Is Platinum a Buy for 2015?

Platinum one ounce bar

By Wael Abdelgawad

Many financial experts argue that gold cannot be considered a solid investment at this time. Gold is typically a hedge against inflation. With the strong dollar and low interest rates, gold has not been doing well. Furthermore, demand from India – the world’s major buyer – has gone down.

What about platinum? Is it a good buy in 2015? Let’s take a look at platinum’s recent history and current demand.

When I got married in 1998, we each bought platinum wedding bands. At that time the price was in the mere hundreds of dollars per ounce. Over the next ten years platinum soared like the space shuttle, hitting a peak of $2,066 in 2008 – coincidentally the same year I got divorced. I wish I’d sold my ring then, but I held on to it for sentimental reasons.

Unlike gold, platinum is an industrial metal. Almost 50% of it’s use goes into automobiles, especially catalytic converters. As the world economy entered a recession in 2008, demand for new cars plummeted and so did the price of platinum, falling to a baseline of of $850 in a matter of months.

Platinum price chart
Price of platinum from 2000 to 2015.

As the economy recovered, so did the price of platinum. It rose to the $1,800 level by 2011. Since then it has been on a steady decline to the current price point of $1,200 or so, possibly due to a glut of above-ground platinum stockpiles in Europe.

How about today? Well, although platinum is in reality less rare than gold, the production channel is narrower. Platinum is mined mainly in South Africa, and the process is difficult. This narrow supply channel is one reason why the price of platinum is so sensitive to demand fluctuations. When demand falls, platinum plummets. When it rises, platinum soars.

As China’s economy booms, demand for automobiles – and thus catalytic converters containing platinum – continues to rise. Furthermore, any tightening of emissions standards in Europe or China will increase the need for platinum, as since the metal is key in helping to reduce pollution from vehicles.

All considered, platinum looks like a good buy at this price point, and I wouldn’t be surprised to see it gradually climb to 2008 levels over the next few years. It might be almost time to sell that platinum ring of mine.

 

Hurricane Sandy may mean higher mortgage insurance premiums

By Wael Abdelgawad | HeadlineFinancial.com

Even if your house is safe and dry, you may well end up paying higher mortgage insurance premiums due to the damage caused by Hurricane Sandy.

The average mortgage insurance premium has almost doubled since the year 2000 – to almost $1,000. No doubt the insurance companies would have liked to raise rates even more, but they have to get approval from state regulators, who have been reluctant to approve steeper hikes because the insurance companies have been sitting on hundreds of billions of dollars in profits.

Hurricane Sandy satellite image, taken October 28, 2012
Hurricane Sandy satellite image, taken October 28, 2012

Now, however, those profits will be eaten up by Hurricane Sandy damage claims, and the insurance companies will almost certainly get approval to hike rates. Those rate hikes will bring in so much additional cash, it will more than make up for Hurricane Sandy insurance losses.

There’s not much you can do about the rate hikes. If you have a mortgage, you are required by law to have mortgage insurance.

On the flip side, some analysts are putting buy ratings on insurance company stocks, particularly AIG, Allstate and Progressive. These companies’ stocks got hammered in the run-up to Hurricane Sandy and may now represent good value.

So if you can’t avoid paying higher mortgage insurance premiums, maybe you can buy a little piece of the insurance companies and make money along with them.

Why You Should Invest in Real Estate

By Joyce Morse for HeadlineFinancial.com

If you are looking at solid investment opportunities, you might want to consider real estate.  While many people have avoided this area because of the housing market devastation, it bears another look.  Real estate can provide one with a great return on investment and a continual income, and it will continue to do so in the future.

Nowhere to Go but Up

Beautiful house, modern house

When the housing market bottomed out, many potential investors looked elsewhere for investment possibilities.  However, real estate works just like any other market; buy low and sell high.  Right now, we are in the buy low time period.  Here are some reasons to look into real estate for your investment portfolio.

  • Mortgage rates are low so you will pay less on interest.
  • More foreclosures mean more renters to allow you to use your property as a rental.
  • Houses are at their lowest prices in years because they have not been increasing in value at the same rate as normal.
  • Tenants often prefer houses to apartments, which means you will have a good selection of renters and be able to find the best tenants.
  • Renters prefer private landlords instead of rental companies, so you will have people competing for your house.

A Long Term Investment

You have to look at real estate as a long term investment, not something you buy today and sell tomorrow.  Even if you buy a property to fix it up and sell it, you will want to have a positive cash flow, and see the value of your investment rise over the long term.

If you buy a house today, it will have a higher value in thirty years, making it a profitable investment.  If you use it as a rental property in the mean time, you will have tenants making your mortgage payments for you so you come out even further ahead.

