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4 Ways To Recession Proof Your Portfolio

William Patalon III — Mon, 15 Sep 2008 13:38:22 +0000

Wall Street is on its knees, and the taxpayer is on the hook for well over a trillion dollars to prop up the financial system.

Meanwhile, the wider US economy is sliding into a recession.

William Patalon III says there are four solid ways to protect your portfolio from these forces: 1) Buy dividend-paying stocks; 2) Buy gold; 3) Buy companies focused on overseas market; and 4) Don’t panic…

The following extract is taken from a research report published over the weekend by Money Morning…

No. 1 – Stock Up on Dividend stocks

Many investors are so scared by the wild gyrations the stock market has seen of late that they’ve jettisoned everything in their search for safety.

Not only is this a massive mistake from a timing standpoint, it’s also a major misstep because of all the dividend income those folks are going to forego.

Dividend-paying stocks tend to be more stable than their non-dividend paying brethren -particularly during rocky stock markets. In other words, stocks that have income streams attached are treated better, especially when the going gets tough.

They also outperform non-dividend paying stocks by even more in down markets than they do in up markets.
By consistently reinvesting dividends during down markets, investors can substantially expand their asset base, which puts them way ahead of the game when markets recover and stock prices soar – as they always eventually do.

And the savvy investors who owned them watched as their own portfolios easily outperformed the market averages and roundly trounced the returns of portfolios that were devoid of or light on dividend-paying shares.

And there are some excellent investment candidates. Two of the best are the PowerShares International Dividend Achievers Fund (PID) and the Alpine Dynamic Dividend Fund (ADVDX), two exchange-traded funds (ETFs) that we like a great deal.

The PowerShares International Fund is a global-income portfolio that can help you spread your risk, while also earning income. The Alpine fund is a more-specialized fund that uses a “dividend harvest strategy” that can boost the fund’s yield.

Both funds invest in companies that have survived countless business cycles, and that are likely to survive this downdraft, too.

Because dividend-paying stocks tend to be downdraft resistant, portfolios with higher yields tend to last longer and pay stronger. That’s something that’s important to all of us, but especially to investors who are nearing retirement, or who have already retired.

No. 2 – Go for Gold

When times are tough, gold soars.

And frankly, the economy has been tough: $4 gasoline, the housing crisis, rampant inflation, plummeting stocks…

But all the while, gold prices vaulted a cool 26.5% in the past year.

Missing out on gold is already costing investors a pretty penny. What’s more, most experts are forecasting gold prices to rise at least another 75.6% by the end of this year.

So, how does one profit from gold? It’s simple. You don’t have to wade through a plethora of flashy websites offering bullion or risk it all on a junior mining company.

Instead, here are five ways to profit from gold right away – from the most lucrative to the least risky.

Gold Fields Ltd. (GFI): South Africa’s Gold Fields Ltd. is the world’s fourth-biggest gold producer – with about 90 million ounces in reserve from its operations in Africa, South America and Australia.

It recently reported that its fourth-quarter production would beat its previous forecast by up to 120%.

Overall, the company has a solid balance sheet and ample reserves. But if anything scares investors away, it’s Gold Fields’ location.

South Africa mines are frequently a political tool between the country’s labor unions and state-owned utility provider Eskom Holdings Ltd. (OTC:ESKAY), which controls 95% of the country’s power.

Eskom recently jacked electricity prices up 27.5%, and unions decided to hit the government where it hurts – by striking- thus gutting the government of taxes from its vast gold profits.

That is just one example of why this stock is a risky gold play. Gold could reach another record but Gold Fields may not see a penny of it if its miners are on strike.

Yamana Gold Inc. (AUY): When gold prices are high, investors should pay extra attention to mining companies with increasing production levels because they translate into a bigger bottom line.

For its second quarter this year, Yamana Gold Inc. produced almost 10% more gold than it did in the previous quarter.

What’s more, its gold production is expected to double to 2.2 million ounces per year by 2012, primarily from its Brazil and Argentina mines.

That’s because Yamana Gold went on a spending spree in the past two years, buying up junior mines around the world to lock in reserves.

“Now it is about production, cash flow and earnings,” Chief Executive Officer Peter Marrone told Reuters.

It’s also about dividends. The company recently kicked up its investor payout by 300%, a strong vote of confidence to its production and stock performance.

Consumer Spending Threatened by High Prices and Lower Wages

Jason Simpkins — Tue, 22 Jul 2008 15:13:17 +0000

Consumer spending, which accounts for more than 70% of the economy, will be seriously threatened in the months ahead, as prices continue to rise, wages plateau, and government stimulus checks wear thin.

