Friday, August 20, 2010

RSY Introductory Stock Picks...

Welcome to Sabrient's first publication of Rock Solid Yields (RSY) portfolio. We believe you will find it worth your time.

The above table shows a collection of stocks that rank high on our MyStockFinder stock search tool with a modified RSY search criteria. We could just pick the top 10 stocks and go with them for some above market performance, but a closer look at these choices reveals that certain stocks do not give us the confidence of long term growth and dividend cash flow which we hope to achieve with this portfolio. So let us go through them now and see if any should be eliminated from investing in.

American National Insurance Company {ANAT} has a great value score at 97 which we want and has a dividend yield of nearly 4%. This year marks it as the “100th consecutive year that dividends have been paid to stockholders!” That would be enough to make even Motley Fool jump for joy. Recent insider activity is small but in the right direction. ANAT does not have option trades so will not be able to write covered calls to generate higher returns but a dividend is coming up shortly {9-1}and we want to capture it.

Invesco Mortgae Capital Inc. {IVR} is rated a strong buy by Sabrient. Dividend yield is over an amazing 14%! Nothing so far has shown any reason not to invest in IVR.

Metlife Inc. {MET} is the only large-cap stock in our above list and could be an important point in trying to balance across sectors and caps. Although the dividend yield is low at less than 2%, the negative aspect that limits it from being picked at this time is its low forensic accounting report. Its accounting scored 5 out of 100 {100 being best} and is rated as “Very Aggressive” in accounting. It is unlikely that those issues will be resolved soon as they have been rated very aggressive since June 2008. We can find our cheese {especially in the insurance industry} elsewhere.

Montpelier Re Holdings Ltd. {MRH} has a strong-buy rating from Sabrient with another great value score of 98. Forensic accounting gives it an average score but has dropped from its near perfect ratings from September 2009 to an average 54. Not great, but not reasons to reject MRH in my opinion. MRH has a modest dividend yield of 2.21%. MRH has over 96% ownership of outstanding shares by “large block holders”. One important reason to note this is that picking stocks that have less institutional ownership is that once it becomes “popular” then prices will be driven by large block holders. On the flip side, small investors can gyrate the market and create more volatility in individual stocks.

NGP Capital Resources Company {NGPC} is one I have held a small position in for a while. It has a good dividend yield of 8.71%. Small amounts of insider buying have occurred which is a good use of dollar cost averaging by the Director, Blessing Edward. Growth of expected revenues should provide a basis for the continuation of outstanding dividend yields.

OK. So on to recommendations of our model portfolio picks and price point entries:
1. ANAT recently announced another dividend and the ex-dividend date is 9/1/10 which provides us an opportunity to pick up some quick cash. It has a buy rating, no options, and low volume. So let us put in a limit order of 100 at $78.01. This also means that it is not recommended to add MRH because it is in the insurance sector as well and we already eliminated MET because it was a poor choice based on forensic accounting. We may visit MRH after we exit ANAT depending on timing.

2. Let us enter into IVR right away with a limit order of $20.51 with 400 shares.

3. I also think we can get into a position of NGPC with 500 shares at $7.71.

Note: We are assuming a $100,000 portfolio. It was a fairly aggressive first choice picks as this will take up almost 20% of the portfolio if all trades go through. Thus I picked price points to not overprice ourselves and to hedge against day swings. You may want to adjust those entry points based on tolerance for risk or other financial goals.

Full disclosure: The author holds or will hold the stocks mentioned in this edition of Rock Solid Yield.

Disclaimer: This newsletter is published solely for informational purposes and is not to be construed as advice or a recommendation to specific individuals. Individuals should take into account their personal financial circumstances in acting on any rankings or stock selections provided by Sabrient. Sabrient makes no representations that the techniques used in its rankings or selections will result in or guarantee profits in trading. Trading involves risk, including possible loss of principal and other losses, and past performance is no indication of future results.

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