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Meeting the Income Challenge, Best Income Plays for 2008-9
By William Parmenter, Editor
Roger S. Conrad talked about risk, reward and opportunities in income investing at the Saturday May 17 at the Los Angeles Chapter AAII meeting at the Skirball Center.
Conrad is editor of Canadian Edge, Vital Resource Investor and Utility Forecaster, and income advisor for Leeb Capital Management.
His talk was illustrated by a Power Point presentation that was well outlined, and presented in big type, so that even people in the back row could read it. Another feature of his presentation was that his stocks had names and ticker symbols, which he offered so that anyone could make good financial use of his observations
We are in challenging times, Conrad said, offering some bad news as evidence: the 10-year Treasury note is very low. The credit crunch is still around. The economy is low and people are looking for a bottom. The U.S. markets have a lot of volatility.
Some good news makes the situation a mixed picture: strong companies performed well in the first quarter. Values abound off the beaten path. Growth is still selling for cheap.
Strategy
Buy and hold is the only way, said Conrad, to realize growth and yield. Diversify securities and sectors. Stick to healthy growing businesses. Control duration. Hold cash. Avoid the highest yield, because the share price might suddenly drop.
Key Investment: Selected Trusts
In regard to Canadian Trusts there will not be a conversions doomsday in 2011; the weaker companies may die but the stronger companies will not. Hurtful to Canadian trusts is the credit crunch and that the Canadian dollar is rising
There are plenty of good businesses that are committed to paying dividends. A very good conversion of factors include that some businesses are selling for book value. Buy the business. Two tracks are available: long term income; and growth and income.
Conrad’s investment ideas:
Conservative portfolio: 1) MPT.UN 9MCQPF); 2) AX.UN (ARESF); 3) YLO.UN (YLW PF): had 13 percent earnings first quarter and the yield is near 10 percent.
Aggressive portfolio: ERF.UN (NYSE: ERF, has very low debt, a conservative payout ratio and a yield of around 10 percent. 2) NAL.UN (NALUF), a more volatile company that cleans up oil sites, with yield of around 12 percent and great potential growth.
Mutual fund: EIT.UN (EVDVF), a diversified income fund that sells for 85 cents on the dollar and yields around 14 percent.
The smaller the ratio the better. This The ratio is only used for dividend-paying
Key Investment: Energy’s Sweet Spot
The post 2002 recovery is complete. The risk to inflation is lower than ever. Capital spending boom marks a challenge. There will be an increase in power demand. Around $1.5 trillion will be spent in the next 20 years. Conrad expects a regulation rollback.
Conrad’s investment ideas:
1) DUK, Duke Energy: the company has gone through a change in the last five years. The question is how to use coal without generation carbon dioxide.
Utilities have done really well over the last five years. As they have cut debt, dividends increased. Most of their gains have been seen.
2) AES Preferred C: has a yield of around seven percent. It has a Billion dollar solar project under way, as well as a huge wind energy project.
Key Investment: High Yield Telecom
Telecom is a misunderstood business; it is about consolidation with big companies adapting the new technologies of start-up companies. Cas flow is rising despite wireline losses. Credit losses are overstated. Rural areas are growing faster.
More people are moving to wireless every year, and that cuts into copper connections
Conrad’s investment ideas:
WIN and CZN: both companies have upper single digit yields. Free cash flow is important. Bigger is better as the bigger companies have advantage of scale.
Key Investment: High Selected REITs
REITs have been blasted by crfedit concerns and the slump in the U.S. property market. The U.S. residential market is still attractive. It never got as high as the commercial sector.
Two names:
MAA, and HME. HME yields around six percent, and rents properties.
Key Investment: Inflation Protection
There is a global demand-driven resource bull market, and, a big wall of worry to overcome. Investors can move counter-cyclically with bonds.
Conrad identified subsectors: industrial metals, like copper; precious metals, like gold and platinum; and water and agriculture.
Conrad’s investment ideas:
GG, a gold play; it is counter-cyclical to dollars and bonds.
FCX, Freeport Copper, it makes steel for drilling.
The investor needs a long term approach in this volatile area.
