On August 1st, Conoco reported earnings. Earnings and revenues were down from last year. This reflects the spinoff of its Phillips 66 (NYSE: PSX). Conoco is divesting itself of certain operations so it can focus on the shale energy boom in the U.S.
When adjusted for the PSX spinoff, COP's earnings per share increased 18.5%, from $1.19 to $1.41. The company also raised its guidance for the full year. This means it will produce more barrels of oil equivalent than anticipated. This is good news, because when Conoco produces more, it can sell more, which boosts profits. Best of all, being the relentless dividend raiser it is, Conoco raised its dividend 4.5% in July. As I write this, its yield is 4.13%.
Since recommending ConocoPhillips, we're up 16.9%. It's currently above our buy-up-to price of $50. If you already own the stock, continue to hold.
Archer Daniels Midland (NYSE: ADM) is a company that connects harvest to home. It sources, produces, and distributes a wide array of crops and food ingredients. There's a good chance that something in your favorite meal comes from ingredients produced by ADM.
On August 6th, the company reported earnings. Second-quarter earnings fell 21% because profits from grain sales were weaker. This is due to last year's drought.
The market didn't mind the earnings miss. This is partially because estimates for this year's crop yield are up. Forecasts project a U.S. corn harvest this year of 14 billion bushels. That's up 30% from last year and 13% from 2011. This should bolster ADM's profits in coming quarters.
Archer Daniels Midland's stock continues to climb higher. We're up 36.7% since recommending it. Right now, it's trading above our buy-up-to price of $30. Wait for a pullback before buying in.
J&J Snack Foods (NASDAQ: JJSF) manufactures, markets, and distributes niche snack foods and beverages. This member of our Relentless Dividend Raisers Portfolio makes well-known snack foods
such as SuperPretzel, Icee, Luigi's Real Italian Ice, and California Churros.
J&J reported earnings on July 29th. It was another solid quarter. Revenues were in line with analyst estimates. Earnings per share actually beat estimates, coming in at $1.13 per share, instead of $1.11 per share. This is also 14% higher than the same quarter last year. J&J Snack Foods continues to grow every quarter.
We're up 58.7% since recommending J&J. Right now, the stock is above our buy-up-to price of $65. If you own shares, continue to hold them.
Greenlight Capital Re (NASDAQ: GLRE) is a "Golden Cross." That's a term we use to describe the marriage of a cash-gushing insurance company with an investing genius. In this case, that investing genius is David Einhorn.
On July 28th, Greenlight reported second-quarter earnings. Net income came in at $28.5 million, compared with a net loss of $36 million the same quarter last year. Adjusted book value per share was up 8.3% from last year's quarter. We're pleased to see this growth.
How did Einhorn's investments do? For the first six months of 2013, income from Einhorn's investing activities grew 7.9%. Since recommending Greenlight Capital Re, we're up 16.5%. As I write this, the stock is trading just above our buy-up-to price of $27. Wait for it to pullback below $27 before investing new money.
National Western Life Insurance (NASDAQ: NWLI) is a conservatively run life insurance company that's been around for nearly 60 years. We recommended NWLI because it was selling at a huge 60% discount to the value of its assets.
On August 6th, NWLI reported earnings. Profits jumped 15%. Revenues also spiked 43%, from $127 million to $182 million from the same quarter last year. We're pleased to see NWLI making strong gains.
Since recommending National Western Life Insurance, we're up 51.5%. It's currently above our buy-up-to price of $165. If you already own the stock, continue to hold.
CNA Financial Corp (NYSE: CNA) is another great insurance company selling for pennies on the dollar. At the time we jumped into it, CNA was selling at a 42% discount to the value of its assets.
On July 29th, CNA reported a profit of $0.72 per share. This is up 17% from the same quarter last year. Revenues climbed 13%. The good report comes from higher premiums and increased revenues from an acquisition last summer.
We've done well in CNA and are up 39.2%. Right now, the stock trades above our buy-up-to price of $32.50. Wait for a pullback before buying in.
In June, we added Ingredion (NYSE: INGR) to our portfolio. Ingredion develops and produces food additives; starches, sugars, and oils that food companies use to manage the taste, texture, and nutritional content of their products.
As we told in you in our July 18th update, the poor economic situation in Brazil has been hurting Ingredion's profits. That's because 22% of the company's sales come from South America—mostly Argentina and Brazil. Because of this, the company preannounced disappointing earnings, which doesn't change our opinion of Ingredion as a strong, long-term investment.
Ingredion reported earnings per share of $1.20. This beat the estimate of $1.18. CEO Ilene Gordon again referenced Ingredion's challenge in South America due to Argentina but she said the company is well-positioned for growth. Looking forward, she believes 2014 will see relief on raw material prices, and improving sales and operating income.
The market liked what it heard. Ingredion's stock traded up over 5% on the news. We're down 2% since adding it to our Performance Portfolio. Ingredion's stock is trading below our buy-up-to price of $72. It's a good time to take a position if you're looking to invest new money.
Another recommendation was Xerox. The company is in the middle of a transition. It's changing from making and selling products such as photocopiers, to providing services. It's the exact same model blue-chip IBM followed to reward its shareholders. Even better for us, Xerox is committed to rewarding shareholders by increasing dividends and buying back shares.
