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2009 Top Stock Picks

Fri, 16 Jan 2009 10:43:56 EST

After warning about the excess valuations and risk in real estate and financial stocks as early as the summer of 2007, we were asked many times as these sectors subsequently plunged in value when it was time to get back into financials. In January 2008, we stated it was not the time as another shoe is expected to drop. We thought that by the second half of 2008, we would be actively recommending select financials, but because of the procrastination and mistakes regarding even acknowledging the global credit crisis in October 2008 we remained very cautious. Panic selling has created an opportunity to buy two quality ("survivors") financials at extremely attractive valuations. Goldman Sachs (GS $52.62) and J.P. Morgan (JPM $20.55) are well managed, high quality leaders that should be able to take advantage of the industry turmoil and much weaker competition. While we are still worried about the unintended consequences of all these bail-outs and government involvement, the bottom line is that Goldman and J.P. Morgan at current levels spell long term opportunity. Investors will enjoy yields of 2.5% and 5.9% for GS and JPM respectively while they wait for the cream to rise to the top. When we told both Mark Haines and Erin Burnett from CNBC at the start of the year that sometime in 2008 we will recommend getting back in financials, we did not think there would be less than 6 weeks left in 2008 before we finally felt comfortable enough to strongly recommend two companies in the sector. These selections are just as much a statement on many ETFs and asset allocation programs that are over diversified. Even though we feel there will be many more failures and other shoes to drop in the financial arena, buying the two leaders at such depressed levels makes sense. An ETF in financials would have exposure in many of their weaker competitors whose prospects are still bleak. For investors that feel that even the best financials will take an extended time to recover: 1)Investors should buy 1/3 of their typical position and save monies to fill positions at even lower levels; 2) Take at least partial profits on any gains of 30-40% during those times investors are looking at the glass half full; 3) Finally, look at our top selection from last month Goldcorp Inc. (GG) on any weakness back into the mid-teens

Alan B. Lancz is a nationally recognized authority on investing and financial analysis. He is the president of Alan B. Lancz & Associates, Inc., a registered investment advisory firm and Director of Research at LanczGlobal.com.

Wall Street Turmoil - Are Your Investments Safe?

Wed, 15 Oct 2008 09:06:56 EST

Over the past eight years, investors have experienced at least three major bubbles, which are now culminating into one of the most challenging credit crises in many decades. Legendary investor Sir John Templeton warned us 15 years ago that investors would live through an "information overload" period in which volatility and extreme global swings would be much more commonplace and regular investment cycles would fade into a distant memory. The volatility of the past eight years has once again proved the late great Sir John to have been right on target. In true fashion to his proactive style, many experts warned about the overvalued financial and real estate sectors up to 1 1/2 years ago. For those investors who underestimated the effects of subprime loans last summer, there were many other warning signs that should have not been ignored. On July 31, 2007, two Bear Stearns funds that invested in mortgage securities filed for bankruptcy. One week later, French bank BNP Paribas froze three funds with U.S. mortgage exposure as a presage to what was to come for investors worldwide. Even if you did not understand the ripple effects of how subprime loans would create a delirious influence on the entire U.S. financial system, there was plenty of time with these subsequent events to be proactive and lessen one's exposure in these high risk/low return areas.

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Alan B. Lancz is a nationally recognized authority on investing and financial analysis. He is the president of Alan B. Lancz & Associates, Inc., a registered investment advisory firm and Director of Research at LanczGlobal.com.

LanczGlobal Market Notes - Thursday, 2:06PM, September 4, 2008

Thu, 4 Sep 2008 14:06:56 EST

We never got the weakness to add to our favorites near the end of August, as we expected another shoe to drop within the financial sector. That shoe might have started to drop today with the worries from rising jobless claims combining with banks, securities firms and hedge funds dumping assets. This has put massive downward pressure in stocks, commodities and real estate. Pimco's founder Bill Gross has concluded that the leading fixed income giant will not be participating in future offerings, a conclusion that many sovereign funds came up with earlier this summer after sustaining huge losses. We like the fact that recent strong buy recommendation... Register to read full update

Alan B. Lancz is a nationally recognized authority on investing and financial analysis. He is the president of Alan B. Lancz & Associates, Inc., a registered investment advisory firm and Director of Research at LanczGlobal.com.

