John Templeton RIP

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In all the hubbub we missed the passing of the last contraian, a position always closer to thy god are thee:


http://www.economist.com/obituary/displaystory.cfm?story_id=11745591

[rffrydr]

The "Templeton-trade":

The Templeton Trade's Time Has Come

By Tim Melvin
RealMoney.com Contributor
10/13/2008 10:47 AM EDT
Click here for more stories by Tim Melvin Try Jim Cramer's Action Alerts PLUS
CLICK HERE NOW


It is starting to look like it is time to put on the Templeton trade. In 1939, a point of maximum pessimism in the U.S. as the war in Europe expanded and the effects of the depression still lingered. A young John Templeton borrowed $10,000 and invested in shares of all the stocks on the NYSE that traded for les than a dollar. In 2002, the trade was available again. I tested (and used to pick stocks) a system back then that just purchased all the stock under $3 on the NYSE. That portfolio doubled even as the market decline continued. We have reached the levels of price decline and pessimism that make this trading and investment opportunity worth exploring again.




According to my screen, there are 145 companies that qualify right now. As you would expect, financial companies are well represented. However there is a broad range of industry groups on the list besides the financials. Groups like funeral services, communication, agricultural and auto companies are also on the list. Fifty-three of these companies have turned a profit in at least two quarters this fiscal year. I would focus on these, unless you are a huge risk taker and want to gamble on the financial companies on the list. It is worth noting that some large successful hedge fund managers have done exactly that.

There are companies on the list that could provide the type of healthy gains like those seen by Sir John. Chemtura Corporation (CEM - commentary - Cramer's Take) shares have dropped over 70% this year, as investors are worried that the global slowdown will hurt their ability to service outstanding debt.

The company is the largest supplier of pool chemicals in the world. They also have operations that provide chemicals to the agricultural industry where demand is still growing. As recently as August, an analyst at Standard and Poor's said he saw sales growing in most of the company's product limes this year. He rated the shares a buy and had a price target of $10.

Cincinnati Bell (CBB - commentary - Cramer's Take) also makes the list. The company is a highly leveraged provider of communication and data services. The land-line business is slipping in the marketplace, with the number of access lines slipping. However, the wireless and technology solutions divisions are doing well and showing solid top-line growth. The stock trades at less than 10 times earnings and less than three times cash flow. Apparently, the company thinks its shares are cheap, as they are actively buying back stock in the open market.

The ADR of United Microelectronics (UMC - commentary - Cramer's Take) also makes the cut for our list of battered NYSE-listed stocks. The company is headquartered in Taiwan and operates the second-largest dedicated wafer foundry in the world. The large inventory of semiconductors last year has weighed heavily on the shares.

Currently, they trade below tangible book value and three times cash flow. The weakening global economic situation could lead to another poor quarter for the company, but with shares down over 50% this year, this seems to be reflected in the price.

After dropping 50% in the past month, >Ford Motor Company (F - commentary - Cramer's Take) now trades below the $3 mark. U.S. automakers are caught in a perfect storm. The poor economy is causing a dramatic sales slowdown. At the same time global credit problems have spurred major credit rating agencies to question the company's ability to handle their debt burdens.

Ford has been making changes to improve its position, including a renegotiated union contract that will add $2 billion to the bottom line in 2010. With estimates for global auto sales pointing toward lower levels for several years, it is going to be difficult going for Ford. If they are able to survive, however, the recovery potential is substantial.

The companies mentioned here are just a representation of the type of stocks you will be buying if you put on the Templeton trade. I don't have the space here to profile all 53 companies. You must understand, however, to put on this trade, you have to buy them all. In 1939 Templeton ended up buying shares in 104 different companies. You should buy them in equal dollar amounts and not try to weight them based on analyst or personal opinions.

His average holding period was four years, and you should not enter this trade with expectations any shorter than that. The Templeton trade is a belief that the world will be a better place four or five years from now, and most of the problems we face today will be behind us. Some of the stocks will probably go to zero. Some of them will not do much at all, but if I am right in my optimistic view that the world is not ending and things will get better, some of them will be spectacular gainers as the world recovers.

