Wednesday, March 31, 2010

BAGAKOAA, March 31, 2010 Hedge Hogs what they are eating. . .


March 31, 2010 Hedge Hogs what they are eating. . .

Well, it’s the end of an era, well Ok it’s the end of a quarter. We finished a bit soft because of a weak ADP report which can be a tell for the employment report on Friday. The Chicago PMI was positive, but not a good as I thought or others though it would be adding a couple of bricks to the anchor bag in the markets today. The oil sector got a shot in the arm especially one of my favorites (RIG), when President Obama promised to responsibly allow development of coastal oil reserves. He wants a clean and reliable energy plan which is why he supports oil and coal. HELLO, we are still waiting for this white house to discover gas. God knows they pumped enough gas into the health bill. Seriously, why not LNG, Liquified Natural Gas. (For the answer, compare the lobbyist expenditures for the coal and oil industry to the nat gas industry. Oh yeah the nat gas industry did not have a lobbying effort until October 2009. So that would make millions to congressmen, senators, the RNC and DNC and countless other PACs –both sides of the aisles- to $0 for the gas industry.mmmmm. It is public information. Of the 154 million paid by 776 lobbyists in 2009 about 4.2 million were from nat gas pure plays the rest were oil concern with more than half coming from Exxon, Chevron, Conoco, and PB.) But I digress.

Ok, last night in the wee hours I was thinking about what the hedge fund people will be doing over the next coupld of weeks. Let’s face to quote a friend and mentor of mine, “We are just a bunch of monkeys in a casino.”, when it comes to figuring out this Wall Street Game. I have a nice portfolio and my trades, even though they scare me at times, have absolutely no influence in the scope of things in the investment world. I know many of you hang on my every word to see what gem of wisdom might be disclosed, but despite that, it does not matter.

Cramer said it great this week, I think on Tuesday’s Mad Money. Don’t try and figure out the logic of the market, because you will always get it wrong. He has been doing it thirty years and he still cannot figure it out. He does have a lot of respect for the market and learns as much as he can about the players. One of the largest if not largest palyers in the market at hedge funds. If you could collective figure out what the major hedge fund managers were going to do before they do it, you could be extremely successful in the market.

You will never know what they are going to do before they do it but it would be a start to know what they have done recently and possibly why.

Let’s start by understanding what a hedge fund is. First off they have been around for about 50+ years. Simply explained, think of them as a mutual fund for special individuals that are not under the scrutiny of the SEC. In order to invest directly in a hedge fund you must be a prequalified (High Net Worth) investor or an accredited investor.

The Hedge fund Manager controlling million and in many cases billions of dollars directs the fund based upon the funds core strategy. Depending upon the core strategies the fund manager invests in equities, debt, commodities, foreign exchange currencies and various derivatives of all of the above. Typical core strategies include global macro economic which plays off of regional news and events to determine what direction that market might be going and then trades commodities and equities associated with that region. A great example of that would be hedge fund managers who are currently speculating with billions of copper futures, the Chilean peso future contracts, and of course publically traded companies in the Chilean market.

Equity hedges, some times called directional hedge funds basically play just the stock markets. Their equity strategies can be all over the place but each fund has its own core strategy. You could have long stocks, short stocks, emerging market equities, short positions, value stocks, and blends of all of the above. Another sector of fund is called specific event funds such as distressed asset funds which buy stocks or company assets below market value with the intent to repackage or sell of the assets later. Also in this group there is a strategy called merger arbitrage which takes advantage of market pricings of companies in the midst of a merger. The other core strategies include fixed income arbitrage, Equity arbitrage, Convertible arbitrage, Fixed income corporate, asset-backed securities, fixed income arbitrage, credit (bonds) long / short, statistical arbitrage (technical trading using charts), volatility arbitrage wear they are betting in the change and direction of price rather than price itself, yield alternatives as in the dividend or yield to maturity versus the price of the underlying stock or bond and a weird one called regulatory arbitrage where they attempt to take advantage of regulatory differences between two markets. (An example might be hedging Swiss currencies and Swiss banks when Cayman got tough of off shore corporations.)

So as you can see hedge fund can hedge just about everything. For our purposes, let’s focus on equity hedge funds. Again they focus mostly on stocks. Here are the top ten for 2009 and their asset value in Billion as of the end of the year: J.P. Morgan $53.5, Bridgewater Associates $43.6, Paulson & Co. $32.0, Brevan Howard $27.0, Soros Fund Mgmt. $27.0, Man Group $25.3, Och-Ziff Capital Mgmt. Group $23.1, D.E. Shaw Group* $23.0, BlackRock (BGI) $21.0, Farallon Capital Mgmt. $20.7.

That’s about 270 Billion worth of buying power in the equities market. Yes Ben that is more than I have in my portfolio. Now how would you like to know what they recently bought. You can and very easily.

Go to Edgar on line the face of the SEC database. Let’s pick the smallest of the top ten to start. Farallon Capital Mgmt. In the search box type in Farallon and you will see a bunch of companies come up with the name Farallon in it. Many of these are associated with Farallon, but we are looking for Farallon Capital Management. Now you will click on that company and you will see their SEC filings. You will be looking for all the 13-(alpha a-f) especially the 13-f filings. These have to be filed by the fund manager when a significant position is altered. So lets look at them.

The first one listed for Farallon is a 13f-hr filing. Click on it. There you will see a detailed descriptive of the filing. Go ahead and download the txt file. You are now looking at the actual sec filing from December 31, 2009 for this fund. As you look at the value columns, you must remember these are in thousands of dollars. What I do is to look at the new filings. About 12 down you will see the word NEW on alisting for Delta Airlines. You will see they took a 1.296 million dollar position in Delta stock. They bought 113,000 shares. Do the math, they paid about 11 bucks for the stock. It is now selling for 14.89. Not to shabby. Look further down the list. They initiated a position (NEW) in EPL, Energy Partners Limited. They are a gas and oil exploration company in the gulf. They paid about 8.54 for a stock now selling at 12.25. This guy is good.

Now here is what you can do. Understand the hedge fund core strategy. If these are mid to long term investments, do your own homework on the stocks like Delta or EPL and if this manager just got in the stock and you like the fundamentals, ride along on his tail coat. If he or she bought EPL in late 09, I doubt he is expecting a turn around in the first quarter of 2010. Because of their filing requirement and their volume, they cannot pop in and out of stock quickly or easily.

The other way to look for this info is just to do a search for 13-f filings for the day. This will populate just the 13-f filings for yesterday. That will be the most recent filings.

Again, you still have to do your homework, but at least this way you can see what the gorillas in the casino are doing. Actually these maybe the Pit Bosses.

Salve Lucrum

Tuesday, March 30, 2010

BAGAKOAA March 30, 2010 We need some people in the game.


March 30, 2010 We need some people in the game.

Consumer confidence was basically flat, up from a dismal figure of a month ago but just barely above a four month average. That was my guess so give me another point in the game. What is really concerning is the lack of volume. No one is trading.

The market got off to a good start and by the time I hit the office it was in slightly negative territory. I knew immediately it had to be the ORP effect. Yes Obama, Reid, and Pelosi were on TV and the market was down 46 points from where I left. They got done signing “the bill”, and then the market came back a bit.

