ARMH ARM Holdings PLC

ARMH ARM Holdings PLC

In August, I was visiting our office in Bristol England and picked up a copy of Investor’s Chronicle Magazine. In that issue from the publishers of the Financial Times I ran across a few decent companies.

After getting home and doing lots of homework, I really liked ARMH. Unlike AMD or INTC or Broadcom, they do not have the huge cost of building chip factories. They actually design and test chip blueprints and then license them out to chip makers or component manufactures. These leases are extremely profitable and the brain trust at ARM have come up with some amazing designs.

ARM’s dominant market are for cell phones which is exploding. On any smart phone, you can have about 6 ARM micro processors on board. AMD and INTC are fighting hard to be the leaders in the mobile market. ARMH will either be an acquisition target, or a provider to other chip makers. I like the prospect for both.

ARMH is about 4.3% of the Salve Lurcum Portfolio and is up 17%. Ironically the base stock in the UK is only up 9% over the same period of time. As an ADR it’s a little trickier establishing the value and forward looking price. I am looking for about 12 dollars a share for this ADR by mid 2010.

INTC Intel Corporation Inc.

INTC Intel Corporation Inc.

The worlds largest chip maker. For you Luddites, we are not talking Doritos or Cheetos. They make microprocessors and platform solutions fro PCs and their claim to fame was the design of the X86 processors that were and still are everywhere. With annual sales of 32 billion, they are nearly four times the size of their nearest competitor, Texas Instruments or more appropriately more than 6 times the size of AMD, Advanced Mirco Devices.

I knew who they were and had played them in 03 buying in around 15 and getting out at 22. I got back in during 2005 at 21 and watched the stock trade sideways for 12 months when I completely got out of the market in late 06 because I thought the market was going to correct. I was way early on that call.

The portfolio started picking up INTC at the same time it started picking up ARMH, a notable but small chip maker in the UK. It was picked up in the 16-19 dollar range and as part of an inadvertent stop sale in October, some nice gains were taken. I immediately got back in the stock in October and November. Currently (Dec 31, 2009) it is about 4.6% of the Salve Lucrum Portfolio and is up 7%.

The company is huge and as result it is constantly in battles to protect market share while defending itself as a pseudo monopoly. NVIDIA and AMD are always challenging them and that probably won’t change. Intel needs a global improvement in the economy to see 30.00 a share. They throw a nice 2.7% yield dividend. They invest a fortune in R and D and should be making some really cool innovations in the nano processor market in years to come keeping them fairly competitor proof.

CHU China United Network Communications Ltd. ADR

CHU China United Network Communications Ltd. ADR

In July, I was reading China Tech News on line magazine and was intrigued by the information about CHU and AAPL. It was announced that they, CHU would get the exclusive license for the iPhone in October 2009.

China Unicom is the second-largest fixed-line and mobile carrier in China. In January 2009, the carrier was awarded the license to provide 3G services using the WCDMA technology and has since rolled out the services on a trial basis. The Chinese government owns 57% of the company. Korean carrier SK Telecom owns 3.8%, while Spanish carrier Telefonica owns about 5.4% after converting its stakes in China Netcom to China Unicom.

The portfolio bought into this slowly over a three month period from July to October and raised its stake quite a bit on a recent low of 12.50 a share. The stock accounts for about 5% of The Salve Lucrum Portfolio and is currently down about 7%. It has been down as much as 11% bypassing my hard and fast rule of selling on an 8% drop. Emotions may be playing into this equation a bit, but I am hoping for the logic of Chinese iPhone success, 3G and 4 G networking expansion (Which CHU is hugely investing in.), will make this the Verizon/ATT of China in two years.

They are taking on quite a bit of debt building the 3G networks, but they have a wealthy uncle (China) who can help them finance the debt. This will probably trade sideways for most of 2010. I will be looking for buying opportunities below 12.50 when they happen to add to my position.

CVX Chevron

CVX Chevron

This Portfolio played around with several energy equities early in the year. XOM got a value rating using my system of 94. It was added to the portfolio in March at about 62 a share. I accumulated it before stopping out at 66 in July taking a small gain. I avoided most of the oil companies except for CVX because while their financials did not seem as pretty as XOM, they did seem like a more balanced play for oil and natural gas. At the time I was playing a couple of Nat Gas ETFs which went nowhere. I did like the nat gas play in CVX and at the time they were one of the few majors who had a good position on natural gas. (That has all changed with XOM’s buy out of XTO. I will be revisiting XOM after the Holidays now that all the transaction news has passed.) The portfolio has been adding CVX in the 64, 68 and 70 range. Currently CVX accounts for 5.5% of the Salve Lucrum Portfolio and is up about 12%. Chevron needs a few things to happen to get into the 90s in 2010. They need the economy in the World and in California to improve. The need to protect their margins, which have dropped in the last couple of years. They need to hope for no more social unrest in Nigeria. They need a bump in nat gas prices to the near 6.00 per cubic thousand feet. IF they can do all of that, it is 95 dollar stock if not it’s a 75 dollar stock throwing a 3.5% yield. I won’t be adding to the position but will hold it for a while. There are stops in place to protect the gains.

BAGAKOAA Dec 30, 2009 Components of the Salve Lucrum Portfolio

BAGAKOAA; Dec 30, 2009 Components of the Salve Lucrum Portfolio

This blog as has been mentioned is a way for me to keep track of what I am doing with various equities and ETFs as well as occasional option activity. Searching this blog for all of the various trade related elements is tedious even for me. As a result I am going to try and keep a dynamic page in the blog for each component of the portfolio. It will be titled The Salve Lucrum Portfolio. On that page I will show current holdings and what percentage of the portfolio they represent and what are their current unrealized gains as an aggregate purchase. It will also have links to the specific stock pages in the blog where I will try and keep relevant and crucial information regarding that stock.

GOOG Google Inc.

GOOG Google Inc.

Dec 31, 2009

Everyone should be familiar with Google. It has become a verb of common usage in many languages. To hear someone say I “Googled” you yesterday is becoming fairly common vernacular. The Slave Lucrum Portfolio slowly started buying GOOG in August of 09 at the 448 range. The catalyst for my decision was the financial strength of the company, my personal satisfaction with many of the Google Apps such as G Earth, You Tune, G Desktop, and the Google Search Home Page customization. BUT, (Behold the Underlying Truth), while I knew that Google had the lion share of the media based pay for play search income, I always thought that Microsoft and Yahoo would pull some kind of a coup to deflate the rich PE value of GOOG. (Hovering around 50 at this writing). When the announcement of a partnership between MS and Yahoo was made, I expected the stock to take a hit. In researching the MS Yahoo deal, it became apparent that Balmer had paid way too much for a ball of yarn that will take several years to figure out. That is when this portfolio started picking up shares. As of this date, Dec 31, 2009 the stock is trading near its 52 week high of 625 making a forward looking PE of 27. Can it keep up this pace of revenue and profit? There are high hopes on the mobile phone market for GOOG. The Droid is getting mixed reviews but leaning toward positive comments. Of course iPhone will be the one to chase. Ad revenues should continue to do well as corporate media spends shift more toward on line presence where results are measurable and more effective. Currently GOOG accounts for about 9% of the Salve Lucrum Portfolio and is enjoying a 24% unrealized gain. I am looking for 700 by mid year 2010, but could see this being a 1000 dollar stock in two years. That does not mean I am not protecting current gains with well managed stops.

