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Survival, Appreciation and Dividends

My basic guiding principle of recent picks (and personal investments) have been:
  • Survival - is company going to survive this economic hurricane ?
  • Appreciation - if it survives, how much appreciation would company stock have (that means, has it come down enough to trade like option on survival)
  • Dividends - would company resume paying dividends after threat of survival is gone
Examples of these strategy are DDR, PLD, ACAS, XL, PDS, BCS and many more. Fortunately the strategy has been playing out very well during this market upswing. Would it continue to play out as good as it did in future ?

I still remember dot.com bust of 2001 and 2002. There are many companies in technology sector which appreciated multi-fold once they were past "survival" test. Examples: Sonus networks, Redback, Redhat, Rediff India (was trading at below 10 cents at one point), Yahoo, Ebay and so on. Learning from that experience, I decided to apply this strategy on financial, insurarance and real estate companies and it seems to be paying off.

Market has become little frothy. With stress test results out on May 7 and Apr employment report due on May 8, next Friday would be very exciting for market. Even though some folks are becoming un-easy with market rise so fast so quick, there is still lot more upside remaining to the market. There is more money on sidelines than in the stock market and folks who are out of market have started feeling that they are missing on this upside. These people would jump into market when there are 200 points drop on DOW and should give enough support for DOW to remain above 7500.

Of course all depends on how economy shapes up. If the trickle of positive news keeps on coming, there is good chance that people would feel more secure about their future and that itself would help economy. 

Added following book in my reading list:


Continuing on my real estate theme, this week's pick is:

Symbol: RLF
Stock/ETF: Cohen & Steers Advantage Incm Rlt Fd Inc
Buy price: $3
Recommended price in 12 months: $4.50
Summary: Cohen & Steers Advantage Income Realty Fund, Inc. (the Fund) is a non-diversified, closed-end management investment company. The Fund's investment objective is to provide high current income. Capital appreciation is its secondary investment objective. The Fund seeks to invest at least 90% of the total assets in common stocks, preferred stocks and other equity securities issued by real estate companies, primarily real estate investment trusts (REITs).

Selection criteria:
  • NAV down by 77%
  • Distribution yield of 28%
  • Investments in one of the best REITs (covered in Barron's article)
  • Fund manager is well known in this sector
Good luck and have a good weekend !

/Shyam

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