I decided to take some profit. I took profit in most of my double digit gainers including AAPL, IBM, INTC, CVX (not quite double digits), RIG, COCO, GD, ARMH, RPM, (Closed that position), GIS, MCD, BA, a HD Call, and an INTC Call. I also adjusted a couple of other portfolios accordingly. Then I reset some stops in light of recent gains. Most of my stops are at 8% below current market levels.

Here is my reasoning. There are a lot of short and or put positions that are hurting right now from hedge funds that sold short or puts in January. They will have to buy their way out of those position soon. Their investors will be wanting cash for tax purposes in the next week or so. I am leaving town to go see the Masters and decided to take the profit now before what I think is going to be a 4-9% adjustment around the 8th of April.

Besides that if you recall, I got out of the market at the 11,200 level in Sep 2006 as I thought the market was way too hot (and I needed some cash). I still believe in this rally that started around the 19th of February, but I think we have come on a little too fast a little too soon and we have done it with very little volume. Kinda weird. So between the market being a little too hot, people needing cash for taxes, the hang over from what should be a pending short squeeze and more importantly my absence, I felt it was a good time to take a few chips off the table.

If I knew I was going to be around and in front of a computer for the next several days I would have stayed in and moved my stops up for the short squeeze then made a couple of more bucks. All I can say is watch your stops.

In closing tonight, a couple of people asked me about AAPL and where it will go. There are target prices of 300-320. These are very doable numbers. There are whisper numbers of 6 million iPads in the pipeline. (Two of them are mine and could be here by Thursday!) Today’s bump was due to a CDMA version of the iPhone for the Verizon network later this year. We have heard that one before. Another case of “buy on the rumor” and quite a few people did. Once the Euphoria of the iPad settles and some players take some money off the table, look for a correction to $211.50 and that will be the closest you’ll be to 200 for a long time I think, but what do I know.

Salve Lucrum.

Monday, March 29, 2010

BAGAKOAA March 29, 2010 You can Please some of the people. . .


March 29, 2010 You can Please some of the people. . .

Well I got lucky by calling the wages and salaries portion of the Personal Income index correct it remained flat which was the high end of my guess. What kicked start the market today was the very positive spending portion of the report. That good news even over shadowed the tragic bombing in Moscow. It is kinda weird that a ship off the coast of Korea could suck 50 points out of the Dow last Thursday and this tragedy didnt even register? Strange this market we play in.

Since the Personal income number came in at the high end of my estimate, I am thinking I might have been too conservative on the Consumer Confidence number reporting tomorrow. I guessed flat and now I might be looking for a slight uptick, well see.

I was WAY OFF on Apollo Group. Their revenue was way up, like 23%. Earnings after a few adjustments, )that I want to check out later tonight), came in at 83 cents a share, 3 cents above estimates and 9 cents higher than my estimates. That was a bad guess and a nice surprise for shareholder as the stock went up $1.92 a share or 3+ %. Nice.

Cal-Maine the egg producer also surprised as they reported $1.45 a share. Revenue was up and commodity feed costs were down. I missed this one as well.

I promised a surprise today for HPJ and we got one they have moved back their reporting to March 30th. We will all be in suspense.

You probably heard that the government is going to sell some CitiGroup Stock (C). I have Citi as do about 5 other portfolios I assist with. The announcement of the sale of 7 billion share sell off caused C to drop 3.5%. I am confused as to how to play this myself. I am trying to find the details of the “structured” sale, but for such a “transparent” administration the details of the sale are a but allusive. The Governments (The Fed) position is at about $3.25 a share and there are assurances that they will not dump this stock and negatively impact shareholders value. Of course we can always trust the government.
Salve Lucrum

Sunday, March 28, 2010

BAGAKOAA March 28, 2010 The week ahead.


March 28, 2010 The week ahead.

Tomorrow we have the personal income numbers reporting. Again I would like you to go back to the Jan 4th post and recall I am looking for a 19% gain this year (S&P) if the consumer begins to participate and real estate stabilizes. There was a rally, be it a bear rally of bull rally or a cross breed rally that started on February 19th. To keep this rally going we still need the consumer and stable real estate figures. We lost some ground last week with the real estate numbers.

The most important piece of the pie is the wages and salaries. It edged up a bit in January, almost a half a percent (4.8% annualized), I do not think we will see that tomorrow, and it could be a big wet blanket for what ever kind of rally we are having. Look for the wages and salary portion of the report to be slightly down or maybe if we are lucky, flat.

THE CCI reports on Tuesday and the confidence figure came down in February and I don’t see anything except a sluggish but positive stock market to cheer people up. I am guessing flat.

Wednesday look for good news in the Chicago PMI report. We had pretty good durable order reports last week, and several other tells that this report should be a good sign and the market should take back anything it lost on Tuesday.

Thursday you have domestic auto sales reporting. Last month the number was down a bit. Look for the number to be solid at the expense of Toyota. Weather improved a bit and people were out buying according to a few of the DMV offices around the country.

Thursday is also the jobless claims number which came in lower than expected unless you read last Sunday night post here. The consensus range next week is 425,000 to 445,000. I am looking at the low end say 428,000. If I am right the bull/bear rally should keep on truckin.

The ISM manufacturing index reports on Thursday and look for the 7 month trend upwards to continue. Remember anything above 50 is growth. Last month it was 56.5 and I am looking for 58.5. That is above most estimates so I am going out on a limb.

Good Friday is a Holiday in most places but the non-farm payroll figure will be released. We have had two months of declines, but this month the consensus is we should come back near even and that is a good guess as far as I am concerned.

It’s a relatively quiet earnings week but here are a few teasers. Apollo Group APOL which I made a little on in 09, reports Monday. The number to beat is 81 cents a share. I don’t see it. This 61 dollar stock has some values out there in the mid 70s. I just don’t see it. My guess is flat with last years same quarter, 77 cents a share. If that happens look for a 3-5% drop.

And in the don’t count your eggs before they hatch, Cal-Maine a regional but large egg producer, well egg distributor as they don’t really produce the eggs, but I digress. They report on Monday and are expecting 1.34 a share in earnings. I don’t know anything about eggs and did not want to learn tonight, but I will guess this to be a bit aggressive. Look for 1.30 a share. At first I thought the stock looked interesting as they have decent free cash flow. The story ends there. Not a great balance sheet, lots of debt, revenue, expenses, and income are very wobbly.

I’ll find some more for tomorrow night. Oh yeah keep an eye on HPJ, Hong Kong Powerteck. The are in the nickel and lithium battery market. I have a sneaky feeling they might have a surprise tomorrow. I didn’t say good or bad did I.

Salve Lucrum.

BAGAKOAA; March 28, 2010 Water Works if you do your homework


March 28, 2010 Water Works if you do your homework

Well, I spent some time looking at the 30 or so stocks. If you want to play along, I opened the subscription level of Morningstar, FINVIZ, Ycharts, and Edgar and began plugging each symbol in and seeing which had value, which had or was trying to improve Shareholder’s Yield, and then did my best to confirm using SEC data on Edgar online. I will not bore you to death with all thirty, but will tell you the worst first and then the best and do my best to explain why.

