Tuesday, December 2, 2008

Investing Pittsburgh

I'm going to be adding a segment to the blog called "Investing Pittsburgh." It will focus on business in the burgh and how to invest in it. Many financial experts will tell you that if you want to invest your own money, it is important to segment the market and look at only some subset, otherwise it becomes too overwhelming. With that in mind, I'm going to be looking at only companies that have a substantial presence in the Burgh.

I am going to keep a mock portfolio/fund and provide regular updates as well as information on when I'm buying and selling and why. I'm not recommending that you do as I do and I am by no means an expert, but I think whether or not the mock portfolio makes any money, we can all learn a little something about how the Pittsburgh business scene operates. So follow along and feel free to offer your insights.

I am going to start the fund with $15,000. I'm going to assume that I'm not making any interest on unused cash and that I do not have any credit. I'm also going to limit myself, for now, to long positions. I may soon decide that short positions and derivatives are fair game for this hypothetical account, but I think that for now I will leave it simple so that everyone can follow it.

For starters, I think now is a good time to get in to the market. The Fed has made some aggressive moves to save the economy and while there may be some give left in the market, there are certainly some values out there.

I'm going to start the fund with 3 Pittsburgh Stocks at varying positions. I'm only going to use about a third of the funds because I am not sure exactly where the market is headed and I want to leave some cash in case there's a lot more downward action left.

The three stocks I'm going to use are US Steel (NYSE:X), PPG Industries (NYSE:PPG) and Alcoa (NYSE:AA). Generally, the reason for these three stocks is that they are stable companies that make solid products and offer a dividend. Additionally, they are all materials companies, not a bad thing to hold with an administration that is promising major public works projects about ready to enter office. Individually, here are some thoughts on each:
  • US Steel (X) - Their P/E ratio at the moment is 1.63 and the current price of $25.64 puts them $4.93 from their 52 week low, but $170.36 from their 52 week high. That's a value stock if I've ever heard of one. Additionally, they paid a $.30 dividend in November and they pay dividends quarterly. At their current stock price, that's a 4.68% dividend yield. That means that (assuming they don't have to lower dividends, which is admittedly possible), I can make almost 5% return on the dividends while I sit around and wait for the stock to turn around. If it takes 5 years, at least I'll be making almost 5% on the money while I wait.
  • PPG Industries (PPG) - The individual reasons are similar to those of US Steel. They are $3.65 off their 52 week low and $42.62 off their 52 week high. They also have a low P/E (9.94) and a high dividend yield (5.35%). Additionally, they have somewhat better growth potential as it appears that they have been a bit more innovative then Alcoa or US Steel, perhaps because they are not tied to a specific metal.
  • Alcoa (AA) - Again, this is pretty similar. In this case the P/E is 4.45, $2.51 off 52 week low and $35.46 off 52 week high and the dividend yield is a whopping 7.3%. If that dividend yield sounds to good to be true, it's because it may be. Net income will be less then half this year of what it was last, so it is not impossible to see the dividend falling. I plan to take a somewhat smaller position in Alcoa and wait to see if the dividend falls. If it does the stock will take a hit and at a further reduced price I might be able to increase my position. On the other hand, I will have some stock if they make their payment or raise it (which would cause the stock to increase more then slightly).
There are several things I don't like about this portfolio. It's pretty tied to the indices, in a bear market no less. It's also not very diverse. I will attempt to fix this to a degree over the course of the next several months, but for now I figured why not start playing? So here are the buys:
  • 100 shares of Alcoa (NYSE: AA) at $9.31 for $931.00
  • 40 share of PPG (NYSE: PPG) at $39.59 for $1583.60
  • 110 US Steel (NYSE: X) at $25.64 for $2820.40
That leaves us with the following holdings:
  • PPG - 40 - $39.59 - $1583.60 - 0.00%
  • X - 110 - $25.64 - $2820.40 - 0.00%
  • AA - 100 - $9.31 - $931.00 - 0.00%
  • Cash: $9,665.00
Everyone keep your fingers crossed that Detroit gets a bailout (not that I think it's the best idea ever, but for this stock fund, it would help).

1 comment:

Schultz said...

Add AEO to your watch list