Thursday, June 30, 2011

FaithShares Catholic Values: The Only Catholic ETF Out There

So you've read my series on the US Conference of Catholic Bishops' investment guidelines and figured you are just a little too lazy to go through all of that research.  Or you've done all the research and made your picks (good for you!), but you wanted to hedge your bets and buy something that performs a little more like the market.  Well, do I have something for you!  It is the only Catholic ETF out there: the FaithShares Catholic Values ETF (Ticker: FCV).

First of all, if you don't know what an ETF is, the acronym stands for "Exchange Traded Fund".  What that means is it is like a mutual fund where it's run by a fund manager and has many different holdings, but it trades like a stock, where you can buy and sell it within fractions of a second on the open market.  There are also no sales loads, redemption fees, exchange fees, etc.  In other words, it's got all of the advantages of a mutual fund, but not many of the disadvantages.  It does have management fees, however, but really, what funds don't?

I did not feel like boring myself with reading its prospectus (you should if you're thinking about buying it), but I did take a peek at its fact sheet.  From there, I found out what their strategy is.  They take the 400 largest US stocks and apply a screen of them based on the USCCB investment guidelines.  This filters out a number of companies that violate the guidelines.  They then rank the remaining "good" companies based on the same USCCB guidelines.  Once they have a ranking, they take those stocks, and perform sector allocation so that the fund matches the MSCI USA Index, which, for all intents and purposes is equivalent to the S&P500 index.  In short, the FCV mimics the market but invests only in companies which have been screened for Catholic values.

Figure 1: FCV's Performance (Blue) Compared to That of S&P500

Looking at Figure 1, it appears FCV mimics the S&P500 index pretty well.  If you're looking for market returns but want to adhere to Catholic values, this ETF is for you!

I also looked at its top holdings and was quite happy to see 2 of my 4 holdings, Google (Ticker: GOOG) and First Solar (Ticker: FSLR).  My other two, Synaptics (Ticker: SYNA) and True Religion (Ticker: TRLG) were too small to even make it on the radar for the fund to consider.  I had written earlier that I was concerned by Google's leanings to the political left.  I had eventually worked that out and concluded that it was likely ethically acceptable to invest in Google.  I'm glad I've gotten confirmation here.  I will sleep well tonight!

Another thing to mention is that FaithShares donate 10% of the fund's net income to a Catholic charity/organization.  This is excellent!

Overall, I think this ETF is not a bad investment vehicle for those who are lazy, but ethically conscious, or for those who want to hedge their bets.  Do be aware that someone is making an investment decision on behalf of you, and he/she may be wrong!  Factor that into your investment decision.  Lastly, if you're not Catholic, FaithShares does have other Christian oriented ETFs as well.  Do check them out!

Sunday, June 26, 2011

Some Recent Changes in My Portfolio

Finally got some time to update my trading history page.  Bought some Google and First Solar since end of April.

Is there any indication that Google's business is declining?  There's one answer to that question: No.  The main reason is that the Internet is still growing.  According to Internet World Stats, the Internet's penetration of the world is still only at around 30%.  That's a long way to go to get to probably around 85%, where I think saturation will take place.

What's more important is that the Internet is reshaping the way the world operates.  Not only will the number of users increase over time, the amount of money to be made on the Internet will continue to grow.  For example, online video streaming is only in its infancy.  Think Netflix and Youtube.  They have been around for less than 10 years, and Blockbuster has become the first casualty.  I have no doubt that cable TV as it is will disappear in about 20 years.  People will still need to be entertained, but likely through some form of Internet service.  This is the megatrend of the 21st century, ladies and gentlemen.  By owning Google, you will be able to participate in this mega-growth!

First Solar
Renewable energy, another megatrend in the making.  First Solar is the lowest cost solar panel maker, and also one of the largest in the world.  Lots of profits and lots of cash, what more can you ask?  Thanks to the Japanese Tsunami, nuclear has lost its popularity as an alternative to fossil fuel power generation.  There will always be naysayers, but solar energy has already reached critical mass.  Again, own this company and you will ride the wave.

Do You Have the Guts?
Half of the battle is finding the courage to buy the right stock.  Anyone can feel good buying a stock that has just gone up 50%.  But those who make money are the ones who have the guts to buy a stock after it has gone down 50%.  Of course, you need to know that it's a good stock in the first place.  Warren Buffet opens his wallet most often during times of calamity, when stock prices are driven down.  You should learn to do the same.  In order to have the guts, you need to have the conviction that your picks are good.  Rule #1 Investing can help you do that.  Start your journey here.

Friday, June 24, 2011

Worried about the US Job Market?

Laugh all you will, but I like Jim Cramer.  I know he's a buffoon sometimes, but he's entertaining, and I also think he's actually very talented.  He doesn't get the credit he deserves.  Here's a perfect example.

