December 2012 Newsletter

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Dr. Jeffrey Ross’s

 Investment & Healthy-Living Advisory

December 2012

Contents:

— Learn from this American Icon

— The World’s “Rocky Balboa” of Oil Stocks

— Healthy-Living: Explosive Power Training

— Current Investments for the Long-Haul Portfolio

 

Learn from this American Icon

 Rocky Balboa is the quintessential American boxing icon.  No fighter—real or fictional—inspires us to never give up, to take a hit (or two, or fifty!), and to get back on our feet when knocked-down, than “The Italian Stallion.”  Our hearts ached when he was thumped by Apollo, slammed by Thunderlips (Hulk Hogan), berated by “Clubber” Lang (Mr. T) and pummeled by Ivan Drago.  When the situation became most dire and his defeat was imminent, we cheered as Rocky searched his soul and inspired us through his increased willpower and resurgent strength.  When dazed, he stayed on his feet.  When knocked-down, he always got back up again.

Nearly every American loves an underdog.  Maybe it’s because of our Judeo-Christian heritage, where we all learned and loved to hear the biblical story of the young boy, David, plucking up his courage and eventually defeating the invincible giant, Goliath.

Or maybe it’s due to our sports fascination.  Americans throughout the country (barring New Yorkers) collectively cheered when the Red Sox finally broke the 86-year “Curse of the Bambino” and defeated the mighty Yankees before winning the World Series in 2004.

What is it that inspires us to keep on trying?  To not quit when we’ve been punched and knocked-down by an “invincible” opponent?  To play our hearts out when we’re on the brink of playoff elimination, and win four consecutive games to shake-off the curse?

In this month’s issue, I want to show you the current “Rocky Balboa” of stocks and explain how we will ride its indomitable spirit to victory as value investors.

The World’s “Rocky Balboa” of Oil Stocks

 April 20, 2010, was a very bad day.

On that day, an explosion on a deep-sea oil platform called Deepwater Horizon tragically killed 11 workers and injured 17 others.  Following the explosion a massive, uncontrollable gusher of crude oil began spewing into the Gulf of Mexico.  Nearly three months later, under the dazed gaze of millions of onlookers from around the world, the gushing wellhead was finally capped.  However, the largest accidental oil spill in history had released almost 5 million barrels of crude oil into the waters of the Gulf of Mexico, unleashing public outrage and lawsuits worth multiple billions of dollars.

The watching world was shocked that such a thing could occur in the modern era.  Investors, too, were horrified, sending shares of this company plunging to oceanic depths—from nearly $60 a share prior to the accident, to a low of $27.02 in June, 2010.  Previously robust dividends were halted for nearly nine months, before being cautiously resumed again in February 2011.

Obviously, the company we’re buying today is the notorious: British Petroleum (NYSE: BP).

Over the ensuing one to two years, this resilient stock has posed a modest recovery, swimming in a zig-zagging, sideways pattern between $35 to $49.  This price action is discouraging to the vast majority of “investors” who remain skeptical of the company’s future; but should be exciting for discerning investors like us!  I write this for multiple reasons:

BP is dirt-cheap.

With a price-to-earnings (P/E) ratio of 7, BP is selling for half the price of the overall market, which trades at about 14x.  Once litigation against the company has been resolved—and BP is working furiously to resolve the remaining grievances—BP will again become a dominant player in the worldwide oil and gas industry.

BP’s dividend is massive, and will only grow from here. 

At current prices, BP sports a gargantuan dividend of 5.4%, paid quarterly.  Given the terrible blow to its reputation during the Deepwater Horizon disaster of 2010, you can bet that BP will do everything it possibly can in the future to be seen as a safe, dividend-growing company for investors of all stripes.

I like to compare BP’s dividend to traditional “safe” investments, such as a bank savings account, certificate of deposit (CD), or U.S. Treasuries—all earning between 0%-2% before inflation.  Not only does BP’s 5.4% dividend crush traditional (money-losing) investment vehicles, it will almost certainly increase its payouts over time, as it did in the past.

All of the past, current, and future bad news has essentially been priced into BP’s share price.

Unless you live under a non-financial rock, you probably heard that BP was recently slapped with the largest fine in the history of the U.S. Department of Justice: $4.5 billion.  While that is a freakishly large amount of money, it may be comforting for you to know that BP pulled in just over $26 billion (yes, billion) in Net Income in 2011.  The market seemed to understand this as well, as the BP’s stock price barely flinched on the news.  BP is also hoping to (and probably will) reach a settlement in the remaining civil claims before the trial is slated to start in February 2013.

Similar to Rocky, BP continues to absorb blow after seemingly devastating blow, but remains resolute and determined to fight on.  With such a persistent and inspiring attitude, BP will someday return to its former status as a world-class oil major.

The zig-zagging, sideways pattern of BP’s stock price with underlying stability makes it an ideal candidate for making extra income with safe options.

One of my favorite ways to “invest” in BP is not to set a limit order, but rather to make extra income with safe options.  These include selling (to open) naked puts when the price is trending lower, and selling (to open) covered calls on shares I own when the price is trending higher.  This is a fantastic, safe way to make “free” money from the Wall Street gamblers who choose to pay us.  If you don’t understand what it means to sell puts and covered calls, don’t worry; I’ll teach you exactly how to do so in future issues.  You can also consult my other educational articles on www.JWRossInvestments.com if you are eager to learn now.

