Buying Nordic American Tanker
Friday, August 17, 2007, 11:26 AM
Stocks by John
Yesterday I was sitting in a sort of ideal position. Having unloaded my NTRZ stock, I had cash on a market apocalypse day. These are the days when real money is made.
If you've followed the website, you know I have had the Cramebase up and running, tracking the stock recommendations made by Jim Cramer. However, I have not yet bought anything based on Cramer's recommendations.
A few weeks back Cramer made a recommendation that slightly confused some of the audience. He recommended Nordic American Tanker, a transport company. Cramer has generally been down on the sector. However, at $41 he recommended NAT as a money play. NAT issues a gigantic dividend (easily over 10% at any recent price) and it issues it regularly (40 straight quarters as of yesterday). Cramer said that NAT is a best-in-class, carries less debt and is seeking expansion at a reasonable rate. While the industry is cyclical, oil is at a peak and doesn't seem to be slacking off anytime soon. So, demand for tankers remains. Advertisements
Of course, the subprime apocalypse has shaved a lot of stocks down pretty bad. NAT is no exception. I've been looking at NAT for a while, and was really liking it at $36 just before the ex-div date. But, I held off because stocks tend to dip around their ex-div date. Sure enough, yesterday NAT was trading at $33.
It had been down to $32.50, and I thought this day is going to hell and there's going to be another dip. So, I decided rather than liking my steak at lower price, I'd bid even lower. I fired off a limit buy for $32.53 (I like to buy just above the round numbers to beat the buyers who type in round numbers out of habit). And then I decided to ignore the market while it engaged in self-immolation.
About 3:30 I figured it was time to check in and see if my order was filled. The market had recovered beautifully, and I wasn't too convinced I had gotten my order until I logged in and badabing! There it was!
At $32.53, my stock in NAT has a 14.38% yield! That's friggin insane. A lot of people are put off by NAT because it issues dividends that are higher than its earnings. However, people always overlook that NAT is taking depreciation of 12 oil tankers, all bought since 1997. And it is writing off high fuel costs. Earnings takes a dent while profits stay super solid.
Better yet, by 3:30 the stock was trading at $35.50. Ah! 10% in a single day.
And this morning it is trading at $36.50. I'm not this damn good at buying stocks!!! No friggin way.
I needed NAT. After my experience with Nutracea I needed a good solid stock to deliver. NAT is a good company. they are committed to returning profits to their shareholders. Read their website, nat.bm (the BM is because their are a Bermuda corporation). Compare it to Nutracea's website, nutracea.com. NAT talks about tankers and dividends. Nothing else. Nutracea babbles about feeding the world and PRs and just crap.
NAT was trading at a 10.6 PE. That's insane for a company that does nothing but shovel cash toward investors. Even if NAT cut its dividend in half, it is easily worth $32.53. Dear Lord, that would still be a 7% yield!!
I'm not always a big fan of Jim Cramer's picks. Not so much because he's awful, because he isn't. I just think he isn't getting the best return possible by momentum trading. NAT is a good example. Sure, you can buy on the peak, at $41. And winners usually do keep winning. He is very right about that fact.
However, with these big companies in an environment like we saw the last few weeks, beatings ensue. For no reason.
This was actually the point Benjamin Graham was trying to make, and which Warren Buffet has used to make a boatload of cash. You don't buy a stock at fair value, even if it is going up. Because the market isn't giving you a fair value. Most days it is either pricing in too much risk or too much exuberance.
If $36 a share seemed tempting with NAT, I needed to wait. Now, I had a very technical reason for waiting -- the ex-div drop that stocks suffer. If you're aiming to buy and hold, the ex-div drop is a great time to buy any stock.
Add to that the general market is just wrong. Plain wrong. Subprime is an issue, but its more of a lesson the banks to need to learn than a problem with the larger economy. Advertisements
And even at $33 I couldn't pull the trigger on NAT. I said to myself, I want the most value. The most value is at $32.53. High enough my order will be filled. Low enough that I make money on the trade by itself.
The market will come knocking at that price. And it did.
I think I am beginning to shape a trading philosophy at the end of my first year of investing. Of course, 2007 will be remembered as one of those years. A real rollercoaster ride. I picked a hell of time to enter into investing.
My goal was to learn. I wanted a good spread of stocks. And now I think I know something. Yesterday was the first day when I really think I just got it.
|