The worst first.

None of the 30 were pitiful. Surprisingly, the segment seems to be sound even though they might be regional dependence upon municipalities needing clean water. It’s like you can’t live without the stuff or something. Oh yeah they do even if they are bankrupt. (It reminds of the day when I would try and get a marginal casino a line of credit to buy wire and cable. I learned very quickly not to get industrial trade references; I always gave home office, food and beverage payees. They always pay those first. But I digress)

MWA Mueller Water Products, servicing the US and Canada is probably the weakest of the herd, but could benefit from the stimulus packages mentioned in the post from last night. They have a forward looking PE of 17+, a 1.5% yield which is nothing to excited about, it is small with a market cap (outstanding share times current price of those shares) of 732 million which makes them small enough to be a possible target by IT&T. Real Money and Motley are pimping this stock as cheap, but I can see values between 2 and 7 for this 4.50 cent stock. That again might make it a TO target for IT&T. I would not buy this stock unless you got the “rumor” they were a TO target or if you delved into the sec reporting to match stimulus monies with their operational locations.

Purcycle is a mico stock with a market cap of 50 million. Its regional focus is strictly Colorado. Typically this is not the type of company IT&T would acquire, but they could do it with lunch money. I can’t describe it any better than their Jan Sec filing, “Revenues for the three months ended November 30, 2009, decreased 7%, over the comparable period in 2008. This was mainly attributable to decreased water usage at our largest customer due to a reduction in funding experienced by the customer as a result of the economy, which resulted in the closing of certain dormitories resulting in reduced water usage. As a result of the decreased usage we reduced the use of our wells and this reduced our energy usage which resulted in cost savings which resulted in a 1% decrease in our overall gross margin.” If you think that the enough business in CO are going to recover (I am guessing mining or industrial), in the short run, this two dollar stock might be a fun play. Valuations are all in the two dollar range. Free cash flow is non existent and so is their income, a loss of 1 million in 2009. I don’t like it but come to your own conclusions.

OK one more of the weaker ones, VE, Veoila Environmental is a 16 billion dollar multi national based in France. Because VE is an ADR traded here in the states, some of the data is a little harder to get. The have a waste management segment as well as a water infrastructure. I would guess this to be to big to be acquired, unless they spun off the water sector, but the would be a poor strategic move on their part. UK and Euro currencies have played havoc with their financials in 09 along with the poor economy. If you read some of the analysts comments they have 150 years experience in urbanizational (cool I just made a Danerism) support. The bad news is they are not equipped from a technological or personnel stand point to compete in today’s market. In other words their competitive moat gets thinner and thinner. JP Morgan is one of the few that is downgrading the stock and the 4.87 dividend yield might be interesting, but from my reading there are better eggs to fry.

The Better Eggs

The 6 billion dollar MIL Milipore Corp looks the best, but Merck has already figured that out and is in negotiations for their acquisition. However if Merck wants to stay focused on Pharms and med equipment it might create an opportunity for IT&T to pick up some water resource divisions. I don’t know how to play that from an investment angle other than buying Merck and IT&T.

Calgon Carbon is a 1 billion (Market cap) maker of activated carbon systems. Their free cash flow is about 20 million which is not a lot for a billion dollar company, but it has been headed in the right direction for 4 quarters. They have eliminated their long term debt, increased their assets and increased their shareholder value over the last 5 quarters. Their Return on Equity (How management uses the resources at their disposal) is a respectable 14 %. The forward looking PE is 17 just barley above the S & P average. Deane Dray, one of the talking heads at CNBC had some nice things to say about CCC as well as PLL and DHR, all mentioned in the blog last night. I am liking this as a stock all by itself and a possible acquisition target, but it would be a big bite for IT & T. This would be a 1.2-1.5 billion dollar acquisition for IT&T. Perhaps another player (GE or BRK.A) They stopped paying a dividend in late 2005. Look for them to get back to it soon. Here is how I am going to play it. I am going in long on small amount add on the dips, and look for a may June call in the money. I’ll keep you informed. I ended up getting May 17.50 calls for 95 cents assuming my limit order happens in the morning.

Badger Meter BMI from the land of sky blue waters (I justed date myself) in Wisconsin is a nice looking play in the water field. Their market cap is just under 600 million which makes them a target but a sizable target for IT & T. They have had positive and strong free cash flow since 07 and their shareholder value is headed in the right direction. Their long term debt was zeroed out in 08. The have increased dividend since 2006 currently paying 12 cents a share which is about a 1.25% yield. Analysts are getting in the pool with this equity as 5 have initiated coverage on the stock in the last year. I am liking what I am seeing. Ned Davis research likes the stock while saying it is overbought, but has it as a buy. Schwab does not like it and gives it D. If my number are correct and a 2.11 earnings in 2011, based upon known business, this has the makings of a 60 dollar stock selling at 39 and change. I was going to play this with some August calls, but the 40.00 august calls at selling for 3.60 each which means you have to see 43.60 before you are in the money. It’s possible but a stretch. It goes on the watch list.

Dionex Corp in Sunnyvale CA DNEX is a 1.3 billion (Market cap) analytical equipment manufacturer with distribution all over the globe. Free cash flow is wobbly and sitting at about 10 million which is not debt. It has been 6 years since the company has had any long term debt. It is trading at 74 a share up quite a bit since Motley and Seeking Alpha did articles on the company as being an acquisition target in February. I can see a 90-95 dollar stock in ther and possible 100 with the right dance partner. I like their global diversification and emerging market exposure. I am going to play this by watching closely. Ya see we have a “Watch Closely” watch list.

The other 24 are middle of the roaders, some winner, some diamonds in the rough and if I find anything exciting I will let you. If you did not catch Friday’s Mad Money, it worth a download at iTunes. Cramer was in his Professor Cramer mode and gave some valuable insight into the critical need to keep continually educated on the market.

I’ll post later about the week ahead.

Salve Lucrum

Saturday, March 27, 2010

BAGAKOAA March 27, 2010 Water Water everywhere. . . NOT!


March 27, 2010 Water Water everywhere. . . NOT!

If you have been reading the Salve Lucrum blog, you know I enjoy Baron’s Magazine. On most Saturday mornings regardless of how hung over I might be, I will anxiously wait for that little white pick up truck to come down our street and heave the Weekend Edition of WSJ and the weekly Baron’s into our drive. Sometimes I feel like Steve Martin in The Jerk, when he runs around yelling, “The new phonebook is here! The new phonebook is here!” When I am sure none of the neighbors are watching I run up the drive way yelling, “This week Baron’s is here. This weeks Baron’s is here!” Well maybe not but I do look forward to it. This week’s was a cool issue with some great articles. I strongly encourage you to pick up a copy.

Now typically I don’t run out and buy stock in every stock they pimp, but in December they did a story about the weekly feature stock, when positive had a positive improvement in price over the following 18 months. This week they did a fabulous story about IT&T. It would be difficult to bring you up to speed on this equity without some plagiarism, because they covered so much and hit all the important stuff. Trust me the financials look very healthy and they have a price to earnings of just under 13. There are a lot of very positive forward looking statement from management in the article.

