JBL: Fearless Forecasts
John Layfield
01/04/06 - 07:20 AM EST
New Year's is a great time for all kinds of so-called experts to make predictions.
I am not an expert, but don't believe you have to be one to make certain predictions. It is the same as waking up in the morning, not seeing a cloud in the sky, and realizing time would be better spent that day on the golf course than at work. It doesn't take an expert to see the obvious.
For instance:
Real estate has reached its peak. Money will not go where it is not rewarded, money will not be rewarded in real estate like it has in the past.
The inverted yield curve will not bring a recession. The inversion is not a "conundrum" but rather a simple matter of supply and demand, specifically foreign demand. Take out the foreign buying, according to a recent Fed study, and you add 75 basis points to the yield of long-term bonds. You are not comparing apples to apples by comparing this yield inversion to the last four.
There is a record amount of dividends being paid by companies in the S&P 500. There is a record amount of cash on corporate balance sheets. Mergers and acquisitions are happening in virtually every sector. Money goes where it is rewarded and it will be rewarded in equities. Put your money in equities this coming year.
The Eyes of Texas
Want a prediction from the heart for the new year? My Texas Longhorns beat a great USC team in the Rose Bowl tonight.
Want a prediction that is more of a certainty? The litigation against Big Tobacco will continue to go in favor of the tobacco companies. Want a long shot? The Master Settlement Agreement will be ruled unconstitutional and overturned.
I don't smoke, except for the occasional cigar, and I believe that if cigarettes were introduced today they would not be legal. However, they are legal and I believe in making money off of legal products.
To view John Layfield's video take of this celebrity investor column, click here.
Altria (MO) is the best tobacco company in the world. In fact, it is one of the best companies in the world.
Altria has a return on equity of more than 30% and more than $10 billion in operating cash flow. Throw in an almost 4.5% yield and you have a gem of a company.
The obvious problem is current litigation. However, Altria recently won certain key cases. Altria won the Engle case in a Florida appellate court that overturned a $145 billion verdict. They also won the Price "Lights" case in Illinois that would have totaled $10.1 billion. Most importantly, Altria avoided a $280 billion penalty when the Supreme Court refused to hear the civil racketeering case against the company.
Further, there are many that agree with Steve Forbes that the Master Settlement Agreement is a backdoor taxation policy for states, and that this illegality will eventually be overturned. This is a very long shot, but a possibility.
The stock has moved on the current cessation of bad news. It has also moved on a lot of good things happening.
China has agreed to allow the Marlboro Man into the great cigarette smoking country. On my last trip to China I was amazed at the smoke, not from pollution but from the fact that it seemed everyone smoked. In a country the size of China this is big news for Altria.
In May, the company made a 98% acquisition in Sampoerna, a leading Indonesian tobacco business. Altria also acquired Coltabaco, Colombia's largest cigarette maker. Philip Morris International is the real growth unit of Altria.
I believe that with the current successful litigation, Altria will split itself into three companies as shareholders have wanted them to do: the domestic tobacco business, the international tobacco business, Kraft and its 36% stake in SABMiller.
I believe the breakup value of the companies will value the existing single company at more than $100 a share.
Altria is a great stock to buy right here. I have owned shares of Altria for quite some time, and plan on buying more early in 2006 for my retirement account due to the dividend.
Dividends for Retirement
I put all my highest-paying dividend stocks into my SEP retirement account because it allows the stocks and dividends to grow tax free. If you have a retirement account, put your dividend-paying stocks there. It's a simple matter of asset allocation that makes sense.
I try to fill up my retirement account as early as possible and also plan to buy shares of
Tsakos Energy (TNP) early in 2006.
On Nov. 5, I
recommended Tsakos, and since then it is up roughly 5% to over $36 a share. I believe Tsakos is still a buy here. The global demand for shipping has not changed, and neither has my reason for initially recommending and owning Tsakos. With a yield over 5% and a forward price-to-earnings multiple of just over 6, it is a bargain.
The long-term trend of shipping growth shows no real signs of slowing.
I hope you have a happy new year. I hope you give up smoking if you smoke, and I hope you buy Altria.