On July 25th, Xerox reported earnings. Earnings per share came in at $0.27. This beat the estimate of $0.24. And as we told you it would, Xerox continued transitioning from product revenues to service revenues. Service revenue was up 5%. Document technology revenue was down 5%. Things at Xerox are right on track.
Since recommending Xerox, we're up 24.9%. The stock currently trades above our buy-up-to price of $9. We'll let you know if we raise it.
Questions and Comments
Answering comments is one of the most important value-added things I can do. While I can't answer your email personally all the time, I do address the most commonly received questions.
What to Do With Company Issued Stock Options?:
My company issues me stock options once per year. They expire in year 10. Could you comment on a strategy for redeeming them? Is there a better strategy available than just redeeming them in year nine? Pat S.
First, I'm going to assume that you'd be able to profit from exercising your shares. It would obviously make no sense for you to exercise an option if it's going to lose you money based on the market price.
My question to you is: Are you certain you can redeem them now? Sometimes an employer will issue stock options that aren't fully vested until a few years down the road. Check the timing on them. Let's assume you have stock options that you can exercise now and you'd be able to profit from them. What should you do?
First, this is a complicated issue with many moving parts and because I can't legally give you personalized advice, I'll just comment on some issues you should consider with the help of your own accountant.
One, start by evaluating how much of your invested dollars are in your company's stock options. You don't want too much exposure to only your company's stock.
For instance, let's say you have a total of $100,000 invested dollars and your company's stock options account for 70% of that. That's unsafe. You're not diversified. Your portfolio would plummet if your company's stock tanks.
Two, do you even want to hold your company's stock? What are the prospects for the stock looking forward? You work at the company—do you believe it is strong enough to support a growing stock price?
"Should I exercise my options now" question stretches beyond a balanced portfolio and stock gains. Ask yourself if there are better uses for that money right now.
For instance, do you have tons of credit card debt with enormous interest rates? If so, it might make more financial sense to use your option proceeds to pay this down. The money you save on interest payments might be far more than any gains you make from your company's stock.
Then there's the tax question. Do you have non-qualified stock options or incentive stock options? The answer may affect your tax treatment when you exercise the options. You should do your research or consult a tax expert for that.
I hope you're seeing that this issue is just not simple. Take the time to think through all the angles and discuss your own situation with a professional.
What I want to know is how to execute a trailing stop on a stock that pays dividends.:
How are those dividend payments factored in? I'm guessing they are not ignored and treated like a non-paying dividend stock.
I know that a trailing stop on a stock that doesn't pay dividends is just 25% below its highest stock price. But when I receive cash from dividend payments, doesn't that affect my stop-loss price? How do I factor this in? Gary P.
First, there is no rule stating you must adjust your stop-loss price just because a company pays a dividend. Most investors I know set their stop-loss prices based only on the stock price. They don't factor in income from dividends. And, as you pointed out, that would mean using a trailing stop loss of 25% set from the highest stock price. Then there are other investors—it sounds like you're one of them—who want to set stop losses based on the sum of their dividend income and their capital gains. How would you do this?
You would calculate stop losses based on highest total investment value. That means adding the gains from dividends to your stock "highs." Let's look at two examples. The first one will not adjust for dividends; the second one will.
You buy Stock A at $100 per share. Stock A climbs to a high of $150, then begins to pull back. Your trailing stop becomes $112.50 (75% of $150 is $112.50).
Now let's assume Stock A paid a fixed dividend of $1.20 per share. You would add this to your stock's highest price ($150 + $1.20 = $151.20). Then calculate your 25% stop loss based on this number. (75% of $151.20 is $113.40).
In Example 1, your stop loss is $112.50. In Example 2, it's $113.40. You'll notice that the difference is $0.90. This makes sense. Why?
Remember, your dividend payment was $1.20. You have a 25% stop loss on all gains. $0.90 is 25% less than your dividend gain of $1.20.
Keep this in mind: If you do include dividend gains in your stop-loss calculations, you run the risk of stopping out of a stock just because it has a great dividend.
For example, consider Lorillard. Right now, it has a 5% yield and sells for about $43. Let's assume you buy 100 shares and let's assume Lorillard's stock price and dividend yield stay flat over the next seven years.
In seven years, your $4,300 investment will make you more than $1,500 of income from dividends. That's a gain of about 35%. But in seven years, if Lorillard's stock is still trading at $43, you'll trigger a stop loss.
Why? Your $4,300 initial investment will be 26% less than your accumulated dividend gains of $5,823. You'd be selling Lorillard, even though the stock price hasn't dropped a penny. I wouldn't be eager to sell Lorillard in this case.
How Do I Calculate Net Worth?:
How do you suggest calculating my net worth? Henry K.
It's pretty easy. Add up all your assets. Then subtract all your debts. The difference is your net worth.
Now when it comes to figuring out how much you'll need to meet your retirement goals...well that is a completely different animal. My favorite answer is that my retirement goal is a perpetual sliding scale.
I will post an in depth essay on the subject written by Mark Ford. He breaks down the actual formulas one should utilize to calculate your retirement needs. Once I find it on the internet, I will post it as a Special Report.