If You're Ready to Take the Plunge

10/20/2008 10:00 am EST


Jack Adamo

Editor, Jack Adamo's Insiders Plus

Jack Adamo, editor of Jack Adamo’s Insiders Plus, likes a beaten-down shipping company with a fat dividend.

We are looking at an economic situation that has not been seen in over 70 years, and the market is justifiably scared. In fact, I can’t find a market technician with a good track record who isn’t bearish right now. Even the few that expect a bounce think it will be for a few days, not weeks or months.

I’ve observed the markets for a long time, and I’ve never seen a market go straight down to a bottom without a few very strong rallies. History would dictate that we should have one soon, but how far off is it? If we have to endure another three weeks of October like the first, it will be excruciating.

Gold should ultimately be a huge winner, as an inflation hedge. But I don’t know how long it will take for the current deflation to turn to inflation under these conditions. In the meantime, the metal is incredibly volatile. One day it is being bought as the market fears a total meltdown of the financial system; the next day it is being sold as just another commodity undergoing deflation.

Seaspan Corporation (NYSE: SSW) has been chopped in half in the last few weeks. This is a company which has all its business for the next five years booked in charters with the world’s top shipping companies. Some of those contracts [may] be reneged upon, but short of a prolonged worldwide depression, the company will do well. The stock is yielding [14.4% at Friday’s closing price above $13]. If the dividend were cut in half, it would still be a great yield.

I’m calling this a Speculative Buy because the company would be vulnerable in the case of the above-postulated depression. Then, although the cash flows necessary to service the company’s debt are all pre-booked, they could fail.

But although a depression is possible, I think most of us would rather base our investment plans on the most likely scenarios. With the coordinated efforts of the world’s central banks, I think that will be avoided.

Seaspan Corporation is a Speculative Buy up to $14. If you are just totally uncomfortable with the market (and who could blame you?), please feel free to sit this one out. [But]  I think this company’s going to be around for a long time, and I want those dividends.

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