The crux of the article besides, explaining how healthy the company, (BTW they do explain how good their free cash flow is how they are paying down debt and supporting their dividend program, which all enhances shareholder yield), described how they are selectively moving away from traditional military contracts and moving more towards commercial enterprises. Now, that in and of itself is not enough to get me excited even with the sexy fundies, but they go on to explain how they are in the catbird seat for fresh clean water infrastructure income in various projects all over the world. To add to that they should be one of the key beneficiaries of the 15 Billion dollar government mandated (EPA) clean water infrastructure of about 70 cities in the US.

There is also a bill in Congress to provide $10 billion, (chump change to this administration and congress) in low cost loans to municipalities for clean water projects. With all of this potential and all of ITT’s cash, they would be prudent to do some shopping for acquistional companies in the field. Here is how I am going to play this one. First I am going to visit Edgar on line and read the last 10K and 10Q and confirm the Baron’s stuff. I trust them but I learn a lot by confirming how they draw their conclusions. Then I’ll go long on ITT at 50ish and look for some June-August in the money calls. Then I will look at the 30 or so stocks in the water infrastructure industry that look prime for the picking. I do this by going back and looking at the SEC filings for Nova Analytics from 2009. I will do this because it will shed some light on what IT&T is looking for as they spent 390 million dollars for Nova Analytics last year.

Here are a few I will be looking at:

Badger Meter, Inc. engages in manufacturing and marketing flow measurement and control products for water utilities, municipalities, and industrial customers worldwide. Calgon Carbon Corporation provides services, products, and solutions for purifying water, air, food, beverage, and industrial process streams in the United States and internationally. CLARCOR Inc. provides filtration products and services to customers worldwide. It operates in three segments, including Engine/Mobile Filtration, Industrial/Environmental Filtration, and Packaging. CUNO is a world leader in the design, manufacture, and marketing of a comprehensive line of filtration products for the separation, clarification, and purification of fluids and gasses. Its proprietary products include uses in the healthcare, industrial, and drinking water markets. The Professional Instrumentation segment of Danaher Corporation offers analytical instruments and related consumables that detect and measure chemical, physical, and microbiological parameters in drinking water, wastewater, groundwater, ocean bodies, and ultrapure water; ultraviolet disinfection systems; and chemical treatment solutions and analytical services to address corrosion, scaling, and biological growth problems in boiler, cooling water, and industrial waste water applications. Dionex Corporation designs, manufactures, markets, and services analytical instrumentation and related accessories, and chemicals. Flowserve (Which I owned in September 09 for about 3 weeks, $82-$93 a share) Corporation develops, manufactures, and sells precision-engineered flow control equipment, as well as provides a range of aftermarket equipment services. Insituform Technologies, Inc., through its subsidiaries, provides proprietary technologies and services for rehabilitating sewer, water, energy, and mining piping systems and the corrosion protection of industrial pipelines in North America and internationally. Itron, Inc. provides products and services for the energy and water markets worldwide. Layne Christensen Company and its subsidiaries provide drilling and construction services and related products to the water infrastructure and mineral exploration markets. Millipore Corporation, (which was in the portfolio in Sep 09 $72-$80, now at 105) a life science company, provides technologies, tools, and services for life science research, drug discovery, process development, drug manufacturing, and quality assurance in the Americas, Europe, and the Asia Pacific. Mueller Water Products, Inc. manufactures and markets a range of water infrastructure, flow control, and piping component system products for use in water distribution networks and water treatment facilities in the United States and Canada. Nalco Holding Company engages in the manufacture and sale of specialized service chemical programs worldwide. It includes production and services related to the sale and application of chemicals and technology used in water treatment, pollution control, energy conservation, oil production and refining, steelmaking, papermaking, mining, and other industrial processes. Pure Cycle Corporation engages in the design, construction, operation, and maintenance of water and wastewater systems in Colorado. PICO Holdings, Inc., together with its subsidiaries, engages in the ownership and development of water resources and water storage operations in the southwestern United States. Pall Corporation manufactures and markets filtration, purification, and separation products and integrated systems solutions worldwide. Pentair, Inc. operates as a diversified industrial manufacturing company worldwide. The company's Water segment offers products and systems that are used in the movement, storage, treatment, and enjoyment of water. Roper Industries, Inc. engages in designing, manufacturing, and distributing energy systems and controls, scientific and industrial imaging products and software, industrial technology products, and radio frequency products and services. Companhia de Saneamento Basico do Estado de Sao Paulo provides basic and environmental sanitation services in the Greater Sao Paulo metropolitan area, Brazil. Servotronics, Inc., together with its subsidiaries, engages in designing, manufacturing, and marketing of servo-control components, which convert an electrical current into a mechanical force or movement and other related products. It offers torque motors, electromagnetic actuators, hydraulic valves, and pneumatic valves primarily to the commercial aerospace, missile, aircraft, and government related industries, as well as to medical and industrial markets. Tetra Tech, Inc. provides consulting, engineering, program management, construction, and technical services for resource management, infrastructure, and environment in the United States and internationally. Veolia Environnement S.A., together with its subsidiaries, provides environmental management services to public authorities, individuals, and industrial and commercial customers worldwide. Aqua America, Inc., through its subsidiaries, operates regulated utilities that provide water or wastewater services in the United States. Watts Water Technologies, Inc. designs, manufactures, and sells water safety and flow control products primarily for the water quality, water conservation, water safety, and water flow control markets in North America, Europe, and China.

Now all I have do is check them out and figure out who looks good, who looks bad, and more importantly who looks like a bargain for someone with a big checkbook. Get back to you soon.

Before closing, there were many good articles in this weeks Baron’s besides this one about IT&T. Be sure to check out the Thomas Donlan article on the health care bill and take two aspirin and call me in the morning.

Salve Lucrum

Thursday, March 25, 2010

BAGAKOAA March 25, 2010 One more day of fun this week


March 25, 2010 One more day of fun this week.

OK under the category of damn I’m good, Sunday night I posted. “Thursday we have the initial jobless claims reporting. The number last time was 457,000. The consensus says we should be down about another 5,000. I say fishah, I think we will see a considerable drop. Possibly 10,000 or more.” Well “or more” was correct. We had a drop of 14,000 on the jobless report today. However it did not have the effect I expected. The market had a couple of good days this week and some profit taking today took a lot of the wind out of the good employment numbers. OK I did miss Wednesday’s durable goods order by a little, but the correction to January numbers gave us a boost.

SBUX, Starbucks did not do well for the first day I owned it. It was down 4.2% since I bought it. So at about 12:50 PST, I checked my homework and did what any wise investor would do. I bought more, actually doubling down.