Tips for Investing in Real Estate

To be successful in the real estate market, here are some tips to follow.

1.  Know the average prices in the market.  This includes what similar houses to the one you are looking at are selling for and what rent is worth on that house.  That way, you will know what you need the mortgage payment to be for the rental income to cover it.

2.  Get an appraisal and an inspection.  The appraisal will show you what the house is worth and an inspection will alert you to any major repairs you will need to do in the near future.

3.  Work with a respected real estate agent to help you make the right decision.  They can explain terms to you and give guidance about the different properties and the surrounding areas.  It is worth the agent’s fee to have a knowledgeable expert to assist you in the process.

Real estate has always been and will continue to be a good investment.  You just have to know what to buy to get a good deal.

Smart Investments for 2012

By Joyce Morse for HeadlineFinancial.com

With the current state of the economy, it can be hard to know where to invest your money to still make a profit.  It can make you just want to hide it so that it doesn’t disappear.

However, every smart investor knows that you have to take a risk to make money.  The trick is to know which investments carry an acceptable level of risk and which ones aren’t worth it.  Here are two types of investments that you will want to consider adding to your portfolio in 2012.

Technology Stocks

This can seem like a scary investment because you never know where technology is going, but it can also be extremely profitable.  Why should you consider technology for investment?  Because it has strong growth potential.

Stock market chart rising
What stocks are good buys?

Just look at Facebook and how it has exploded and changed the world.  Facebook is more than just a product; it’s a brand.  Today people say “Just Facebook me” as if it is a term and not a website.

So, how do you know which technology to invest in?  This is one area where the risks can be high, but so can the rewards.  Here are a few tips for investing in this growing area.

  • Know the product.  Does it have a solid foundation with a knowledgeable leader?
  • What do others say about the technology?  Get a lot of feedback before you put money into something.  For every technological advancement that has been successful, dozens of others were failures.
  • Is it innovative?  Look for something that’s new and different that could revolutionize the way we do something.
  • Is it an improvement?  Skype, Instaprint, and Cloud storage are all inventive ideas that improve our lives.  While that doesn’t make them a guarantee to be successful, it does improve their possibilities.
  • Talk with an expert.  Before you put money into anything, you should consult with an expert in the field.  An investor is not an expert in technology; an IT person is.  Find out what they think about the new technology and if it is a sound investment.

Why Stocks are Better than Bonds

Many investors will ignore the stock market in favor of the security of bonds in a down economy.  However, the experts say that stocks are still the better way to go.  They expect that bonds in the next 20 or 30 years will only see a return of zero for best case scenario.  More probably is that they will have a negative return.

S&P stocks sold at 13 times the estimated earnings for 2012 at the end of 2011.  Compare this to 1999 when they were selling at 33.5 times.  This shows that there is potential for growth for investors.

You may not want to put as much money into the stock market as in the past, but experts believe that now is a good time to invest in stocks for the long term results.

Investment Idea for 2012: Buy Fast Food Stocks, Avoid Banks

Jim Cramer of TheStreet.com and CNBC’s Mad Money points out that staying in cash in 2012 is not a great idea, because interest rates are very low.

Banks stocks are also an area to avoid, considering how heavily regulated the banks are now, and that they are tied to the unresolved economic mess in Europe.

McDonald's is one of Jim Cramer's stock investment picks for 2012.
McDonald's is one of Jim Cramer's stock investment picks for 2012.

Cramer also cautions that while cheap rental properties may represent a good value, in general one should approach real estate with caution, as it could easily lose more value.

What to buy then? Cramer points out that Americans are addicted to eating out, but economic times are still hard and people are less likely to choose expensive dining options. Instead, they gravitate to cheaper fast food outlets.

Cramer’s picks in this area are McDonald’s and Panera Bread Company.

Cramer also suggests diversifying in case any one economic sector does poorly. He points to Google as a safe technology investment. The company has high growth in several key areas, including social networking, mobile technology and cloud computing.

Investment Stock Picks for 2012: Roundup by Matt Schiffrin

Matt Schiffrin of Forbes.com has published four picks for best investment stocks of 2012. They are not his own picks, but have been selected by three major money managers, advisors and traders. I’ll summarize here and offer a little commentary:

Red Hat

The picks for best investment stocks of 2012 are as follows:

1. Red Hat

Nigam Arora, editor of the Arora Report, argues, “The premise behind this pick is that most money with the lowest risk is made by identifying a change before Wall Street.  In the world of information technology, two megatrends are in their infancy — migration to cloud computing and virtualization.”

Arora points out that Red Hat provides open source software that powers these two technological trends. “Red Hat is the equivalent of a seller of picks and pans to the miners during the California gold rush,” Arora says.

