PSA

[anxvariety]

*disclaimer* I consider my stock perspectives just a little over novice and I’m not making any reccomendations 🙂

One of the most intriguing investments I’ve seen lately.. or at least interesting is PSA Public Storage.. they are one of the largets commercial real estate land holders in the US(I think) and they generate a ton of money from their storage units..

Anyone else know of any self storage/moving company plays?

I think this might be the ultimate stock to play both sides of real estate… usually people start to put stuff in storage when they’re moving either temporarily for a job, or trying to downsize and save money..

So if real estate tanks here.. people will need to move into apartments and store their stuff in storage.. this will increase PSAs earnings.. the real estate down cycle will affect the value of PSAs real estate holdings.. but they arent selling it so it doesnt really matter.. Then when real estate and or the economy turns back around the value of their commercial real estate holdings increase, and storage remains at least constant or increases again while people store their stuff from a recent relocation to a ‘hot’ area to look for jobs and a place to settle down.

I could almost see their land holdings and storage as being inverse of eachother, yet at the same time both gradually increasing with population.. I think it’s a very balanced and interesting model.

Check them out:
http://finance.yahoo.com/q?s=PSA

I personally don’t own any.. because I like more volatility, but I may buy some after I lose all my money in the volatility game 🙂

[anxvariety]

Sorry, I meant to change the title of this post to be more specific.. PSA sounds like public service announcement. If a moderator wants to change it to ‘Public Storage interesting investment’ that’d be cool, thanks.

[powayseller]

The PE ratio is 35. I wouldn’t touch that with a 10 foot pole

Recently I checked into all publicly traded pawn shops. They were trading at PEs of 20-35. So I dismissed my ideas.

You also need to look at the alpha and beta of your stock. The stock market is going down. Are you willing to take a chance that the stock you picked is going to move inverse to the market as a whole?

I bought COP today. Check that one out. It was recommended as the “best buy of all the major oils today” by Zeal. It was recommended yesterday by Barry Ritholtz (The Big Picture). Warren Buffett just bought $1billion in it. COP is trading at 6.4x earnings.

[anxvariety]

I think PSA is a steady beast.. that will just continue doing what it does.. as you can see if you check out the 15 year view PSA has gone consistently up and up and is pretty unphased by most economic events…

Powayseller, it’s me I’ve been loading up on COP NOV 60 options for 2 weeks now! 🙂

I won’t touch the stock itself with a 20 foot pole because it requires investor to put up way too much capital up front… and personally I’m not interested in doing that in an industry where one ‘dude’ in Iran can completely shake things up… with options you get wayyyy more upside without all the risk.. Lets just say someone has 15k in COP options.. to get the same amount of leverage through buying stock they’d probably have to buy 100k worth.

If COP is $80 in November, that $15k will be worth $40k. If someone were to buy the stock they will have gained only 30% and they had to plunk down $60 per share!

We need someone that’s anti-options to come and refute what I’m saying.. because I haven’t been challenged at all with my options blabbering!

[powayseller]

I don’t know about options, so I just buy long.

Any stock trading over PE 15 is overvalued, just as housing, and will have to revert to the mean.

[anxvariety]

Powayseller, there’s no way you’d convince any investor of some holy grail P/E number.. QCOM had a negative P/E for MANY years, all the while it was exploding.. and it’s now profitiable.. ‘Potential’ is a very important factor in determining what sort of P/E you’ll find accceptable.. If looking at P/E was the only factor in determining what a good buy would be.. then it’d be easy.. A low P/E can also indicate bad things, like the companies market is going to disappear or they are about to fall apart, or what they are selling is seasonal(oil)… but if you are always looking for a low P/E, in general I think you’re going to end up with low volatiltiy stocks.. maybe that’s what you’re looking for.. sometimes that can be synonmous with low risk, but nothing is certain..

I think COP is sort of an anomoly because the energy market is cyclical and they typically fall in the summer and rise in the winter during storms and such..

[powayseller]

For momentum investors, PEs don’t matter. “It’s a new economy”. I’m a value investor. I look for good deals. Instead of chasing a runaway market ever higher.

I saw the momentum crowd get creamed in 2001. For me, high PE stocks are too risky.

COP trades at 6.4x earmings. My kind of stock.