While everyone is worried about the US initial jobless claims number rising this week, he goes and takes a look at the situation from another angle.  He looks at the results of Paychex, a provider of outsourced payroll services.  He noted that the "cheques per client" metric is up this year, which indicates that employers are continuing hiring rather than laying off people.

I appreciate this kind of out-of-the-box thinking.  You don't necessarily need to look at the widely used economic indicators to find out what's going on.  Sometimes they are not that accurate.  I've come up with my own indicator for retail companies using Google Insights.  I talked about it here.

In any case, take a look at what Cramer's got to say...

Saturday, June 18, 2011

USCCB Socially Responsible Investment Guidelines - Part 7: Encouraging Corporate Responsibility

The sixth and last area covered by the investment policies of the USCCB is "Encouraging Corporate Responsibility".

This category is in fact a summary and also a catch-all.  What does it mean to be a good corporate citizen?  It really boils down to a company behaving in ways that are acceptable to the society in which it operates.  Largely, it is a question of morality.  Therefore, this category should not be new to us by now.  By looking at the previous 5 categories of protecting human life, promoting human dignity, reducing arms production, pursuing economic justice, and protecting the environment, we would know what a good corporate citizen looks like.

In my opinion, there are 3 main categories of corporate citizens: the bad, the questionable, and the good.  The bad is an easy one; the company is really all about making money.  If corners could be cut, you can be sure they'd be cut.  If they screw up something, they will try to cover it up.  A good example would be Johnson and Johnson (Ticker: JNJ), with its recent drug recall fiascoes.  The questionable may include Google (Ticker: GOOG).  Google's got some nice initiatives, which includes the promotion of renewable energy, but it also has some left leaning tendencies, such as support for gay marriages.  Lastly, the good are the bullet proof companies, where their business is beneficial to society, and it is not plagued by moral issues.  I have yet to find such a company.  Why not?  It's simply because I'm just a regular joe.  I don't even know half of what's going on in the company at which I work, how is it possible to verify that all of activities of any one company are ethical?

That is not to be a cause for concern, however.  As ethical investors, we are not required to find the perfect company.  As I said, that is simply not possible.  What we are to do is to do the best that we can, within reason, to conduct research on a company to see if they are good corporate citizens.  What does that entail?  An hour or two of Google searches will likely suffice.  If there are some glaring misconduct, chances are people will know about it and it will be on the Internet.  If there are minor issues, you may not be able to find out about it, but then again, they likely don't warrant boycotting of their stock.  In the end, what matters is really up to you.  No one is pointing a gun at your head to make you screen stocks for ethical misbehaviour.  God will likely not damn you to the Inferno for not spending more than a couple of hours researching either.  The fact that you're looking into the corporate citizenship of a company already puts you ahead of 99% of all other investors.  Give yourself a pat on the back!

Now that we've gone through the USCCB investment guidelines, I think we can safely say that we can do our due diligence when investing.  Our research may not be perfect, but it's miles ahead of not doing any at all!

Wednesday, June 8, 2011

Getting Back into True Religion (TRLG)

I'm starting to buy True Religion (Ticker: TRLG) again after selling a number of shares and also having my call option exercised.  I will buying more if price drops below $25.  Google Insights is showing good search volume, which I believe correlates with sales.  Come join the party!

Tuesday, June 7, 2011

+1 This Blog and Follow Me...Please!

Jumping onto to the social media bandwagon here...I've added 2 buttons on the right column on this blog.  The first one is the Google +1 button and the second is the Twitter Follow Me button.

I'm fairly certain most of you know what Twitter is by now.  Not everyone uses it, but most people know what it is and what it does.  The Catholic Investor has had a Twitter account for some time now, and I've set up Feedburner to automatically tweet a link to each post that I publish.  I am also going to start tweeting a little more.  Sometimes, I find that I have thoughts about investing, but it's either not long enough to justify a full post or I simply don't have time to write a post on it.  So, I'll just tweet my thought.  If you use Twitter, please follow me by clicking on the Follow button!

The other one is the Google +1 button.  What exactly is +1, you ask?  It's Google's way of "Liking" something (borrowing from Facebook).  With Facebook, you "like" something and it shows others that you enjoyed, say, another friend's picture or comment.  It's a short and sweet way of keeping in touch with a friend.  For example, I see my friend upload a picture on Facebook, but I don't really feel like writing a long winded comment.  So, I just "like" the picture.  He sees my "liking" and knows that I've enjoyed it.  The next time we meet up, we can talk about the picture and it's like we have already talked about the topic.

