ChuckCarnevale

General Electric Company (NYSE:GE) was once revered as one of the bluest of all blue-chip companies in the world.  During its glory days, GE was respected as an industrial conglomerate that manufactured some of the world’s best jet engines, locomotives, appliances and even the highly regarded General Electric light bulb.  However, as best I can determine, the roots of General Electric’s ultimate demise were established in 1930 when the company, responding to the great depression, formed GE Finance in order to help their customers finance GE appliances over time. Over the many decades since, GE Finance rapidly grew into GE Capital, the company’s largest, and for many years, their most profitable division.  Essentially, General Electric morphed from being one of America’s great industrial companies into one of America’s largest diversified financial services companies.  However, in addition to helping large customers finance their jet engines, locomotives and other General Electric products, General Electric Company (NYSE:GE) became a major player is almost every aspect of financial lending from car loans to mortgages. As a result, GE Capital generated approximately half of all General Electric profits for many years.  But for all the success that GE Capital provided, it was simultaneously General Electric’s Achilles’
Read More »

The Dow Jones Industrial Average (Dow Jones Indices: .DJI) sits above 15,000, an all-time high.  But don’t be fooled, this doesn’t mean that stocks are expensive.  I understand that it seems logical to assume that if the Dow Jones industrial average, what many believe to be the bellwether index of the stock market, is at an all-time high, then it must simultaneously be overvalued.  Herein is the danger of relying on headlines and simple statistics. This article intends to demonstrate that more than one third of the 30 Dow Jones Industrial Average (Dow Jones Indices: .DJI) stocks (11) are undervalued, another 6 are fairly valued, another 6 fully valued, but not overly so, and finally, only 7 that could rightfully be classified as overvalued.  In other words, the Dow Jones industrial average is rather cheap, even though it sits near an all-time high. But as I often like to say, “The Angels are in the details.”  The beauty of an index with only 30 constituents is that the details are relatively easy to review.  What follows is a breakdown of the 30 Dow Jones Industrial Average (Dow Jones Indices: .DJI) in order of valuation, lowest to highest.  The 30 constituents will be
Read More »

Introduction This is part two of a series on investing for growth, part one can be found here. One of my primary objectives for preparing this series is to dispel some of the common myths that many investors hold regarding investing for growth.  For example, many believe that growth stocks are, by definition, riskier than dividend paying stocks.  Although there is some truth to this, I believe this concept is overblown. One commonly measured metric for measuring risk is beta.  At its core, beta is a measure of volatility which is also referred to as systematic risk.  More simply stated, it is a measurement designed to reflect whether or not a given stock is more volatile than the general market.  A baseline beta of one reflects the market.  Therefore, a stock with a beta less than one indicates that it is less volatile than the market, and a stock with a beta greater than one would indicate that it is more volatile than the market. More volatility is assumed to be synonymous with more risk, and many investors are led to believe that growth stocks have higher betas than dividend paying stocks.  In truth, there are many growth stocks that
Read More »

It seems like I’ve been writing only about dividend growth stocks for what seems like forever.  Therefore, I felt it would be a refreshing change to alter my focus from dividend income to pure unadulterated growth.  Although I’m a major proponent of investing in dividend growth stocks, unlike many of my fellow dividend growth investor friends, I am also a big believer in the benefits of investing in non-dividend paying growth stocks with the potential for generating a higher total return. The equity universe is broad and multifaceted.  Since there are so many different types of stocks that investors can choose to invest in, I often get frustrated when I read or listen to opinions making broad statements regarding either the perils or merits of investing in common stocks in the general sense.  I especially get agitated when these over-generalized discussions attempt to stereotype all stocks as being risky.  The truth is that the risks of investing in common stocks are also as broad and multifaceted as are the various categories of common stocks themselves. Furthermore, I also find it troubling when I hear over-generalized statements purporting to forecast what the future returns of common stocks are going to be. 
Read More »

Introduction To me, there’s almost nothing better than finding a great company that I truly want to own at a fair valuation, or better yet, undervalued.  In the long run, it has been my experience that this usually leads to outsized future returns, especially if you buy stocks when they are undervalued at the time.  But there is quite often a side effect that can prove very disconcerting.  Once an undervalued stock starts moving to the upside, momentum will often carry it above what prudent fair valuation would dictate. As a result of the recent run-up in the market, many of my holdings have, by the strictest of definitions, become overvalued.  This begs the general question: what do I do now?  Moreover, additional questions pop up such as: If I do sell, should I sell a part of my position, or all of it?  When should I pull the trigger, or put another way, how much overvaluation (risk) should I accept before I sell?  Since the market is overheated, should I go to cash or look for alternative investments at better valuations to invest in? Answering these and other important questions correctly could have a major impact on my financial
Read More »