AAPL Apple Inc

AAPL  Apple Inc

The portfolio’s history with Apple goes back many years. In 04-05 I had some in the 35-45 range but though it was too expensive by the time it hit the 60s and got out. I got in again in the 50ish range in early 06 and got out again by November when I thought the entire market was overheated. But most recently and in this trading cycle, accumulations began in June 2009 at the 136 range. Despite the fact I had enjoyed iPods and Shuffles, and iTunes, there was no compelling reason for me to check out AAPL because after all I was a PC guy. I would have to say Cramer got me to look at the company as an investment. After doing the research, it was very impressive at how competitor proof the iPhone was. More importantly with the open source approach to programming for iPhone and iPod apps, it was easy to see how this was going to explode and more importantly the obscene margins involved in the down loadable app market. That is when I had gotten in after doing my homework and rating the company a 94 on my value based rating system described in this blog on many posts. As of this writing at the end of 2009, they just had a marvelous last quarter reporting in October. They blew away analysts estimates by 26 %. They have no debt. Their global expansion is on schedule with tight contracts with mobile carriers in many emerging markets, but of note is China Unicom (CHU) the second largest mobile carrier in China and an agreement with Vodaphone which should give them great coverage in the UK parts of Europe and in South Africa. Some say the company is running rich with a forward looking PE of 27, but with the expansion of the iPhone market, the exponential growth of the downloadable app market and the yet to be released Apple notepad, earning growth appear to be quite attainable. As of this post, the stock is selling for its 52 week high of 213 a share. It accounts for about 10% of the Salve Lucrum Portfolio and is up 11.2% since its last purchase. (It should be noted that a poor decision to use trailing stops on the stock triggered an unintentional total sell off in October at the 190 price creating a splendid profit but an unnecessary tax gain. Since then the account has been slowly reestablishing its position in AAPL.) Thought there are stops in place, I am looking for a 250.00 price pint in AAPL, by mid year 2010.

Dec 30, 2009 WSJ

Nokia alleges that "Apple infringes Nokia patents in virtually all of its mobile phones, portable music players and computers."
In its fiscal fourth quarter, Apple sold 7.4 million iPhones, up 7% from a year earlier. In October, Nokia said its sales volume dropped 8% to 109 million phones during the third quarter.

The Salve Lucrum Portfolio Dec 30 2009

Ticker           Name                   % OF               %+/-


AAPL          Apple Inc.             9.5%                11.2%
GOOG         Google                  8.9%                 24.3%
CASH                                                                 7.3%
CVX            Chevron                5.5%                 12.1%
CHU           China Unicom        5.2%                -7.7%
INTC           Intel Corp.            4.6%                 7.2%
ARMH         ARM Holdgs           4.3%                 17.3%
GME           Game Stop            3.9%                -3.7%
GIS             General Mills        3.8%                18.4%
RIG            TransOcean           3.0%                -2.6%
VZ             Verizon                  3.0%                  7.5%
IBM            IBM                         2.9%                 31.5%
HAS          Hasbro                    2.9%                 22.4%
SQM         SOC Quima               2.7%                .5%
AMT         American Tower      2.3%                 17.3%
RHHBY     Roche Holdngs         2.2%                16.7%
GLD         Gold (ETF)                1.9%                8.0%
VOD         Vodaphone               1.6%               1.4%
NEWN      New Energy              1.5%                4.6%
GSK          Glaxo S & K              1.5%                17.4%
WU          Western Union          1.3%                .9%
GD           General Dynamics     1.2%                 5.3%
FLIR         Flir Systems               1.1%               15.4%
BMY         Bristol Myers              1.0%              23.3%


The balance of the portfolio is made up of various options and 30 GMAC Smartnote 6% Bonds representing about 3.5% of the entire portfolio. Total realized gains for 2009 amounted to 6.7% 

BAGAKOAA Dec 27, 2009 The week ahead

BAGAKOAA;

Dec 27, 2009 The week ahead



Last week it was prognosticated here that a weak GDP would hurt the market and despite the number coming in at a lackluster 2.2% well below the bottom estimates, (2.5%) the market picked up 50 points on the 22nd. In fact the market ignored the bad number so well you had to wonder if someone didn’t already know about the strong existing home sales report released later in the same day. If you remember the market was looking for 6.2 million units. It came in a 6.54 million keeping the market happy though finishing flat for the day. (Wednesday.) All of the income and pricing indexes came in just as expected so that was of little if no impact to the market. However, in a complete reversal of fortunes, new home sales sucked. If you remember the market was looking for a number about 440 thousand new homes. The number came in at a dismal 355 K. That should have sent some concern through the market, but again it did not. WHR, (Whirlpool-on my recovery watch list) came down a tad, and HD (I have some May $25 calls) wiggled a bit, but it could have and should have been worse. DJIA volume was light in the 450 million share range so maybe people had already settled in for the Holiday. Durable goods reported back in positive territory despite a Ryanair cancellation of 200 planes from Boeing. The .2% increase was a little below estimates, but positive. And to close the holiday week out we had another positive jobless claim report. The expectation was 472 K new claims and the number came in at 452 K. That is still very sad, but a trend is being supported.


Some of you reading this do not care for all the economic news you can read elsewhere. I only post it here for my own historical well of cause and effect data. Many would prefer just the stock information. It is difficult to segregate the two. For example the initial jobless claim figures are an economic indicator, but it is also a metric for payroll processing companies. If a trend is being established, especially a new trend you can make money or loose money being on the right side of a coin on a good or bad company. In this case, consider PAYX or ADP the top two payroll processing companies. PAYX is a well run company with little debt, but had a bad quarter reporting with profits down about 10%. They throw a nice dividend creating a nice 4% yield. ADP is a little cheaper (PE not Price) at a PE of 17 versus 22 for PAYX. They appear to be well run and have little or no debt. They also throw a dividend with a yield of 3.17. So you got two winners in a sector that has a positive trend. That trend is predicated upon people returning to work. Either could be a good play over the next 12-24 months. DO YOUR HOMEWORK. I do not own either, but have been watching both since June/July.


Ok now the week ahead. By the way I miss my Baron’s. I get it on my Kindle, but we are up in Utah and I missed picking it up out of the driveway at O Dark Thirty Saturday Morning. I need a life. So I am doing this the old fashion way, off the internet.


It looks like a quiet week ahead. If you are really board on Monday the Federal Reserve Board of Governors opens its check book as they do every week. If you ever want to bone up on early all US Economic indicators, please pick up a copy of The Trader’s Guide To Key Economic Indicators by Richard Yamarome. Anyway, the Fed’s Balance sheet report is quite a long boring read, but it shows where the money isn’t.


On Tuesday, you have two retail reports coming out (ICSC-Goldman SS and Redbook). It will guess at how well we all hit the malls last week. It does ignore on-line sales which is a big factor this year. (Again economic data relates to stock performance. Increase in on line sales means good things for brands with strong on-line presence and or products that lend themselves to on line sales as well as the companies shipping those products. Think AMZN, BBY, William Sonoma, AAPL, FDX, UPS, to name a few.)


Consumer confidence reports on Tuesday as well and people are expecting the number to get back above 50. Again, how do you play that. Over the last 12-24 months consumer have been paying down debt, saving like never before or at least since 1942, and buying everything on the cheap. That was good for all the discounters like Costco and Wal-Mart. If Consumer confidence improves and it probably will, some of those patterns will shift back to main stream retail like TGT, Macy’s, even Nordies again. Oh yeah, historically when consumer confidence returns people consider traveling for fun again. Think Priceline, Expedia, Orbitz.


On Wednesday you get the Mortgage Bank applications report for another tell on the housing market. No surprises are expected. Also that day we’ll get the Chicago Purchasing Managers Index, a regional pulse on manufacturing activity. The expectation is a reading of about 54 which will be down because there was huge spike in new orders last month. No one is expecting that level of activity to continue.


And Thursday brings another initial jobless claim report, but I can find no consensus figures available on this fine Sunday Morning.


