return you certainly could sell and buy later, as you’re not giving up something dear to you.
The main issue then is what makes the most financial sense. In general, if home prices keep going up, and the rental market stays strong (so you can keep the place occupied) you’ll do better hanging on to the property and keeping some chips in the real estate game so you can afford another house later - something you may not be able to do if prices go you and you have no real estate action.
That said, since rents are at historic lows compared to home prices, I’d sell and hoard cash in a short term bond index fund to buy back in later, possibly after a dip or at least stagnation in prices.
Question: Two stocks that I think are underrated are: Terra Industries (TRA) and Skyworks Solutions (SWKS). What do you think? Thanks! — Peg (Battle Creek, MI)
Jonas Max Ferris: The executives at Terra don’t seem to think the shares are underrated. They have been selling the stock in recent months even though the stock is down quite a bit from the highs. Skyworks Solutions (SWKS) appears more attractive to me (and some investors I respect), but since when is a 31 P/E ratio underrated?
Question: I hear a lot about buying gold, but what about silver? Is it a better buy and will it appreciate more quickly? Thanks — Wendell
Jonas Max Ferris: Gold gets most of the precious metals investing attention because gold bugs and other crazed anti-central bank fanatics think that gold is money, not a mere commodity like silver or platinum. Get these quacks going on about the good ole’ days and they will wax poetic about how unstable the world has become since we got of the gold standard — ignoring the 13-fold increase in stock prices and explosive growth in the economy that has happened since Nixon put the gold standard to rest for life (we hope). Meanwhile, gold and silver are still cheaper than they were over twenty years ago.
Why gold remains the object of affection by anti-paper (fiat) money zealots is a mystery other than the nostalgia for the golden age of money. Platinum makes more sense in many ways — its worth more per ounce so it can be hoarded for less money, and smuggled out of a government gone wild with less difficulty. Platinum disguises better than gold — which looks like gold. Platinum is popular with the hip-hop community, who sets the trends in jewelry for many. Moreover, platinum has more industrial uses, notably catalytic converters in cars. Silver’s main use — in the film business — is in decline what with digital photography.
Silver may get a pop shorter term if Barclays Global can get their silver exchange traded fund launched. Two recent gold ETFs helped create demand for the metal itself as billions of investor dollars found an easier way to effectively hoard gold than well… hoarding gold.
Me, the last time I recommended gold funds was in 2001 when nobody wanted anything to do with “stupid” gold — the worst long-term performing fund category in the world (I gave up way, way too early on the great come back in gold as well). I’d consider gold again as a speculation when nobody talks about gold but quacks. Right now it’s way too mainstream a speculation.
Besides, the IRS doesn’t even consider precious metals an investment. When you sell gold or silver at a gain, you pay taxes as if it was a “collectible." It's not an investment where you can benefit from low long-term capital gains rates. Since there will never be a dividend from owning gold, all you can hope for is capital gains. From the IRS point of view, gold and silver is no different than a beanie baby.
Jonas Max Ferris is a regular contributor on "Cashin' In" (Saturdays at 11:30am ET and Mondays at 5:30am ET) and is co-founder of MAXfunds.com.