“Urgent: 4 Top Stocks to BUY TODAY” (Yield Shark)

What are the other three picks touted by Mauldin's Yield Shark this month?

By Travis Johnson, Stock Gumshoe, January 31, 2013

Irregulars Quick Take Paid members get a quick summary of the stocks teased and our thoughts here. Join as a Stock Gumshoe Irregular today (already a member? Log in)

You might remember that we took a look at a railcar maker teased by John Mauldin’s Yield Shark newsletter about a week and a half ago — it was pitched as a way to benefit from government largesse and pocket a nice dividend, and several Gumshoe readers seemed interested.

That stock is also up almost 10% in the ten days since we wrote about it, it got some positive mention from Jim Cramer and redeemed some debt, in addition to getting whatever small push was made by the Yield Shark recommendation that came out a few days after we wrote about the teaser … so that seemed like it was good enough to make us want to go back and see what other stocks they’re recommending in their January issue.

So ARII was the first of the ideas they teased, the 3.1% yielder with the big backlog and record earnings, but they say they’re suggesting four top picks this month. Here are the clues about the others:

“The second is trading in the mid-teens and throws off a handsome 6.2% dividend. It’s a diversified hedge fund-like investment that’s managing over $66 billion invested in more than 70 different companies. Names like Del Monte Foods, Dollar General, First Data, HCA hospitals, Sealy mattresses, and Toys R Us.”

This one, according to the Mighty Mighty Thinkolator, is Kohlberg Kravis Roberts & Co. (KKR), the now publicly traded face of the famous private equity/leveraged buyout firm. This is a publicly traded limited partnership, like large competitors Blackstone (BX) or Carlyle Group (CG), and their goal is to pay out in distributions to partners (that would be you) substantially all of their asset management business earnings and, one presumes, keep the capital gains on their investments to reinvest or build the business.

It’s been going well of late for KKR and most of the other big private equity firms that are publicly traded — but the dividend is not guaranteed at any particular level. Annualizing the most recent payout of 24 cents would get you a yield of close to 6%, but the actual trailing four quarters of dividends are lower than that (more like 5%).

I don’t know a lot about what KKR’s doing with their current portfolio, but they seem to still be a more “traditional” private equity and buyout firm, making their money by taking companies over, making them more efficient, wringing cash out of ’em, and eventually floating them back on the public markets at higher prices. That differentiates them from Blackstone (BX), which has been getting a lot more attention over the past year because of their overwhelming focus on real estate, including their huge fund that’s buying up single family houses. You’re buying management and their deal-making ability, in this case, and at the moment you’re paying a decent premium to the reported book value (more than 2X book, though I don’t know how they report the book value of their portfolio companies) but getting a lot of cash flow generation and earnings, and a good dividend, at a pretty low earnings multiple (the stock trades for a PE of about 8 right now, though analysts do not expect much growth this year).

That’s the basics on KKR — how about the others?

They didn’t share many clues in the most recent ad that I got today, so I had to pull out the earlier ad from January 18 that hinted at all four of the same companies — here are the clues from that:

“Fiscal Cliff Winner #3: Another Investment Bank with 2.6% Yield

“Another giant investment bank is going to enjoy the benefits of two fiscal cliff corporate giveaways – so-called active financing and the Liberty Zone tax break.

“Between the two tax breaks and company’s growing record profits and earnings, we believe this is another ‘must-own’ 2013 stock.

“It’s one of the largest investment banks in the US by assets and operates its business in 6 segments.

“Investment Banking

“Retail Financial Services: traditional retail banking which includes real estate mortgages. The company is the #2 mortgage originator and #3 mortgage servicer in the US

“Card Services and Auto: credit cards and auto loans

“Treasury and Securities Services: investment management for assets of $16.9 trillion. Yes, trillion

“Commercial Banking: lending services to businesses

“Asset Management: investment management to retail customers

“Almost across the board, all of the company’s divisions are enjoying rising revenues and growing profits.

“In spite of that impressive profit growth, get this – the company’s share price is trading for only 9 times earnings and at a 10% discount to book value!

“Based on the current price, this investment banker’s share price pays a 2.6% dividend yield on a low payout ratio of 23%. That leaves plenty of room for both a dividend increase as well as growth.

“It’s also in the the process of an ambitious multibillion stock buyback program that we figure should goose earnings per share by 20% when it is completed by the end of 2015.”

This one is JP Morgan Chase (JPM). It’s cheap, it’s a massive, massive bank, and I don’t understand massive banks at all. You can research that one to your heart’s content, you can be sure they’ll always be in the headlines and there will be new stuff to read every day.