Looking ahead to any interesting earnings reports, there are none. Delta reports on Thursday, BUT they don’t have any earnings to report. I will look out a week and see if there is anything worth noting for the first week of January and let you know. I think Monsanto and RPM, (Think caulking products) reports.


Salve Lucrum

BAGAKOAA Dec 26, 2009 If you NEWN what I Knewn

BAGAKOAA;

Dec 26, 2009 If you NEWN what I Knewn

In early December, I mentioned a speculative stock NEWN that was involved in the Lithium Battery Manufacturing industry. As part of my year end get rid of the garbage efforts, the numbers were run on this spec stock. This was originally bought in early December at the 6.48 range, and added mid Dec at the 6.70 price. (Several of the portfolios.)

Here is what the homework showed. With a PE of 5.8 and a Price to Book of 2.6, the equity is more than fair valued. Top line revenue over the last 5 years has been sporadic, but it is a start up. They have gone from 2.3 million to 19.7 million. A market capitalization of 38 million makes it a micro stock. (Scary Speculative). They have a very sexy six month chart with the current price double the 200 day average.

Their Return on Equity is a massive 47.8% which is exceptional. That ratio prompted me to do some homework on the management team. I’ll admit that it took about an hour to try and figure out who is who in the corporate ladder. Fushin Li is the CEO and Chairman and he apparently has ties to several other electronic companies in the PRC. It seems like a seasoned and experienced management team according to the last quarterly report. That report does disclose a preferred stock offering in 2008 and a 10 to 1 reverse split this last July of the common. I say this only to WARN you this looks like a good company but the facts seem to be a little squishy. They have no long term debt, but carry about 5 million is an equity deficit which may have been the reason for the preferred offering in 2008. The deficit has been cut in half in the last 12 months and if China continues to recover, (a good bet), the deficit should be gone in 2010.

The company throws no dividend so this is solely a value increase play. It currently sells for 7.00 a share. My guess is 8.20 by 3rd quarter 2010. There are no analysts covering the stock that I could find so it is lonely. There is positive community support in both Market Watch and Stockpickr. So if you want to bet the farm, please be sure it’s a farm you do not want to ever live in again or even go back to visit because you can loose it. IBD rates this a 92 and when I finished my 23 point analysis it got an 82.61. Not bad for a spec stock.

Salve Lucrum

BAGAKOAA DEC 24, 2009 ‘Twas the night before Christmas

BAGAKOAA;

DEC 24, 2009 ‘Twas the night before Christmas

Twas the night before Christmas and all through the House,
Not a representative was stirring be they fair fellow or louse.

The Health Bill was sent to the Senate with Speed,
In the hopes that they’d pass it with without even a read.

The budget was bursting with stimulus galore,
but the Senate and Congress just cried out for more.

And Obama and his high hopes, and all of his deft,
Insisted on signage, there’s three days left.

So they ignored all the spending that kept us a live,
After all today the DOW hit ten thousand five.

To the State Dining Room Obama and Biden flew,
Mr. President with a red tie and Mr. Biden in Blue.

An epic struggle was settled at dawn,
Between Republicans and Dems the lines had been drawn.

A triumph for sure said Pelosi and Reid,
if not for the content, then perhaps for the speed.

Why read it, it’s long and full of technical terms,
It will keep interns busy as well as lobbying firms.

Just sign it and pass it by the end of the year,
It ain’t our money so why in the heck should we fear.

Then almost as if in the time of a blink,
The Mint used up a billion gallons of ink.

Printing the dollars as fast as they can,
If the paper runs out we’ll fill it again.

Geitner and Bernanke say not to worry,
The value of the buck will get a little blurry.

But after all, that is why there is Gold,
Instead of stocks and bonds and cash to hold.

Now millions will have insurance, affordable we hope.
It should help oh so many to cope.

If I have one wish on this Christmas Eve night.
Is that someone reads the Bill and that we got it right.

BAGAKOAA Dec 20, 2009 The week ahead

BAGAKOAA;

Dec 20, 2009 The week ahead

Tomorrow we get the GDP report and the consensus is 2.7% growth. Surprise numbers would be below 2.5 or over 2.9. This should not have an impact on the equity market unless we get a surprise. It is interesting to see the bump in the market today after the boost it got from third Friday quadruple witching figures as a lot of positions were closed in the options market. Some upgrades today of INTC and AA helped the market early this morning.

Tomorrow, existing homes sales report with an anticipated 6.25 million units, up from the 6.10 million last month. That was a nice surprise last month and it will be interesting to see if the momentum can continue. Personally I don’t see it much above the 6.10 million but it would take a drop to 5.20 million to make people worried.

On Wednesday look for a slight bump up in personal income to a 5% increase. And look for the Core Price inflation to stay relatively flat maybe up.1%.

New home sales also reports on Wednesday. The experts say we should see continued growth, be it weak growth, to 440 thousand units.

On Christmas Eve we will get durable goods order which are expected to be back in positive territory after the -0.6% drop last month. The consensus number is a positive .5%. Durable goods are somewhat tied to new home sales as new home usually means washers, dryers, refrigerators aka durable goods.

And the last relevant report prior to Christmas would be intial jobless claims which should continue to improve to about 470,000 down from 480 last week. There is a narrow window of expectations there so there could be a positive or negative pop if the number does not come in as expected.

No exciting earning reports coming out this week. I just checked the upgrade lists and quite few folk must have read the article on manure and phosphates this weekend in Barons as Potash (POT) got a could of nice upgrades by Goldman and Credit Suisse. I played POT earlier this year and got stopped out, but I did like the fundamentals. You might read the article in Baron’s and do some homework. I am going to revisit the stock this week.

SALVE LUCRUM

BAGAKOAA DEC 18, 2009 Cap’n Trade Maty.

BAGAKOAA;

DEC 18, 2009 Cap’n Trade Maty

Ok we can all take deep breath because we now have climate agreement. That’s right we have an unverifiable volunteer agreement whose details are not yet quite certain with China, India, and South Africa. Last I heard, China has a problem measuring their carbon emissions. You all might check that out in US World & News, The Economist, and Foreign Policy. Anyway, we got an agreement so the press is happy and we can maybe go for the second leg of the Hat Trick and get a Nobel Prize in Science.

Anyway, someone (not a current reader but I will invite.) asked me this week about the Carbon Cap and Trade Concept. I was not quite equipped to explain it, so you know me, no life Cronin, I wanted to better understand. It might make good fodder for this blog as conservative estimates of this potential derivative market is 600 billion to 3 trillion by 2020. Don’t worry that won’t be a lot of money by then. That will be our daily interest on our US debt by that time.

Anyway homework was done and here is a primer on Cap’n Trade.

The goal with a Global Cap and Trade program is to reduce global emissions of carbon dioxide and other nasty gases gasses called greenhouse gases. Natural greenhouse gasses are not in and of themselves a bad thing. In fact if there were NO greenhouse gases, our average temperature would be about 80 degrees F colder than we know it today. Great sleeping weather if you ask me, but it would make scuba diving a tad more of a challenge. But I digress.

Due to the women of the world domesticating their men in the 17-1800s, the industrial revolution has caused a shift in the components of greenhouse gases. Into the life sustaining balance of water vapor, carbon dioxide, methane, ozone, and nitrox oxide, man has added too much carbon dioxide. So now the current recipe of greenhouse gases causes radiation from our little terrarium called earth to stay trapped and it causes our average temperature to creep up or jump up or shoot up, depending upon your political persuasion. Regardless it is headed up.

