(B)(N) S&P 500 Seven From Heaven

Courtesy: The Chicago Tribune Comics Carousel

Drama. Investing in the stock market is a serious business but it also has its lighter moments – much lighter – and those who tune-in for the daily “Soap Opera” may be regaled with the likes and dislikes of the “Beauty Contest” or “Reality Investing”  or “The Funny Pages“. It’s all that, and much more, so stay tuned.

We were intrigued today by the seven “most-often-mentioned” stocks on The Street (The Street, February 6, 2014, How To Invest In Apple, Google and Intel). And not being ones to play only the favourites, we looked at the team; and not being ones to rely on yesterday’s news, we looked at the season. And it’s brilliant! Brilliant! After some scraggly growth in training camp two years ago, these seven stocks have taken-off and are in the big leagues with a combined market value of $1.5 trillion! Of which they gained 24% last year and another +6% so far this year.

And with a little more work, they could overtake The Dow Transports or keep up with The Dow Utilities which are also becoming popular and likely to show-up in this year’s pilots (Bloomberg, March 3, 2014, Buffett Targets Mother Lode of Opportunity in U.S. Deals). Please see the fundamentals below.

Exhibit 1: The Seven From Heaven – Fundamentals – March 2014

The S&P 500 Seven From Heaven – Fundamentals – March 2014

The S&P 500 Seven From Heaven – Risk Price Chart – March 2014

These seven companies are up +$80 billion and +6% so far this year. However, the aggregate dividend yield is 1.4% and they paid only $21.8 billion in dividends last year for a modest return of earnings of only 26.6% to the shareholders.

On the other hand, they also gained $290 billion and +24% in market value last year and are presently “undervalued” with a [P/E]-multiple of 19× and a market price yield of 5.3% which might stall some profit-taking for the early risers who are wondering whether it’s time to sell something.

We never have to think about that because all seven are currently in the Perpetual Bond™ with our usual stop/loss protections should the market surprise us. That portfolio was up +48% last year and is currently up +13% for the year-to-date and we can afford a surprise episode if it really comes down to that. Our estimate of the portfolio downside due to the demonstrated price volatility is as much as minus (10%) should the market swoon. Please see Exhibit 2 and 3 below for more details.

It’s also noteworthy that the investors took a long time to warm-up to these stocks and that they traded very close to the price of risk throughout all of 2011 and 2012 (please see the Chart above) before jumping on the escalator.

Are we likely to get it back?

Although there is always a great deal of uncertainty in the stock price, we know exactly what it is despite the daily, weekly, and monthly ups and downs of investors who are looking for it. It is the price of risk because that’s the price at which we can reasonably expect to get our money back with a possible and hopeful return that exceeds the rate of inflation.

When we look at it that way, rather than as a “beauty contest”, we can say that when we buy a stock, popular or not, we are “lending” our money to other investors whose “collateral” is a stock certificate and the natural question is, are we likely to get it back?

And when we look at it that way, it’s easy to see that there are lots of companies whose stock is just an IOU. Are they good for it?

Exhibit 2: (B)(N) The Seven From Heaven – Prices & Portfolio – March 2014

(B)(N) The S&P 500 Seven From Heaven – Prices & Portfolio – March 2014

Exhibit 3: (B)N) The Seven From Heaven – Portfolio & Cash Flow Summary – March 2014

(B)(N) The S&P 500 Seven From Heaven – Portfolio & Cash Flow Summary – March 2014

(Please Click on the Chart to make it larger and again if required.)

For more information on “risk management” and additional references to the theory, please see our recent Post, The RiskWerk Company Glossary.

And for more on what risk averse investing has done for us this year, please see our recent Posts on The S&P TSX “Hangdog” Market or The Wall Street Put or specialty markets such as The Dow Transports & Utilities or (B)(N) The Woods Are Burning, or for the real class action, La Dolce Vita – Let’s Do Prada! and It’s For You, Dear on the smartphone business.

And for more stocks at high prices, The World’s Most Talked About Stocks or Earnings Don’t Matter – NASDAQ 100. And for more on what’s Working in America, Big Oil, Shopping in America or Banking in America, to name just a few.

Postscript

We are The RiskWerk Company and care not a jot for mutual funds, hedge funds, “alternative investments”, the “risk/reward equation” and every other unprovable artifact of investment lore. We have just one product

The Perpetual Bond™
Alpha-smart with 100% Capital Safety and 100% Liquidity
Guaranteed
With No Fees and No Loads on Capital

For more information on RiskWerk, please follow the Tags or Categories attached to this Letter or simply enter Search for additional references to any term that we have used. Related data may be obtained from us for free in a machine readable format by request to RiskWerk@gmail.com.

Disclaimer

Investing in the bond and stock markets has become a highly regulated and litigious industry but despite that, there remains only one effective rule and that is caveat emptor or “buyer beware”. Nothing that we say should be construed by any person as advice or a recommendation to buy, sell, hold or avoid the common stock or bonds of any public company at any time for any purpose. That is the law and we fully support and respect that law and regulation in every jurisdiction without exception and without qualification to the best of our knowledge and ability. We can only tell you what we do and why we do it or have done it and we know nothing at all about the future or the future of stock prices of any company nor why they are what they are, now. The author retains all copyrights to his works in this blog and on this website. The Perpetual Bond®™ is a registered trademark and patented technology of The RiskWerk Company and RiskWerk Limited (“Company”) . The Canada Pension Bond®™ and The Medina Bond®™ are registered trademarks or trademarks of the Company as are the words and phrases “Alpha-smart”, “100% Capital Safety”, “100% Liquidity”, ”price of risk”, “risk price”, and the symbols “(B)”, “(N)” and N*.