Consumer spending has remained strong in recent months, even jumping 0.8% in the month of May. But that boost was largely inflated by the $50 billion in government rebate checks that were cashed and put to use in the month.

The stimulus will total $107 billion this fiscal year, but that may not be enough, as consumer prices are rising across the board. The consumer price index (CPI) increased 1.1% in June, driving the rate of inflation over the past 12 months to 5%, and it looks as though prices will continue to rise as many businesses grapple with higher raw material costs.

Sara Lee Corp. (SLE), the maker of many American food products, such as Jimmy Dean sausages, said yesterday (Monday) that it would be forced to boost the prices of its meat products by one-fifth this year.

“Price increases vary a lot by type of products but the increases will be as low as zero and some products we will decrease on and other increases [will be] in excess of 20%,” C.J. Fraleigh, Sara Lee’s chief operating officer for North America told the Financial Times.

Kraft Foods Inc. (KFT) said prices for its products will jump by 12%-13% this year, and even as much as 25% in some of its cheese categories. Kellogg Co. (K), ConAgra Foods Inc. (CAG) and Tyson Foods Inc. (TSN) are some of the food companies also planning price increases that will invariably contribute to inflationary pressures in the United States.

Meanwhile, the high price of oil has contributed to a sharp escalation in the price of gasoline and many other consumer products. For instance, global chemical producer Dow Chemical Co. (DOW) recently raised prices on all 3,200 of its products, some by as much as 20%, in the single-biggest price increase in the Michigan-based company’s 111-year history.

The problem is going to get worse in the months ahead, as a survey by the National Association for Business Economics (NABE) has found that almost four times as many businesses plan to charge more for their goods and services next quarter than expect to reduce prices.

The poll of the 101 NABE members was taken between June 19 and July 10, and found that a record 75% paid more for materials last quarter and expected to pay more this quarter as well. A net 28% of respondents said they were forced to increase prices from April through June as a result.

Worse, only 20% of the businesses surveyed said salaries increased in that time, the lowest number in four years and an 11% drop from the group’s previous survey in April. Only 9% of the respondents said they would increase payrolls over the next six months, the fewest in five years.

The information corroborates a separate report from the Department of Labor last week, which said wages, adjusted for inflation, were down 2.4% in the 12 months ended in June.

Employers have cut jobs each month in 2008, with payrolls tumbling for the sixth consecutive month in June. The total number of job losses in the first half of the year was 438,000.

The national unemployment rate has gone up by a full percentage point in the past year, to 5.5%.

Source: Consumer Spending Threatened by High Prices and Lower Wages

Three Ways to Play Peak Food

Jennifer Yousfi — Thu, 03 Jul 2008 15:14:46 +0000

Editor’s Note: Money Morning’s Jennifer Yousfi has been talking a lot about the impact of rising corn prices on US food producers. With input costs of animal feed spiraling out of control, many producers are struggling to keep their heads above water. For investors, says Jennifer, this means no “slam-dunk” profit play. But Jennifer says she’s found three companies that she thinks offer good bargains…

Cashing in on Commodities: Three Ways to Profit From Record Meat and Dairy Prices

By Jennifer Yousfi

Last week, Tyson Foods Inc. (TSN) announced it would sell its Canadian plant to XL Foods Inc. for $105 million, pending regulatory approval. Canadian livestock farmers were sad to see the American firm go.

“It’s very disappointing to see Tyson leaving Canada,” Rick Paskal, a feedlot owner in southern Alberta, told Reuters.

“We had three bidders for our cattle. Today we’re down to two. That’s a pretty black day, as far as I’m concerned,” Paskal said, referring to the only two major beef packers left after Tyson’s planned exit.

While the move may be bad news for Canada’s beef farmers, it’s quite the opposite for investors: This shift is part of a “back-to-basics” refocusing strategy for Tyson, which made its name in the poultry market.

“Without hesitation, we believe the sale … is a positive, as the Canadian beef business not only has been a material drag … but likely would have continued to generate losses for the foreseeable future,” wrote BMO’s Kenneth Zaslow in a note to clients after the sale was announced.

And while it continues to struggle to make money with its domestic chicken business, Tyson is looking to capitalize on powerful global trends — one being the so-called ‘BRIC’ economies of Brazil, Russia, China and India.

Its BRIC market of choice: India.