2. OfficeMax

George Putnam of The Turnaround Letter points out that OfficeMax’s stock declined steadily through 2011 and is now, he feels, significantly undervalued. The company is poised to expand overseas and to increase its online presence. “Even without renewed growth,” Putnam says, “a slight change in investor perceptions about OfficeMax could send the stock up sharply.”

Personally, I would be reluctant to invest in a stock that declined for most of 2011. I would wait until investor perception has indeed changed and the stock has reversed its downward momentum.

3. Foot Locker

This was picked out by Chuck Carlson of DRIP Investor. He points out that the last five quarters have shown stronger than expected profit growth, the stock has been on an upward trend, and the company has good cash reserves.

I kind of like this one, only because shoes are one of those things that people will always need. If the company is well managed, it would seem like a good buy.

4. Intel

Carlson’s other pick. The stock sold off in recent trading, and may represent a good buy at current levels.

Is Land a Good Investment in 2012?

recently wrote about buying rental housing with positive cash flow as an investment. That’s a great strategy in 2012. Buying land, however – building lots, for example – is not as promising this year. There’s still not a lot of new construction going on, and most of that is replacement or renovation.

Building lots are generally not cash flow properties. You’re depending instead on future price appreciation, and in this market that’s like depending on a sand castle.

A prepared building lot for a new house.
A prepared building lot for a new house.

Still, land is not a bad investment if you’re buying cash and are prepared to hold onto the land for a few years. Don’t take out a loan or go into debt in any way. If you can afford to buy a building lot just outside of town in the direction of future expansion, and hold onto it for a while, it could be a profitable strategy.

How long should you be prepared to hold onto your land investment? Quoting Leonard Baron on Zillow.com’s blog (Baron is the author of several books including “Real Estate Ownership, Investment and Due Diligence 101 – A Smarter Way to Buy Real Estate”):

“Some general guidance herein. As a general rule, if you are not planning to own it for at least five years you will most likely not be adding to your wealth. Any appreciation in value will not compensate for the 8.0% to 10.0% transaction costs on the buying and selling of your property.”

Best Dividend Stocks Picks In 2012

John Defeo of TheStreet.com has put forward his picks for the best dividend stocks of 2012.

Why should we listen? Well, Defeo has an established record of picking dividend stocks that will outperform the market. In September 2010 he picked 10 “Dividend Aristocrats” (an index of companies that raised dividends for 25 years or more) that proceeded to handily outperform the S&P 500, the DJIA and the Vanguard Total Stock Market Index.

Stock market chart rising

Using the same criteria established in 2010 (cash flow yield greater than a 10-year U.S. Treasury note, return on invested capital greater than 10%, appreciation in value over the past decade, here are his picks for the dividend stocks most likely to outperform in 2012:

  1. LEG – Leggett & Platt Inc.
  2. NUE – Nucor Corp.
  3. BCR – C.R. Bard Inc.
  4. ITW – Illinois Tool Works
  5. BDX – Becton Dickinson
  6. MMM – 3M Co
  7. SIAL – Sigma-Aldrich Corp.
  8. PPG – PPG Industries Inc.
  9. HRL – Hormel Foods Corp

Keep in mind that someone’s opinion of which stocks are most likely to make money is just that, an opinion. No one can see the future and no one can guarantee a return on any investment. Do your homework and invest wisely.

Real Estate Investing – Is 2012 the Time to Buy?

In a still sluggish real estate market, is this the right time to buy?

Yes and no. There are many kinds of real estate. Commercial properties in hot markets, commercial properties in depressed markets, high-end residential homes, low-end foreclosures, rural land, urban land…

One area of real estate investment that may represent an opportunity right now is rental units, whether apartments, condos or homes. Property consulting firm John Burns Real Estate (JBRE) has forecast that home-ownership will fall from 70.0% to 62.1% by 2015 thanks to a soft economy, low consumer confidence, limited mortgage availability, increased rates of foreclosures and short sales, among other things.

Apartment buildingWhat this means is that we’ll see a rising number of renters in coming years, and greater demand for rental housing.

What we want as investors therefore is rental housing in areas with good projected future job growth and price appreciation.

According to NuWire Investor, some areas expected to grow and appreciate well in the next ten years are:

  • The McAllen-Edinburgh-Mission, Texas metropolitan area.
  • In Colorado: Colorado Springs and Denver-Aurora.
  • In California: Sacramento-Arden-Arcade-Roseville, and Oxnard-Thousand Oaks-Ventura

Bargain-priced rental housing with positive cash flow has always been a good investment, and continues to be a great opportunity. Do your homework, don’t overextend, and don’t be afraid to act.