How To Invest
In addition, Pat thinks then beginner investors should cultivate two important qualities: a healthy sense of skepticism and patience.
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Investors should approach all investments with a healthy sense of skepticism. This can help keep you out of fraudulent stocks that masquerade as high-quality stocks. It will also keep you out of legally operated, but poorly managed, companies that promise more than they can possibly deliver.
If you are a new investor, you should also realize that losing patience can cause you to sell your best choices right before a big rise. All too often, investors buy a promising stock just as it enters a period of price stagnation. Even the best-performing stocks run into these unpredictable phases from time to time. They move mainly sideways in a wide range for months or years before their next big rise begins. (Stock brokers often refer to these stocks as “dead money.”)
If you lack patience, you run a big risk of selling your best choices in the midst of one of these phases, prior to the next big move upward. If you lose patience and sell, you are particularly likely to do so in the low end of the trading range, when stock prices have weakened and confidence in the stock has waned.
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Xylem Inc., $37.97, symbol XYL on New York (Shares outstanding: 179.4 million; Market cap: $6.7 billion; www.xyleminc.com), sells equipment and services related to managing water. The company takes its name from “Xylem,” the Greek word describing the vascular tissue that carries water and nutrients through plants. With its products, Xylem Inc. helps clients collect, distribute, use and return water to the environment. The company operates through two divisions:...
Avigilon Corp., $13.36, symbol AVO on Toronto (Shares outstanding: 43.2 million; Market cap: $562.0 million; www.avigilon.com), designs, makes and sells high-definition surveillance systems. Users can view the images from this equipment on computers, tablets and smartphones. In the three months ended September 30, 2015, Avigilon’s revenue jumped 33.9%, to $95.1 million from $71.0 million a year earlier. If you exclude the positive impact of the lower Canadian dollar on its foreign sales, revenue rose 16%. Earnings before one-time items rose 9.0%, to $12.2 million from $11.2 million. Due to fewer shares outstanding, earnings per share gained 12.5%, to $0.27 from $0.24....
Tahoe Resources, $11.82, symbol THO on Toronto (Shares outstanding: 227.1 million; Market cap: $2.8 billion; www.tahoeresources.com), has offered to buy Toronto-based junior producer Lake Shore Gold, $1.77, symbol LSG on Toronto in a $945-million, all-stock bid. Lake Shore operates the Timmins West and Bell Creek gold mines near Timmins, Ontario. Tahoe owns and operates the Escobal silver mine in Guatemala and the La Arena gold mine in Peru. The company is offering 0.1467 of a Tahoe share for each Lake Shore share. Based on today’s price for Tahoe’s shares, the offer is now worth $1.73 a share....
It’s Skin Co. Ltd., symbol 226320 on the Korean Stock Exchange, is a South Korean cosmetics and face cream company. The company first sold shares to the public in December 2015. The initial public offering (IPO) for It’s Skin was part of a widespread effort by South Korean businesses to capitalize on the “Korean wave”—the rising popularity of South Korean culture in China. This investment comes with a number of negatives. For one, it’s always difficult to break into a foreign market, especially when there are language, legal and cultural barriers. The cosmetics business is also notoriously fickle. In any event, a weakening economy in China could slow sales to that country in the near term....
Here’s an email I received recently from one of our portfolio management clients. Lots of readers may find something they can identify with in his views. “Subject: cashless society Good morning Pat,...
Penske Automotive Group Inc., $35.93, symbol PAG on New York (Shares outstanding: 90.1 million; Market cap: $3.1 billion; www.penskeautomotive.com), takes its name from Billionaire investor Roger Penske, best known for his IndyCar and NASCAR auto racing teams. He owns about 35% of the company, which sells new and used cars through over 350 franchised dealerships in the U.S. and Western Europe. Those dealerships operate under a variety of banners, including BMW, Audi, Mercedes-Benz, Toyota, Honda, General Motors, Ford and Chrysler. The company also distributes commercial trucks, diesel and gas engines, power systems and related parts mainly in Australia and New Zealand. In addition, it offers financing and insurance products....
Serco Group plc, 81.10 pence, symbol SRP on the London Stock Exchange (Shares outstanding: 1.1 billion; Market cap: 881.6 million British pounds; www.serco.com), is a British outsourcing company that manages public and private transport services, air traffic control, prisons and schools. The company’s main listing is on the London Stock Exchange. Serco is now selling its Business Process Outsourcing (“BPO”) division to private equity firm Blackstone for 250 million pounds ($384 million U.S.). The BPO unit runs IT and customer services for private-sector firms from its base in India. It’s also been a big money loser for Serco. The company will use the proceeds to pay down some of its huge debt of 1.5 billion British pounds, which is 1.7 times its market cap....
Concordia Healthcare Corp., $38.72, symbol CXR on Toronto (Shares outstanding: 51.0 million; Market cap: $1.9 billion; www.concordiarx.com), is an Oakville, Ontario-based company that acquires and sells the rights to established drug treatments, mainly in the U.S. Concordia aims to control the rights to relatively small, mature products as opposed to the newer treatments that larger pharmaceutical firms target. Its main products include Donnatal, for irritable bowel syndrome and acute enterocolitis; Zonegran, for epilepsy; and Photofrin, a cancer drug. In April 2015, the company paid $1.2 billion for 12 branded drugs and five generic products from Covis Pharma (all figures except share price and market cap in U.S. dollars). These include Nilandron (prostate cancer); Dibenzyline (vascular disease); Lanoxin (heart disorders); and Plaqueni (lupus and rheumatoid arthritis)....
AltaGas Ltd., $32.59, symbol ALA on Toronto (Shares outstanding: 146.3 million; Market cap: $4.9 billion; www.altagas.ca), processes, transmits, stores and markets natural gas for producers; generates power from gas-fired, coal-fired, wind, biomass and hydroelectric plants; and operates natural gas utilities. In the three months ended September 30, 2015, AltaGas’s cash flow per share rose 19.0%, to $0.75 from $0.63 a year earlier. That’s mainly due to the January 2015 acquisition of three gas-fired power plants in the U.S. for $33.6 million. Revenue gained just 1.8%, to $452.2 million from $444.2 million. Low selling prices for its natural gas offset the extra revenue from its new operations. In November 2015, the company completed its purchase of three gas-fired power plants in northern California for $642 million U.S. These facilities have long-term contracts to sell their power to Pacific Gas & Electric, which cuts their risk. The purchase should increase AltaGas’s annual cash flow per share by 5%....
One big risk of volatile, declining markets is that they can spur you to make impulsive sell decisions. They lead some investors to sell “at the bottom”—that is, to sell some if not all their best holdings right around the time when the market hits what will turn out to be its low. In hindsight, it may seem that the best way to deal with this risk is to sell when a market downturn is just getting started. That would be the best way—if only it were possible! But nobody can foresee how long a drop in prices will last, nor how far down it will go. You can find lots of systems and signals and gurus that that guessed right, once or several times in a row. Eventually, though, they all guess wrong. One wrong guess can create losses that far outweigh gains from a series of lucky guesses. One problem for unsuccessful investors is that they live by the idea that a stock is “worth” only what it will fetch if you have to sell immediately. You’ll sometimes hear them say things like, “I lost $50,000 last Thursday,” even if they didn’t sell anything....