Terence Kennelly sends: In this type of market climate, it is difficult to find a “safe” place to put your money. With housing getting slammed and the financials on a rollercoaster of sorts, spotting low risk, high return investments may seem daunting. The surprisingly retail sales reported today from Wal-Mart (WMT) don’t convince me of the so called “fundamental strength” behind our economy. With that being said, I’d like to get into what I believe are several options to explore in this unpredictable market.

First of all, if you ever asked someone from my town what a decent investment would be, they would tell you to go down to the local town & country auction and bid on some young heifers that you could raise into milk cows. With milk prices going up the demand for healthy milk cows has followed, so wouldn’t this be an ideal investment for you? I’ve often heard friends bragging about a certain cow they were able to sell at a 200% markup to a large dairy farm in the area and I’m not going to lie, at times I am tempted to try doing that too. However, the city boy Wall Street wanna-be in me seemed to win out every time. At this point you are probably wondering why I am digressing into anecdotes of my rural youth. Well my point is that in this market, nothing is certain and to get high returns you may need to step out of your comfort zone, out of your favorite sector, and into something you haven’t tried before. Now I’m not saying we should all go out and raise milk cows because it is a solid investment, and one that won’t be affected by the housing market or the credit crunch, but that we should explore more options in areas where we haven’t previously looked.

If you’ve ever watched TV between 9 and 11 pm on Monday nights, you’ve probably seen one of the most childish, “violent”, but yet witty shows to ever hit cable TV. A show that mixes comedy, foolish drama, and recycled storylines but still consistently receives the highest television ratings in blue collar demographics. “Your FIRED, you son of a *****!!!!” Would you buy stock from a CEO who addresses employees like this on live television? … I would. WWE, better known as World Wrestling Entertainment Inc., has long been considered somewhat of a joke on Wall Street. Ever since its IPO in 2003 it has been nothing but a disappointment. Since the stock opened trading on that fateful day at $30, WWE has largely floundered between $10 and $15 and hasn’t produced any real knockout quarters. With revenues growing slowly, attendance at North American events dwindling, and movies like “The Condemned” flopping at the box office, WWE’s shares have been in a choke hold for months. Of course, the death of one its premier superstars did nothing to help matters and WWE’s shares hit a new 52-week low. Now, though, is the time to get in. WWE’s 6.5% dividend yield alone is reason enough to buy the stock, as the dividend has doubled over the past 3 years and is currently at $0.24/share/quarter. In the last conference call, management hinted at future increases in the dividend because of ample free cash flow and projected revenue from international licensing agreements. Unless Vince McMahon tries to restart the XFL, stock in WWE has enormous potential in the coming months as revenues from the movies “The Marine” and “See No Evil” are expected to be realized. With the $15.7 million dollar impairment charge of the last quarter behind them, WWE can now refocus their strategy from cinematic movies to direct-to-dvd movies, which offer much less downside and, with WWE’s strong marketing and consumer base, strong earnings potential.
When looking at the charts for WWE, one can see that it seems to shoot up around each earnings announcement, yet falters in the weeks and months following. One of the reasons for this is the fact that WWE consistently reports earnings higher than analysts’ expectations, which drive the stock up. However, analysts for WWE seem to consistently keep earnings expectations low and thus positive earnings surprises are becoming a normal occurrence. Maybe these analysts don’t watch wrestling or appreciate the business, maybe they just like seeing the stock shoot up then slowly trickle right back down again, who knows, but this trend came to an end last quarter when the WWE Films’ impairment sent a message loud and clear to the markets, and the markets responded by selling WWE since.
WWE needs to refocus its strategy, however, if it can sustain its dividend yield and recognize some strong profits from its films and its licensing agreements, I feel it can ride out this volatile market and bring returns to those patient enough to wait. A portfolio of 60-75% low risk, high dividend stocks (like WWE) and 25-40% bonds is my choice for this market.

Disclosure: Author currently owns WWE, but does not own any cows.