Enter the Clean Air Act in the US about 1990. It established emission limits for sulfuric acid emissions for companies or utilities or government facilities. And believe it or not it worked. Companies were given permits based upon reduced but acceptable levels of sulfur emissions and if they exceeded those levels they had to pay a fine. It reduced acid rain damage and did not cripple industry in the US and Canada.

The same idea will be true with a global cap and trade program. Companies and governments will be given carbon credits, think of them a non interest bearing bonds with the right to dump X tons of carbon into the atmosphere. How they determine how many credits each company and country will get should make for some interesting negotiations, but it will give Fox and CNN something to takes sides on for years to come.

There will be a market, like a stock market where these carbon credits can be traded. How it will actually work is still not nailed down, but if Obama can brag about a yet to be determined detailed voluntary climate control agreement with a couple of countries who by their own omission cannot accurately measure their carbon emissions, I can pretend to explain how carbon Capn Trades will work.

I am GE and in North America the Global Czar of Carbon Credits determines that I am spewing 100 million tones of carbon into the air of America, (Don’t worry the Czar will be talking to my cousin Vinny who runs GE in Mexcio and my other brother Darrel in Canada.) I will be given credits allowing me to spew say 80 million tonnes (for my global audience to play at home). In order for me to spew 81 million tons, I will need to buy 1 carbon credit whose value is yet to be determined. Now when I, Mr. GE bought Bob’s Little Manufacturing Company in Some City, USA, this summer, on his books were assets listed as 5 carbon credits. (My inner voice was just singing “5 golden rings”, for you Dr. Karen) I now can use one of those credits for my carbon credits to pollute above the 80 million ton target. Now if I, Mr. GE has a bad year and production is way down and I want to make a dividend payment to keep my disillusioned shareholder happy, I can go on the Capn Trade Exchange and sell 20 carbon credits for the going rate of YTB (Yet to Be Determined) and raise some cash to pay my dividend. Now if Mr China wants to displace another 300 million Chinese people with another damn project, (did I spell that wrong?), and it is going to cost me 1,000 carbon credits that I don’t have, I go on the Capn Trade Exchange and try and buy these carbon credits. Now imagine what would happen to the value of Bob’s Little Manufacturing Company if China announces that a month before GE goes to buy the company. Those credits could inflate the value of Bob’s Little Company to a point where GE does not want to buy them, unless they need the credits.

My humble opinion is the idea is a good one. Thinking that the major polluters of the world (Think BRIC and parts of Europe), will agree on carbon credit values and a fluid market for trading the credits? But what the hey, I still think I am going to get taller and have more hair some day.

OK how did we do this week. Tuesday I told you I got whacked on my March Best Buy 41 dollar Call. Ouch, its down 22%. I said they were going to beat 46 and they did. I still like it, but own enough to where I am not buying more. Sit and wait if you own it. This does go around my 8% down rule, but I am cognizantly making that choice for good reasons. Needless to say I did not catch the bottom of Adobe. I had a limit buy at 33 thinking that if the earnings came in weak, (less that .31) I could catch it bottom feeding. Well they had a great 4th quarter and earned .39, I think, and the stock took off. At 37 and change, its rich but well positioned for the future. Its PE is now 30 and price to book over 4. Its 23% above it 200 day average so its trading rich, but I wouldn’t blame for buying or keeping it. I do not own it.

PAYX reported and they hit revenue but way missed earnings. They are down 10%. As I mentioned last week I don’t own and still don’t, but should recover as more people get back to work. The stock is down because it disappointed, but its fundies still look good.

Last week I called PALM worst of breed. Nailed that one. It disappointed and it was ugly. The iPhone is King of the Aps. If you were really brave and read this blog last weekend you would have shorted PALM and be doin the happy dance.

The blog last week noted I would be watching FDX from the sidelines. Good call. They disappointed at all levels. They have managed to cut expense which will bode well for the future, but at an 18 PE ration and the inevitable recovery, I’m am starting to like FDX. After the Holiday I am going to revisit that April 75 dollar call. This could be a good in to the stock. If it threw a better dividend, I would buy into the equity, but its yield is less than .52.

OK getting long here so I’ll start to wrap up. The week was confused but flat and techs pulled us out of the muck today. The Salve Lucrum portfolio lost about 3.2% in unrealized gains this week. There were very few trades this week because I am tired of being called a “day trader” and my real job interfered with me hanging around the halls of Chuckie Schwab. Bought some more Flowserve FLS, more Games Stop GME, bought those calls for BBY, took a nice profit on the Jan HAS calls, took a little profit off the table with IBM as I was up 30% +, took the profits and bought more April Calls on VZ at a strike price of 28.00, bought more of the May HD 26 call but it does have a heavy time value premium, but I like it anyway, brilliantly sold and closed my Jan 45 Boeing calls. Just in time as they got whacked when Ryan Air cancelled 200 planes, took a little profit on BMY since there are indications that h1n1 flu season might be winding down. Look for me to trim my positions in PFE and RHHBY for the same reasons. I want to go back and listen to the last earnings call to hear what other drugs are in the pipeline. Will let you know more next week.

In closing, I had a chance to kick the tires on friend’s portfolio, well one of them. They had a fund fund. Never seen one of these before, but I guess they are out there. It was a Goldman Sachs World stock fund. Its call is GAXCX. I did some homework and found out this is a dog, poor performer and very expensive fee wise. In researching, I ran across an decent ETF you might take a look at if you want global large cap exposure with a nice kick form emerging markets. It is a Vanguard ETF with a ticker of VT. Do your homework. If I were a fund guy, I’d play it. It actually holds a lot opf the stocks I hold in my and various other custodial accounts. MSFT, XOM, GE (Not one of my favs), P&G, AAPL, T IBM, CVX, STD (still one of the banks I track), K, GOOG to name a few. If someone were to hold a gun to my head and say pick a fund any fund, well VT.

Salve Lucrum

BAGAKOAA December 15, 2009 Round and round she goes.

BAGAKOAA;

December 15, 2009 Round and round she goes.

PPI reported today and as was mentioned over the weekend, anything over 1.2% would be worrisome and it was. Coming in at 1.8% got all the talking head heads saying “inflation”. Also mentioned was the Empire State (NY) report coming way below expectations at 2.55 OUCH. Contrary to that report was the Industrial production and factory utilization number which came in close to but beating expectations. The market remained sideways, being down about 25 at midday. BBY, well I bought my calls mentioned this weekend, they beat 43 cents a share, so I should be sitting pretty. The stock and the calls got the crap kicked out of them despite announcing 53 cents a share and revenue increases. WHY? They said 4th quarter margins will erode due to flat screen panel TV sales and notepad sales will have lower margins (that is where their top line revenues came from and you can thank Walmart for banging the margins). Ouch, but they are March options so there is time and I am optimistic. The calls are down 11% right now. And to continue the weeping in our beer, the housing index dropped one more point. The two issues driving the number down were a tightening of credit and consumers concerns over employment. Of course credit is tight. All the banks are paying the government back money most did not lend in the first place and now they are getting in debt to pay back the money and the consumer has not seen a dime in lent monies. Is anyone else a little surprised to see these banks pull about 75 billion out of their behinds in about 4 weeks?

Salve Lucrum

BAGAKOAA December 13, 2009 The week that will be.

BAGAKOAA;

December 13, 2009 The week that will be.

There are about 6 significant economic announcements this coming week you might want to keep an eye out for, as well as a couple of earnings announcements that might be opportunities.

The Producer’s Price Index reports Tuesday and best guesses are looking for a 1% increase. Anything over 1.2% will send a worrisome message which could lead to an adjustment to the market. It could also get gold back up again. The fuel and food adjusted figure should be in the .2 to .3% range indicating no significant inflation fears.

