Commentary
Vanguard Total Stock Market ETF
Symbol - VTIType - Large Cap Blend
Market Coverage – US Stock
Overview:
If you seek to match the general stock market returns for the lowest possible cost this is the only ETF you need to buy. It contains 1300 large stocks and represents 94% of all of the US market capitalization. With an expense ratio of just .07% this ETF can't be beat in terms of the diversification it provides for such a minisclue management fee.
Vanguard runs this exchange traded fund that is designed to track the MSCI US Broad Market Index. It should be the first component of a new investors portfolio.
Vanguard Small Cap ETF
Symbol - VBType - Small Cap Blend
Market Coverage – US Stock
Overview:
You can think of this ETF as the little sister to the VTI. Vangard's Small Cap ETF has the same characteristics as the VTI with the exception that it includes only small cap stocks. It's expense ratio is a low 0.1% with annual turnover of just 16% which helps it maintain a low tax profile. The fund was designed to track the MSCI US Small Cap 1750 Index.
Vanguard FTSE All-World ex-US ETF
Symbol - VEUType - Large Cap Blend
Market Coverage – non-US Stock
Overview:
The VEU provides the portfolio with the majority of its international diversification. It invests in 2200 large cap stocks that are based outside of the United States. The expense ratio of .24% is fairly high for a Vanguard fund but much lower than alternatives that provide similar level of broad international ownership.
Often times a downturn in the United States will be contained within the US market not spread Internationally and vice verse. Having an ETF like this in the portfolio can help balance things out during times of market turbulance. Unfortunately this is not the case for the current financial crisis we are in as the entire global market has been pulled down.
Public Storage (Preferred - Series V)
Symbol - PSAPRVSector - Finance
Industry – REIT - Storage
Member of - S&P 500
Overview:
Public Storage operates self storage facilities in the US and Europe. Collectively it operates over 2000 of these facilities and has interests in other commercial storage businesses including insurance and truck rentals. The company is organized as a Real Estate Investment Trust (REIT). PSA employs 5700 and is headquarterd in Glendale, CA.
Analysis:
PSA's underlying common stock is a compelling value in itself but not quite strong enough to make the portfolio. Fortunately they offer a preferred series stock that pays a handsome annual coupon of 7.5% of its Call Price of $25. An extra bonus is that the preferred stock is trading well below its $25 call value which gives investors the opportunity to benefit from both capital appeciation as well as the great dividend.
It is rated BBB+ but it's default risk is very slim as the company has strong positive cash flow and a current ratio above 5. It is rare to find such a extrodinary risk adjusted value as PSAPRV.
Omega Healthcare Investors (Preferred - Series D)
Symbol - OHIPRDSector - Financial
Industry – REIT - Healthcare Facilities
Overview:
Omega Healthcare Investors is a REIT that specializes in healthcare facilities in the United States. It invests primarily in healthcare facilities, which include long-term care nursing homes. The company was founded in 1992 and is headquarterd in Timonium, Maryland.
Analysis:
There is little in the OHI common stock to spark the interest of a free cash flow value investor. The Series D preferred stock is a start contrast however. Trading at a heavy discount to its Call value of $25 and offering a hefty 8.4% dividend this offering will keep investors happy just to be on sidelines waiting for it to catch back up to its Call value.
It's B+ credit rating may scare away some but it's balance sheet indicate it has the ability to pay the dividend for many years to come.
Red Lion Hotels (Preferred - Series A)
Symbol - RLHPRASector - Services
Industry – Lodging
Overview:
Red Lion Hotels is a Spokane, WA based company that operates over 50 hotels is the US and Canada. They also offer ticketing services and entertainment venues. In 2005 their name changed from their former WestCoast Hospitality Corporation.
Analysis:
Red Lion offers a huge 9.5% coupon rate on is preferred stock. Such a high rate is usually indicitive a company in distress. RLH's growth outlook is not bright over the coming year but their balance sheet is strong. Considering its selling for roughly 1/2 of its Call value it's appreciation potential alone is worth the risk of any suspended dividend or default to us.
NetApp
Symbol - NTAPSector - Technology
Industry – Data Storage
Member of - S&P 500, NASDAQ 100
Overview:
NetApp (formerly Network Appliance) is a data storage and technology company. They sell products that allow companies to more efficiently query, move, & store digitial information. The company employs 7500 people and is based out of the Silicon Valley area.
Analysis:
NetApp is great long term growth story. They have maintained 20+ annual growth since their inception in 1992. The generate tremendous amounts of free cash flow every quarter with free cash flow margins near 23% of revenue. Their Price to Free Cash Flow ratio is well under its long term growth rate which makes this an exceptional value. Their balance sheet is a weeker that we prefer but not alarming. They are in a great industry which sees demand for data storage growing about 30% annually. NetApp will continue to bloom for many years ahead.
NVIDIA
Symbol - NVDASector - Technology
Industry – Semiconductors
Member of - S&P 500, NASDAQ 100
Overview:
NVIDIA primarily makes graphics cards for the PC industry. Their video cards are highly sought out by video game enthusiasts and graphics professionals. The company employs 5000 and is based in the Silicon Valley where it was founded in 1993
Analysis:
NVIDIA has had a volitile history. Not only is it in the semiconductor industry which has roller coaster like swings but it has only 1 main competitor and the two of them constantly leapfrog each other with new technology. If you focus on the companies fundamentals however you will find a solid value, at least at their recent low stock price. NVDA has grown their sales ten fold over the past 8 years and are now generating double digit free cash flow margins. Their PFC ratio is under its long term growth rate for the first time in years which is a strong buy signal. The may also benefit from the US recession as more people will be looking for cheaper forms of entertaining themselves like playing video games at home.
Paranaese De En COPL
Symbol - ELPSector - Utilities
Industry – Electricity
Overview:
ELP trades as an ADR representing the Brazilian company Companhia Paranaense de Energia. The company operates 17 hydroelectric plants and 1 geothermal plant in the Brazilian state of Parana. COPL has been in operation since 1954 and employs over 8000 workers.
Analysis:
ELP a steady grower of both revenue, cash flow, and tangible assets. This ADR is often overlooked by value investors because being a Brazilian company quarterly financials are not always available and currency conversions make analysis more difficult. Don't let this stock slip under your radar however. It trades a very low multiples of free cash flow considering its growth.
Cisco Systems
Symbol - RAITSector - Technology
Industry – Networking
Member of - S&P 100, NASDAQ 100
Overview:
Cisco, another Bay area company in the portfolio, makes routering and switching devices which direct traffic on the Internet. The company is 25 years old and has grown into one of the largest technology companies on the planet.
Analysis:
Cisco is a blue chip technology stock whose sales have slowed to 10-15% annual rates over the past few years but have a fairly well diversified customer base. They have maintained very high free cash flow margins for decades and with the stock's recent drop in price has become a good value.
Sector - Technology
Industry – Internet Services
Member of - S&P 100, NASDAQ 100
Overview:
Google has developed the most widely used search engine in the world. They have found very lucrative ways to monetize the massive traffic their search engine receives and have thus become a behemoth in the technology world. The company has grown to over 20,000 employees in a short period of time.
Analysis:
Google's valuation is still a bit rich in terms of price to free cash flow. They were the latest addition to the portfolio when their stock price fell below $300 per share. They will have to maintain their high growth rate to justify their position in the portfolio but we believe they will. They are still gaining market share in Internet Search and have some of the brightest minds available on their staff. Also, online advertising is still booming which Google is in prime position to take advantage of. They company also has a sterling balance sheet with boatloads of cash which will be a valuable asset in during the recession.