Just this week, Tyson announced it had acquired a 51% stake in India’s Godrej Foods Ltd., which sells retail fresh chicken, chicken nuggets and patties, MarketWatch.com reported. It is a subsidiary of Godrej Agrovet Ltd., an agri-biotech company that has yearly sales of about $250 million.

Tyson, one of the largest U.S.-based producers of poultry products, says the joint venture will be situated in facilities in such key India cities as Mumbai and Bangalore, and will generate $50 million in annual sales. The U.S. company will use its production methods to help Godrej improve and expand production, build newer facilities to expand the duo’s reach, and to develop new kinds of products.

“We believe the timing is right for us to bring our expertise and resources to this emerging market,” Rick Greubel, international president at Tyson, said in a statement.

Once largely a backyard enterprise, poultry is now one of India’s fastest-growing agriculture-related markets. India is the world’s sixth-largest poultry producer and is watching as chicken consumption advanced at an average annual pace of 11.3% between 1990 and 2000. Now India’s consumers are shifting their tastes – from only eating fresh chicken, to embracing frozen poultry products.

Tyson’s shares have plenty of room to rebound: At yesterday’s closing price of $14.31 each, they’re down 40% from their 12-month high.

General Mills Inc. (GIS) is another of the food-manufacturing firms to be hard hit by the soaring cost of raw ingredients. For its fiscal fourth quarter ended May 25, a 12.9% increase in sales wasn’t enough to offset the bottom-line damage brought on by rising commodity costs.

Net income declined 17.4% to $185.2 million, or 53 cents per share, down from $224.1 million, or 62 cents per share, for the same period a year prior, Forbes reported.

But investors who strike here may be buying into a high-quality company whose fortunes are about to turn: General Mills is one of those rare companies that appears to be passing its increased costs along to its customers by raising prices – but without taking a big sales hit.

Remarkably, the company may actually be boosting its overall sales via this initiative.

“General Mills is justifying the premium it has to charge to make it through rising input product cost… and seeing higher sales volumes even as it is raising prices,” analyst Matt Arnold of Edward Jones analyst Matt Arnold told Forbes.

It’s the kind of company we like here at Money Morning: It has a terrific brand name, offering such products as Pillsbury breakfast pastries and baked goods, Green Giant canned vegetables, General Mills cereals, and Yoplait yogurt.

Chief Executive Officer Ken Powell spent 20% more on U.S. marketing, spurring higher sales during the most recent quarter – one of the five keys to picking a bear market stock. And it just announced a 10% increase in its dividend payout – a second of those five bear-market investing secrets [Check out our related story on bear-market investing by Investment Director Keith Fitz-Gerald in this issue of Money Morning].

Dean Foods Co. (DF) is another firm that has felt the harsh sting of high commodity prices, but the Dallas-based firm has also slashed costs at the same time it increased prices — and boosted its profit outlook.

We also like Dean because it’s carving out a solid niche in the organic food portion of the food market – a niche that’s gaining popularity as a graying U.S. population becomes more concerned about what it eats. Organic products command a market premium, making it easier to raise prices in an inflationary environment.

Source: Cashing in on Commodities: Three Ways to Profit From Record Meat and Dairy Prices

Global Investing Roundups Tuesday, July 1st, 2008

William Patalon III — Tue, 01 Jul 2008 12:45:16 +0000

Canada Staving off Recession; H&R Block Rebounds; Kellogg Buys Chinese Cookie Kingpin; Occidental Petroleum: New $1.1 Billion Hydrocarbon Plant; This Bud’s Not For You; Eurzone Inflation Hits 4%; Dubai Ties Into Russia’s Energy Sector; Tyson Takes a Bite Out of Indian Food Poultry Processor

Canada posted 0.4% economic growth for the month of April, after falling in the red for the first three months of the year – its first negative quarter in five years. Economists warned this rebound isn’t forward looking, as U.S. demand is still low amid the subprime credit fallout and high gasoline costs, Bloomberg reported.

Tax preparing leader H&R Block Inc. (HRB) said yesterday (Monday) that it posted 11% revenue for its fiscal fourth quarter, a dramatic shift from its previous quarterly loss. The company benefited from the sale of its Option One mortgage servicing business to Wilbur Ross in April, Reuters reported.

Battle Creek, Mich.-based cereal maker Kellogg Co. (K) said yesterday (Monday) that it acquired China-based Zhenghang Food Company Ltd., a cookie and cracker maker. The purchase will give a big boost to Kellogg’s efforts to expand its product line in the emerging Chinese market, Reuters reported.

