3 High Quality Stocks For Long-Term Value Investing, And 3 To Avoid - Seeking Alpha

Warren Buffett, one of the most successful investors ever, has said "it's far better to buy a wonderful company at a fair price than a fair company at a wonderful price." In this article, I will discuss three companies which I believe are wonderful companies selling at a fair price. I will also mention three companies which appear to be quality companies selling at cheap valuations that I would avoid.

This stock discussed in this article will meet the following criteria:
1. High quality
2. Cheap or fair valuation relative to historic norms
3. Dividend yield greater than the current 10 year Treasury yield


I have chosen these criteria because I believe that for a company to be considered a "wonderful company at a fair price", it must meet these criteria.



.........................................

Caterpillar (CAT)
CAT shares have come under pressure of late as investors have reacted to weak results. In particular, CAT's exposure to emerging markets such as China, Brazil, and other Latin American nations has been a cause for concern. However, despite these near term worries, I am confident that, over the long-term, CAT will continue to achieve great things. As shown by the chart below, over the past 10 years, CAT has gained more than 242% while the S&P 500 has gained just 50%. Caterpillar, which traces its roots back to 1925, is the global leader in construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives.



 ......................................


Deere & Co (DE)
This year, DE is celebrating its 175th anniversary. Without doubt, DE is one of the oldest companies around. If you are interested, the company's website gives a terrific overview of DE's storied history. DE is the leading provider of machinery to farmers throughout the world. Recently, legendary investor Warren Buffett purchased a stake in DE. This move does not come as a surprise because DE fits so many of the typical Buffett investment qualifications. DE is engaged in a relatively easy-to-understand business, DE has outstanding brand recognition, and DE is trading at a reasonable valuation. Also, DE is exposed to what I believe, like Jim Rogers, will be an agriculture super cycle over the next decades, driven by demand from emerging economies such as India and China. Over the past 10 years, as shown by the chart below, DE has risen more than 230% while the S&P 500 has risen only 50%.

 
...............................................


E. I. du Pont de Nemours and Co (DD)
From the company's website:

For more than 200 years, DuPont has brought world-class science and engineering to the global marketplace through innovative products, materials and services. Our market-driven innovation introduces thousands of new products and patent applications every year, serving markets as diverse as agriculture, nutrition, electronics and communications, safety and protection, home and construction, transportation and apparel.

Today, DuPont is proud to build on this heritage by partnering with others to tackle the unprecedented challenges in food, energy and protection now facing our world. With global population expected to approach nine billion by 2050, DuPont is working with customers, governments, NGOs and thought leaders to discover solutions to today's toughest challenges.Together, we believe we can provide enough healthy food for people everywhere, decrease dependence on fossil fuels, and protect people and the environment for generations to come.

We look forward to what a third century of science and innovation can do.

 ............................................


Like CAT & DE, Dupont has as storied a history as any modern company. 

However, as shown by the chart below, unlike CAT & DE, Dupont has not had a great past 10 years.

The weak stock performance over the past 10 years does not change the fact that DD is a high quality company.

I view the recent under performance as a chance to pick up a great long-term growth story.

 


Conclusion


Now is good time to purchase CAT, DD, or DE as a long-term investment.

Warren Buffett has often said that his favorite holding period is "forever" .

 Now is a great time to buy CAT, DD, or DE with the intention of holding forever.

 




 Source:
3 High Quality Stocks For Long-Term Value Investing, And 3 To Avoid - Seeking Alpha

 Link: http://seekingalpha.com/article/1026491-3-high-quality-stocks-for-long-term-value-investing-and-3-to-avoid

Value Investing Getting Too Crowded? Another Golden Age Of Growth Investing Is On The Way - Forbes

Value Investing Getting Too Crowded? 

Another Golden Age Of Growth Investing Is On The Way
 

Investors may be discounting growth today more than any time since the 1930s.

One of the landmark events on the calendar of investors took place last month—the Value Investing Congress in New York. But it behooves us to remember that an alternative approach also exists—that of growth investing.

While the two styles share many common principles, growth investing focuses on identifying companies with above-average growth rates, whose share prices today are considered inexpensive relative to their intrinsic value over the long term.

The dearth of investors who publicly tout the principles of growth investing is one sign that its golden age may now be upon us. The Wikipedia entry on “Value investing” lists more than a dozen current well-known value investors including Berkshire Hathaway chairman Warren Buffett. Value investing is a sensible discipline, and its success has attracted many acolytes. When too many people are performing the same analysis and arrive at the same conclusion, however, it becomes the crowded trade.