Now I told you I bought some May 85 contracts for PNRA, Panera Bread. The beauty of contracts or “long calls” in this case, is you control a lot of dollars with just a little investment. For example let’s say you want to buy ABC stock, currently selling for 50 dollars a share. To buy 100 shares, you would have to invest $5,000. ($50X100). As you can see that ties up a lot of cash. Now you can, if your account is set up for option trading, control one contract (100 shares) of ABC at a fraction of the cost. Let say you thought that ABC would go up to 52 dollars by May. There would be an option out there for ABC at $52.00 which means you have the right but not the obligation to buy 100 shares of ABC at 52.00 a share on May 23rd. Typically you would pay about 2.00 for the contract. So for 200 dollars (100X$2.00), you are controlling $5200 worth of ABC stock. If the stock creeps towards the $52.00 point people are willing to pay more than 2.00 for that option. They might pay 2.50 cents for that option you have made 25% very quickly. (2.50-2.00=.50 X 100=$50 on your $200.00 investment) Of course it goes with out saying the negative changes are just as drastic. And that’s where I am with the May PNRA calls. Because the underlying equity was down 1.9% today my calls are off 42%. That is not unusual which is why options are not for the faint of heart. I have had a HAS call be down 89% and have it comeback and cash out at 74% to the good. Its fun.

Let’s look at few of my prognostications for today. WTSLA was looking for 8 cents a share profit and I was a wet blanket on the Wet Seal saying they’d be lucky to see 5 cents. They hit 79 cents a share. Anytime you see a company blow by their consensus by that much, ask why? It turns out WTSLA did benefit from a huge tax ruling. This is a one time extraordinary item. When you adjust down for it their earnings were 10 cents a share, still very respectable. I do not own it and with their financials I would not buy it.

ORCL reported today and I was an oracle in calling the 38 cents a share that Oracle hit. I just agreed with the consensus because I could not see any good reason not to.

I just realized that last night I winged and moaned about loosing money on Best Buy but did not make a call. Honestly I would not have guessed them to do as well as they did. TV and notebook sales got top line sales and profits up. (Think now about that. TV and Note books are hot. Think INTC, AMD, ARMH, and Coring Glass – they make a lot of the glass for the TVs.)

I just looked at the 80 or so companies reporting tomorrow. You are off the hook because I do not know enough about any of them to make a guess. Well, Rubios RUBO does report and they are expected to loose about 2 cents a share. They are opening quite a few more stores, their food is pretty good and commodity prices, (most of their non-labor cost) have stayed in check. Assuming they managed their expansion cost ok I could see them breaking even or even making a penny. That would take a 300,000 dollar improvement o their bottom line from where they expect to finish. We’ll see.

OK good night BAGAKOAA. I will have a brief review of the Priest book this weekend for anybody who cares.

For some lighter reading, don’t forget to check out my non investing blog


Wednesday, March 24, 2010

BAGAKOAA March 24, 2010 So how do you create Shareholder Yield


March 24, 2010 So how do you create Shareholder Yield?

I mentioned the trend away from considering PE ratios as the litmus for equity picking. Are any of you watching what is going on with Starbucks. They are a text book case of what some companies are doing to woo institutional investors and their clients. They announced their first dividend, the announced a buy back of shares and they are reducing long-term and short term obligations. That is the trifecta of creating shareholder yield. I started my first time position in SBUX today.

CHU got slammed today and even its biggest pimp, Mr Cramer is now back peddling. Expectations were low and so were the results. If you were reading, I took my lumps in mid February on CHU and saved another 5% on the down side. In looking at the report, this was not an income issue. In fact income was pretty much in line with expectations. It seems to be poor management and cost management, if there is a difference. Put it in the lessons learned watch file.

I looked all over for the reporting figures for ABAT and did not see it. The stock came down 2% today but so did quite a few other stocks over the fear of Greece and Portugal defaulting. I eventually found the reason there was no reporting: Our Annual Report on Form 10-K could not be filed within the required time because there was a delay in completing the adjustments necessary to close the books for the year. It is never a good sign when you see a company tell the SEC this.

Remember me saying, “dont expect much from the Lame Duck Burger CKE, Carls Junior.” The consensus was 6 cents and I went way out there and said 8 cents. Well they hit 30 cents a share with revenues down 5% and same store sales down 6%. They must have gone really light on the beef over the last 3 months.

And in the category of a swing and miss, Pay Chex reported a lack luster 31 cents a share, which was lower than the 33 cent consensus and much lower than the 36 cents a share I suggested. There was a one time 3 cents a share charge related to a lawsuit, but all top line revenue was down. My bad.

Let see if I can make it up to you. Michael J. had me reviewing some home work from a few weeks ago and I got into a new position today. In the course of that exercise I took a second look at PNRA. Panera Bread sells for a nice value at 79.00. (Some intrinsic values have it pegged at 120-140 a share). The 700 unit bakery/sandwich house has no debt and a sexy free cash flow. If you want to see a great graphic check out this chart: The chart shows a 3 year history of free cash flow with the three components of their balance sheet, Assets, Equity, and Debt. Your gonna love it. Anyway I got into some May calls at 85 dollars for 1.30 per contract. So I won't be "in the money" till 86.30, which is a stretch, but I like this long term, as in 18 months or more.

We are coming toward the back end of reporting season here so it's hard to find interesting earning reports to guess at, but here are a couple. Coto de Caza neighbor Mr. Edmond and his company Wet Seal are reporting tomorrow. Its a small 4.00 a share retailer of clothes. A while back they reported same store sales up about 4%. Nobody in the company buys or keep their stocks or options which would make me thing its fairly valued or over valued at 4 dollars a share. WTSLA is hoping for 8 cents a share. Im thinking no, a guess would be 5 cents a share. Their free cash flow in not  (they have none) and their fundies are not attractive.

Then there is Oracle, no not the one from Omaha, the software company ORCL. They report tomorrow and they are expecting 38 cents a share in profit. I always get nervous when everybody says a stock is hot, but I can not find anyone saying anything bad about ORCL. While everyone is positive, I can't get excited about the prospects. I like the consensus of 38 cents.

Best Buy, BBY reports tomorrow. I got beat up on a March call for BBY. I call it a learning lesson. As I mentioned here before, I bought too far out of the money (over the current price when I bought the call), and did not anticipate the price war with WalMart over the holidays. I could not have learned it any better than if I went to a semester at the Harvard School of Business and it cost me about a semester there as part of the learning fee.

And there you have it. I am finishing the book by Priest about Shareholders Yield. It provides an interesting insight about the value of dividends, stock buy backs and debt reduction in determining the future value of equities. TT you would love it.

Salve Lucrum

Tuesday, March 23, 2010

BAGAKOAA March 23, 2010 What happens next?


March 23, 2010 What happens next?

OK my day started out pretty good except the son was ill and that caused some home scheduling problems. So when I do arrive at work and fire up the e-mail, I have 43 e-mails from 11 Pm last night till 7:50 this morning. While it is tempting to look at all the stock related e-mails, (About half). I take care of about 16 relative important business e-mails and then I spot it. I (and about 44 million Americans) received an e-mail from Nancy-Anne. Now Nancy-Anne and I have become pen pals over the last several weeks as I sign up for the newsletters pertaining to health care. Now Nancy-Anne has been sending out notes about the various versions of the bills being floated in congress and senate. Funny thing is that all of her notes same the same thing about how great it is. But I digress, today’s e-mail has a subject line: “What happens next?

