Question: What do you think about Evergreen Solar (ESLR)? Thank You — Walter
Mike Norman: History has often shown that the worst time to be getting into an investment “theme” is when that theme is very much in vogue. Alternative energy is very much in vogue right now and ESLR has been hyped along with many others in that sector. Perhaps you could argue that it was an interesting speculative play about a year ago and, coincidentally, I actually mentioned it on an installment of “Cashin' In” when it was trading around $12 per share. The stock ran up but has since come down, and right now I wouldn't touch it. In addition, investing in companies that lose money — no matter how promising the technology — is a pure gamble. Sure, from time to time you can hit it big, but the same holds true for the slots in Vegas. There's no secret to why Warren Buffet is the second richest man in the world: his consistent approach of buying solid, money-making, world class companies at times when the markets offer them “on the cheap” is a winning strategy and that is what you should be doing. Then you'll have so much money that you can play around to your heart's content with these longshot stocks.
Question: I was wondering if you can give me your opinion on Delek (DK). They recently IPO'd and the stock is trading below its IPO price and looks very attractive right now. The company generates significant cash flow and EBITDA. The price/earnings ratio on the stock is around 8 while its peers like The Pantry and Casey's trade at much higher multiples. — Robert (McLean, VA)
Mike Norman: Delek (DK) is a tiny energy company and convenience store operator that just went public. Its price/earnings ratio of 8, which you find so attractive, is higher than that of Conoco Phillips and Marathon Oil, two global oil giants that have been around a long time. The CEO and CFO of Delek are in their mid-30s (not that people in their mid-30s can't make money). But, seriously, is that who you want to give your hard earned money to? Please, reconsider.
Question: Is Home Depot (HD) doomed or to be cheered? Also, is HD worth the long-term investment?
Mike Norman: Here is an example of a fantastic opportunity and a lesson in how we should be investing. Home Depot is a hands down “category killer.” It's a world-class company that dominates its industry (home improvement), with terrific management and a massive balance sheet. From time to time “Mr. Market,” as the late Benjamin Graham used to say, will offer stock for sale in terrific companies for a price that is below fair market value. (Graham is widely considered to be the father of value investing. He taught finance at Columbia University and one of his students was Warren Buffet.) I believe Home Depot, at current price levels, represents a huge opportunity. For disclosure purposes, I'll have you know that I recently purchased some HD at around $34 per share. This is a great selection! Bravo! (Walter, Robert, did you get that?)
Question: What do you think of the resurging campaign to get rid of the penny? — Colleen (Madison, WI)
Mike Norman: Colleen, all currency-issuing nations like the United States earn profits as a result of the issuance of their money because the cost of making it is (usually) less than the money's face value. For example, a $100 bill is worth $100 but it costs only $.04 to print. The term for this profit is seigniorage. It is estimated that the U.S. earns about $25 billion per year in seigniorage. The problem with the penny is that it now costs more to make than what it is worth. If it were up to me, I'd get rid of it.
Question: Now that the Fed has halted interest rate increases, will inflation slow down? What are we in store for? Thanks — Deb (Milford, CT)
Mike Norman: Deb, if history is any guide inflation is already slowing but just not evident in the data yet. (But don't worry; it will be soon.) More troubling, perhaps, is the fact that unemployment in July surged to a five-month high and growth in the second quarter slowed dramatically. Monetary policy is only one policy tool to manage inflation, but it is a crude one at that. Attempting to target inflation is nearly impossible because inflation is a moving target. In the past, attempts to control inflation have succeeded, but only as a consequence of high unemployment and a bludgeoned economy. I'm sorry to say that history may be getting ready to repeat itself.