Tuesday a not as critical but important indicator is the Empire State Mfg index. Produced by the New York Fed, it is a trend indicator that is based line so anything over 0 is growth and anything under is a retraction. The expectations are around a 25, weak but positive. Keep in mind that the index was in negative territory from January 08 to April 09. If the number comes in below 15, it will be a big surprise to the down side.

Tuesday will also see Industrial Production and Factory utilization. Both should show light improvements with an expectation of a .6% gain in Production and a utilization of 71.2%. IF either comes in a lot less, look for a sell off. A surprise on the upside probably won’t be a big bump because many think the S & P are already over bought or over valued.

Wednesday will see the CPI which is the consumer version of the PPI reported on Tuesday. Oil prices should boost the number a bit, to the .4% range. Anything over .6% could indicate inflation fears which would mean a market adjustment down and gold possible coming back up. Adjusted for oil prices, look for about .1% increase tracking towards 1.2% annual well below the Fed target inflation rate of 2%.

Housing starts also present on Wednesday. The number was down last month and we will probably see flat line or just slightly positive growth. Last month there were 529 thousand new home starts. The estimate is 575. Anything over 600 would be great for the economy great for Whirlpool great for HD and companies like that.

And on Wednesday watch the fed as they leave the overnight interest rate at the 0-.25% rate alone. This should be a none issue, but if they bump it, it could be a wobbly Thursday in the market. In the back round on this indicator, watch the sound bites about Moody’s rating of US and UK credit. Some are saying the US treasure bond ratings should be dropped. If the US were a company it probably would be rated junk, but we can print our own money. If we ever do get that rating drop, grab you shovels and start digging for gold.

Tuesday you will see BBY, Best Buy report earnings. The consensus is 43 cents a share. The Whisper number (Don’t ask me how or I’ll have to kill you) is .44 a share. I think it could go above the 44 cents. It was .35 a year ago. Circuit City’s implosion makes it the best of breed. Walmart has some very predatory pricing on electronics, but Best Buy is the place to shop and their “Geek Squad” gets high ratings. If top line revenues are up by more than 3%, you could see 46 maybe 47 cents in earnings. If you are a gambling type of guy, there is a March 2010, 41 dollar call selling for 5 dollars and change. That of course means that BBY has to be at 46 to be in the money. It is currently trading at 44.34. A 46 cent earning could easily get the call in the money creating a quick10-20% gain on the Call. I am buying 3 calls at 5.15 limit order for tomorrow morning.

ADBE is reporting on Tuesday as well. I could not find a whisper number, and consensus is .31 a share. I went to the charts, (see the post from this weekend) and it is trading near the bottom end of their trading channel at 35.38 a share. I’d stay away from it as it is trading at a PE of 28 versus and industry PE of 21 and a S&P PE of 16. I like the stock and the product. I would consider putting a limit buy in at 33.00. Their net margin is obscene, ROE is healthy and debt is very manageable. Wish I had gotten in back in June. The stock was at 12.

PayChex is reporting this week as well. It is a prime competitor to ADP for payroll processing. The Whisper number and the consensus is 33 cents a share. I like ADP better but own neither. ADP has a 17 PE versus PAYX of 22. Both have manageable debt, in fact PAYX has none I think. Both should do well as people get back to work.

PALM reports on Thursday and nothing but a blow out figure will be good news for this stock. Consensus is a 41 cent loss. This is what is called worst of breed. The iPhone has killed this company and this stock.

Lastly and an important bell weather stock is FDX. FedEx consensus number is $1.07 a share. Unfortunately, the whisper number is $1.10 so its got to beat that to do something spectacular. That will take top line revenue growth and expense management. Fuel cost are going against that bet as last quarters fuel is up, but we don’t know, or I don’t know how well they hedge their fuel. Remember the Baltic Dry Index, that counts all the container ships on the ocean. There was a positive trend for several months (Not last Month), which implies there are lots of boats on the west coast with stuff needing to be shipped all over. That would be bulk and lighter that load type stuff. That would bode well for FedEx. FedEx is an 88.00 stock and a sound company. If you think that holiday packages and business packages were up over the last 4 months, here is a way you might play the earning announcement. There is an April 16 2010 75.00 call selling for 15.50. That means you would not be in the money till 91 a share. A nice surprise next Thursday could get you there. Don’t get me wrong, 15.50 for an option is a lot a money. That is 1550 dollars a contract. Be very careful. I am just going to watch this one from the side lines.

Ok now its time to catch some football.

Salve Lucrum

BAGAKOAA December 12, 2009 The week that was.

BAGAKOAA;

December 12, 2009

The week that was.

Consumer credit reported down but not as much as had been expected. US Consumer are continuing to pay down their debt, but last month they did not pay them down as much as the experts had thought. So what? Well the experts were off about 5 Billion dollars. Remember when 5 Billion used to be a lot of money? But I digress. That 5 Billion is not attributable to income cuts, in fact the income number are stabilizing. Could it be people are shopping?

Well on Tuesday the retail sales report would say no they are not shopping. SS Sales (Same Store) were down. And the Redbook report from Tuesday said sales were down. All hopes were on Friday’s Retail Sales report. And the report came in better than expected. After getting autos and gasoline off the book it was up about 1.2%. If you got to the US Commerce Department website you can actually see the money. It does not ad up to 5 Billion but it does come in about 3 billion.

Another positive tell were wholesale inventories, coming down for the first time in a year. Thursday exports increased more than imports which is also good news.

Behind all of this mostly good news was the fear of Dubai, Greece, Spain and yet to be determined (look for Argentina’s name to get booted around next week.) credit issues. The Dubai 35 Billion dollar possible default might turn out to be 110 Billion. Remember when 110 Billion used to be a lot of money? But I digress.

So what does all that mean? Who knows? All of the bank stocks in all of my portfolios (direct and indirect) are down. I actually got out of most of them except in UK where trading is too expensive to execute my normal 8% retreat. I am watching Standard Charter very close in that portfolio. I am out of STD, WFC (Well’s has some large commercial exposure so it probably just as well), and HBAN (stopped out but still like it). You still need a financial or two to balance a portfolio so you need to go back to the well and do a lot of homework. Broaden your horizon a bit and consider preferred stocks. This is what I settled on. BACpD. Bank of America just pulled 45 billion out of their behinds to pay off their TARP loan. The dividend on the BAC preferred is 4.14%. Not to shabby. I am warming back into BAC, but I think the preferred is a better way to go. Another option is the options on BAC. There is a ton of interest in the May 2010 Calls at 20.00. The better idea might be spending the 2.00 a contract for the 15.00 in the money call.

Another preferred is the GS Preferred. There was some money made earlier this year by many of us with GS. It got rich and the sector got wobbly. It is definitely best of breed, but some say the 165 price is a bit rich. The current forward PE is 9 so you could argue that. The preferred sells in the 20 and has an 8% yield. Think about it. In the Salve Lurcum Portfolio, there are both preferreds.

What else happened in the SL Portfolio, Bought more GME before their sales announcement, I told you so! Sold off almost all the GLD etf in all accounts. The upward pressure, be it short term, on the dollar will cause gold to come back down to 1000 and maybe even 950. Let’s take some profit while the takin is good. Sold off some Corning Jan 10 $12.00 options at a nice 69% profit. Bought Several April 2010 AMZN 120 options. (Caution-read this weekend’s Barons article about AMZN. It says I’m an idiot and AMZN should be trading about 100.) Continued adding to my NEWN position (Lithium battery technology very very speculative). Bought some May 2010 26.00 Home Depot options. Cramer has been pimping this for a year, but I bought when I heard about the Obama Cash for Caulking stimulus announced this week. DAP is the world largest supplier of caulking materials and HD is one of it biggest if not its biggest retailers. DAP’s parent company is RPM Int’l. Bought some February 2010 17.50 RPM options. (Caution-I have not done a complete analysis of RPM but at face value they looked solid please please please do your homework. I will be doing mine this weekend.) Just discovered I accidentally took some profit on AMT, think cell towers. I think I meant to buy more and sold off a few shares with about a 9% profit. Added to Pfizer and Flowserve buying on the weakness. Got some nice dividends from CVX, TGT, IBM and TPI. (That line was for you Tim.) Finally got the hell out of 10,000 shares of IJJP at an 84% loss. Not to worry it was only 76 dollars. It’s a long story so don’t ask. OK, Sequoia Grove 2005 Cabernet and on line trading do not go well together. And added to my position on Western Union.