Now my first thought was why is she asking me? I haven’t even read the 2400+ page bill. When I opened the report, I found a very well written two page e-mail explaining the whole bill. Kinda makes ya wonder if Nancy can explain the whole thing in two pages, why did it take 12 months and 2,400+ pages to make it happen. In case you were wondering here is an abridged version of Nancy’s note to me. Children with pre-existing conditions can no longer be denied health insurance coverage, pre-existing condition discrimination will become a thing of the past, young people can remain on their parents' insurance policy up until their 26th birthday, insurance companies will be banned from dropping people from coverage when they get sick, and they will be banned from implementing lifetime caps on coverage, restrictive annual limits on coverage will be banned, Americans (including the estimated 9-11 million people living here illegally) will be ensured access to the care they need, adults who are uninsured because of pre-existing conditions will have access to affordable insurance, we will have increased funding for community health centers, there will be an independent commission to advise on how best to build the health care workforce and increase the number of nurses, doctors and other professionals, there will be $1.5 billion in funding to support the next generation of doctors, nurses and other primary care practitioners, health insurance reform will also curb some of the worst insurance industry practices, the bill creates a new, independent appeals process that ensures consumers in new private plans have access to an effective process to appeal decisions made by their insurer, discrimination based on salary will be outlawed, health plans will be prohibited from establishing any eligibility rules for health care coverage that discriminate in favor of higher-wage employees, provides funding to states to help establish offices of health insurance consumer assistance in order to help individuals in the process of filing complaints or appeals against insurance companies, (thought that what state insurance commissioners were for?), insurers in the individual and small group market will be required to spend 80 percent of their premium dollars on medical services, insurers in the large group market will be required to spend 85 percent of their premium dollars on medical services, the bill require insurance companies to submit justification for requested premium increases, small businesses that choose to offer coverage will begin to receive tax credits of up to 35 percent of premiums, new private plans will be required to provide free preventive care: no co-payments and no deductibles for preventive services, Medicare will do the same, the bill will provide help for early retirees by creating a temporary re-insurance programs, the bill starts to close the Medicare Part D 'donut hole' by providing a $250 rebate to Medicare beneficiaries who hit the gap in prescription drug coverage and the bill institutes a 50% discount on prescription drugs in the 'donut hole.'

So there you have it, health care in a nutshell. You may have guessed I plagerized this from the note that Nancy sent me. I feel I am entitled to because us lucky high earnings have just been adjusted to the tune of 3.8% more in taxes and our health care plans become taxable as we.

You read it hear that COMS was going to report today. I can’t find it anywhere. Perhaps they had better things to do. Well I hoped Carnival Cruises would blow away the 14 cents and share and they did coming in at 22 cents a share. And under the category, ‘How good am I?” DRI, Darden Restaraunts (Olive Garden, Red Lobster, Capital Grille, etc) was supposed to report 92 cents a share. Moi, called it at 94 cents a share.  94 it was.   And in the category of ‘it’s a gimme” WAG, Walgreen did come very close to the 71 cents a share expected. They came in at 68 cents a share with a 2 cent a share downward adjustment for one time construction expenses which nets out to 70 cents a share. Hey its late I thought I would do the math for you.

I offered some wisdom to a reader today who was looking for a good old fashion channeling stock  (just in case, that would be a stock with a very clear pattern of repeatedly going up and then down over a fairly long period of time)and it was worth sharing so someone doesn’t come back and say why didn’t you tell me about XXX. Anyway here was the note provided to them earlier tonight.

“I had a home made turkey and cheese sandwich and decided to stay in today and look for channeling stocks. After going through stock screener in Schwab, Yahoo, Morningstar, FINVIZ, and Rueter’s. I searched for stocks showing 0-+ or- 5% price change in the last 12 months. I could find a group of about 200 stocks that fit that criteria.

When I looked at the charts for about 35 of them, they were not traditional channeling stocks. I could not figure out why they did not have the normal up and down pattern. Then it hit me as Bloomberg was playing in the back round of my office. The DOW and S & P have hit 52 week highs. The market and all the stocks in it have been through a major upheaval over the last 18 months which would destroy any normal channeling strategy. Many stocks are up 45-70 % since last March. Now would not be a good time to look for channeling stocks.

Below is a sampling of some traditional channeling stocks but as you look at their 12-18 month charts, they are sporadic but not clear channels. You could probably go to UNLV (this person happens to live in Las Vegas) and take a course in technical stock fundamentals and figure out some of these channel stocks, but otherwise you are reading tea leaves.


Instead, let’s look for a good value stock with a great free cash flow. For example:

PLCE The Children's Place Retail Stores, Inc. operates as a specialty retailer of children's merchandise in North America. The company designs, contracts to manufacture, and sells merchandise under the proprietary The Children's Place' brand name. It specializes in children's clothing and accessories ranging from newborn to 14 years old, including girls and boys, baby girls and boys, and newborn. Its product lines consist of clothes, outfits, baby necessities, tops, bottoms, jeans, swimwear, sleepwear, outerwear, shoes, clothing accessories, underwear, and novelty items, as well as Halloween costumes. As of August 29, 2009, the company owned and operated 941 The Children's Place' stores and an online store at The Children's Place Retail Stores, Inc. also provides private label credit cards to its customers through a third-party financial institution on a non-recourse basis. The company was founded in 1969 and is headquartered in Secaucus, New Jersey. It is currently selling for 44 dollars a share and has an intrinsic value of about 80 and no debt. It’s PE ratio is 13 which is fair. Its free cash flow is back in positive territory AFTER paying off about 55 million in long term debt. They have no LDT at this moment. I’d suggest picking it up below 45, put a stop in at 38. Let’s watch it for a few months. DO YOUR HOMEWORK

SAM, Boston Beer makers of Sam Adams and 8 flavored malt beverage products under the Twisted Tea' brand name; and 1 hard cider product under the HardCore Cider' brand name. It also produces malt beverages and hard cider products under contract for third parties. The company sells its products to a network of wholesale distributors, who then sell to retailers, such as pubs, restaurants, grocery chains, package stores, stadiums, and other retail outlets. They have NO Debt and 11 million in free cash flow. They do not issue a dividend. The currently trade at 55 a share. Look for a move to 70-72 by years end. Put a stop in at 46. DO YOUR HOMEWORK

TGT or as I call it The Black Hole. It’s where everybody goes for everything and nothing. They are selling at 53 and change, have a fairly heavy debt load but manageable. I made a couple of bucks off it but still like it. I do not own it at the moment but would consider getting in with ya. It appears to be about 72-73 dollar value, IF WALMART does not start another price war which hurt both of their margins back in NOV-DEC. If you get in around 53, put a stop in at 48.75. The have about 560 million in free cash flow which should be enough to keep the debt managed and keep paying the 17 cents a share dividend. Actually if I had to guess, you might see the dividend go up to .20 by years end. They have the cash to do it and their only option is to pay down the LTD or bump the dividend. DO YOUR HOMEWORK.

