There’s no gentle way to say this. The real estate market sucks. It will continue to suck for quite some time. It may never return to the stupid levels it saw at its peak in some people’s lifetime. More people will lose their homes and many will remain upside down. There are enough houses in the nation’s inventory to last nearly a decade. So, theoretically, no more houses need to be built for ten years. This isn’t opinion. It’s fact.Now, do me a favor. Go back and read the first paragraph out loud. Finished? Good. If you’re not feelin’ it, do it again. Do it as many times as you need to in order to accept those facts. Because the sooner we all do this collectively, the sooner the dead, smelly albatross known as the housing market will fall from our collective neck and allow us to move forward. Once the rest of the national financial psyche decouples from the real estate market, things will get better.
Check out this awesome chart of housing starts during various recessions
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Yes. The current squiggle (ours) is the worst. Is there good news? Yes. It’s bumping along the bottom. It might not be going up. But it’s not going down as quickly as it did at the onset. Here’s a chart on housing permits.
Still pretty freakin’ dismal. But so what? We know these things. But unless you can fly around the earth like Superman and make it spin backwards, thus turning back time, just let it go. James Altucher, one of the greatest bloggers out there PERIOD (check him out at http://jamesaltucher.com), put it this way: “There’s $15 trillion dollars in our economy, recession or no recession. Its falling like snow. Reach out with your tongue and taste it.” True dat.
Read more: http://www.businessinsider.com/the-easiest-way-to-succeed-as-an-entrepreneur-2011-4#ixzz1RNeXx3PM
Let’s reach out and grab a hold of this week’s three lil’ piggies shall we?
“Australian For Beeyah…”
Foster’s Group ADR (FBRWY.PK)
Recent Price: 5.51
P/E: 16
Current Yield: 4.35%
The Skinny
FBRWY is a lot more than the cheeky, Men At Work, Australian cartoon commercials. They’re one of the biggest beverage producers and distributors in the Pacific Rim. From beer to wine to bourbon to non-alcoholic beverages, FBRWY.PK makes it. Ironically, the company traces it’s roots back to 1888 and two brothers from America: William and Ralph Foster. Half year results show the company earning 17.4 cents AUD year to date and on track to 34.8 cents AUD a share. Historically, the company is a cash machine generating pro-forma after tax and capex cash flow of $909 million USD in operating cash flow. Very strong. No surprise that suitors have come calling. Molson Coors (TAP), the company’s North American licensee, is rumored as a potential acquierer and recently, FBRWY has rebuffed an advance from SABMiller (SBMRY.PK). When you generate nearly a billion dollars in cash and own your space in one of the fastest growing regions on the globe, people are interested. Hopefully, FBRWY can be wooed at a premium.
The Danger
Despite being the king of the Australasian beverage hill, FBRWY faces numerous challenges. Mainly losing market share in a maturing beer market. Your main business is shrinking and your losing part of that shrinking market is not a good thing. Naturally that flows to the bottom line as EPS has shrunk 7.7% YOY as well as a 7.5% decline in net profit. If the company can’t improve the trend, being gobbled up by a bigger global competitor will be inevitable. Also, as developed as Australia is, FBRWY is still a foreign security and subject to additional risk. Currency risk comes to mind first. The Aussie dollar has been on a tear but as the commodity trade comes off of the table, look for that star to fade and affect securities tied to the AUD.
“High On Munis…”
Pioneer Municipal High Income Trust (MHI)
Recent Price: 14.25
P/E: NA
Current Yield: 8.0%
The Skinny
Earlier this year, Meredith Whitney (aka Mrs. The Wrestler Bradshaw) scared the bejesus out of the municipal bond market by weaving tales of impending doom as states and municipalities across the country would default on their debt obligations to the tune of hundreds of billions of dollars. Now, Mrs. The Wrestler Bradshaw hit it on the screws with the mortgage crisis and subsequent firestorm throughout the banking sector. Apparently, that gave her enough confidence to hang her own shingle. Is she right, no one knows for sure yet. Granted plenty of city and state finances are a veritable hot mess, but it may not be as bad as predicted. Why not take advantage of the discounts created by fear and stupidity? MHI may be a good way to do that. The fund is eight years old and has had its ups and downs. Average maturity goes out to the middle of the yield curve. Credit quality is mostly BBB and lower…thus the high yield. Shares trade at a slight premium to NAV and the dividend has grown by 11.7% in the past year. The fund does use leverage but is only currently at about 25%, typically not too bad. Best of all, the taxable equivalent yield would be 11.4%. Not bad considering you’re pretty much paying the bank to keep your cash in the money market account.
The Danger
While its fun to throw rocks at Meredith Whitney, there is some truth to her vision. Things are and will continue to be tough for states and cities. Crappy economies and an even crappier real estate market throw wet blankets on tax revenue which helps service debt. Naturally, the lower quality issues, the majority of MHI’s portfolio, would stumble first. That’s the biggest risk. Any deterioration in the portfolio will quickly erase that premium to NAV which we weren’t wild about in the first place. Lastly, rising rates (the only direction current rates can go) will effect anyone using leverage, including this fund. Rates go up, yields and prices will come down. Exercise caution.
“Yes…I am a broken record…”
Alliance Bernstein Holdings LP (AB)
Recent Price: 19.11
P/E: 15.05
Current Yield: 9.05%
The Skinny
This is probably the third time we’ve profiled AB. Yes, it is a perennial favorite at Yieldpig and now, thanks to the summer of volatility, the price and yield make it worth your attention. Shares are 34% off of their 52 week high and the yield is looking over the fence at 10%.The story is still in tact: this is one of the best growth AND value money managers out there. The research, thanks to the Bernstein side of the building, is second to none. The forward P/E is even more attractive at 11.62 times 2012 earnings. Buy some, stick it in the corner, collect the dividend and watch the beauty of compounding.
The Danger
Stock’s been beat up pretty badly. My hope is that it’s not caught in a value trap but, that could be a possibility. Also, like all fund companies, AB is fighting asset flight tooth and nail and as long as the markets remain skittish, small investors remain squeamish. The price may get more right. Prepare for more pummeling. If you can’t take the heat…do not go in the kitchen.
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