Are your Bank Deposits Safe? Financial Facts - What you need to Know about Your Savings

Thu, 17 Jul 2008 13:59:56 EST

If your bank deposits are covered by the Federal Deposit Insurance Corporation (FDIC), your money is safe up to $100,000 personally and $250,000 in eligible retirement plans. In fact, depending on how you have structured your accounts, coverage can significantly exceed $100,000 per bank. We have been negative on the outlook for U.S. Bank stocks since early last summer, but FDIC insurance has added a level of safety since its inception shortly after the Great Depression. Social Security and greater flexibility by the Federal Reserve to inject liquidity into the financial system are two other key safety measures helping to prevent another 1929-type collapse. One of the biggest risks regarding this country's current financial malaise is more from a "crisis of confidence" in which worries about the banking system creates a run on certain banks, forcing otherwise solvent banks into insolvency. This is one reason the Fed acted so swiftly when problems erupted with Bear Stearns in March, and more recently, took measures to instill confidence in both Fannie Mae and Freddie Mac with promises of financial backing. Only a year and a half ago, the number of troubled banks on the FDIC list were at record lows, as most banks were enjoying record earnings and soaring stock market valuations. Excess liquidity brought on by historically low interest rates coupled with relaxed, or non-existent, loan covenants created a massive bubble in real estate that has pushed a growing number of banks to the edge. This problem was many years in the making and with real estate representing approximately 60% of all bank assets, investors should not expect a dramatic turn around anytime soon. It is important to keep in mind that the plight of many bank stocks, with many down 70% or more over the past year, does not necessarily correlate with the safety of your deposits in these banks. As long as you make sure all of your bank accounts are FDIC insured you will be fine, and there is definitely no reason to panic. But what are the rules and stipulations of FDIC insurance?

FDIC insurance was started in 1933 after thousands of banks failed following the stock market crash of 1929. The deposit insurance coverage was initially set at $2,500 and steadily increased until it was raised to the current amount of $100,000 in 1980. The FDIC has the power to increase the insurance limits on all deposits every five years, based on inflation, but has demonstrated a very conservative stance by electing not to do so.

In April of 2006, the FDIC established $250,000 of insurance coverage for deposits that are held in IRA and select other retirement accounts. It should be noted that accounts not covered by FDIC include mutual funds, annuities, life insurance policies, stocks and bonds. In addition, an uninsured money market mutual fund should not be confused with an FDIC-insured money market deposit account.

After the first quarter of 2008, the FDIC released its list of 90 troubled banks, up from 53 in the first quarter of 2007 and 76 in the fourth quarter. Very few banks that make the list are destined for failure. Among all the troubled banks listed last year, only three actually failed. The recent collapse of IndyMac was a shocker to many, as the bank wasn't even on the FDIC's watch list. After its failure, it was reported that IndyMac received 100% of FDIC insured funds, and 50% of non-insured funds. Many times in the past, uninsured deposits have been partially insured, but there is no guarantee that trend will continue. For trust account holders, depositors have to wait to get their deposits until the beneficiaries of trusts can be verified.

It is important that you take the necessary steps to help navigate through this crisis:

Don't panic. Confirm that all of your assets in banks (savings accounts, checking accounts, money market deposit accounts and certificates of deposits) are insured up to the $100,000 per account and $250,000 per retirement account. For example, make sure if you have a joint account with over $100,000 that it is structured properly to receive up to $200,000 of coverage.
Establish a secondary banking relationship to have liquid assets (emergency money) available from two separate sources, should your bank become insolvent. This can also be helpful to compare yields and fees to make sure you're getting the most from your bank for every dollar of savings. Remember that insured deposits in trust accounts may not be immediately accessible and recovery of broker CDs may also experience delays.
If you have considerable assets, consider the Certificate of Deposit Account Registry Service (CDARS), a program designed to accept deposits of more than $100,000 and still receive FDIC coverage by spreading funds among many FDIC insured institutions. Your deposits can be insured for up to $50M with CDARS without having to set up accounts at multiple banks.

One final point - as with all banking relationships, yields are negotiable. The current credit crisis has created strong demand for loyal "credit worthy" clients so investors have never been in a better position to negotiate the best rates, and lowest fees, for each banking deposit or service.

Alan B. Lancz is a nationally recognized authority on investing and financial analysis. He is the president of Alan B. Lancz & Associates, Inc., a registered investment advisory firm and Director of Research at LanczGlobal.com.