Los Angeles County Meeting ScheduleWestside Computer Group – Don Gimpel, 310/276-9875 Sat. June 7, at 10:30 a.m., Veterans of Foreign Wars Memorial Bldg. Culver Blvd. & Overland Avenue, Culver City, Topic TBA
Pasadena Group– Pasadena Library 285 E. Walnut Street,
Topic and date TBA
Mutual Fund Group – Gunter Hagen 310/457-7404, . 10:30 a.m. Sat, date and topic TBA, in the community room of the Fairview Branch of the Santa Monica Public Library, 2101 Ocean Park Blvd., Santa Monica. The meeting is free to the public
Stock Selection Group—Norm Langhout, 310/391-6430, . Fourth Wednesday of the month at 7 p.m. Fairview Branch of Santa Monica Library, 2101 Ocean Park Blvd., Santa Monica. Topic TBA
San Fernando Valley Group – Mid Valley Library Community Room, 16244 Nordhoff St. North Hills, Topic, TBA
IBD Meet-Up/AAII CANSLIM Group – Santa Monica Library, Fairview Branch, 2101 Ocean Park Blvd., Santa Monica
Los Angeles Chapter Mtg.— Meeting dates through 2008:, June 28, July 19, Sept. 20, Oct. 18, and Nov. 15 (no August or December meeting)
What to Avoid
Watch out for long-term AAA securities, as their yield is low, and a recession is already priced in. Also be wary of unproven flow-through investments; limit your financials and REITs. Watch out for the highest yield, because that is a sign of too much risk.
For More Information
The web site for Utility Forecaster is The web site for Canadian Edge is
Other web sites are:
Interactivebrokers.com.
And, everbank.com.
Conrad’s phone number is 800-832-2330
Preferreds—Wall Streets Best Kept Income Secret
By William Parmenter, Editor
Kenneth G. Winans spoke on preferred stocks as the second speaker at the May 17 meeting of the Los Angeles chapter of AAII at the Skirball Center.
He is the president of Winans International investment management and research firm. Winans is the senior market commentator on radio station KNX 1070 AM. He is the author of the book Preferreds, Wall Street’s Best Kept Income Secret, (KGW Publishing, 2007).
In Winan’s view the best income-producing investment is preferred stocks. He discussed the Winans International Preferred Stock Index, a benchmark for preferred stocks.
Preferred stocks are an equity investment, a dividend producer, and have first right (over common stocks) to cumulative dividends. They are callable, convertible, and some qualify for a lower tax rate.
Including inflation, the average yield for preferred stocks is 7.3 percent; without inflation preferreds average 5 percent. Tax adjusted preferreds yield a return equal to munis.
The universe of preferreds is $250 billion, with Fannie Mae and Freddie Mac being their biggest issuers.
Some Morningstar preferred stock mutual funds include: FPO, HPI, JFP, PFD and HPF (their ticker symbols). None of them are open now. Unfortunately these mutual funds loaded up on Countrywide Financial and took big losses.
A considerable portion of Winans’ talk was devoted to explaining and showing slides of different aspects of the Winans International Preferred Stock Index (WIPSI). Much of the audience viewership was lost on this portion of the talk as the print on the slides was too small to see, except from the front row.
Winans showed charts with trendlines, moving averages and relative strength.
Mentioning long-term storm clouds over the investing world, Winans pointed out that the WIPSI broke its long-term support line.
Winans’ three general conclusions were: 1) preferreds are one of the best kept secrets of Wall Street.
2) WIPSI is a superior index to track the preferred stock market.
3) portfolios have a place for both preferred and corporate bonds.
In the question and answer session, Winans said preferred stocks are not the strong point for Value Line.
He thinks we are still in a bear market, as he sees the low-volume rally as a bear market rally.
Commenting on the Citigroup financial debacle, he pointed out that when Asian sovereign funds invested, they only bought Citigroup’s preferreds.
Winans can be reached at (415) 506-3070, at Kenneth G. Winans, Winans International, 330 Ignacio Blvd., suite 203, Novato, CA 94949. His web sites are:., and
He had copies of a book he wrote for sale on display in the lobby, Investment Atlas 1929 to 2000, Financial Maps to Investment Success.
Education Nuggets
By William Parmenter, editor
Don Gimpel gave a five minute talk on investor education at the May 17 Los Angeles AAII chapter meeting at Skirball Center.