It’s a rainy weekend and we have no homework so I will probably post another note this weekend, if not have a great rest of the weekend and get out there and stimulate the economy!

Salve Lucrum

BAGAKOAA December 12, 2009 It’s time to get technical

BAGAKOAA;

December 12, 2009 It’s time to get technical

OK did you miss me? I had a busy week. And to tell the truth, the market is bit weird right now. All I can do right now is give my opinion but I have taken a few steps backwards in the last week or so. Here is what I think is going on and how to best benefit.

Good news is married to bad news in the media. Corporate earnings are improving but seldom with any top line growth so you have to ask, “Is it sustainable?” So I went back to basics.

Make sure your stocks are still healthy. If you got into something more than 3 months ago, just double check the last earnings report. You can find them anywhere but if you want a link, here it be: http://www.sec.gov/edgar/searchedgar/companysearch.html

Then check on the sector using any of the finance websites like Bloomberg, wsj on line, Morningstar, IBD, etc. Don’t fight the sector right now. If it is weak, take some profits and be patient. If its trending up, be patient.

Lastly, if you really have no life, get technical. That’s right, break out the tea leaves and start studying the charts. As a last resort, get comfortable in understanding how the charts of a stock or a sector can help you decide what your next play might be. If you have been reading this blog for any time at all you know I am not a big proponent of charting. But in a sideways or “trading range bound” market, it can help. I know it’s only been sideways for a couple weeks or so.

Knowing that I could not a clear message on most of my stocks I went back to a classic, my dad’s copy of Technical Analysis of Stock Trends, 5th edition. First published in 1948, it is a primer for understanding charting. Then there is a great website called stockcharts.com. There is some great baseline explanations on the site as well as 12,000 free charts. The subscription side is tremendous, but costly and definitely well above my understanding.

There is no reason to bore you with all of the technical indicators, but a couple might be helpful. One is called Bollinger bands. In a nutshell, it is an algorithmic pair of lines that are an indicator that creates a “trading lane” for your equity or indices. Think of it as a shipping channel on a nautical map. If your stock is trading in the lane, you are probably OK. If it goes out of the lane above the upper band, your stock might be heading out to bullish open water, if it is going out of the channel below, it might be heading into the shallows of bear land. Now keep in mind that contrarians think contrarily. If the stock is above the bands, it is overbought and if it is below the band it is oversold. Because we are talking about statistical analysis, both are right.

The other indicator that is helpful is a stochastic oscillator. I have waited my whole life to use those words. Mmmm, a little anticlimactic. Anyway, the specific oscillator to which I refer is the Williams % R. This can be found on almost any stock website with interactive charts. Look for the overlay called Williams % R (most have set up to use 14 data points, my personal recommendation is to move it out to 28 to round the data just a bit). Once you see that overlay, it is an indicator whether the stock or indices is over bought or over sold. Don’t be scared, just play around with the numbers.

Once you do this, you will start to see patterns. It’s kind of like when you were a kids lying in the grass looking at clouds. “Hey, that one looks like a boat or that one looks like an angel or that one looks like. . . “ Well these patterns on these charts will start to give you some idea about what the stock MIGHT do. BUT, remember that some of those clouds that looked like angels turned out to be thunderheads? Some of these trends can be the opposite of what you think.

Any way, let’s take a look at a couple of charts and see what they look like. If you want to follow along, go to: http://stockcharts.com/charts/

You will see a box called enter ticker. Type in SPX, which is the S&P 500 Large Cap Index, and hit enter. Below the chart under attributes you will see a box called Range. Change it to 6 months and hit update. Then under overlays, leave the 50 and 200 simple moving averages and choose Bollinger Bands. (Leave the 2,20 reference as this determines the standard deviation upper and lower control limits. You can change them but there is no need unless you really get into charting.) Click on update. Then go down to indicators and from the drop down box choose Williams % R 14. In the parameters box, change the 14 to 28 and click on update.

Your chart is complete. Now let’s take a quick look at what it might be telling you. Again this is a composite chart of an indicia with 500 stocks in it so we do not care about fundamentals, or news releases, or CEO drug habits. This is pure data. In fact in the original 1948 Edwards-Magee book they said assume the data knows everything there is to know about a company and its stock.

At the top is RSI or relative strength. If its above 50 it is a bullish sign and if it is below 50 it is a bearish sign. Just use it as a pulse on any stock of indicia. SPX is at 55.89 which is slightly bullish. You can see RSI is in the 50-55 since early November. (Sideways).

In the chart itself you will see two green lines. Those are your Bollinger bands. You can see how the stock trades in that band or “Trading Channel”. Right now it is just above the middle of the Bollinger Band midpoint of 1101. The SPX closed Friday at 1106. The blue line is the 50 day moving average, it too appears bullish. The red line is the 200 day moving average, and it to is headed in the right direction. Below the chart you see the MACD and that is a derivative of a moving average. Personally I don’t use it but it does come up on many charting software. The pro analysts like it because it takes into account momentum and trend. I just use to see if its DIRECTION NOT VALUE is up or down indicating bullish or bearish. In this case its going down just a little so that would be considered a slightly bearish trend. There have been hour long conversations about the cross over points on the MACD charts which just bores me to death probably as much as I am boring you to death right now. But I digress.

Now my favorite is the Williams. Remember this is an algorithmic expression indicating whether the stock or indicia is overbought or over sold. Here is where you can have some fun. Go to the July 20 area on the chart. You’ll see the Williams below -20 from 7-20 through 8-17 and the SPX went from 950 to about 1010 and then corrected. Then there is another nice run til Sep 8 and you can see the Willims %. Keep looking at the William and compare it to the SPX price and you start to see a pattern. Now we have a choppy or sideways pattern since Nov 9. We have a narrow trading range in the Bollinger Bands, a flat lined but bullish Williams, and with a little imagination you can see the physical resistance line at 1101. My guess is, next week, early next week we break though 1101 on the down side and it becomes a buy signal for quite a few institutional people. It will come from certain sectors of the S&P. The downward pressure will come from Financials and Energy and upward pressure will come from healthcare and utilities.

So how do you benefit, just go through this exercise for each of you holdings and the sectors they are in. You will get a feel for what might be happening based upon data in combination with the fundamentals of the stock. The better you get at reading the tea leaves the less emotional your decisions become. Try it.

Salve Lucrum

BAGAKOAA December 8, 2009 Pick Stocks Redux

BAGAKOAA;

December 8, 2009 Pick Stocks Redux

This is a reprint of a Nov 29 post adjusted for a new information source.  Morningstar has turned out to be a very user friendly source for all value investing data.  Please feel free to follow along using Morningstar and CVX.  Keep in mind that many of the ratios are recalculated everyday so they might not match what is presented here.  If you complete this exercise before the end of December 2009, most of the numbers will be close.  It might take you about 15 minutes to follow along, but as you become familiar with the various tabs, you can quickly kick the tires on almost any stock.  Good luck and have fun and make some money. 

