Novice Investing - Your Prey for 2008

Date: Thursday 07th 2008f August 2008 01:39:31 PM

Your Prey for 2008 - 10/19/2007

By: Hari Wibowo

In late 2005, we gave you your prey for 2006. Scouring the 52 week low list is a good place to start. At the time the list includes Pier One Imports (PIR), Shanda Interactive (SNDA), Navistar International (NAV), Verizon Communications (VZ) and Fresh Delmonte Produce (FDP). For 2006, their performance were as follows: PIR -29%, SNDA +41.6%, NAV+16%, VZ+33.4%, FDP - 30%. Overall why the result is positive, there is no guarantee that you will pick the right stocks. This list merely act as your candidates and you still have to filter it further.

While it is too early, there is no harm in constructing our prey for 2008 in October, as opposed to in December. If a stock looks appealing now, it will look appealing if it falls further in December. Without further delay, here are our prey for 2008.

Big Banks with juicy dividends such as: Citigroup (C) (dividend: 4.80%), Bank of America (BAC) (dividend: 5.10%), Washington Mutual (WM) (dividend 6.70%) and Fifth Third Bancorp (FITB) (dividend: 5.40%). Big banks are hammered in recent week and as I made the case, they have a lot more room to go down. Also, back in July 2007, we expect some kind of panics that set the stage for Washington Mutual to go down to below $ 30 per share. It is very close to this price lately. Thus, we can start watching for the big banks for our 2008 investment. For speculative purpose, you can also keep an eye on Countrywide Financial (CFC) which is the poster child for subprime mortgage mess.

Big Newspapers such as Gannett (GCI), New York Times (NYT), Tribune (TRB), Mc.Clatchy (MNI) . Other than Dow Jones (DJ) who would be acquired, all these newspapers stock are sitting in multi-year lows. However, the shift into online advertising has crippled their earnings in the past several years. For example, job ad and classified are a whole lot easier to be done in the web. Newspaper advertising will always have a place in the ad industry, however, their share will not be as much as it used to be before the age of internet. Currently, most newspaper companies reported lower ad sales in recent quarter. We don't know when the ad market will

turn (2008 may not be it) but at some point, it will stabilize. Just like the radio industry was when the Television came into place. The rest of the media will have to share the advertising pie but by no means that the existing industries will vanish. Having said that, there are a couple of things I dislike about the newspaper industry. One is their relatively high debt level and the other is the high level of goodwill they have. For example Gannett (GCI) has a total of $ 12.7 Billion of goodwill and property & plant. However, it just depreciates $ 277 Million of it annually. This implies 45 years for complete depreciation. I can find a lot of other companies which depreciates its long term asset fully every four years. While newspapers industry is akin to a cash cow, it doesn't warrant a 45 years complete depreciation. That is just too risky. Nevertheless, newspapers stocks are in our list because of its deteriorating stock prices.

Big Homebuilders such as KB Home (KBH), Lennar (LEN), Pulte Homes (PHM), DR Horton (DHI) and Ryland (RYL). By now, you might be used with the term 'big' already. Housing, which had been hot earlier in the decade, has shown signs of losing its luster. Prices at certain places has gone up many folds and some breather is expected in the near future. Just with newspapers stocks, homebuilders may not rebound until 2009. However, if they keep falling as they were recently, it is time to analyze them as potential investments. The major turnoff for these stocks are their high debt level relative to cash. For example Ryland (RYL) has $ 215 Million of cash with $ 950 Million of long term debt.

Choose your prey carefully since you have plenty to choose from. I think the big banks are a wonderful candidate since the federal reserve has begun its campaign to lower interest rate. Others will follow suit.

END

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Disclaimer: The sole purpose of this article is educational. This article is merely the opinion of the writer and is not in any way a buy/sell recommendation regarding Washington Mutual Inc. (WM) or any other securities.

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