This month’s top 15 is full of financials and oil. I like to bottom fish, and this month it finally worked. My exposure to big bad oil is starting worry my wallet and my heart.
1. Lehman Brothers (LEH – $44.05): Now that more than three years have passed since I left Lehman Brothers I feel it is appropriate to disclose my position in the investment bank. I have to admit that this has not been a great quarter to own any investment bank, but I have a lot of confidence in Lehman management and think that they understand the risks inherent in liquidity that funding an investment bank requires. In other words, they are no Bear Stearns.
2. Usiminas S.A. Brazil ADR (USNZY – $63.12). I just keeping holding this company that was among the first privatized back in the early nineties. Soon prudence and risk management will overwhelm my aversion to paying capital gains taxes; I will have to sell a bit.
3. Chevron Corp (CVX – $88.05) The fact that oil derivatives (gasoline, etc) have not kept up with the price of crude means that integrated oil companies like Chevron are not keeping up. Also, it would seem the stock market doesn’t believe that oil belongs at $106 as much as the oil futures pit does. I have to have some exposure to oil. And I like Chevron and Conoco (COP) better than Exxon (XOM).
4. Berkshire Hathaway (BRK/A – $130,800) – Wish I owned more. The stock is benefiting from the earnings momentum in Property and Casualty insurance plus it’s considered a safe place to hide, given Warren Buffett’s dislike of complex derivatives. Like last year, I’ll be holding on to the stock but unlike last year, I won’t be attending the annual meeting.
5. B P Prudhoe Bay Oil RoyaltyTrust (BPT – $95.00) This is an embarrassment of riches. I sold a bit recently and I wouldn’t buy this now but I have so much in capital gains this year that I can’t sell till 2008. As the royalty owner of the oil under the ground in Alaska, BPT is my least socially conscious investment. Since this is a mindless trust there is no shareholder meeting at which I can protest, nor is there any proxy vote I can join. I’m looking for some sort of runnup to exit this position.
6. General Electric (GE – $37.56) (up from #14) – Multinational benefits from falling dollar. They are trying (but not yet there) to remake themselves into an eco-friendly company of the future. I just keep adding to the position on every pullback. What can I say, I think their eco/medical strategy will work. Do I forgive GE for denying that PCB’s are bad for you or the Hudson River? No way!
7. Vanguard Pacific ETF (VPL – $64.66). Gotta have Asian exposure and I don’t have the time to do research on individual companies in Asia right now.
8. Conoco Philips (COP – $78.81) Not keeping up with the rest of the oil sector, but I’ll hold on since I like that most of Conoco’s oil and gas reserves are inside the U.S.
9. BP (BP – $62.98) Yes, another oil company. I tripled my exposure to the stock recently when it fell to $59.00. The company used to trade at a premium, in part because it was perceived as more green. That premium is now out of the stock. And it deserves to be – they are no better than any other oil company.
10. Countrywide Capital Trust V (CFCprB – $18.05) Rather than take a risk with the equity, the best way to play troubled banks that are likely to be guaranteed or protected by the government or others is to buy the preferred stock. Preferred stock is the lowest rated and junkiest class of debt (think bonds) you can buy. So I did. This preferred has a par value of $25.00 a share and currently yields almost 10%. Once the Bank of America takeover of Countrywide is complete, I’ll have very cheap Bank of America preferred stock.
11. 3M (MMM – $80.52) (was #13) Solid and creative company. I’m sticking with 3M. Makes a good base of any portfolio and more so now because it’s trading with a p/e of 14.
12. Freeport McMoran Copper & Gold (FCX – $107.60) This stock is both an emerging market play (Indonesia) and a gold play. Everything seems to be going in FCX’s favor right now. Beware a correction in emerging markets or gold. I’m holding for now. Yes, this gold mining company destroys land. It’s a shame that governments don’t regulate gold mining and all the damage it does to the environment more. I wish I could find a not-as-bad gold mining company to invest in. If anyone knows of one that is public and tradeable, let me know.
13. Microsoft (MSFT – $29.16). The Yahoo (YHOO – $28.63) bid is ruling the price of Mr. Softy. Now that Steve Balmer has shown he won’t raise his bid, look for Microsoft to rally not matter what the outcome.
14. Morgan Stanley (MS- $47.60). Yes, I had to pick up the cheap cheap cheap shares of my old employer during the panic surrounding Bear Stearns. There might be another shoe to drop in the investment banking world but I think Bear Stearns took the hit for the others. I’m looking to start exiting part of this position around $50.
15. Anadarko Petroleum (APC – $63.78) (down from #12) – Stock is up but its position fell. This Texas-based oil exploration company just keeps rising. They are so cheap. I should sell BPT and buy more APC. Morally, I don’t feel great about this exploration and development company – management is difficult to influence – but you can read about Anadarko’s carbon sequestration program in Wyoming if you want to feel a little better.
Notable Changes
Sold to Zero from #1 Ishares Inflation Protected Treasuries ETF (TIP – $108.90). I had some short call positions against my TIP and I sold the rest. Long term bond yields are just too low and the only way to stop the looming stagflation is for the Fed to raise them. TIPs, while not as exposed to inflation fear, fueled interest changes that would be hit to any rising interest rate scenario. In the meantime, I can find better places to put money.
Dropped off List:. Citigroup (C- $24.08) (up from #7): The stock falls, I buy more. Abu Dabi buys more. People who average down are buying more. I’ve had my fill. The board picked my favorite choice for CEO; my old boss at Morgan Stanley (MS), Vikram Pandit. I still own the common but I think the preferred is a better bet right now.