Introduction There is a growing trend towards doing-it-yourself (DIY) portfolio management.  Many individual investors have become disillusioned with professional investment management at various levels, to include mutual funds as well as custom-designed professionally-managed portfolios. Consequently, they have become motivated to take their financial futures into their own hands and manage their own portfolios. Generally, I am in favor of this action as long as several conditions are met.  First of all, the individual do-it-yourself investor (DIY) must be willing and able to commit the time, work and effort necessary to effectively manage a portfolio.  They also need to have the proper tools and research at their disposal. In our Internet age, there are numerous free financial blogs and websites at the do-it-yourselfer’s disposal.  However, there are also many reasonably priced research subscription sites that ought to be considered as well. But perhaps most importantly, I believe that the individual do-it-yourself investor (DIY) must have accurate and relevant information and knowledge at their disposal.  Frankly, I believe that this particular requisite is challenging to get right for professional and lay investors alike.  My reasoning is based on my experience that many widely-accepted “sacred cow” investing theorems and concepts are, in fact,
Read More »

For a lot of reasons, dividend growth investing is becoming more and more popular every day.  The historically low interest rate on fixed income is perhaps one important reason for this trend.  However, an equally important, and perhaps even the most important reason, might just be that investors are better informed on the dividend growth strategy than ever before. On the other hand, there seems to be a side effect to the better medicine that dividend growth investing offers.  As dividend growth investing has become more popular, there have been many proponents gleefully willing to share their enthusiasm and commitment to the benefits of dividend growth investing for their retirement portfolios. This has simultaneously created the equivalent of a negative feedback loop against dividend growth investing. Sometimes dividend growth investors appear to come off as smug, and this irritates certain people.  Personally, I don’t believe they are as arrogant, as they are enthusiastic disciples of the incontrovertible logic supporting dividend growth investing as a prudent and viable strategy. However, as it often is with controversy regarding investment strategies, much of the consternations are rooted in biases rather than facts. Furthermore, I believe there is also a strong element of prejudice
Read More »

Looking for good dividend paying stocks to add to your retirement portfolio?  You might want to try trusting analysts’ estimates to aid in your selection process. Putting Analysts’ Estimates Into Perspective I believe that estimating future earnings growth is a major key to successful long-term stock investing.  If you’re a true investor, then you are actually investing in the business.  Consequently, the success of the business that you invest in is going to be the primary determinant of how much money you can expect to earn on that investment. Stated more directly, when you invest in a stock you are buying its future earnings potential. To my way of thinking, the only logical reason I would ever want to own any stock (business) is because I believe that the company is a profitable enterprise. But not just in the past, or the present, but most importantly in the future. After all, and as I previously stated, future profits will be the source of any long-term return expectations I might have. Moreover, the growth of those profits will be a primary contributor to the total annualized return I can expect the investment to produce on my behalf. Therefore, I believe as
Read More »

By now, it should be no secret to anyone that the stock market has been on a nice run of late. Moreover, this Bull Run has conjured up a lot of discussions that might lead one to believe that stocks in general are overvalued.  There are even some that want to play the bubble card because they argue that the S&P 500 (.INX) and/or the Dow Jones Industrial Average are both approaching all-time highs. However, I believe these extremists are confusing value with price. Investors need to understand and recognize that both a company and/or an index can be trading at an all-time high price, while at the same time be trading at a reasonable or even a low valuation.  Additionally, there can be more than one reason for this to occur. For example, if earnings are at an all-time high, the price can also be at an all-time high while the PE ratio is lower than historical norms. Another iteration can manifest because the stock or index was once previously trading at an extreme overvaluation, while it is now fairly valued. My point is that it is not logical to automatically assume that a stock is overvalued because it
Read More »

Introduction on Stock Valuation When it comes to writing about investing in common stocks, my favorite theme typically revolves around valuation.  In fact, I once had a reader dub me “Mr. Valuation.” Which, I might add was very flattering to me.  Moreover, in the context of discussing valuation there are normally three concepts that are included.  They are typically fair valuation, undervaluation or overvaluation. Oh, but would it not be wonderful, if everything about valuation were that simple. In truth, the concept of valuation is much more complex than those three simple notions.  Therefore, one of the primary objectives of this article is to broaden the reader’s perspectives and understandings of the incredibly important concept of valuation as it relates to investing in common stocks. However, before I delve too deeply into this subject, I would like to offer these following positioning statements. Position number one, just because a stock is technically trading at fair value, does not necessarily mean that it is a good or attractive investment.  Position number two, just because a stock is moderately overvalued, does not necessarily mean that it is a poor or unattractive investment.  In truth, there are circumstances where a moderately overvalued stock
Read More »

I believe it is extremely important that investors focus on the value of what they own more than they do on the day-to-day machinations of price volatility. However, I also believe, and even recognize, that very few investors are capable of ignoring volatile stock price movements. When the price of a stock that they own is rising or falling, especially when the swings are large and/or violent, it is very difficult for people to maintain a steady head and hand.  Instead, emotions take over reason which often cause otherwise rational investors to make irrational decisions. My last article dealt with how to think about stock prices in today’s volatile markets, and can befound here. The above article was well received by readers, and generated many lively comments and questions.  One comment/question in particular that attracted my attention was also the inspiration to offer this follow-up regarding how to think about stock prices.  I have cleaned up the comment and paraphrased it as follows: “In your Dividend Growth articles, it’s always been highlighted that certain premium dividend stocks often seem to be fully or slightly overvalued, except in the case of a severe financial crisis. e.g. Kimberly Clark (KMB), Coca Cola
Read More »