A Retail Investor's Musings on Dupont and Overseas Shipholding Group

I've had some shares of Overseas Shipholding Group (OSG), a tanker company, for a while. I'm wondering whether I should sell it, and buy it back later at a cheaper price. It's $74.9 a share as of this Friday's close. It's been as high as $91.49 in July before tanker rates plunged. Since then, OSG has waddled between the $50s and $70s. In addition to the 52 week high, I had multiple chances to sell in the $80s and mid $70s and buy in the mid $50s, but I did nothing.

Each time the cause of the run up was slightly different. First there were the idiots on Fast Money on CNBC, pushing the stock. (That turned out the best time to sell, as it often does.) Then there were the interest rate cuts, which were predictable. Then there was a rise in shipping prices. Then, around the time of the last quarterly report, which wasn't very good, the price spiked for a day for unknown reasons. This time, the stock's going up because of speculation that Frontline (FRO) will buy it out. Frontline's chairman and current interim CEO, John Fredriksen, bought a lot of shares of OSG.

So what do I do? Sell now and wait for a pullback? Or just hold on? Even without the buyout, OSG should do pretty well over the long term. Places in the world that need oil and natural gas (China, USA) are oceans away from the places that have oil and natural gas. At the moment, however, the high price of oil is curbing demand, which should lower shipping prices. But why would Fredriksen be buying shares then? He obviously thinks OSG will go higher; and he's in a better position to know what's going on in the shipping industry.

This is how I vacillate. I'll probably end up doing nothing.

It just struck me that I wouldn't have these thoughts if I checked my stocks' prices less often. Well, I caught a glimpse of Dupont (DD) today, which is 15.75% higher, excluding dividends, than when I bought it back in December. Dupont reports earnings on 4/22, this Tuesday. While I promised to myself at the time I bought them that I'd keep the shares forever, and try to add to them, as agriculture stocks will continue to do well for the foreseeable future, I'm wondering whether I should sell now before earnings and buy them back a little later at a cheaper price. The big question will be whether Dupont's Pioneer segment grows fast enough to offset loses in its other businesses, e.g., housing related products and automobile paint. If earnings are in line with estimates or higher, selling it before the report will be a mistake. On the other hand, if earnings fall short, the price will probably drop, and it would be smart to sell before Wednesday.

Common advice often given to retail investors is to let winners run and to sell losers. It seems like good advice on its face, but it really says nothing. For example, Reynold's (RAI) was a winner for me earlier this year, rising to over 17% above the price at which I purchased it. Well, now it's slightly below my cost basis. Way to let a winner run. Should I have sold it then and bought now? I'd certainly be better off if I did.

You have to evaluate your winners, one might say. Assess their fair value, and if it's enough above the current price to justify the risk, keep them. If it's below the current price or not worth the risk, sell them. That's all fine and good, but it doesn't help me. I know that in the long term, both stocks will be winners (whether they beat the market is a different question). I want to know whether I should sell them now and buy them later for less.

The temptation to make these short term trades is nothing but the temptation to gamble. I don't know how DD will report. Nor do I know when or whether the OSG buyout speculation will cease. So, I'll most likely follow that other advice we often hear: buy great companies and hold them for a long time.


Missed Buying Philip Morris in the 1980s? You've Got Another Chance

I recently bought some shares of Philip Morris International (PM). It's the second largest seller of cigarettes in the world. Excluding the US, which is the domain of Altria (MO), PM controls 16% of the market worldwide. I'm sure you heard of the Marlboro brand.

While I think the stock will be a long term winner, I'll start off with reasons not to buy:

1. PM's biggest market is Western Europe, where it makes 50% of its sales and holds 40% market share. Cigarette volumes in this mature market, because of smoking bans, taxes, and other regulations, are declining and are expected to continue to decline in the long term.

2. Tobacco lawsuits are on the rise internationally.

3. Earnings performance may be volatile, as it will likely swing with crests and troughs of developing nation economies.

4. Selling in developing nations also has some political risk. Governments may change; their views on tobacco might also.

Reasons to buy outweigh the above risks:

1. While it has around 30% market share in South America, close to 22% in Africa, Eastern Europe, and the Middle East, and about 16% share in Asia (not including China), PM has lots of room to grow, especially in Bangladesh, China, India, and Vietnam.

2. China loves smoking. PM has access to this huge market (the largest in the world) through a joint venture with the world's largest tobacco producer, China National Tobacco.

3. While cigarette volumes are declining in Western Europe, international volume is expected to grow over the next two decades at an annual rate of 1 to 3%.

4. A recently started cost savings program is expected to save about $1 billion over the next three years.

5. Share repurchases should total over $13 billion over the next two years. That's around 12% of PM's current market cap.

6. All of the above should increase earnings. The falling dollar will give an extra upward push.

7. The dividend, now hovering around 3.8% (annual dividend is supposed to be $1.84/sh), should also rise. Payout is provisionally set to 65% of earnings.

8. PM should be immune from US lawsuits. People around the world aren't as litigious as they are in the US. Despite all the lawsuits in the US, the old Philip Morris, then Altria, did pretty well. Imagine that, but with less suits for PM.

9. Consisting pretty much of members of the old Altria board, management is solid. CEO Louis Camilleri has a wealth of experience, particularly with emerging markets.

10. PM sells an addictive product, and one of the world's most recognizable brands.