JPM does trade at a discount to reported book value, while Wells Fargo (WFC) trades at a premium to book, but Wells Fargo doesn’t have the gigantic investment banking business like JPM and is more of a “traditional” bank … and I have never taken the time to try to really understand bank balance sheets. JPM and WFC trade back and forth as to which is the larger bank, they have comparable dividend yields and market cap size, they are #1 and #2 in the mortgage market, and after that my eyes glaze over. Beyond that, you’re on your own — feel free to share your thoughts on JPM and the big banks with a comment below if you like.

Next!

“Fiscal Cliff Winner #4: A Unique Company with a 5% Dividend Yield

“Remember all the finger-pointing at private jets and the millionaires who buy them?

“The ‘Bonus Depreciation’ allowance was extended through the end of 2013, allowing businesses that purchase new equipment to deduct a greater percentage of the purchase price.

“Under previous tax laws, only 20% of the cost of the equipment was able to be written off in the first year. Under the fiscal-cliff agreement, businesses will be able to write off a whopping 60% of the purchase price.

“That’s great news for all kinds of businesses, even yours and ours. But it’s especially good for businesses that invest in and purchase very capital intensive goodies – like private airplanes.

“Our favorite is an owner and lessor of cargo and commercial aircraft. At the end of the second quarter, this company had 155 planes under long-term lease.

“Its business model is simple and wildly successful: it makes money by leasing out the planes at a higher yield than what it borrows money at to buy the planes. It’s able to borrow at an average cost of 5% but leases the planes out at the equivalent of a 14% return, earning the 9% difference.

“That is an extremely profitable spread, which will be even higher with the tax savings from the bonus depreciation. There’s more…

“In the first half of 2012, the company earned $0.68 a share, but that included a $10 million impairment write-off. Without that one-time charge, earnings would have been closer to $0.80 and would annualize out to $1.60 a share

“It recently refinanced the bulk of its debt and anticipates the savings to add an additional $0.50 to profits in 2013.

“It is adding $200 million worth of new aircraft to its fleet which should boost earnings going forward.

“The company’s share price is selling at a whopping 43% discount to book value!

“All told, we believe the company could earn as much as $2.00 per share in 2013, an impressive amount of profit for roughly a $13 stock. Currently fetching less than seven times earnings, that makes the company’s share price a true bargain. And with a 5% yield, to boot!

“Growing earnings, selling for 35% less than book value, a 5% dividend and a fiscal-cliff tax winner, what’s not to like?”

This one is Aircastle (AYR), which is indeed a pure play aircraft leasing company — and they do leverage the current low interest rates quite nicely, churning out a 5% yield thanks to quite a lot of debt. There are other big aircraft leasing companies, including GE (GE) and AerCap (AER), but they’re all either divisions of other companies or they do different things in addition to leasing the equipment (AerCap looks like a better value on some metrics, but is even more levered and doesn’t pay a dividend — they also provide maintenance and other services beyond leasing). The headline-grabber in aircraft leasing has been AIG for a few years with their International Lease Finance division that owns something like 1,000 airplanes, but it sounds like they’re in the process of trying to sell that off to Chinese investors.

I assume that they really are getting a benefit from some of these writedown provisions, but aircraft leasing is also a bit like a trading game — you have to continually buy new planes because those get better lease rates and terms, and you generate a lot of cash flow beyond earnings because those planes depreciate quickly, so you want to capture the depreciation and then sell the plane while it’s worth substantially more than the depreciated value. There’s been a real premium on new planes over the last five years or so because of their much better fuel efficiency, since fuel is a major cost problem for airlines, but we’ve also had some big fluctuations in demand for airlines with the swings in the economy, particularly in the US, so I would assume that for AYR to be a great long-term investment you need a continued pretty steady increase in global demand for air travel. Seems logical to me, though I’m sure I can’t predict such things very well.

There have been quite a number of good and positive writeups on AYR over the last six months or so, you can see a couple of them here and here if you want a bit more background info.

So there you have it — the other three of the “Fiscal Cliff” plays from Yield Shark. Any of them sound good to you? Better or worse than the tank car manufacturers (or other railroad stocks, for that matter)? Let us know with a comment below.

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53 Comments on "“Urgent: 4 Top Stocks to BUY TODAY” (Yield Shark)"

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Stephanie Faith Gelinskey
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Stephanie Faith Gelinskey
January 31, 2013 1:34 pm

Help! I have 5,000.00 that i need to invest…. I have no money… This is it how do I invest to double the money?