Oh yeah here are a couple of more guesses for tomorrow. For a fun little tell on lithium batteris look at ABAT Advanced Battery technologies. They are a PRC (People Republic of China) mfg of lithium batteries. The are due to report a penny in earnings. I’ll say 3 cents and the 4 dollar stock might get a pop. Careful these PRC stocks are shielded and there is lots of room for accounting games.

CKR reports tomorrow and I can’t get a solid feel for which way they will go Carl’s Jr, Green Burrito etc could do well. I like their commercials. Keep in mind they are a lame duck stock because they agree to a private equity buy out so don’t expect much either way. To stay in the game, the consensus is 6 cents and I will guess 8 cents. There is no whisper number to be found. PAYX, Pay Chex reports as well expecting 33 cents a share. They are the second largest payroll solutions company in the world (ADP is the first-I think). I would suspect from all the relevant positive employment data out recently that PAYX should have no problem meeting the 33 cents. There have been to analyst upgrades this week and that is a good tell there might be good news. I am guessing 36 cents a share. This is a 32 dollar stock priced at 32 dollars, but it’s got good free cash flow, a dividend yield of 3.3 % and no long term debt. This could be a fun one to watch close.

Salve lucrum

Monday, March 22, 2010

BAGAKOAA; March 22, 2010 Oil and buy on the rumor sell . . .


March 22, 2010 Oil and buy on the rumor sell . . .

OK the market did a little better than expected today. As I mentioned the health bill was factored into the market prices either way. There is an old adage in the market, buy on the rumor sell on the news. Well I think a lot a folk forgot that today. From the opening, monies were pouring into every sector of the health care market. From device makers (sans Boston Medical which has bigger problems than whether a bill got passed or not), to HMOs to actual hospitals all jumped up today. Now the rumor, (when you buy) was that there might be a health care bill. The news (when you sell), was that we have a health care bill. Today would have been the day to take profits. Look for 3-5% adjustments for many of the health care stock to correct over the next few days or weeks. Remember that most of the mechanics of the law or soon to be signed law do not go in effect until 2014.

Now let’s take a look at a couple of my prognostications. WSM William Sonoma reported better than the 73 cents a share estimate and my guess of 75 cents got tossed away as they hit a great 81 cents a share. More importantly, they are bumping their dividend by 8.4%. That means their dividend yield will be about 2%.

Tiffany’s TIF did not hit their estimate, but did not do as poorly as I had anticipated. That is a good sign for luxury goods. They hit 1.09 a share in profit versus the estimate of 1.13 and my bearish call of 95 cents a share was way off, but in the right direction.

While I prognosticated about SCHL, Scholastic, they did not report today. Can’t figure out what happen. They were listed to report. When they do I will let you know if you care. Personally I don’t.

One of the readers was asking about CVX, Chevron, which is in the Salve Lucrum Portfolio. The were talking about BP PLC as another possible play on oil. Quite honestly I don’t like the oil stocks right now. I did some homework on about 35 oil stocks and could not get excited about any of them. I will hold my RIG and CVX, but would not add any right now, Here is why. The two biggest drivers of oil demand right now have ach tapped their economic breaks. China has tried to cool their economy by tightening bank capital reserves and India fooled everybody last Thursday by increasing their prime rate. Both economies are hot and needed to be cooled a bit. Domestically you might take a look at Petro China PTR or China Petroleum (SNP). PTR is selling for 116 but has an intrinsic value of about 200. But again I would wait and see.

My suggestion to them would be, as usual do your homework but take a look at a big industrial like ROC or LMT. Bother are doing very well and positioned for growth in domestic aviation and military sectors. I have done very well with BA in long and call positions of late but feel we are getting to a top end price for the next couple of months.

According to Yahoo Finance, 3Com reports tomorrow, and I think they will beat the 8 cents expected of them. I do not own it. Carnival Cruises reports tomorrow and it should come in as expected at 14 cents a share if they kept their expenses in line. Personally I’d like to see them blow away expectations as it would be a good sign for PADI and the travel industry, but I feel it’s a bit early to count those chickens. Another tell tomorrow about discretionary income is Darden restaurants. You may know them better as Red Lobster or the Olive Garden or one of my favorites The Capital Grille. They are looking for 92 cents a share earnings. My guess is 94, as people are starting to escape out a little more and DRI from all reports have kept their expenses in check. Remember there has been little inflation so their cost of goods, mostly commodities like corn and beef and vegetable oil should have stayed low and their volume should be up. And Walgreen’s reports tomorrow. They are looking for 71 cents a share and while I can’t find anything to think that won’t happen, I feel they will hit and possibly beat the number, but expect some very positive comments from management playing off the big push for generic drugs with the news health care bill and their recent acquisition of a NYC drug chain. It should be a good day for WAG.

Salve Lucrum.

Sunday, March 21, 2010

BAGAKOAA March 21, 2010 The week ahead


March 21, 2010 The week ahead

Well. I didn’t post this weekend as it was my daughter’s 29th birthday. (Gonna catch crap for that one.) We went up to LA to see a Laker’s game. That was fun. The she helped me Saturday for few hours cataloging some wine. Saturday night we had a great meal at Hannah’s, our joint. So I didn’t even look at Baron’s until this evening.

Aren’t you proud of me. I did not once mention the health bill. This blog is about investing and macro economics not politics. As a sidebar, do you know that a law of the land always trumps a presidential executive order. Ask any supreme court judge, which representative Bart Stupak might have tried before switching his vote. But why bother

But tomorrow is a new week so let’s see what’s out there. According to Bloomberg most markets are due to open down. Could the new health bill be making the market jittery? I don’t think so. Economically it appears to be a quiet week.

We have existing home sales out on Tuesday. Remember this indicator is measured in units and since the expiration of the home credits we have seen the number come down from 7 million to a hair over 5 million. Stinky weather will probably keep the number in the 5 million range. That is the consensus. Anecdotally I am hearing the homes under 2 million are starting move in most areas of the US. Here in the land of make believe (Orange County) homes are starting to sell be they priced much lower than most have imagined. My guess is existing home sales down to about 4.9 million and look for the S & P to loose about 15 points. That would be a drop of about 70-90 on the DOW. That would be Tuesday. Monday, I am thinking there will be a lot of sideways trading and the market won’t move up or down much. I’m feeling much more bullish on the durable goods orders due out on Wednesday. The consensus has it down to 1% gain. That is down from the 2.6% gain for the month before. I am sure the experts know more than I but look at the good news last week out of Boeing, Cat, Ford, GE, GD, Fedex and oh so many other durable good type companies. I am thinking a 2.6% gain and a nice bump to the market. New home sales also report on Wednesday. The numbers should stay flat at about 315,000. Which is good as we need to clean out some inventory before the builder throw more frames up. Thursday we have the initial jobless claims reporting. The number last time was 457,000. The consensus says we should be down about another 5,000. I say fishah, I think we will see a considerable drop. Possibly 10,000 or more. That will bump the market nicely. Look for employment improvement in most of Europe as well. Then Friday is the GDP number. Watch this one closely as we came just shy of the magic 6% (Annualized) number last month. If we breach that number, which I don’t think we will, the Fed could start tapping the breaks making capital that much more expensive making a lot of cash rich companies rethink hiring and M & A plans. i.e., watch your stops.