By contrast, the only investor listed in the Wikipedia entry for “Growth investing” is Thomas Rowe Price, Jr., who died many years ago. Philip Fisher, another legend whose Common Stocks and Uncommon Profits is generally considered to be the reference work on growth investing, goes entirely unmentioned.

 


Indeed, T. Rowe Price launched the field of growth investing in 1939 during an environment not too dissimilar than the one we are in today. Following a period of mass speculation, the stock market had crashed in 1929, and the investing world was looking for a better way. Benjamin Graham and David Dodd wrote Security Analysis in 1934 to bring value investing to the mainstream. There was looming social unrest everywhere, prospects for growth appeared low, and investors were concerned about the future. Value investing seemed to provide the perfect salve for the time, and attracted a legion of followers.

Mr. Price saw something different. He saw that some segments of the economy – and some companies – were experiencing rapid growth despite the low or uncertain growth in the overall economy. He noted that these companies did not look inexpensive based on typical value analysis. These bargains became apparent only when factoring in high business growth over the long-term. He was proven right.

Growth and value investing could be seen as comprising two sides of the same coin. In theory a value investor could plug in high growth numbers and look out over the long-term just as well as a growth investor can. The reality, however, is that value investors are reluctant to insert such assumptions into their financial models; and if they do, they often fail to do so with conviction. As a result, value investors tend to shun early stage companies with negative earnings and high growth companies with current year price-to-earnings (P/E) ratios that are higher than average market multiples. To many value investors, a high P/E ratio automatically means a company is expensive, but P/E ratios have to be understood in the context of a company’s future growth potential.

Why can some investors see growth with better conviction than others? One possibility is that mathematical expertise, a character trait possessed by many investors and typically seen as a desirable feature for that vocation, promotes linear thinking. Yet growth occurs non-linearly through the compounding power that comes with recursion. Studies have shown that the human mind underestimates the power of compounding.

Another factor is the tendency of humans to not see the facts that are in front of them. When investors see a low stock price relative to growth prospects, they often ignore the growth prospects and assume the low stock price is justified. The human mind simply tends to work this way for most people. It is not easy to be intellectually honest.

Fear represents still another factor. Compounding forces promote more growth the further out you look. Yet today investors are shortening, not lengthening, their horizons—which can obscure how cheap a growth stock is. Investors generally believe that the future of the world is more uncertain today than ever. In reality, the future has always been uncertain, but the perception of uncertainty is what is greater today. Therefore, investors may be discounting growth today more than any time since the 1930s.

Thanks to the technology age and globalization of markets, there are many industries and companies that are experiencing above-average growth rates. Many industries also enjoy a higher degree of visibility than the broader economy, such as healthcare where innovative products and inelastic demand can create monopolistic market positions which persist for a decade or more.

High growth companies are particularly discounted if an investor is willing to look out several years. The good—and the bad for those of us keeping track for sentimental reasons—news is that the years will pass. The future will become the present, and growth investors will harvest its bounty.

We may indeed be in the golden age of sowing those growth investments. Many stocks with 25%+ compounded annual growth rates can be bought at price-to-earnings ratios of 15 or less. The media silence on the subject of growth investing today should be music to the ears of the next T. Rowe Price.






Source:
Value Investing Getting Too Crowded? Another Golden Age Of Growth Investing Is On The Way - Forbes

 Link:  http://www.forbes.com/sites/joonyun/2012/11/20/value-investing-getting-too-crowded-another-golden-age-of-growth-investing-is-on-the-way/

The Inflation Rotation Manager

 This company describes their disciplined approach to investing:


.......by adhering to a disciplined buy and rotate strategy, we can outperform buy and hold portfolios and generate absolute returns for our clients over a multi-year investment cycle. 

How do we do this? 

By focusing on the direction of inflation expectations as the key driver of asset class returns.

When inflation expectations rise, that coincides with a favorable environment for stocks relative to bonds. When inflation expectations fall, bonds tend to outperform. 

 



Source:
Pension Partners, LLC - The Inflation Rotation Manager

Link: http://www.pensionpartners.com/philosophy.php

A Short History of Takers

NIcholas Eberstadt of the American Enterprise Institute is one of the unsung heroes of the recent election. His work claiming that we have become a nation of takers, reliant on the government to take care of us, helped define the tone and language with which Republicans talk to each other, especially when they don’t think anyone else is listening; hence Romney’s 47 percent remarks, and President Obama’s road to reelection. 