It worked for John. Hopefully, it works again for Tim.
_________________
Today is the Tomorrow you worried about Yesterday!

[rffrydr]

The "Templeton-trade":

The Templeton Trade's Time Has Come

By Tim Melvin
RealMoney.com Contributor
10/13/2008 10:47 AM EDT
Click here for more stories by Tim Melvin Try Jim Cramer's Action Alerts PLUS
CLICK HERE NOW


It is starting to look like it is time to put on the Templeton trade. In 1939, a point of maximum pessimism in the U.S. as the war in Europe expanded and the effects of the depression still lingered. A young John Templeton borrowed $10,000 and invested in shares of all the stocks on the NYSE that traded for les than a dollar. In 2002, the trade was available again. I tested (and used to pick stocks) a system back then that just purchased all the stock under $3 on the NYSE. That portfolio doubled even as the market decline continued. We have reached the levels of price decline and pessimism that make this trading and investment opportunity worth exploring again.




According to my screen, there are 145 companies that qualify right now. As you would expect, financial companies are well represented. However there is a broad range of industry groups on the list besides the financials. Groups like funeral services, communication, agricultural and auto companies are also on the list. Fifty-three of these companies have turned a profit in at least two quarters this fiscal year. I would focus on these, unless you are a huge risk taker and want to gamble on the financial companies on the list. It is worth noting that some large successful hedge fund managers have done exactly that.

There are companies on the list that could provide the type of healthy gains like those seen by Sir John. Chemtura Corporation (CEM - commentary - Cramer's Take) shares have dropped over 70% this year, as investors are worried that the global slowdown will hurt their ability to service outstanding debt.

The company is the largest supplier of pool chemicals in the world. They also have operations that provide chemicals to the agricultural industry where demand is still growing. As recently as August, an analyst at Standard and Poor's said he saw sales growing in most of the company's product limes this year. He rated the shares a buy and had a price target of $10.

Cincinnati Bell (CBB - commentary - Cramer's Take) also makes the list. The company is a highly leveraged provider of communication and data services. The land-line business is slipping in the marketplace, with the number of access lines slipping. However, the wireless and technology solutions divisions are doing well and showing solid top-line growth. The stock trades at less than 10 times earnings and less than three times cash flow. Apparently, the company thinks its shares are cheap, as they are actively buying back stock in the open market.

The ADR of United Microelectronics (UMC - commentary - Cramer's Take) also makes the cut for our list of battered NYSE-listed stocks. The company is headquartered in Taiwan and operates the second-largest dedicated wafer foundry in the world. The large inventory of semiconductors last year has weighed heavily on the shares.

Currently, they trade below tangible book value and three times cash flow. The weakening global economic situation could lead to another poor quarter for the company, but with shares down over 50% this year, this seems to be reflected in the price.

After dropping 50% in the past month, >Ford Motor Company (F - commentary - Cramer's Take) now trades below the $3 mark. U.S. automakers are caught in a perfect storm. The poor economy is causing a dramatic sales slowdown. At the same time global credit problems have spurred major credit rating agencies to question the company's ability to handle their debt burdens.

Ford has been making changes to improve its position, including a renegotiated union contract that will add $2 billion to the bottom line in 2010. With estimates for global auto sales pointing toward lower levels for several years, it is going to be difficult going for Ford. If they are able to survive, however, the recovery potential is substantial.

The companies mentioned here are just a representation of the type of stocks you will be buying if you put on the Templeton trade. I don't have the space here to profile all 53 companies. You must understand, however, to put on this trade, you have to buy them all. In 1939 Templeton ended up buying shares in 104 different companies. You should buy them in equal dollar amounts and not try to weight them based on analyst or personal opinions.

His average holding period was four years, and you should not enter this trade with expectations any shorter than that. The Templeton trade is a belief that the world will be a better place four or five years from now, and most of the problems we face today will be behind us. Some of the stocks will probably go to zero. Some of them will not do much at all, but if I am right in my optimistic view that the world is not ending and things will get better, some of them will be spectacular gainers as the world recovers.

It worked for John. Hopefully, it works again for Tim.
_________________
Today is the Tomorrow you worried about Yesterday!