Also need to reinvest 3,000.00 in a ira? What do I invest in?

Dan??? Charity call

January
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January
January 31, 2013 2:41 pm

Pray

john
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john
January 31, 2013 2:56 pm

Learn to fish…

Stephanie Faith Gelinskey
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Stephanie Faith Gelinskey
February 4, 2013 1:46 pm

Well, i thought that is what i was doing? fishing for information.

Stephanie Faith Gelinskey
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Stephanie Faith Gelinskey
February 4, 2013 1:47 pm

I have been praying and the lord led me to you! Have any insight?

Brian M
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Brian M
January 31, 2013 9:29 pm

Whatever you do, don’t invest your precious $5,000 in something that you expect will double in the short term – odds are it won’t.And none of the companies Travis talks about here are good candidates for you – too much concentration means too much risk and inadequate return.

Stephanie Faith Gelinskey
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Stephanie Faith Gelinskey
February 4, 2013 1:22 pm

Thank you that makes sence.

R.Hall
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R.Hall
January 31, 2013 10:24 pm

HI Stephanie. Your age is an important factor,but, go to Treasuary Direct and look at I-bonds. You will be dealing directly with the Treasuary Dept., no middleman,so you are the only one who will make money on the deal.(probably why so few people have ever heared of this program) Best Wishes, R Hall

MrBill6666
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MrBill6666
February 1, 2013 3:47 am

I think you should be able to pick something from this successful bunch for your IRA. The charts all look good (short-term and long-term) and dividends vary from 0 to over 8%. Take a look at VRTS, EXR, MAIN, PMT, EPD and SXL. and less than 2 years old RNF.

Stephanie Faith Gelinskey
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Stephanie Faith Gelinskey
February 4, 2013 1:23 pm

Thanks a lot….. I will look into this.

blackjack
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blackjack
February 4, 2013 7:28 am

Thailand is paying high
i got 80% last year
no tax

contact me

Stephanie Faith Gelinskey
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Stephanie Faith Gelinskey
February 4, 2013 1:15 pm

Just what do you mean?
Thank you

blackjack
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blackjack
February 4, 2013 9:12 pm

you can invest in some funds in Thailand and this gets you out of the US$ and into a fund that has a very good return

The U$ is crashing and will be worthless soon because of the debt and no asset to back it up
You can sign up for one of these funds as an overseas investor

you called for help and i think this will help you

Stephanie Faith Gelinskey
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Stephanie Faith Gelinskey
February 7, 2013 10:53 pm

I think that makes the most sense
Thanx.

Shane
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Shane
February 5, 2013 8:22 pm

Please contact me, would like to invest in Asia

Roger Bond
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January 31, 2013 2:02 pm
As we wrote in our review yesterday of this month’s YS issue, most of them I could not buy. (Since you mentioned the picks, I didn’t, I’ll go ahead and refer them by name – Mauldin Economics warns legal action for giving out info…) ARII has not traded as low as they wanted us to buy it for 2 weeks, yet told subscribers to buy at market – that bothers me. JPM – I wouldn’t touch those lousy scumbags with a 10′ pole. And aircraft leasing was a good way to loose money years ago and you know what they… Read more »
Stephanie Faith Gelinskey
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Stephanie Faith Gelinskey
February 4, 2013 1:26 pm

Thanks.. So much because since i know nothing , I’m looking for something, and that article was very influential.

Deborah G Flynn
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January 31, 2013 2:04 pm

Wit so many tried and true big namwa dividend providers why buy some ubkbown with a spooty history? IF the share prieces increased maybe but I shy away from these GYPE in general. I have T ,MO and PM,P&G, J&j ,and a few other dividend kings for that pat of my portfollio and they have served me well without sleepless night.

Stephanie Faith Gelinskey
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Stephanie Faith Gelinskey
February 4, 2013 1:29 pm

Thank for really sharing. Are these names of stocks? For IRA?
Sorry for such ignorance

Alan Harris
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Alan Harris
January 31, 2013 2:06 pm

Spot on Travis. What stumps me is how you get the YS text without getting the ticker reco? The prob with YS (and other tips) is that as soon as they are revealed, the price goes beyond the advised price, so I cant get in. So thanks for last weeks revelation of ARII. Finally I managed to buy in at a nice discount.

investletters
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investletters
January 31, 2013 2:12 pm

The price goes up on reco’s usually only if they are thinly traded issues; we call it “The Yield Shark Effect” (years ago in resource issues there was a “Casey Effect” from Casey Research picks, but not so much anymore since that sector has stunk for years).