Now, many people have pointed out that Eberstadt’s alleged evidence for the taker hypothesis is really mainly just saying that Medicare and Medicaid have gotten a lot more expensive. So I’m doing prep work for classes next semester, and I thought I’d just graph government transfer payments other than Medicare/Medicaid as a share of GDP. Here’s what it looks like:

So, as I read it, this number shoots up in recessions and their aftermath, then declines again, hitting a low during the later Clinton years; but there’s really no trend since the early 70s.

Indeed: the taking thing is all about health care.

Source:
A Short History of Takers - NYTimes.com

Finance Documentaries: Blog Roll

 

• Alfidi Capital
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• Zentrader

Source:
Finance Documentaries: About

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It's a Mean Old World

“If Americans ever allow banks to control the issue of their currency, first by inflation and then by deflation, the banks will deprive the people of all property until their children will wake up homeless.”
- Thomas Jefferson


"One of the funny things about the stock market is that every time one person buys, another sells, and both think they are astute."
- William Feather

THIS SHOULD HAVE ENCOURAGED THE POPULACE TO EMBRACE THE OCCUPY WALL STREET PROTEST:

Census shows 1 in 2 people are poor or low-income
-  HOPE YEN, Associated Press

 

Opinion | January 8, 2013

By: Gary Burtless

The job market continued to improve last year, but the pace of improvement was agonizingly slow. 

The unemployment rate edged down to 7.8%, a drop of 0.7% compared with the end of the previous year. Payroll employment grew 153,000 a month. Payroll gains in 2010, 2011, and 2012 have now offset a little more than half the loss in payroll jobs we suffered in 2008 and 2009.

The net improvement is less than these numbers suggest, because we need employment to increase about 90,000 every month in order to accommodate the growth of the working-age population.

Two features of the recovery have inflicted harsh burdens on the nation’s unemployed. 

First, an exceptionally high proportion of unemployment has been long-term, that is, has lasted six months or longer. 

Second, since reaching a peak of 10% in October 2009, unemployment has fallen at a glacially slow pace.

Unemployment and the burden it imposes are very unequally distributed across the population. 

Young workers, employees in cyclically sensitive industries like construction and manufacturing, and members of historically disadvantaged minorities are more likely to suffer layoffs than other workers.

The labor income of most unemployed workers falls to zero, and only part of it is replaced by unemployment compensation and other social benefits. Workers who lose their jobs after short spells of employment or who become unemployed after leaving school or rejoining the labor force seldom qualify for any unemployment benefits at all.

In many respects, U.S. public policy was unusually generous to the unemployed during the recent downturn. 

Compared with earlier post-war recessions, laid off Americans were eligible to receive unemployment compensation for an exceptionally long time—up to 99 weeks in some states with high unemployment rates.

Even with these improvements, however, unemployment benefits remain less generous than they are in other rich industrialized countries. 

Laid off workers, especially those who suffer long spells of joblessness, receive less income protection in the United States than they do in most of Western Europe, for example.

The psychological toll of unemployment—and of long-term unemployment in particular—is known to be high. 

Surveys in many industrialized countries show that being unemployed reduces happiness. This finding is hardly surprising. 

What is more interesting is that the drop in happiness that accompanies unemployment is greater than the change in happiness that can be explained by the drop in income that accompanies job loss. 

It is widely known that, in a cross-section of people in the same country, differences in income help account for differences in individual happiness. 

Not surprisingly, people with higher income tend to be happier than people who have less income.

Even accounting for the effects of income differences, however, people who describe themselves as unemployed are considerably less happy than the employed.

The gap in happiness between the unemployed and employed cannot be explained by differences in happiness that existed before job loss occurs. A number of longitudinal studies demonstrate that a sizeable drop in happiness accompanies or follows the involuntary loss of a job.

Both longitudinal and cross-section evidence suggests that the drop in individual happiness associated with unemployment is smaller in countries and regions where the average unemployment rate is high. 

In other words, massive and persistently high local unemployment seems to take some of the sting out of being unemployed. 

In a low-unemployment environment, the unemployed may feel more isolated in their suffering. 

If unemployment is more widespread, more peers may share an unemployed worker’s pain, lessening the psychological burden of living without paid work. 

For some of the unemployed, one side effect of the reduced psychological burden is that they devote less effort to finding another job. 