In summary, I recommend you buy BP up to $45.  Or, better yet, sell (to open) puts on BP and earn safe, easy income.  Regardless of your choice, BP will be added to our Investments for the Long-Haul Portfolio at the end of this newsletter.

Healthy-Living

Each month I will provide tips to improve your health.  This will include simple, yet effective, exercise regimens; nutrition advice; healthy sleep and lifestyle habits; and new research on cutting-edge medical technology.

 This month’s feature is written with the New Year in mind by Explosive Power Training.  Follow Explosive Power Training on Twitter for brief—yet intense and highly effective—exercise plans: @expowertrain.

Resolve to Succeed!

If an exercise program is part of your New Year’s resolution, give yourself a chance to succeed by making it realistic.  Most resolvers try to go from couch to conquering the world in one day.  This inevitably results in injury, mental burnout, or both.

Most people don’t have the time or patience to log endless hours on the treadmill, bike, or elliptical machine.  Unless you’re training for your best marathon or a long bike tour, there’s no need to do this, and recent research says long hours
of cardio may do you more harm than benefit.

When asked what people would like to achieve from a fitness regimen most respond with some variation of fat loss and improved strength and conditioning.  Sounds great, but who has hours a day to achieve this?

What if you could achieve all of this and more in 15 minutes a day?  What if those 15 minutes a day were always different and interesting workouts?  You don’t have to spend endless hours on the hamster wheel to lose weight.  You don’t need to spend an hour in front of a DVD every day doing the same thing over and over.  And you definitely do not need to spend big money on a gym membership.  Fitness clubs definitely provide nice perks and convenience, but are not necessary to become the best you can be.

Fifteen minutes a day to fitness? How is that possible? It’s possible because these 15 minutes are going to be different than anything you’ve done in the past.  This 15-minute workout combines complex exercises done at a high intensity for a short duration.  When done properly you will pray for the end of that 15 minutes!

This type of exercise is successful for many reasons.  First, it revs up your metabolic engine and keeps it ‘running hot’ for hours after you’re done.  Your body continues to burn fat at a higher rate for hours after you finish.  Second, the exercises you’re doing promote improvements in strength, and the release of hormones that allow you to build muscle.  Any increase in muscle mass will contribute even further to the ability to burn fat.  Finally, it is fun to do.  Albeit hard, but fun at the same time, and you are finished quickly.  The workouts are limited only by your own creativity.

What is a complex exercise and what are some examples?  My definition of a complex exercise is anything that utilizes multiple joints and a large volume of muscle mass.  For the experienced athlete, complex exercises include squats, deadlifts, and power cleans, among others. These exercises utilize a very large percentage of your musculature.  Additional exercises done by experienced athletes that can also be done by the beginner include push-ups, pull-ups, bodyweight squats, sprints, burpees, broad jumps, vertical jumps, lifts and carries.

Instructional videos for any of these exercises can be found all over YouTube, take a few minutes to learn proper technique and you’re off and running.  All you need to do is take two or three of these complex exercises, combine them in creative ways, and go as hard as you can handle for about 15 minutes.  There is nothing magic about 15 minutes other than the fact that it is not possible to maintain a high intensity for a longer period of time.

A few example workouts:

Sprint 40 yards, do 10 push-ups, do 20 bodyweight squats (simply squatting down until your thighs are parallel to the ground). Repeat this rotation as many times as possible in 15 minutes.

At a park, sidewalk, or other location, do broad jumps for about 100 yards. A broad jump is simply standing and jumping forward with both feet as far as possible. Count the number of jumps it took to cover 100 yards. Complete that number of burpees. Repeat for the return trip to where you started.

On any wall, find a mark about a foot higher than you can reach. Jump up and touch the mark 15 times. Then do 15 push-ups. Touch the mark 14x, then 14 push-ups. Continue the descending ladder down to 1 of each.

Shuttle runs are one of the best exercises in the world. Sprinting combined with the slowing and acceleration of your body creates a brutal workout with great results. One shuttle is running down and back a certain distance 5 times, or 10 lengths. At each turn bend down and touch the ground with one hand. One shuttle should take about a minute, so each length will be 20-30 yards depending on the person. The distance should be such that completing in one minute becomes increasingly difficult each rep. With a running clock, start a new shuttle every 3 minutes (about 2 minutes rest between each). Complete 5 shuttles.

These are just a few of hundreds of possibilities. Be creative, have fun, and don’t overdo things right away. Expect some soreness…maybe a lot in the beginning. Do these a few times a week, more once you get accustomed to regular exercise.  No pressure, no schedules, just getting better every day.

Next time we’ll talk about how you can improve your diet the same way, with simple common sense changes.

Twitter: @expowertrain

Investments for the Long-Haul

Prices as of Nov. 20, 2012

Security Symbol Ref. Price Ref. Date Current Price Total Return* Status
British Petroleum BP $41.22 11/20/12 New —- Strong Buy
 
 
 
 
 
 
 
 

*Includes dividends.

Disclosure: I am Long BP.

I highly recommend reinvesting dividends to increase the Magic of Compounding in your portfolio!  Never invest more than 5% of your investable income in any security.  Remember, it is ultimately your money and your decision—do your own research and invest wisely and responsibly.

If you have questions, concerns or compliments, email me at: jewiro@comcast.net

Your feedback will be published in future newsletters–positive or negative.


Jeffrey W. Ross, MD is a Motley Fool investment freelancer.

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