So there you are pumping gas on I-15 (for our int’l readers, that is a major highway in the western US) and you look up and see the Chevron logo and think that you are paying more for gas than you did 3 months ago. Then you hear Cramer pontificating about how great Chevron is. Then you read an article in the Wall Street Journal about oil shortages and possible oil price increases. So you know this is sign from above to buy, buy, buy Right? NO NO NO. Let’s do about 10 minutes of homework on the stock first to confirm our feelings.

Go to http://www.morningstar.com/ and click on the Tab labeled Stocks.  At the top of the page you will see a box with stock/fund in the box.  Type in the ticker CVX. Ooo It currently at $US76.75 a share. This is not a cheap stock. FIRST Mistake, the price of a stock has nothing to do with the relative value of the stock. The price of a stock is the result of its comparison to its earning per share and the demand for that stock.  More about that in a minute.  To the right of the current price, you see a bunch of other numbers.  You see the opening price, the days range, 52 week range, (noting where a stock is in that range can be relevant), Projected Yield, (this is the annual dividend per share divided by the current price and displayed as a percentage.  In this case the yield is 3.55%.  You would compare that to other stocks or any investment you might have.), market cap is the total value of all of the outstanding shares time the current price, volume is the number of shares traded so far this day, and average volume is the number of shares normally traded on any given day, forward P/E (forward looking price to earnings ratio) which we get to in a minute, P/B or price to book ratio can tell a person what they are paying for a company’s assets based upon past valuations (It is determined by taking all the assets, subtracting all that is owed, and dividing the result by the number of shares.  In a perfect world you would want a 1.0 PB.  Anything below that is considered a bargain anything above that is considered a premium.  Typically there is an inherent premium in well known brands like Disney, Coke, McDonalds.), P/S or price to sales which is determined by dividing the company’s last twelve month of sales by the number of outstanding shares, and lastly P/CF which is price to cash flow meaning the current price divided by the per share value of the company’s 12 month cash flow.  BTW, one of the great things about Morningstar is its glossary function.

 So lets take a quick look at the forward PE ratio. You calculate this by taking the analysts earnings estimates and dividing into the current price of the stock. In CVX's case you can see a Forward PE ratio of 10.00 and down towards the bottom of the page you see Wall Street Recommendations?  Just to the right of that you see more. . .  Click on more.  Here you see what all the brainiacs think the CVX will do on a per share profit basis next year.  You can see from the chart we have 19 analysts reporting and the mean earnings per share are $7.67.  Just do the math. ($7.67 X 10.00= $76.67 or $76.67/$7.67 = 10.00.  That multiple is what Cramer is always babbling about.  That multiple gives you a basis to compare to other stocks.  Typically the lower the P\E, the cheaper the stock, regardless of the current price.

Now go down the screen to the right hand side and see all of CVX’s peers. You got XOM, Royal Dutch, BP, and COP to name a few.  No you know that CVX’s PE is 10 so you just go to each of theses company’s quote page and take a quick look at the other PEs.  I’ll save you the time.   XOM 12.5, RDS.A 22.9,  BP 19.00, and COP 8.2. So out of that list CVX is the one of the cheapest stock regardless of the price. So now you want to BUY BUY BUY. NOT.

We do a little more homework. Like I said, know how your company makes money. You think Chevron would be easy, because they sell gas. Scan down the page and you will see the Profile. Give it a read and you’ll be impressed with what else your company does. You will see a complete profile on Chevron. Now you know how your company makes money and you might be able to figure out what other factors influence the value of that stock.  As a premier reader you would get all of the analyst’s reports.  It’s about 300 dollars for a two year description.  If you think that is rich and have a specific question about an equity, send me a note.

Now scroll down to Key Stats.  The first thing you see is P/E TTM.  That means price to earnings ratio for the last 12 months (Twelve Trailing Months) versus our forward looking P/E ratio.  As you can see the past twelve month P/E is 12.72.  What you want to see is how it compares to others in the industry.  You can see that industry average is 26.0.  So CVX is selling at a 48% discount from the industry average.  It’s like a sweater being on sale so now you BUY BUY BUY, NOT. Let's look at few more numbers.

Remember at the top of the page we mentioned projected yield.  CVX throws a 3.5% dividend, always a good thing. Recently I have been looking for stocks throwing dividend above 4%. Thanks TIM, I am a slow learner. Now you can anguish over all those number, but I like to look at just couple that most value investors consider important.

Back to the section on Key Stats and look at Net Margin % TTM (again twelve trailing months). Net Margin is 7.3% The industry average is 5.4%. Think about this, you can buy a stock at a 48% discount to the industry whose margin is 35% higher than the rest of the industry. So now we BUY BUY BUY, NOT. A little more homework.

I look at the ROE or return on equity. In a nutshell it is a measurement of how management is utilizing the resources of the company. The higher the number the better.  This shows a lackluster 13.9 compared to an industry average of 12.7.  I like an ROE of more than 25. If you click on Key Stats “more. . .”, you can see a 10 year history of their ROE.  If you do the math, their 5 year average ROE is 25.75.  That is a good number. Very nice. No don’t buy it yet.

Near the top of the Page you will see a tab called Financials.  Please click on that tab.  The first thing you see is a 10 year Income Statement.  All those numbers ooooh.  Its scary.  Not really. Here is what I look at and it only takes a couple of minutes. First, let’s look at the recent trends.  At the top of the financials section you will see another tab called quarterly results.  Click on it.  What are top line sales looking like?  Stocks rise short term when profits improve, they rise long term when you have both sales and profits headed up. You can see that in December 2008 they had 45 billion in revenues, 36 in March 09, 40 in June, and their last reporting in September was 46 Billion.  Keep in mind the price of oil when you look at the quarterly revenue. Now the next row of numbers is Earnings before taxes. AKA Profits. You can see a similar trend s as well from looking at the past 4 quarters.

Now back at the top there is a tab called “5-Yr restated”.  Please click on it. Instead of seeing 4 quarters of Income Statements you are seeing 5 years. You can see the ups and downs and you can see that they finish 2008 at 273 billion. If you go back to the quarterly numbers and add up the last 3 quarters, you know they will need a 100 billion dollar fourth quarter to hit their 2008 number. Now what is real pretty about their annual number is the growth of the Earnings before taxes. Look at that 5 year trend. That gets high points in my book. So we BUY BUY BUY, NOT.

Sales are good, profits are good, but cash is very important. Let’s take quick look at their annual trend of how they handle their checkbook.  Go to the tab called 10-Yr Cash Flows.   Go to the row of numbers labeled “cash from operations”. What you want to know is, do they make cash from running their company. There too you see a nice trend upward and they have gobs of cash. NO NOT YET BUT CLOSE

You got sales, you got profits you got cash. All set. The US Government has lots of cash and all they sales you could possibly imagine (Taxes). Would you buy stock in the US government? Let’s look at the debt of CVX.. The accountants out there are getting all excited right about now. At the top of the section you will see a tab called 10-Yr Balance Sheet.  What you are looking for is Long Term Debt. That would be anything they don’t plan on paying off in less than a year. OMG, they have 5.7 billion in long term debt. Terrible!  Well its not that bad. Think back to the Income Statement. They made 42 billion in 2008. So in essence they could pay off their long term debt in about a month and half out of most recent earnings. Not to Worry. Great Stock BUY BUY BUY. Yes.

But before you go buying, what is a good price to buy in at? $78.17 was the closing price on Friday. Its high was $78.73 its low was $77.26, but there is a bid price there of 74.44. I would watch the Asian indexes the night before and look at the Dow futures around 5:30 AM. If the market looks like it is going to head down, put in a LIMIT order just below the closing price. Let’s say 78.00.