Newsletter writers need to be aware of this and not recommend thinly traded issues or ones with too low of float.

Also, YS has seemed to, at times, pitch a stock that others have recently promoted and it’s already jumped beyond their price guidance.

Best,
Roger

Alan Harris
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Alan Harris
January 31, 2013 3:32 pm

Thanks….I may stop the subscription and start googling the ads instead so that I can actually get in at their reco’ed price.

jpbel2003
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January 31, 2013 2:20 pm

I’ve had ayr for about 8 months collecting the dividend and waiting. It has started to move up during the last 2 months and recently received buy recs. from s&p zacks and Fords. Things are ok however the article noted ayr has debt and strong competition so you are forewarned. 5% does make it easier to hold a stock and I’m almost ready to pull the trigger on ROIC because of the dividend. Folks might consider blc a small cap I bought today that has a good dividend and increasing earnings.

bmc123
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bmc123
January 31, 2013 2:33 pm

Is it coincidence or something else – but I can’t help noticing that the same stocks seem to crop up on several different lists/sites around the same time. For example, Street Authority wrote about Kohlberg Kravis Roberts & Co. (KKR) just recently. Just wondering how far removed from each other some of these offices are! 🙂

Roger Bond
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January 31, 2013 2:48 pm

How far removed or who is doing THEIR OWN research vs copying someone else’s.
I have wondered the same thing. Great minds don’t always think alike, especially when there are so many thousands of stocks to choose from and some, like JPM, just don’t seem like that much thought went into it.

Roger.

jpbel2003
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January 31, 2013 3:45 pm

AYR up 2.5% on a flat market day…. conspiracy alert…. SG manipulating the market

voiper
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voiper
January 31, 2013 5:44 pm

Based on the 2008 mortgage fiasco, it seems the big banks don’t actually understand the risks they are taking. That makes me want to stay away from all of them…

investletters
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investletters
January 31, 2013 5:58 pm

Me too… not to mention their other undertakings in the Silver market on behalf of good ‘ol Uncle Sam

investletters
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investletters
January 31, 2013 5:56 pm
Customer service emailed me back the stop loss info for the 3 reco’s that were bought, then later sent out an alert to all subscribers. What I don’t have yet is an answer on the bonus recommendation from the December issue that they clearly said to buy at 19.50 or lower. According to Yahoo! historical prices, it never traded below the (roughly) $20.70 figure that YS is now claiming they bought at (in the alert), and their tight stop loss that was not added (yes, I’m on that topic again!) until the January issue a couple of days ago was… Read more »
Brian M
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Brian M
January 31, 2013 9:38 pm
On KKR, I don’t think book value is a meaningful number for the kinds of companies they buy/invest in, so I wouldn’t give book value multiples much credence. The P/E, over a multi-year timeframe, is a much more meaningful number. This is a stock that will have a fair amount of volatility given the nature of their business, and the dividend could reflect that. But these folks have been around for 30+ years, know how to invest, know how to hire and train the next generation of investors, etc. If your time horizon is 5+ years, my read is that… Read more »
Tom
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Tom
February 1, 2013 3:18 pm

What are everyone’s thoughts on LVS? Their Macau locations are really generating a ton of revenue.

who noze
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February 3, 2013 12:16 am

put yer 5K IN PFE YOU GET A DOOD DVND THEIR DRUG PIPELINE IS BEGINNING TO LOOK GOOD AND THEY ARE spinning off Zoetis to their stock holdersin some fashion still to be annonounced

Stephanie Faith Gelinskey
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Stephanie Faith Gelinskey
February 4, 2013 1:40 pm

Hello: okay, so who do,i call? Hello, i want to buy 5,000.00 of PFE? Or put my money in PFE?
Thanks

already run up
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already run up
February 3, 2013 3:17 pm
You said that YS teased this in an advertisement 1-2 weeks ago? This doesnt seem fair to paying subscribers as only 3 days ago, we were alerted of those recos and they already run up. Note the KKR reco is with a LIMIT of 15.50 but on that day was already above 17. Why YS didn’t notify subscribers earlier!?!? I think I will cancel after first year is up. Another thing about almost any investment newsletter recos, is despite their written policies, there seems to be “insider” trading as the stock already jumped up several hours to a day earlier… Read more »
Roger Bond
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February 3, 2013 6:36 pm
I have been seeing that since (I believe) the very first issue and started commenting on that at InvestLetters.com It could perhaps have something to do with another comment above regarding the overlap between YS and other newsletters recommending the same stocks at the same point in time; or almost same time. It seems that YS is the LAST or later than some. Mauldin mentioned the other day in his e-letter that they have more products on the way. I am trying to encourage them to “finish” the ones they have first otherwise their reputation will become tarnished and there… Read more »
Harold
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February 3, 2013 11:56 pm

I’m with Alan Harris. This is Bull about
Paying good money so they can get material
To you after the whole world knows.
They get their Info from watching all the
Other letters and then compile theirs
That bullshit!