When reduced job-search effort results in slower re-employment, high joblessness can become to some degree self-perpetuating.

Thus, massive and persistent unemployment, by modestly reducing the psychological toll of joblessness, may indirectly create an environment in which long-term unemployment spells become more palatable and common. 

At the moment, U.S. unemployment is abnormally high as a result of fallout from a financial crisis and the massive loss of housing wealth.

 There is too little demand for goods and services produced in the United States to employ all the adults willing to work at the going wage. 

If high unemployment persists, the search behavior of the unemployed may change and make it more difficult to attain the full-employment unemployment rate we enjoyed in the middle of the last decade.





Sources

Andrew E. Clark (2003), “Unemployment as a Social Norm: Psychological Evidence from Panel Data,” Journal of Labor Economics 21(2) (April): 323-351.
Ed Diener and Martin E.P. Seligman (2004), “Beyond Money: Toward an Economy of Well-Being.” Psychological Science in the Public Interest 5: 1–31.
Rafael Di Tella, Robert J. MacCulloch and Andrew J. Oswald (2001), “Preferences over Inflation and Unemployment: Evidence from Surveys of Happiness,” American Economic Review 91(1) (March): 335-341 .
Carol Graham (2008), “The Economics of Happiness,” The New Palgrave Dictionary of Economics 2^nd Edition, Steven Durlauf and Larry Blume (eds.) (Hampshire: Palgrave MacMillan).
Liliana Winkelmann and Rainer Winkelmann (1998), “Why Are the Unemployed So Unhappy? Evidence from Panel Data,” Economica 65(257) (February): 1-15.





 

The Psychological Toll and Economic Fallout of High Unemployment| Brookings Institution

Author:

• Gary Burtless

  Senior Fellow, Economic Studies

  The John C. and Nancy D. Whitehead Chair

 Source:
The Psychological Toll and Economic Fallout of High Unemployment | Brookings Institution

 http://www.brookings.edu/research/opinions/2013/01/08-high-unemployment-burtless

Thoughts On The Business Of Life

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Global Energy Insights

Published on Jan 3, 2013

 

Global Energy Industry Insights and Solutions with Amy Jaffe  

(Visit: http://www.uctv.tv/) UC Davis Graduate School of Management Dean Steven Currall talks with Amy Jaffe, one of the world's leading global energy and oil industry experts. Jaffe recently joined UC Davis as the executive director of energy and sustainability. 

Series: "UC Davis Graduate School of Management's Dean's Distinguished Speaker Series" [1/2013] [Business] [Show ID: 24596]

• Category

  Education

 

Source: Global Energy Industry Insights and Solutions with Amy Jaffe - YouTube https://www.youtube.com/watch?v=-KPDiAEjR6Q

Investment-related quotes

There are only two kinds of forecasters – those who don’t know and those who don’t know they don’t know. 
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and in time, profits will flow back to you.
But divide your investments among many places,
for you do not know what risks might lie ahead.
When clouds are heavy, the rains come down…
…Farmers who wait for perfect weather never plant.
If they watch every cloud, they never harvest…
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The beginning is the most important part of the work.
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Money is of a prolific generating nature.  Money can beget money, and its offspring can beget more.
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The nightingale which cannot bear the thorn – it is best that it should never speak of the rose.
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Not to decide is to decide.
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Pay tax on what you take not what you make.  If you can eliminate the government as 39.6% partner, then you will be much better off.
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The art of taxation consists in so plucking the goose as to get the most feathers with the least hissing.
Jean Batiste Colbert

What the wise man does in the beginning, the fool does in the end.
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Whenever you find yourself on the side of the majority, it is time to reform. "It ain't what you don't know that gets you into trouble.  It's what you know for certain that just ain't true."  Thinking that you know the future.
Mark Twain

Never forget the six-foot tall man who drowned crossing the river that was five feet deep on average.  The important thing to remember about investing is that it is not sufficient to set up a portfolio that will survive on average.  The key is to survive at the low ends.
Howard Marks

"Risk means more things can happen than will happen.”  It is not standard deviation.  It is not variability.  It is this sense that the future events are highly variable and unknowable that gives us the best sense for risk.
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Smart investing doesn't consist of buying good assets, but of buying assets well.  This is a very, very important distinction that very, very few people understand.
Howard Marks

As weather is to climate, so is the short term to the long term, if we think of forming an outlook or forecast.
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Markets act on new information which by definition nobody has.
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I have enough money to last me the rest of my life, unless I buy something.
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