It can take some companies many decades to grow large enough to merit a $28 billion market valuation. News that General Electric Co. (NYSE: GE) is transforming itself created that much shareholder value in just one day.   What has the market so excited? GE announced that over the next two years it would sell off almost all of GE Capital’s portfolio for an estimated $90 billion. Longtime investors remember the sordid history of GE Capital. After more than 100 years of being an industrial and manufacturing powerhouse, the GE of the early 2000’s scarcely looked like the same company. Read More

It can take some companies many decades to grow large enough to merit a $28 billion market valuation. News that General Electric Co. (NYSE: GE) is transforming itself created that much shareholder value in just one day.   What has the market so excited? GE announced that over the next two years it would sell off almost all of GE Capital’s portfolio for an estimated $90 billion. Longtime investors remember the sordid history of GE Capital. After more than 100 years of being an industrial and manufacturing powerhouse, the GE of the early 2000’s scarcely looked like the same company. The company had charged into real estate, commercial and personal lending. #-ad_banner-#And for a while, it looked like GE’s foray into finance was a rousing success. GE capital grew revenues 15% per year from 2003 to 2007 and the earnings from GE capital made up half of the parent company’s earnings in that final year before the crash. GE Capital’s aggressive financial practices came back to haunt it during the financial crisis. Its struggles strangled the parent company and necessitated a lifeline, which Warren Buffett and the U.S. government provided to stave off insolvency. But despite nearly bankrupting the company… Read More

The banking industry is still in recovery mode after an era of heavy fines and a greatly-increased level of regulatory scrutiny. But the industry is also grappling with major technological shifts that are upending the old ways of doing business. Smaller, more nimble firms are taking non-traditional approaches to banking, which is creating headaches and headwinds for big banks. The Vast, Costly Branch Network The idea of a physical bank location on every street corner is dying. 30% of the U.S. population hasn’t visited a bank branch in more than six months, according to a study by Bankrate.com. As… Read More

The banking industry is still in recovery mode after an era of heavy fines and a greatly-increased level of regulatory scrutiny. But the industry is also grappling with major technological shifts that are upending the old ways of doing business. Smaller, more nimble firms are taking non-traditional approaches to banking, which is creating headaches and headwinds for big banks. The Vast, Costly Branch Network The idea of a physical bank location on every street corner is dying. 30% of the U.S. population hasn’t visited a bank branch in more than six months, according to a study by Bankrate.com. As a result, established banks are slowly adjusting to the new paradigm. The PNC Financial Services Group, Inc. (NYSE: PNC), the seventh largest bank by assets, reduced its number of retail branches by 6% over the last two years. JPMorgan Chase & Co. (NYSE: JPM) is spending millions to revamp current branches to be more automated and need fewer employees. Still, large retail banks can’t move quick enough to shrink their branch networks, which will result in additional costs for years to come. On the other end of the spectrum, the banks that never bothered to build a branch network now… Read More

Legendary banker J.P. Morgan was once asked by a reporter how the stock market will do. “It will fluctuate,” was his terse reply. But J.P. Morgan might have changed his response if he were alive today. Over the last three years,  the market has slowly marched upward with very few swings along the way. A look at a popular gauge of market choppiness (the volatility index, commonly referred to as the fear gauge, or the “VIX”) shows extremely low volatility in the equity markets since 2012. In tandem with the drop in volatility has been a slump in… Read More

Legendary banker J.P. Morgan was once asked by a reporter how the stock market will do. “It will fluctuate,” was his terse reply. But J.P. Morgan might have changed his response if he were alive today. Over the last three years,  the market has slowly marched upward with very few swings along the way. A look at a popular gauge of market choppiness (the volatility index, commonly referred to as the fear gauge, or the “VIX”) shows extremely low volatility in the equity markets since 2012. In tandem with the drop in volatility has been a slump in trading volume, which has been steadily falling since the financial crisis. For discount brokerages like TD Ameritrade Holding Corp. (NYSE: AMTD) and E*TRADE Financial Corp. (Nasdaq: ETFC), low trading volume is bad for business. TD Ameritrade earns more than 40% of its revenue from trading commissions; for E*TRADE, commissions are 25% of revenue. Yet J.P. Morgan’s insight on markets still remains relevant. Financial crises (such as  oil shocks) happen from time to time. And when these phenomena appear, trading volume and market volatility will rebound off of current low levels. #-ad_banner-#In the first part of 2015, as investors… Read More

Although diet crazes come and go, one trend has become clear:  Americans are drinking less soda. Per-capita soda consumption has been in decline since 1998, according to the industry publication Beverage Digest. That hasn’t stopped the big three beverage companies, The Coca-Cola Company (NYSE: KO), PepsiCo, Inc. (NYSE: PEP) and Dr. Pepper Snapple Group, Inc. (NYSE: DPS) from being fantastic investments. All have more than doubled over the past five years, in addition to sporting roughly 3% yields. Although the declining soda trend doesn’t look to be reversing anytime soon, PepsiCo, with its great international and product diversification, is poised… Read More

