Wednesday, January 21, 2009
(Cont'd from above)...

Jim (cont'd):   

My fellow Cramericans, it is a portfolio that you are probably aware of… a group of five stocks that we already know are beating the benchmarks… two weeks ago we did a serious of my five favorite stocks in the Dow Jones Industrial average for 2009... my five Dow Jones All-Stars… Hewlett-Packard, Verizon, Johnson & Johnson, Caterpillar, and Home Depot… we created this diversified portfolio… a tech stock, a telecommunication stock, a consumer products company and drug stock, an industrial manufacturer, and a retailer that is levered to housing… back when the Dow was 1000 points higher… and the S&P 500 was more than 100 points higher… so how have the Dow All-Stars done as the market has been pummeled… if you bought the stocks at my prices… I told you to wait until Caterpillar fell below $40, it gets 4.3% yield… and to wait until Home Depot to sink below $22.50 where it would yield 4%… then the Dow All-Star portfolio is down 3%… still not making money… but remember the Dow is down 8.2% since I recommended these five stocks on January 5... and the S&P 500 is down 9.4%...

▼   ▼   ▼   ▼   ▼

So, just looking at the share prices we have got what is know as relative out performance… which is what you have to be aiming for in a market that is this ugly… I want you to think about it like this… since these stocks did much better than the averages, in a period where the market had a meltdown… imagine how they would do if we start going higher… they are the ones with the most bounce… and remember this is also a portfolio with many notoriously B.I.G. juicy… juicy high yielders… so you have to factor the dividends in to the performance… other than Hewlett-Packard, every stock in this basket yields over 3%… Verizon yields over 5.8% when we recommended it before, it now yields 6.0%… if you bought Caterpillar at my price of $40 or less, it yielded at 4.3%, now it yields at 4.2%… how about Home Depot, my price was below, you need a 4% yield, now it yields 4%… this is where you should be buying it… when you add in the quarterly dividends for each of these stocks, you would only be down 2.1%… and again down… but remember we are trying to preserve capital… with this basket you are doing so… and while some might call this cheating when you factor in the annual dividends… and yes you need to hold on to these names for basically the whole year to actually see that money… the Dow All-Stars portfolio is up ½%… that is not so bad given how bad the market is… remember dividends are responsible for about 50% of stocks appreciation… and they absolutely help cushion the blow in bad times… they improve your returns.. but they are also a big reason why this basket of stocks have outperformed the Dow and the S&P 500... because as the share prices go lower, the dividend yields go higher… and that attracts buyers.

Now, these five stocks are even cheaper… with higher yields than when I recommended them two weeks ago… but the fundamental case for each one is still just as strong…. Hewlett-Packard, I think, is the best name for technology in tough times… with a fantastic CEO, Mark Hurd, who is doing a fabulous job… many of its competitors are self emulating… both Dell… in the computer business… and Lexmark… in the printer business… plus Hewlett-Packard’s acquisition of Electronic Data Systems, puts them in the outsourcing and IT solutions business… hey, by the way that is a business that we know are doing very well… because we saw a fabulous IBM upside surprise… and don’t forget, all of technology should do well tomorrow… after Apple’s excellent results after the close… which has that stock screaming back up to the $90’s…. on a strength of big iPhone and iPod sales...

Verizon, in addition to it’s mighty dividend… again, has a terrific CEO, in Ivan Seidenberg… Verizon can ride out the recession… and the deterioration in its business is already baked into the stock… the company, the sole distributor of the touch screen Blackberry Storm, remember it is flying off the stock which is why we are recommending Research In Motion… and FiOS, its high speed voice video and data service, is taking share left and right… JNJ classic recession resistant defensive name… it is your insurance in case the stimulus plan fails… even if we end up with double digit unemployment, people will still buy Band-Aids, Tylenol, and baby powder… JNJ has a great balance sheet… one of the strongest pipelines in the business… and it was really the only company to take advantage of the total crushing of the stocks… to make cheap acquisitions… two shot gun marriages, to Mentor and Omrix… now the stock was in free fall for the last couple of days… because of misinterpretation of its most recent quarter, reported Tuesday… some genuinely believe that this number was a disappointment but if you follow JNJ closely, you would know that there is nothing out of line about this quarter… and it should be bought right here… as I did for my charitable trust… give the darn stock some Tylenol… the decline is a small boo-boo, and I think the share price is going much higher… you own JNJ for protection in case Obama fails… but how about if he succeeds… that is why you own Caterpillar… for upside if the stimulus package is the real deal… and for its accidentally high yield… in addition, Cat should benefit from the $600B Chinese stimulus package… let’s not forget how much we like that one.