Google's +1 is a little bit more subtle and ingenious.  At first glance, it looks like a Facebook rip off, but it's more than that.  The "+1" phrase was developed by use in forums (I believe...or at least that's where I see it most).  When one forum member says something and another member agrees, he/she would reply with simply "+1" to convey that message.  It's like saying, there's 1 more person who agrees with this.  I think Google's engineers basically had this in mind, and wanted to use it to enhance its search results, which is its bread and butter.  I believe +1 will be hugely successful.

The reason is simple.  When I search for a topic, say, "Rule 1 investing", this blog shows up near the bottom of the first page.  This is due to Google's algorithm taking into account the number of incoming links and their quality, along with the contents of this web page.  Once +1 is fully launched and many people are using it, if my readers decide to +1 the site enough, the Google results will take that into account and bump up my ranking, because people have +1'ed it.  It makes +1ing actually useful to the many other users, including those you don't know, as opposed to the Facebook "like" button.  In the past, Google has always looked at the internet itself to determine the relevance of a site, neglecting the input of the countless internet users.  +1 is the single, easiest way of tapping into the collective wisdom of us users.  I'm hopeful that +1 will turn out to be the next breakthrough in Google Search!

So, won't you be so kind as to +1 this site?

Saturday, June 4, 2011

I Bought Some First Solar (FSLR) Today! Part 2

This is going to be a reoccurring theme...buying First Solar on the cheap.  As I try to stick to my stock allocation strategy, I can't help but keep wanting to buy more of First Solar.  This stock is now 33% off from its 52-week high of $175.  If you buy now and it rises back up to that point, you get a nice 48% gain.  So, I decided to buy more today.

Why am I so confident in the stock?  Here's why.  First Solar reported its Q1 earnings on May 3, 2011.  That is more than 4 months into the FY11.  It reiterated its earnings per share guidance for the year of $9.25 to $9.75.  First Solar has a pretty good record for beating analyst estimates, which don't deviate too much from the issued guidance.  So, chances are First Solar will earn at least $9.25/share.  At $118, this works out to be a forward P/E of 12.8, which is a very, very modest P/E ratio, considering it has been sitting near 20 for the past couple of years.

What if they miss estimates?  How bad could they be?  Let's say they miss by a full $1.25.  That gives $8.00/share, which results in a P/E of 14.75, still below the current P/E of 17.  I would say there's quite a bit of margin of safety here.  Since the year is back-end loaded, I can somewhat foresee that the stock price will rise in the second half as Q2 and Q3 results are announced.

Moreover, I believe First Solar may actually beat the estimates.  It earned $1.33/share in Q1, which beat estimates by $0.17/share.  That is not really the important part.  The important part is that they achieved this despite some difficulty.  Their CFO, Mark Widmar, explained in the Q1 earnings call that "net sales for the first quarter were $567.3 million, down $42.5 million or 7% compared to the fourth quarter of 2010. The decrease was primarily driven by lower volumes as we allocated modules to system builds to meet contracted delivery schedules. Revenue recognition is expected for those volumes later in the year."  What this means is that they had produced a number of panels, but they went to the system builds (large scale projects), where the customer doesn't pay until a certain milestone is achieved in the project.  The product is out the door; they're simply waiting for the money to come rolling in.

First Solar also benefits from the fact that they are a systems builder.  So, instead of just selling panels, they actually build solar farms using their own panels and sell the farms to operators.  An analogy that can be used is this.  There are 2 miners who operate gold mines.  Miner A mines the gold and simply sell the gold bars at whatever price gold happens to be.  He makes money, but margins are low.  Miner B also mines gold, but he also has a jewellery wholesale operation.  He signs contracts with Tiffany and the like at the beginning of the year and produces fine gold jewellery for them using the gold they have mined.  Miner B is at an advantage because he is no longer selling a commodity.  You can't go on the open market and buy a designer necklace at the current necklace price.  There is no current necklace price for a designer necklace.  Miner B is able to differentiate itself from competitors.  He also has good visibility of what's coming down the pipeline.  He already knows what the contracts call for and the prices at which the goods are sold.  Therefore, First Solar's forecast carries more weight than pure panel makers.  Pure panel makers make forecasts based on how many panels they can produce and a guess of what the average selling price (ASP) would be.  If the ASP falls dramatically over the course of the year, the forecast would no longer be correct.

That said, First Solar is likely not immune to falling ASPs.  If customers see a dramatic drop in ASPs, they may want to re-negotiate the price of the system.  Customers typically aren't stupid either.  This risk, however, is smaller than the risks that pure panel makers face.

Am I nervous about the dramatic decline in stock value of First Solar?  Sure!  Am I hopeful that it'll bounce back?  Absolutely!  In the game of stocks, we need to take out emotions, which often drive us to do irrational things.  Let's try to keep our heads clear.  In 12 months time, when First Solar is trading at $200, we would likely ask ourselves, why didn't we buy more when the stock was at $120?