Update to Jubak's PicksSell : The financial markets and the economy continue to deteriorate, and shares of Jacobs have dropped below technical supports. I'm simply not willing to hold them with their downward momentum in the current market, so I'm selling them out of Jubak's Picks with today's column. I think I'll have a chance to repurchase these shares at a lower price later in the year.
A relatively minor part of the company's business has big exposure to a slowing U.S. economy. Government spending on such projects as water and wastewater systems will slow because of budget gaps created by falling tax revenues. This segment accounts for just 8% of Jacobs' revenue, but with the company facing tough year-to-year growth comparisons, I think a shortfall in this segment will be enough to send the stock's price down from even current levels.
As of March 18, I'm selling these shares with a 22% loss since I added them to Jubak's Picks on Oct. 30. This sell moves my cash position in Jubak's Picks to 47% of the portfolio. (Full disclosure: I will sell Jacobs out of my personal portfolio three days after this column is posted.)
Development on a past column"A painful fix for the credit crisis": I've said some pretty negative things about the Federal Reserve on the run-up to and during the current financial market crisis, so I think it's only fair to say that when it brokered the deal with , the central bank got the major part of it right.
The buyout will just about wipe out Bear shareholders -- JPMorgan plans to pay just $2 a share for a stock that was trading at $88 at the end of 2007 -- including executives and partners at Bear Stearns. I think that sends the right message: If you take on risk, you should reap the reward and the losses.
And, according to the data, Bear Stearns was laying on risk with a shovel. As of February, 15% of the Alt-A mortgage-backed securities the company had underwritten were delinquent by at least 60 days or in foreclosure. The industry average was just 8.4%. (Alt-A mortgages are those considered a grade less risky than the subprime mortgages that started the current crisis.)
If you make an investing mistake, you take the loss. It's the market's way of keeping players focused on risk and reward. (The Fed is also extending a $30 billion line of credit to JPMorgan in the deal. That's ultimately taxpayer money at risk, but at least the Fed has taken control of the Bear Stearns assets that collateralize this loan.)
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Editor's note: Jim Jubak, the Web's most-read investing writer, posts a new Jubak's Journal every Tuesday and Friday. Please note that recommendations in Jubak's Picks are for a 12- to 18-month time horizon. For suggestions to help navigate the treacherous interest-rate environment, see Jubak's portfolio of Dividend Stocks for Income Investors. For picks with a truly long-term perspective, see Jubak's 50 Best Stocks in the World or Future Fantastic 50 Portfolio. E-mail Jubak at email@example.com.At the time of publication, Jim Jubak owned or controlled shares in the following equities mentioned in this column: Jacobs Engineering. He did not own short positions in any stock mentioned.