2010-07-04

Preparing a Shopping List for Bad Times Ahead

Several pundits online and on mainstream media are calling for another "leg down" or plain depression in the markets soon.

I don't react to predictions, forecasts, star readers or fortune tellers. I will see when it happens. However, it's always good to be prepared for anything -- up markets, down markets, neutral markets -- at all times. As such, I have my shopping list ready in case the forecasters turn out to be right.

Because it's a long shopping list and it's mostly still far from my entry prices, I will just pick those that have been approaching my entry price recently. Many of these are names I already own and am looking to buy more of. Some are new.

Shopping list for the next "leg down"

PAYX (Paychex) - Buy range: $25-21, Current: $25.47
COP (ConocoPhillips) - $47-38, Current: $48.82
PFE (Pfizer) - $13-11, Current: $14.14
RDS.A (Shell) - $48-42, Current: $50.01
CINF (Cincinnati Financial) - $23-21, Current: $25.53
ETR (Entergy) - $75-60, Current: $70.70

Note 1: These are all dividend payers that have been around for a while and paying dividends for a while.

Note 2: Entry prices were based on my model of discounted dividend analysis and a qualitative assessment of earning power. The entry prices typically entail a total return from dividend plus dividend appreciation to 11 to 12%. Any share price growth is extra icing on the cake (and was not factored in the price).

Note 3: There are two oil companies on the list. This is a good thing, because when governments in developed countries start to print money seriously, oil, gas and tanker and pipeline companies will benefit. It's best to own the companies behind these commodities than own the commodities outright for various reasons that are beyond this article's point right now.

Note 4: I started buying Shell a little ahead of my entry price and am looking into buying more significantly when it does enter the buy range.

Note 5: I haven't bought Entergy yet because I haven't had time to investigate their price drop and read their latest 10Qs. As soon as I find out they're still in as good a shape as when I first priced my buy range, I will pull the trigger.

Disclosures: I own shares of PAYX and RDS.A at the time of writing.
Posted by edpin at 09:03
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3 comments:

  1. Great list.. I would just suggest one thing. You might want to take a look at RDS.B rather than RDS.A. Based on what I read on Shell's website there is no withholding tax(currently 15% for RDS.A)on RDS.B. The link is http://www.shell.com/home/content/investor/share_price/difference_a_b/share_price_difference_a_b.html

    G
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  2. Hi G,

    Thanks for the comment. I'm aware of the difference, though I'm not entirely sure I interpret it as you do. The B shares appear to be destined for UK holders, since there is no UK withholding on it. But for US holders, the A shares may qualify for a US foreign tax credit while the B shares the company believes may not: "there will be no UK or Dutch withholding tax on such dividends and certain holders (not including US holders) of Class B ordinary shares or Class B ADRs will be entitled to a UK tax credit in respect of their proportional share of such dividends."

    Also, the B shares typically trade for about a $2 discount. If the dividend is not taxed on the B shares, why would it trade at a discount, not at a premium?

    Honestly, I'm not sure I'm reading this right and I'm not a tax specialist. This is just my interpretation.

    Thanks.
    ReplyDelete
  3. Fair enough. I am not a tax expert either but I see your point for a decent sized holding. And since the dividend rate is same for RDS.A and RDS.B I cant explain the difference in the pricing with the exception that it may have to do with the currency fluctuations since one is in Euro and other is in Pounds. Note that RDS.A was issued about 5 years ago versus RDS.B which has been there for a few more.

    I currently hold other ADR's in a tax advantaged accounts. These ADR's have a foreign withholding tax associated with them. My holdings are not huge but at the end of the day the amount of effort that needs to be put in to recover the few $$'s of tax credit just dont make sense to me personally. It makes sense to hold something like RDS.B in a Roth for a small portfolio and not have to deal with the paperwork to claim the foreign tax credit at the tax time. Just a thought.
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