Stephanie Faith Gelinskey
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Stephanie Faith Gelinskey
February 4, 2013 1:44 pm

What is a county bank? What is a safety bank?
How to make 5,000.00 into 50,000.00?
Do i buy gold?
help a girl out!!
Anyone? Dave Eifrig????

Roger Bond
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February 4, 2013 1:55 pm
Stephanie, Semi-random postings on the internet is not the way to get competent investment advice; rather, it is a recipe for heartache. Most of the time, advice is worth what you pay for it, hence the value of free advice. If you have very little money and cannot afford to lose it: 1) Forget about how soon you can double your money, that’s gambling. Your local casino will get you FASTER results (not necessarily better, but maybe) than the stock market. 2) Find a local, highly recommended (by someone you know and trust), fee only registered investment advisor. He won’t… Read more »
Stephanie Faith Gelinskey
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Stephanie Faith Gelinskey
February 7, 2013 10:59 pm

One question? Whats your take on Coke a Cola? Thanks for the sound advise.

Stephanie Faith Gelinskey
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Stephanie Faith Gelinskey
February 4, 2013 1:50 pm

Any one making any money from Co Co Cola? Del monte? JPM? ENCANA king shale?

Stephanie Faith Gelinskey
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Stephanie Faith Gelinskey
February 4, 2013 1:52 pm

Guys!!!!!!!!!! Invisible income???? Can any one elaberate?
Please.Thank you

chuck
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chuck
February 4, 2013 5:02 pm
In the for what it is worth department, own KKR, would not touch the mega banks such as JPM and the rest with a “10 foot pole”, and AYR does not seem a “screaming bargin” (but what stock is currently). As was noted that AYR’s numbers are sufficiently mixed to give pause. Brought KKR late last year and it is up approximately $3/share. The the P/E is still in the attractive range, and so far it pays a decent current dividend — so it should be worth a good look even now. Agree with the comment concerning the amount of… Read more »
Matt
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Matt
February 5, 2013 1:33 am
Faith, Vanguard small Cap Index NAESX Vanguard High-Yield Corp Fund VWEHX Vanguard Total Stock Mkt. VTSMX Vanguard Inflation Protected Fund VIPSX Vanguard Emerg. Mkt. Index VEIEX Vanguard Pacific Stock Index VPACX Vanguard Europe Stock Index VEURX Vanguard Short Term Corp. VFSTX Vanguard Precious Metals & Mining VGPMX Vanguard REIT Index VGXIS
Stephanie Faith Gelinskey
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Stephanie Faith Gelinskey
February 7, 2013 10:56 pm

One question? Whats your take on Coke a Cola?
Thanx.

who noze
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February 5, 2013 5:09 am

pfe is the symbol for pfizer first open acct w//a broker possibly , scott trade, 7 bucks a transaction no mailings or m.sibert 15per trade w//mailings have fun

who noze
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February 5, 2013 5:18 am

stephanie Zoetis is 30buxks a sh, just came public pfe controls 80%of sh. thy have made ann.that they w// give X amt of sh to stockholderrs [zoetis is a spin off from pfe by

john sloan
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February 7, 2013 7:26 pm
HI everyone I second Roger Bond’s comments to Ms Gelinskey Stephanie please do not even dream about doubling your 5000 in 5 years or even 10 in this market. Safety first – you worked hard for that 5 grand and most places you will just loose it fast. The overhead on such a small sum as 5000 itself will work against you in risky gambles. I agree with the idea of Vanguard funds for at least 4-5 years as you learn MUCH more. Some of their funds require like 2500 so you cannot buy many -but do divide your cash… Read more »
Stephanie Faith Gelinskey
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Stephanie Faith Gelinskey
February 7, 2013 10:48 pm

Would like to take an opportunity to thank you for all the wisdom….
All the Best, Champagne and caviar
Stephanie

blackjack
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blackjack
February 8, 2013 5:29 am

I dont want to put my email here so I will suggest you look at http://tools.morningstarthailand.com/th/fundquickrank/default.aspx?Site=th&LanguageId=en-TH
you can see that in a little over a month there has been a nearly 16% return

OS people can invest however there is a little paper work to be done locally
let me know if i can assist

wpDiscuz