"Sin" stocks saintly for the Wallet

My largest holding, Sky City Entertainment [SKC.NZ] is doing well at the moment.

For the six months ending 31 December 2008 profit was tracking last years' half and I have been telling anyone who would listen at every opportunity that it is a good buy at current share price levels .

With the interim report out today comes the news that gaming revenue at Auckland Casino is up by 4% while Adelaide and Darwin are up by around 14%.

Great news considering the economic downturn.

Lion Nathan [LNN.NZ] the Australasian brewer, majority owned by Japan's Kirin is keeping its head above the foam well with drinkers of their product reaching for a cold one more often and when they do its one of those fancy "premium" beers that poofters and women drink-it works for them though.

Profit was up 4% for the 2008 full ear.

Unfortunately Lion Nathan's share price reflects their strong position in the current economy and is near its highs.

Another stock that has done well share price wise during this current downturn is Restaurant Brands [RBD.NZ] Believe it or not its stock has gone up over the overall market downturn-its big drop ironically came before the recession.

The operator of Pizza Hut, KFC and Starbucks in New Zealand has been selling its product better than it does normally-a temporary thing methinks-because of the recession so says its usually media shy CEO. Diners are apparently "trading down", every chicken has its day I guess.

These are the only 3 "sin" stocks listed on the NZX (Restaurant Brands is considered one by the food Nazis so I respectfully put it there) and they will do well in any downturn.

People like to gamble, drink, smoke, have sex and eat "junk" food and they especially like to do these things during a recession.

If you are reading this from another market consider tobacco, oil and sex related stocks if you have them listed on your local bourse.

They well might give you a lift.

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Matt McCarten tells a Whopper

We all know the left of the political sphere will do just about anything at all to make a point and Matt McCarten in the Sunday Herald is no exception:

"Warren Buffett...has claimed that capitalism as we know it is over". NZ Herald 15 March 2009

Those of us that know a little about Warren Buffett, and I know a reasonable amount about the great investor, will know that he said nothing of the sort.

In Buffett's 2008 Letter to Berkshire Hathaway Shareholders out two weeks ago he actually endorsed the American capitalist system more strongly than he ever has: 

"America has had no shortage of challenges.

Without fail, however, we’ve overcome them. In the face of those obstacles – and many others – the real standard of living for Americans improved nearly seven-fold during the 1900s, while the Dow Jones Industrials rose from 66 to 11,497. Compare the record of this period with the dozens of centuries during which humans secured only tiny gains, if any, in how they lived. Though the path has not been smooth, our economic system has worked extraordinarily well over time. It has unleashed human potential as no other system has, and it will continue to do so. America’s best days lie ahead". Page 2, 2008 Berkshire Hathaway Letter.

Buffett is talking about capitalism here, no doubt about it and while acknowledging its drawbacks he also re-enforces his faith that it will bring us out of the mainly Government induced economic mess we now find ourselves in.

What McCarten has said is at best stretching the truth to breaking point and at worst an outright lie.

I lean towards the latter in describing what McCarten has written.

He uses the rest of the article to rant about his usual socialist ideals of Government control and state interference. The rest is misfired commentary on things he knows little about; economics, business, finance and probably life in general.

Steer clear.

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Bonds: "Investment Grade" Bonds

Contact Energy's [CEN.NZ] NZ$550 million retail bond issue-with the scope to accept "unlimited subscriptions- is being issued principally to pay off existing debt on company books but to also use for day to day business and capital investment.

It already has very high debt levels.

The company is finding it hard to borrow money elsewhere so is going to kiwi mum and dads with their hands out.

In that respect they are not alone. Fontera, NZ Post, Auckland International Airport [AIA.NZ] and others have or will offer bonds to the public to bolster ailing balance sheets.

The only problem is that interest rates being offered do not always reflect the risk investors will be taking.

While Contact Energy is a stable near monopoly and isn't about to go bust any time soon it faces some uncertainty in regards to regulation, raw power production, customer demand and clearly their ability to fund even higher debt levels will be hampered.

Their unsecured, unsubordinated bonds, which will be issued for a term of five years have been assigned a credit rating of BBB by Standard & Poor's and that is in the lower to medium level in the S & P investment grade rankings.

While 8% is a great rate in these low return economic times, that interest rate simply doesn't reflect the risk being taken by investors.

Investors interested in taking a punt on Contact Energy would be best to buy shares in the company rather than these unsecured bonds. They are at attractive prices and make a good investment in uncertain times.

Contact Energy shares were up 7c today to $5.67 on positive wider market sentiment.

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Attractive looking Stock Prices

Like Warren Buffett in a Sees Candy Store or perhaps a young man in a whorehouse looking for a Beyonce lookalike, I am starting to get weak and giddy at the wallet for all the bargains out there.

I know stock prices are going to go lower but I am sorely tempted nonetheless.

While watching the Share Investor Portfolio drop in value day to day I have to say, once again, I have mixed feelings.

On the one hand I loathe watching the value of the portfolio get hammered by things out of my control but on the other hand I look at share prices for some of the stocks in my portfolio and start to dribble at the thought of buying stocks for less than I originally paid for them and that is most of them-bar Sky City Entertainment [SKC.NZ] and Fisher & Paykel Healthcare [FPH.NZ] which are still holding their heads above the rising financial waters.

So what in the portfolio am I interested in adding to?

I really like Goodman Fielder [GFF.NZ] which touched NZ$1.25 today and is at near lows for no good reason other than irrational fears regarding debt levels.

ASB Bank Pref B Shares [ASBPB] are trading at 65c , 35c below IPO listing and currently paying a 14% gross dividend. This share is low due to bank fears and the possibility of a lower dividend.

Michael Hill International's [MHI.NZ] share price-51c today- has been getting a caning because of an all-round retail downturn but it still makes money and is a well managed company.

The Warehouse Group [WHS.NZ] is doing well in the current retail climate, the best of the New Zealand retailers but its share price today of $3.45 doesn't reflect that.

Its dividend is intact and its prospects good for the coming year.

Mainfreight Group [MFT.NZ] has been dealt a blow share price wise, all the way down to $3.52 from a high of around 8 bucks fifty, but profit for the last quarter was slightly up and in my not so humble opinion it is New Zealand's best run company.

I know I should just grow some bigger financial balls and take the plunge, because these shares are selling well below what I initially bought them for so that is what is making them look as attractive as a naked Beyonce covered in fudge but my better judgment is holding me back.

I know I am not alone in this.

Millions of investors still have money looking for a home, they wont invest in bank deposits because interest rates are too low and they wont yet invest in real estate because prices have some way to fall, so the stockmarket is looking a more are more attractive place to go(sorry Beyonce) but investors like me are thinking that sector is still looking a bit sick.

The financial case makes sense but the emotions are clouding good thinking sometimes. Fear is holding people back from reality.

Perhaps I should take the plunge again?

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