He focused on the best internet sites for investor education, a 10-page list he has compiled and wanted to share with chapter members.
For instance, to find out about the value of your house, or any other house, go to
Among other information, you can access Gimpel’s favorite site: a site on demographics, and on whether you have missing money you can claim.
To access the list, go to the chapter’s website at From the home page, look for the link to “Don’s Page” and click on it.
You can download a 10-page document, “The Best Internet Investment Sites,” dated Sept. 2007. It has links to the best internet sites.
Book Review
By William Parmenter, editor
The first book since the 1930s focused on preferred stocks is Kenneth G. Winans’ Preferreds, Wall Street’s Best Kept Income Secret (Novato, CA: KGW Publishing, 2007), $34.95 hardback.
Although preferred stocks, as a source of income, have not received the attention they are due, this book helps remedy that defect by giving tips to readers to navigate the world of preferred stocks.
The book also introduces and explains Winans Interntional preferred Stock Index (WIPSI), the only index to cover preferreds.
The appeal of preferreds has been around since, at least, the 1920s, as this blurb from the Sept. 29, 1923 Magazine of Wall Street indicates:
“As between the comparatively low yields on good bonds and the uncertainty in connection with common stocks, investors are paying more attention to the attractive return and security obtainable in the preferred share market.”
Some characteristics of preferreds are that they pay a fixed-rate dividends indefinitely; unpaid dividends usually cumulate, and often they are convertible to common stock. Preferreds are issued more often by utilities, financial companies, REITs, railroads, manufacturers and companies with a large number of subsidiaries.
Certain types of preferreds qualify for a significantly lower tax rate (15 percent versus 35 percent.
Using a cow as a metaphor, preferreds are the stream of milk (income), and the cow’s meat is common stocks (appreciation).
Preferreds are listed on major exchanges and can be purchased at most brokerage houses. Barron’s, The Wall Street Journal, and the website all publish lists of actively traded preferreds. Preferred’ inflation-adjusted return has been historically 5 percent.
Among the topics covered in the book are: investment analysis of preferreds, portfolio management; advanced analysis of the WIPSI and advanced analysis of individual preferred stocks. The analysis is based on charts and technical analysis.
The book could appeal to baby boomers, now nearing retirement, as they face the prospect of moving a significant percentage of their portfolios from growth instruments to income-producing vehicles. The text is both readable and authoritative.
Winans has conducted investment analysis and research for a quarter century, designing investment models and strategies. Stories on his investment research have been
published in the Wall Street Journal, Forbes and Barron’s. His radio show, Wednesdays with Winans, can be heard on Wednesday from 1 to 1:30 p.m. on KNX (1070 AM)
The Los Angeles AAII chapter website is:
Note to Pro Forma Contributors
Please have your copy emailed to the editor by the fifth of the month. Letters and comments are welcome. If you want to email an article about the fragile financial system, the status of energy resources or some other financial issue, you will have a chance to appear in print and inform Pro Forma readers.
Book reviews are welcome. Mail disks to: 319 Walnut Ave., Apt. 2, Long Beach, CA.
90802, or use email to contact the editor at .
My home phone is (562) 437-2412.
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Pro FormaPro Forma Editor William Parmenter
Pro Forma Editor, Emeritus Orvis Adams
SIG GROUPCHAIRMEN
Asia Pacific Group Robert Hsu
IBD Meet-up/ AAII CANSLIM Norman Langhout
Mutual Fund Group Gunter Hagen
Pasadena Group Ivan Wong
Palm Springs Group Patti Gammino
San Fernando Valley Group Evan Press
Westside Computer Group Don Gimpel
Pro Forma is offered free of charge exclusively via email and is also available for downloading from the Los Angeles Chapter web site at:
The American Association of Individual Investors is an independent nonprofit corporation formed for the purpose of assisting individuals in becoming effective managers of their own assets through programs of education, information and research.
Pro Forma is published to advise members of the Chapter’s activities and to share information. All material is compiled without verification of accuracy to a specific task or computer system. All material provided in this newsletter is for educational and illustrative purposes only. Comments and opinions are the views of their author and not the AAII or the Los Angeles Chapter or any other person or organization. Investing is an inherently risky business. Investors may loose their entire investment or more. Past performance is not a guide to future return.
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