Your not done yet because all you did was buy a good stock. You need to have an idea of where to get out. What if this whole Dubai thing gets really ugly and for what ever reason everyone feel safe with the US dollar and the dollar gets stronger sending all of the commodity prices in the toilet. Chevron starts heading down to $70, a 10% loss. Be sure to protect yourself the minute you own the stock. My rule is a stop order at 8% below my buy in.

Also determine where you might want to get out or at least take a profit. Where will that stock be in the spring or next year. You can kind of look into the future. Let me tell you how. Go back to the Reuter’s page and at the top left you will find a tab called Estimates. Click on it. There you will see what all the experts (remember I am not an expert. Just a cute, funny, chubby, guy who has no life.), think how CVX will perform over the next 3 6 9 and twelve months. I like to go to the end of the following year as these are the most complete and conservative estimates around. Now you can see there are 20 experts covering CVX. Their consensus for 2010 earnings per share is $7.53 a share. Now think about how we calculate PE Ratios. Earnings time the multiple determines the stock price. So 7.53 times current PE of 12.72 mean that CVX could be worth $95.72 a share in 2010. And if you use the industry standard PE ratio of 20.12 times the analysts estimates, or 7.53 time 20.12, you are looking at 151 a share. Is that possible, sure in May of 2009 this was a 100.00 a share stock.

So I would be looking for 92 around the first quarter of 2010. And 100 by years end. So go ahead and buy at the 78.00 price range, put a stop in at 70.00 and use a limit order to start taking profits next year around the 92.00 range.

Salve Lucrum

 

BAGAGOAA Dec 7 2009 So what is the way out?

BAGAGOAA;

Dec 7 2009, So what is the way out?

Even though we had a good job loss report on Friday, the market did take off a little then stalled as Chairman Bernanke was careful not to describe an exit strategy of all the stimulus packages floating around.  He also gave no indication of any movement in interest rates.  So the market did not do a heck of a lot.

Friday I took some profit in Gold and today I actually pulled out of gold in a few portfolios.  There was a very bearish  technical article supporting a bearish move in Baron’s over the weekend indicating some retreat to the 1000 mark.

Back on the 18^th this blog was suggesting another 7-11 % on the upside for GLD.  Since that 111 it hit 119, hey that’s 7%.  It is at 113 today.  I know at least two of you got out of gold today.  Can’t say I blame you.  This blog is going to play with the houses money now and put a stop in at 105 on all that is left.

I also had another bleeder, AAPL.  It would be easy to bore you with all the technco speak about 50 day averages and 200 day averages, but this stock has hit me pretty good and that ain’t good.  I am hanging with it.  I look at this as a buying opportunity.  If we had a wish it would be some better volume on the stock.  More players would help the stock up.  We won’t see much in the way of volume till after the Holidays.

Now I know you were all waiting to see what format I am choosing to do my stock homework.  Just a heads up, I looked at Google Finance, Rueters (The New Format), The Street.com (Including the subscription side Real Money), Baron’s (Subscription), Schwab, WSJ Online (subscription), aaii.com, Yahoo Finance, Bloomberg, and Morningstar (premier subscription).  The winner was Morningstar Premier.  It had everything I needed and it was easy to use.  The premier subscription also had some nice research and analysts insights that were very helpful.

In the next day or so I will take the post the 29^th and rewrite that post using the non-subscription side of Morningstar so you have a good map of how to evaluate a stock.  I am going to try it out tonight on a SPECULATIVE stock.

NEWN: New Energy Systems Group, formerly China Digital Communication Group, operates its business through its two wholly owned subsidiaries: Billion Electronic Co., Ltd. (Billion) and Galaxy View International Ltd. (Galaxy View). Through Shenzhen E'Jenie Technology Development Co., Ltd. (E'Jenie), the Company manufactures and distributes lithium battery shells and related products primarily in China. Based upon specifications from its customers E'Jenie develops, customizes and produces steel, aluminum battery shells and aluminum caps. As of December 31, 2008, E'Jenie produced 14 steel battery shell lines, nine aluminum battery shell lines, three aluminum battery cap lines and three steel battery cap lines.

I will kick the tires on the limited information available, but this is a 7.00 stock and it could be a lot of fun as auto related lithium batteries take off.  IT IS RISKY.

Let you know what I think.

SALVE LUCRUM

BAGAKOAA December 4, 2009 Good News is Bad News

BAGAKOAA;

December 4, 2009

Good News is Bad News

Hey was anybody else watching Bloomberg this morning between 6:15 and 7:00. It is lonely here sometimes. Anyway we got a great job report and a great factory order report and we were off to the races. The opening bell sounded like the starting gate bell at Saratoga (sorry int’l audience-this is a relatively famous equestrian race track in upstate New York). We were up 150 points and life was good. Money was leaving the sanctions of gold to US treasuries and the equity market. By the time I got to the office, an hour later, the Wizards of Wall Street began talking about the explosive recovery and that the FED (US Federal Reserve) will have to take action (raise interest rates) and the market was even. Then it went down as the dollars strength continued to bring gold and material related trades down. I can’t wait to here Cramer rant about this tonight. I’ll have a nice single malt and a front row seat. It should be good.

So how do you play today’s action. Here are some thoughts. This news should boost consumer confidence. That should help loosen the purse strings in the retail sector. While I am relearning the Reuters site this weekend, look at Target (TGT) and Amazon AMZN. If you account is set up for options, consider some April 2010 calls for Amazon. There is a lot of interest in the 150-165 range and the underlying stock is at 137. I’d prefer to buy more into the money with a 125 strike price selling for under 22.00 a call.

I would also take some profit on your gold. I am up about 34% and I took some profit for 4 portfolios. The good economic news should help the dollar making the exchange rate issue tough to beat and making the dollar a little more of a safe haven. Keep an eye on inflation “tells” so you can back into gold when it happens and it will happen.

Yesterday, Bank of America raised 19 Billion in the secondary market to immediately payoff the “note” to the federal government. In essence that means it is free and clear to do what is in the best interest of the shareholders. The market is reacting well as BAC is up a bit today. I will crunch numbers, which I suspect won’t be pretty, over the weekend. I feel better about the bank now that Uncle Sam does not own it and the 19 billion dilution is already built into the current price. Of note is what could be shell game being played by Bank of America and Bank of America Home Loan Servicing (Formerly known as Country Wide). There are rumors starting in the Texas market that BOA is selling foreclosed homes to BOA Home Loans, then Home Loans are selling them at market value making BAC balance sheet llok a little cleaner. It also inflates the housing market data if BAC does this with all of it 500,000 plus underwater mortgages its holds. Those sales will be logged as home sales twice once as an auction sale and once as a market sales. MIKE, any input on this would be helpful. (That would Mike Ameel realtor extraordinaire in So Cal)

I’d also look to get in on some downward market pressure on good stocks like aapl, goog, cvx, ibm, amt. It’s a good day to do some shopping.

One of you asked about a play for the 35,000 troops we are planning on sending to Afghanistan. (yes TED it was you.) The new site at Rueter’s will slow down my analysis, but here are a few tickers to look at. GD which was pimped here in October and it still looks like an 80-90 stock by Q1 2010. Check out the May call options as well. Also look at L 1 Identity Solutions (ID) which design and create personal identification systems for banks, institutional organizations and the government. They also are involved in military ID. Also FLIR, which does thermal imaging (Think Night Goggles, not to be confused with night Googles which I do on most nights.) was pimped here in Mid October. The stock looks good and should be in the 37040 range by mid 2010. There was some recent sales by the CEO, but there were corresponding sales by the family trust. A lot of homework makes me think this is just an estate planning issue rather than a value judgment call. PLEASE do you own homework on any of the these.

Salve Lucrum