2016 Stock picks-Part Deux

Warning! Free advice is worth what you pay for it! Kids, don’t try this at home! You can lose lots of money really fast by blindly following anyone’s investment advice, including mine.

OK, on Thursday I gave you my 2016 stock picks and said we’d keep them all year. Three days later, I’ve decided to change things. So much for consistency.

Let’s go through the picks I will open with tomorrow:

TLH-This is just a 10 to 20 year treasury ETF. The rationale for buying is simple: I do not think the Fed will raise rates this year. There has quite simply been no recovery at all in the economy, and thus increasing the cost of money, at least according to the Yellen/easy money/Keynesian rhetoric, is a mistake that they will have to rectify. i predict they will lower rates or hold steady. If I’m wrong, we will lose money here. If they hold or lower, we’ll make money. This is a fairly low risk/low reward play.

FNV (Franco-Nevada)-This is really not so much a precious metals operation as a finance company that specializes in loans to miners using their proven reserves both as collateral and as a way to participate in rising prices by hedging future gold or silver price increases. It is therefore a conservative way to play the PMs, but it is still volatile. I think the downside risk for gold is limited at this late stage in the commodity bear market, while the currency market jitters will eventually pay off for it. We’ll see.

ENB (Enbridge)-This is an oil pipeline company paying a nice fat dividend. As such, it doesn’t really rely on oil prices for its income stream-they get paid to pump regardless of the commodity price. Yet the company was slammed down as if it were a junior producer. I like buying cheap. Plus, it is a nice play on the Canadian dollar, which is flat on its ass. If the looney recovers, we make money even if the stock goes nowhere. Of course, if the Canadian economy sours even more due to falling oil prices, look out below!

BABA (Alibaba)-This is often called the Amazon of the East, but really its more than merely a retailer. It’s an Amazon, Pay Pal, and Google rolled into one, and it serves the world’s largest economy. The downside risk here is that I am going to coin a racist adage here: “Never trust a Chinese accountant.” They are notoriously loose with their practices, so you never know how well (or poorly) they’re really doing. Plus China is hurting due to the fall off in Western consumer spending and has a host of domestic issues to contend with. But here I am counting on some smart money-I hate Soros,but he’s a smart cookie, and he’s buying. So am I.

LTC-I admit this stock bores me. It is a long term care (LTC-get it?) REIT, and thus pays some handsome dividends, but there won’t be any home runs here. I do like the stability, though, in the otherwise high beta portfolio I’m building. I like the business model, which relies on nothing more than the aging of the boomers-not much to go wrong with that scenario.

BNS (Bank of Nova Scotia)-I was burnt badly with this stock in 2015 but hope springs eternal and I think 2016 may bring better news for well-run Canadian bank. Pluses-5% yield, potential for Looney appreciation vs $, not much exposure to Alberta and its oil patch problems, and an international presence in both developed and developing countries. Minuses-currency problems continue to weigh as Canada struggles with the oil bust.

JNJ (Johnson and Johnson)-This ancient stock just keeps chugging along and its really like buying a consumer staples ETF and a drug company rolled up into one. Nice dividend as a bonus. Boring? Yep. Likely to disappoint? Nope. Like LTC, this adds some stability to a potentially explosive mix.

Now, that’s 7 stocks, and the last time I had 9 plus 10% cash. What happened? i dumped TEO, TSLA (short), ADM, and YORW at the last second. Reasons? Tesla (short) and YORW are just bad timing. I’m looking for better sector plays for TEO and ADM right now. I’ll go into all of those in more detail in a future post. Plus I really want a defense stock and RTN fits the bill. And I like booze in a bad economy, so BF/B is on my radar.

So now, all I have to do is buy tomorrow morning. That brings up the buying strategy. I will pay market price within one hour of the opening bell. I told you I would buy 10% of each of these stocks, but the reality is it won’t work out that way. For example, in a $100,000 portfolio, if I buy 100 shares of TLH (100 shares is a round lot which is the only way I buy), that will be around $13,421 as of the market’s last close price. I’m not going to buy an uneven lot of 74.51 shares just to make my TLH exactly 10% of the portfolio. I will buy 100 shares, and it will represent a bit more, but I’ll tell you that at the time.

If I invest in that manner, though, we’ll be sitting on cash, and I want this portfolio to be 100% invested at all times (another slight change from my Thursday post, when I said we’d keep a tiny cash reserve of 10%). What I will do with that extra money is allocate a portion toward one or more of the existing stocks. So I will have more than 10% in some of the stocks, but I’ll let you know the exact numbers tomorrow night. In all probability, all of the remaining money will go into the treasuries while we wait for a better buying opportunity on some of the other picks.

So that’s all for now. Happy hunting!

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