I will be setting many of my new positions into companies that appear to be valuable given the current market turmoil. There are many, but three jump out at me:
Alliance Resource Partners (ARLP) is in the coal business. Unlike the typical oil-energy plays which will probably make money as oil increases, coal has two benefits. Coal prices will follow oil up on sympathy alone. Since coal is cleaner (believe it or not) to burn in power plants and more power plants are coming online in 2009 based on coal, the bias is towards coal domestically. Assuming no more coal mine disasters, Alliance is positioned well to benefit from increased coal demand. At the same time, the company is well funded and while the stock isn't a bargain at current commodity prices, they pay shareholders over 8% in dividends while waiting for the stock to rise. Not too bad.
I've always been partial to utility companies because they have so little competition and rarely lose customers. But most are priced in accordance with their dividends and don't offer much appreciation benefit. With the market turmoil, a few equities have unearthed some opportunities. One such firm, is Great Plans Energy (GXP). This utility is based in Missouri and services about 500,000 customers. Recent margins have been a little higher than historical levels but the market turmoil has knocked the stock price into levels not seen since the '80s. The firm isn't without its burdens, but the income levels are very attractive for the current price and again, an 8% dividend will help steady the way of rocky market fluctuations.
Now my favorite is a little Michigan chemical company called aptly named Dow (DOW). You may have heard of them. Dow is fairly well diversified and since it has operations in 35 countries it isn't a bad dollar hedge either. Under normal market conditions, the stock would be priced in accordance with their value but currently shares are trading well under the value of the balance sheet. The market turmoil beat up this fortune 500 player and Kuwait recently bailed on a commitment to form up a new partnership and help pay for a large acquisition of Rohm and Haas (ROH). Now the story gets interesting. The acquisition was supposed to be a $78 cash play which would lead one to jump on Rohm shares and wait out Dow shares until after the acquisition. Indeed, Berkshire Hathaway committed $3B into the play which already puts a nice shine on Dow to begin with. But the Rohm purchase may be on the rocks despite sentiment in the last couple of days. Dow has some cash, to be sure, but $15B is a lot of cash to put up for a company that generates less than $1B in cash on a good year. Market turmoil has sent Dow's credit rating under A- which means that financing the deal is probably a show stopper.
So here's my logic. If the merger happens, I'm cool with the results because Mr. Buffett blessed the deal with his own cash and at current levels, but stock is bound to outperform the market. If the merger doesn't happen, the stock will bounce up since Dow still makes a fortune and their cash levels remain intact for other opportunities. Either way, this stock is going higher soon. Oh yeah, and if you buy now they'll throw in a set of steak knives. Oops, I misspoke. You'll have to buy the knives yourself with the 10% dividend they're currently paying.
OK, recap on the Dow thing since this one was a little wordy. You give your broker about 16 bucks for one billionth of Dow Chemical. Off the bat, you just bought $21 worth of balance sheet across 35 countries. You wait for the stock to get back over $40 where it belongs (and was less than 12 months ago). While you wait, Dow pays you $0.42 per quarter. Savvy?
No comments:
Post a Comment