Let's handle the update of the three stocks recommended in
March first.
The three stocks were (1) MCG Capital Corp. (MCGC; NASDAQ),
a Virginia company then selling at about $18 per share; (2)
Aluminum Co. of China Ltd. (ACH; NYSE), a company basically
owned by the Chinese government, but one that had an unusually
low price to book value ratio; and, (3), Telecomunicacoes de
San Paulo S.A (TSP; NYSE), the primary communications link for
all of San Paulo, Brazil.
Before we begin, you can go to my archive and see the full
text of the March 22 letter if that might be of interest to
you. Look for the Expert's Corner on MoneyNews.com.
The first of our three stocks, MCGC, we entered on March 26
at $18.88 per share. Today that stock is quoted at $16.02 a
share, a decline of -$2.86 per share or 15 percent.
I would normally keep the stock, for my stop out rule is
either twice the yearly dividend or violation to the downside
of my Whitmore Super Chart Keyline. If either occurs, I
generally exit the trade.
In the case of MCGC, which crossed down my Super Chart
Keyline on July 6, I am recommending that you exit this trade
today.
Had I a weekly update on the Keyline for you, I would have
recommended you exit this trade last week when it broke the
Keyline at $16.49 on July 6. You might use one of the three
new recommendations made in this letter as a place to invest
the proceeds from this sale.
The second of the three stocks recommended on March 22 was
TSP, which we entered at $25.44 on March 26. The current quote
is $35.74 per share, a gain of $10.34 per share or 41 percent.
I have another rule which says that any stock that gives a
stock price gain of 50 percent during month 1 to month 6
should be sold and funds used elsewhere to help generate
increased portfolio income.
We are short of the 50 percent mark by 9 percent as of
today. If this stock were to hit, on a close, $38.16 or more
(the 50 percent level) before September 22, sell it and
consider reinvesting the funds in another high yield stock.
The current stop out on the Super Chart Keyline is at $24.62,
just a bit below our entry price.
Our third of the three recommended on March 22 was ACH,
which we entered on March 26 at $26.40. The current quote is
$45.88 per share, a gain of $19.44 or +73 percent gain.
Using our 50% rule, this stock should now be sold now since
its 50 percent gain level was at $39.60. You might use the
proceeds from this sale to invest in one of the three new
recommendations made in this column.
[Editor's Note: The Three
Best Income Stocks in the World.]
Now, just for the record, I did like this stock when I
first saw it, but to see it gain over 70 percent in only 3
months was a real gift. We were fortunate. Few recommendations
will do this well, but I will take it, as they say.
A Simple Rule Increases Portfolio
Income
One final thought before I move on to the two new issues of
this week's column. You notice that I took profits with the
ACH stock using my "+50 percent six month" rule, a rule that I
have had for quite sometime. While I did detail how my stop
out price was determined, I don't think I gave you the details
of this "exit" rule in the March 22 letter. So, I will give
them to you now:
Rule 1 - If a stock recommendation's price
increases more than 50 percent in the first six months, I take
profits and reinvest the funds to increase income for the
portfolio.
Rule 2 - If a stock increases 40 percent
from month 6 to month 12, the same procedure is followed.
Rule 3 - If it increases 30 percent in the
first 24 months, again, a sale of the stock and the
reinvestment to make more income.
Rule 4 - After the 24th month, I, usually,
only exit a trade if the Super Chart Keyline is broken to the
downside.
These four rules are quite simple, but I have seen a
substantial increase for portfolio income, over time, from
this simple set of rules.
To give you an example, if we had invested $3,000 to get a
100 shares of a stock that paid 8 ½ percent dividends, or $255
per year, and the stock then rose within six months to $45 a
share (a 50 percent gain) to a total value of $4,500 for the
100 shares, I would sell the stock and reinvest the $4,500 in
another stock paying an equally or higher dividend.
Even if I only got an 8 ½ percent dividend again, I have
increased my portfolio income to $383 from my original $3000
stock purchase, a 50 percent increase in income in dollars.
Need I say more?
Our Two New Income Stock
Recommendations
I have chosen two new stocks for today's column using the
following criteria: (1) a market capitalization of at least
$500 million is required; (2) book to price value ratio is
less than 3 to 1; (3) dividend level is at least 10 percent;
(4) P/E ratio is less than 18 (the current average of the
S&P P/E); (5) Share price is less than $50 per share, so
100 shares can be purchased for less than a $5,000 outlay; (6)
Growth over the last 5 years has averaged over 15 percent per
year.
[Editor's Note: 99 Stocks to
Dump . . . Plus the 10 to Buy for 2007!]
Both stocks are listed on the New York Stock Exchange. One,
PVX, is in the natural gas and petroleum business, primarily
in western Canada. The other, NAT, is what is called a "spot"
ocean tanker service, that is, an ocean tanker hired on the
open market for a single trip at a time, typically 2-3 weeks
in duration
First, our tanker selection NAT. NAT is 12 years old and
owns eight major size tankers. All are working in the "spot"
market except one that is on a contract for 1 year.
The spot market tends to be very profitable, which is
reflected by its profit margin level of over 39 percent. Its
book to market value is 2 to 1 (quite good) and its return on
equity is nearly 15 percent. Its share price has ranged
between $31 and $43 over the last 12 months, so we are near
its recent high after a run-up from $39 about 5 weeks ago.
But, my Super Chart likes it for purchase below $41.50 per
share.
Currently, it is selling for $42.92 per share. The current
dividend is nearly 11.5 percent and its return on investment
is also at the quite respectable 15 percent level. My current
Super Chart Keyline is at $32.35 and the stop out level based
on twice the yearly dividend stands at $36 per share. We will
use the higher $36 stop out to begin this trade.
Recommendation # 1: I like NAT for
purchase below the $41.50 level, a bit lower than the current
price, so you may have to wait a bit to get it. But, I believe
the current pullback will give you a good entry. As I said,
the current stop should be set at $36 per share.
Our second stock, PVX, is in the energy business, as I said
above. It was formed in 2001 in Alberta, Canada to exploit a
number of large gas and oil holdings of several other Canadian
companies.
Its P/E ratio is a bit high for me at 17, but this is
mitigated by the low book to market price ratio of only 1.9 to
1. The profit margin is over 28 percent, pretty good for its
industry and the range over the last 12 months has been
between $9 and $13 per share.
So, with its current price at $12.08 per share, dividends
at over 11 percent, and just crossing up above my Super Chart
Keyline — a very important plus here — I do like this one for
income, nearly 220 percent above the current 5.1 percent yield
for Treasury bonds.
Recommendation #2: I am happy to buy PVX
below 12.50 per share. To begin with, I would recommend that
you set your initial stop out at $10.45 per share. This is
below my Super Chart Keyline, but as I said, just crossing up
the Keyline is a plus here, so a close stop seems dictated,
even though it is below the Keyline.
Well, that's it for today. I hope you find these income
investments help improve your portfolio's income. And I would
like to announce that we will be inaugurating our monthly
Income Investing newsletter this fall, dedicated to helping
you increase portfolio cash flow and keeping abreast of
developments that affect the planning-to-retire or retired
investor.
Do hope your coming investment week is a good one. In the
meantime, you keep in touch. I do! See you next week.
Editor's Notes:
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