[Doofrat]

Powayseller,

What’d you get COP at? I’ve got a limit order at 60. Got close today.

Doofrat

[anxvariety]

Powayseller, even value and P/E are hardly synonmous…

But if you insist on P/E, perhaps you should look at PCU(Souther Copper) their P/E is 8 and they pay $11 per share dividend(12%)..

BUT WAIT! before you buy.. you should probably read the news.. there youll find that the peruvian goverment is about to or is having elections and that one of the candidates has promised to de-privatize the copper industry in that country, which will or could completely whipe out PCU…

So their P/E says more about the stocks past than future…

Just an illustration.. trying to play P/E devils advocate.

[powayseller]

You don’t buy a stock based on PE alone. I read the entire balance sheets of a stock, recent news, footnotes of financial statements, before I buy. COP ($62.xx/share) was an exception, since I’d paid Zeal for the research already.

If one of the underlying ratios is out of whack, like the debt/equity ratio, or PE ratio, I eliminate that stock.

Value investors only buy stocks with PEs under 10.

The PE ratio test led me to discard all those tech stocks in 1999. It’s a way of telling if you are paying too much or very little for a stock.

PSA might be a great company. It has little debt. It should be $14/share. Why pay $35/share, when it’s worth only $14/share? Stocks with high PEs cannot disappoint – one little thing happens, or the market starts correcting, and the selloff will start.

When you buy high PE stocks, you are playing the momentum game. You have to know when to get out. Perhaps you have a stop loss in place. But how much more overvalued can this overvalued stock get? How high can this pyramid scheme go? There is more downside than upside.

As far as the COP Nov 60 calls, I didn’t know how to do that. It was a better way to buy COP. I will make less money than the people who bought calls, but I won’t lose money from making some dumb entry mistake. I need to work in my comfort zone.

[anxvariety]

I understand the approach.. it sounds like it’s evaluating the ‘current state’ of the company.. there are experts out there that can predict that state quite a while before it happens and thats why they invest.. so by the time the individual investor get there, it’s probably too late too really see a significant gain.. also, P/E can mean that all the investors sold off the stock since they don’t see much potential in it for the future.. ‘milked cow’

Just like when XOM reported record earnings.. the stock If I remember correctly was down a little bit the next day.. that’s because the profits had alreay been priced in… in some cases of companies with low P/E, the future losses might already be priced into the stock.

When I first started investing I was advised by someone who didn’t know what they were doing.. and they told me good P/E = always win, and I discovered through losing a little money that isn’t always true.

[powayseller]

What did you decide with PSA?

[anxvariety]

I owned it in the past.. but I haven’t bought any in the last year.. If we go into some sort of real tough recession it’s a stock I’m going to look at getting back into..

I was just posting that I thought it’s business model is interesting from a real estate/contrarian point of view.

[powayseller]

I think it’s interesting from a recession point of view. When my husband worked for U-Haul corporate in Phoenix, he learned they make most of their money during recessions, as people move and use storage facilities.

That’s why I checked all the public storage places, and the PEs were over 25. Why is the stock market so darn overpriced?

What else does well in a recession?

I spoke with my A/C installer today. He’s been doing this for 25 years, and has seen several cycles in SD. He owns his house free and clear, has several stocks (AA since $2/share, etc.) He told me he bought Watts, the air conditioning manufacturer/seller, a few years back. I told him the company would reduced its profits during the recession, but he disagrees. He says people will stop buying cars and trips, but they will not quit updating their heating, buying TVs. He says the service industry is recession proof.

I don’t buy it. Watts probably made a lot of money as builders were going crazy overbuilding the last few years. this is all winding down. I think their stock will sink, too. The guy I talked to doesn’t want to sell any of his stock. he says eventually they will turn around. He’s in it for the long haul. This reminds me of people who don’t want to sell their house, because eventually it will come back to a higher price. I couldn’t convince this guy that a recession will cut his profits. He’s owned the stocks so long, that even a 60% reduction will not make him lose any money. So he really doesn’t care about any dips. Interesting situation.

[PD]

I think that any company that makes products needed in new construction is going to see a decrease in sales. Air conditioners are still going be selling but as replacements, not new installations(for the most part).

[Author]

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