Although diet crazes come and go, one trend has become clear:  Americans are drinking less soda. Per-capita soda consumption has been in decline since 1998, according to the industry publication Beverage Digest. That hasn’t stopped the big three beverage companies, The Coca-Cola Company (NYSE: KO), PepsiCo, Inc. (NYSE: PEP) and Dr. Pepper Snapple Group, Inc. (NYSE: DPS) from being fantastic investments. All have more than doubled over the past five years, in addition to sporting roughly 3% yields. Although the declining soda trend doesn’t look to be reversing anytime soon, PepsiCo, with its great international and product diversification, is poised to be the outperformer. Why Not Dr. Pepper? Dr. Pepper has run away from Pepsi and Coca-Cola in the past six months, climbing 25% while shares of Coca-Cola and PepsiCo have fallen or remained flat. However, that’s almost certainly a function of the strengthening U.S. dollar. Dr. Pepper generates more than 90% of its revenue from North America and is nearly immune to the currency headwinds faced by PepsiCo and Coca-Cola. While Dr. Pepper has benefitted from that focus on North America in the past six months, its attractiveness to investors could wane if the dollar were to weaken. Read More

On March 18, the Federal Reserve gave  its clearest hint yet that interest rate hikes are coming. The Fed will no longer “remain patient,” which suggests that the time for action is near. Against that backdrop,  real estate investment trusts, or REITs, have been punished. In the last month and half the Vanguard REIT Index (NYSE: VNQ) has fallen 3%. #-ad_banner-#Yet is such concern warranted? After all, the yield on the 10-Year Treasury bill just slipped back below 2.0%, even after the Fed shifted its tone. Even if 10-year yields were to rise from the current level to 2.5% or… Read More

On March 18, the Federal Reserve gave  its clearest hint yet that interest rate hikes are coming. The Fed will no longer “remain patient,” which suggests that the time for action is near. Against that backdrop,  real estate investment trusts, or REITs, have been punished. In the last month and half the Vanguard REIT Index (NYSE: VNQ) has fallen 3%. #-ad_banner-#Yet is such concern warranted? After all, the yield on the 10-Year Treasury bill just slipped back below 2.0%, even after the Fed shifted its tone. Even if 10-year yields were to rise from the current level to 2.5% or 3%, investors in search of income will not completely abandon REITs that yield between 4% and 6%. Another way to look at an eventual rebound in rates: it signals a firmer economy, which should be beneficial to real estate firms. In the end, speculation about interest rates is just distracting noise. Your goal should be to add great businesses to your portfolio at opportune prices. Use the volatility in high-yield securities to add long-term winners to your portfolio. HCP, Inc. (NYSE: HCP), Digital Realty Trust, Inc. (NYSE: DLR) and Omega Healthcare Investors, Inc. (NYSE: OHI) are all down 8% or… Read More

In search of income-producing stocks, it’s always wise to check in with the dividend aristocrats. Only companies with top-flight management teams and a recession-tested, profitable track record can pay a growing dividend for more than 25 years.   But you shouldn’t just focus on past performance. You want to look for strong dividend growth in coming decades as well. #-ad_banner-#To get a sense of whether companies can sustain a growing dividend, investors often use the payout ratio, which measures dividends against net income. Yet that ratio can only be helpful up to a point. Net income can… Read More

In search of income-producing stocks, it’s always wise to check in with the dividend aristocrats. Only companies with top-flight management teams and a recession-tested, profitable track record can pay a growing dividend for more than 25 years.   But you shouldn’t just focus on past performance. You want to look for strong dividend growth in coming decades as well. #-ad_banner-#To get a sense of whether companies can sustain a growing dividend, investors often use the payout ratio, which measures dividends against net income. Yet that ratio can only be helpful up to a point. Net income can be affected by depreciation, goodwill and other factors unrelated to a company’s ability to send cash to shareholders every three months (sometimes monthly). As a result, the best metric to determine dividend strength is the dividend payout compared to free cash flow, or FCF. The lower the FCF payout ratio, the more flexibility management has to raise it or make other investments to fuel growth. Searching through the list of dividend aristocrats, you’ll find two companies with warning signs. By my math, they will be hard-pressed to boost their dividends in the future. The good news: I’ve… Read More

#-ad_banner-#By now, even the most casual investor (and American taxpayer) is familiar with the American International Group, Inc. (NYSE: AIG) story.   The company’s financial products division drove the company to the brink of bankruptcy, and the largest private sector bailout in American history saved it.   But those who dismiss AIG as an investment opportunity today because of past mismanagement are missing an incredible turnaround opportunity.   The company has divested numerous assets in an effort to slim down and simplify. Most importantly, it no longer has the financial products division… Read More

#-ad_banner-#By now, even the most casual investor (and American taxpayer) is familiar with the American International Group, Inc. (NYSE: AIG) story.   The company’s financial products division drove the company to the brink of bankruptcy, and the largest private sector bailout in American history saved it.   But those who dismiss AIG as an investment opportunity today because of past mismanagement are missing an incredible turnaround opportunity.   The company has divested numerous assets in an effort to slim down and simplify. Most importantly, it no longer has the financial products division that destroyed shareholder wealth in 2008 and 2009. Despite these positive steps, the company’s turnaround is still in the early stages and offers a lot of upside for patient investors.   If you’ve been hesitant to believe in and invest in the post-crisis AIG, then most of Wall Street agrees with you. AIG’s share price has barely budged these last 18 months, while the rest of the market has shot to new highs.   AIG’s lackluster stock performance, while share prices of rivals have surged, has created striking valuation differences among property and casualty insurance industry stocks. Competitors, like the… Read More