Occidental Petroleum Corp. (OXY) will plunk down $1.1 billion to develop a hydrocarbon gas processing plant and pipeline infrastructure in West Texas, part of an agreement with SandRidge Energy Inc. (SD). Occidental Petroleum will own and operate the facility, and said would expand production by a minimum of 50,000 barrels of oil per day, MarketWatch reported.

Anheuser Busch (BUD) rejected InBev NV’s $46.3 billion takeover and announced a strategic cost-savings plan. The company will cut 10%-15% of its salaried workforce through early retirement and attrition. A memo obtained by Reuters called the changes “difficult, but necessary.”

Inflation in the 15-nation Eurozone hit 4% in June, the highest level in more than 16 years, Bloomberg reported. The increase makes a rate hike by the European Central Bank at its July 3 meeting a near certainty.

Dubai World and Roskommunenergo, an energy trader whose chairman is the son of a senior Kremlin official, offered to buy the biggest Russian power producer for $5.3 billion. The acquisition by Dubai World would be the first in the Russian energy industry by a Gulf investor, Bloomberg reported.

Meat producer Tyson Foods Inc. (TSN) announced yesterday (Monday) that it acquired a 51% stake in Godrej Foods Ltd., a poultry processing business in India. Tyson said the joint venture will be called Godrej Tyson Foods, the Associated Press reported. The company expects annual sales to be in the range of $50 million and will likely grow as operations expand.

Source: Global Investing Roundups Tuesday, July 1st, 2008

Hoarding Nations Drive Prices Higher

Contrarian Profits — Mon, 30 Jun 2008 11:54:26 +0000

Editors Note: At least 29 countries have limited food exports in recent months, according to The New York Times, pushing already record food prices around the world even higher. Could it be time to consider investing in genetically-modified foods?

When it comes to rice, India, Vietnam, China and 11 other countries have limited or banned exports. Fifteen countries, including Pakistan and Bolivia, have capped or halted wheat exports. More than a dozen have limited corn exports. Kazakhstan has restricted exports of sunflower seeds.

The restrictions are making it harder for impoverished importing countries to afford the food they need. The export limits are forcing some of the most vulnerable people, those who rely on relief agencies, to go hungry.

“For more than a decade, European policymakers have spurned genetically modified crops, but these so-called Frankenfoods are beginning to look more and more appetizing in the wake of food shortages and soaring prices,” says Jason Simpkins in Money Morning.

GM Foods More Appetizing As Prices Skyrocket

By Jason Simpkins

Only 21% of Europeans are willing to eat genetically engineered food, according to a survey by the European Commission.

Some nations, such as France, have banned the planting of genetically modified crops, while others like Germany have enacted laws that allowed foods to be labeled as “GM free.”

Critics insist that such foods could pose risks to health and the environment, and further assert that genetically modified crops produce better yields.

“Most testing is carried out by the very biotech companies that have the most to gain from results that say GM food is safe,” the activist group Friends of the Earth says on its Web site. “Growing GM crops also threatens wildlife and the production of GM-free foods. What’s more, some GM crops could allow more pesticides to be used.”

But global demand for foodstuffs is on the rise, and as supplies tighten, prices continue to soar. For instance, global corn consumption is expected to rise to 793.1 million tons in 2009, up from a record 778.9 million tons this year. Stockpiles are expected to fall to just 103.3 million tons next year. Corn prices have surged about 75% over the past year and 17.5% since early June.

The price increases have trickled into the meat and dairy industry, as corn is widely used in animal feeds. Tyson Foods, Inc. (TSN), the Arkansas-based meat producer, has predicted that retail chicken prices will have to jump by double-digit percentages in 2009 for poultry processors to recoup their feeding costs, according to the Times Online.

Higher feed prices will eventually filter through to the cost of milk, cheese and yogurt, too, since 65% to 75% of a dairy farmer’s production costs are for feed, Chris Galen, a spokesman for the National Milk Producers Federation, told The Associated Press.

The World Bank estimates that worldwide food prices have risen a scorching 83% over the past three years. And the president of the World Bank, Robert B. Zoellick, estimates that the spike in food prices could push 100 million people in low-income countries deeper into poverty, as food costs cut into already meager earnings.

The biotech industry claims it can help. Research by the U.S. Department of Agriculture found that one variety of genetically modified corn yielded 9% more than conventional corn. The International Service for the Acquisition of Agri-Biotech Applications, which encourages developing countries to adopt GM technology, says GM cotton has increased yields by 50% in India.