That package has already passed… as if they don’t have to worry about pesky things like votes or filibusters… just popular uprisings… cultural revolutions… and beheadings… our final Dow All-Star, Home Depot… a high yielding retailer that is a play on my June 30th, 2009 housing bottom call… which is much ridiculed… but I believe more than ever… remember, mortgage rates have come down… although mortgages are still hard to come by… particularly in the worst hit areas for housing… like California’s inland empire… and even San Francisco… but I think those areas are bottoming… of course, the downside is they bottomed down 40 to 50%… now, if the stimulus package includes a $25,000 tax credit for home buyers… as long as it doesn’t extend to new homes… the Home Death Spot does even better.

Here is the bottom line…

▼   ▼   ▼   ▼   ▼

The Bottom Line!:     Hewlett-Packard (HPQ*), Verizon (VZ), Johnson & Johnson (JNJ*), Caterpillar Inc. (CAT) and Home Depot (HD) that is your defensive diversified portfolio of Dow All-Stars… a high yielding basket of stocks that are all cheap based on earning… and should help protect you no matter what happens.

HPQ, VZ, JNJ, CAT & HD are affordable and could protect your portfolio...  Here is the Dow All-Stars again, Hewlett-Packard, Verizon, Johnson & Johnson, Caterpillar, and Home Depot… after the break, we will try to make you even more money.


[verbatim recap]

▼   ▼   ▼   ▼   ▼

Jim went on after this segment to take questions from his live audience, and responded with his comments...

``````````````````````````````````````````````````````````````````````````````````

Q:     I was wondering with the housing bottom coming in 161 days, is the time to buy real estate now, or do you think we can get a better deal if we wait?

Jim:      Interesting that you mention that, I have been working a lot on real estate… remember I am not allowed to own stocks personally… I believe that when you get that combination of real estate down 40 to 50%… and you get mortgage rates under 5%… and we get the foreclosure pool to dry up… which is exactly what happened in western Florida, the Bradenton area, that was the worst hit in Florida… exactly what has happened in the Indio, Palm Dessert, Rancho Mirage, Palm Springs area… then it is time to buy… can you anticipate that… that has not worked… for instance, I look at Miami real estate, and I desperately want to buy… but it is still coming down… but I think the time is right… I do not want to anticipate this… this is when I think it is bottom… I think that you need to do research ahead so you know where to go… but I know that when I was out in California, about two months ago… that it was already too late for the area that I was in, which was in the inland empire… and if you really want to put some money to work… you got to put some money to work right around here… when I think things will really bottom.

``````````````````````````````````````````````````````````````````````````````````

Q:     Green energy hasn’t been talked about much since the price of oil has been down, now that Obama is in as President, do you think that green energy will be back in play?

Jim:      It is, we don’t invest on emotion on this show… and we do not invest on what I think is, the need to have government behind a particular project… now it is true that the German’s got behind solar so strongly, and put so much money into it, that you did have a spike in the first solars… could it happen again here… yes… but that spike coincided with a dramatic spike in oil… and without oil breaking out above $50... I think that it will not work… I think oil is trapped in a range between $30 and $50... and I do not think that solar will work as anything other than a real good idea for America.

``````````````````````````````````````````````````````````````````````````````````

[verbatim recap]

[end of segment]

Read Jim's next Segment here  

▼   ▼   ▼   ▼   ▼