So now let’s see who is making money this week. We have WSM reporting on Monday. William Sonoma does it right. Survey says, 73 cents a share. I think they can squeeze out a bit more. Look for 75 cents a share.

Another one reporting before the bell is Tiffany & Co. Have you ever been in a Tiffany Store. Why? I don’t get it but they seem to be making money. I just spent twenty minutes looking for a whisper number on the stock and there is none to be found. The street number is 1.13 a share, but I don’t see it. Yeah the economy is just beginning to recover, but I don’t think people are running into TIF. I am guessing 95 cents a share and look for this stock to correct a couple of points. It is an interesting long term buy at 40-42. It is pricey at 47.

Now let’s go back to school with Scholastic. SCHL They are due to loose more money, but not as much as in the last. Even their new franchise Captain Underpants are not going to help yet. You have 38 states trying to steal money from anywhere so school programs are getting clobbered. Traditional printing is not fairing much better. Not a great business climate for SCHL. They are supposed to loose 13 cents a share and I am guessing worse than that. They will loose. . . drum roll, weel you have to care if you hear a drum roll, 16 cents a share. I’ll have more estimates for you tomorrow. Let’s see how I did with these.

Speaking of how I am doing with the estimates. Even I am surprised that I am hitting about .650 with my guesses. It got me thinking about the value and importance of earnings and PE ratios in determining stock prices. For decades its been value investing and comparative PE ratio determination. I am not all that sure.

Saturday’s Baron's had a great article about William Priest, CEO and Chair of Epoch Investments. In a nutshell the article was an interview with him about identifying companies that intelligently allocate free cash flow to either issue a dividend, commit to a stock buy back program or have an aggressive but responsible acquisition program. I suggest reading the article and then kick the tires on your portfolio to explore how your holdings are treating their cash flow. Priest wrote a book in 2007 called Free Cash Flow and Shareholder’s Yield. I have already downloaded it to my Kindle and have the Hardcopy on the way. When I learn the hows of how to find free cash flows in the quagmire of financials, I will let you know.

Salve Lucrum

Friday, March 19, 2010

BAGAKOAA March 19, 2010 SALVE LUCRUM update


 March 19, 2010 SALVE LUCRUM update

Sorry, as technical issues kept me from posting on the 18th.

It’s been a couple of weeks since I gave an update of the Salve Lucrum portfolio so here are some of the latest trades. As mentioned I closed out my position on that CHIO Chinese on line insurance company. I have moved it to my watch list. I took some nice profits on a Juniper Networks July 29 dollar call as well as a June $15 dollar Denbury Call. Got a nice dividend on my MCD holdings, got an interest payment on my Zion Bank bond, added to my position on RPM (parent company of DAP caulking products), continued adding to my position in INSM, on the morning of the 17th, I bought 5 June $62.50 TEVA calls. I did not know about the possible merger that actually happened today. Both my long position and this call looks very pretty right now. By most accounts, TEVA is the best of breed for generic pharms and has great international exposure. I closed out me march 20th call position on Best buy with a 97% loss. That is my worse loss of the year, and it was a dumb investment done with out enough homework. If I had read the 3rd quarter earning report, it was pretty easy to see the margins trends going in the toilette. BBY was forced to compete with WMT on their big screen offering and it sucked the life out of their profit. I assumed with Circuit City OOB that BBY had clean sailing for the Holidays. I ignored the WalMart factor. Shame on me. I also added to my position in KTCC which offers electronic management services such as product design, surface mount technologies for printed circuit board assembly, tool making, precision plastic molding, liquid injection molding, automated tape winding, prototype design, and full product development. This 6 dollar stock has an intrinsic value of about 12 bucks. Do your own homework on this one as it is small cap. I added to my position in TQNT, Triquint Semiconductor. Management made a favorable forward looking comments about future earning pegging it at 11 cents a share versus the 9 cent consensus. If that 11 is conservative and most magament is conservative when making forward looking comments. TQNT could crawl back to 8.20 a share in the few weeks. I also added to my already large position in ARMH out of the UK. This very special chip maker is getting to be the darling of the smart phone industry. There is one portfolio in the Uk which I provide tutelage on where the actual company (ARMH is a US ADR- An American Depositary Receipt (or ADR) represents ownership in the shares of a non-U.S. company that trades in U.S. financial markets.-Thank you Wikipedia) is up 38% since last September.
I mentioned the TEVA Play but it is worth noting that the 5 Billion acquistion of Ratiopahrm should help the compnay long term. It really enhances their international exposure as Ratiopharm is very strong in Russia, Spain, France, Italy, as well as Canada. While it seems like big bucks, TEVA has had bigger acquistions. They bought Barr Pharm for 7 plus billion way back when and it turned out to be a great acqusition. Ratiopharm should be just as beneficial.

On Wednesday I called an S & P to the upside by 9 or so points and pretty much nailed it. I was expecting something more exciting today. The jobless claims weren’t as good as many had hoped but they are still headed in the right diocrection. The feds busines indicator were positive but we got no po from it. Inflation is non exisitant. I had suggested last Sunday night we would see a subtle but measurabel increase in the Consumer Price Index. It was so subtle it was not measuable. It is about as flat as flat can be. Not to worry about inflation. Then there were some earnings reported today. Of note, Nike is liking Tiger and people are liking Nike. They blew away street estimates by 21 cents or so. This is much more fun when I rpedict these things. Also my son may have been wiser than I. Game Stop had a good earnings call and although we are all of of the GME position,It was up 6.5% today to 21 and change. I still feel that cloud computing especially by gaming houses will do to GME what Netflix did to Blockbuster.

If I don’t post, have a great weekend.

Salve Lucrum

Tuesday, March 16, 2010

BAGAKOAA March 16, 2010 A Swing and miss CHIO


March 16, 2010 A Swing and miss CHIO

OK a few days ago I told you about a VERY RISKY Gamble on a Chinese on line insurance company CHIO. Ooops. I got out today with a little sting (25% down). Licking my wounds on that one. I suggest you don’t get in it and if you did get the heck out NOW! Bad call.

If you were fortunate enough to have Bloomberg in the back round all day long, you would no the big news of the day is Tiger will be in the Master’s this year. Well it really was the big news. Why it’s relevant to the market, I don’t know.

Actually everybody was talking about the FOMC, (Federal Open Market Committee). The market is a funny thing. For two weeks everybody talked about the Fed Meeting today and how everybody assumed that there would be no rate change. The market traded a little up for two weeks with the assumption there would be no rate change. Today the Fed made no rate change and it was good for the market. Strange think this Market.

If you were lucky enough to own Limited Brands, LTD, (I don’t), you got a nice surprise, the company decided to share the wealth with a special one time dividend of 1.00 a share. That would be about 300 million. They are either doing well of trying to but love. My guess the former since they have a 170 million dollar stock buyback program. This 24.00 stock has an intrinsic value north of 30.00. It is going on my watch closely list. Do your homework. (LTD has the Victoria Secret and Bath and Body Works brands.)

Let’s check the score card. RUE report today and it was supposed to hit 30 cents a share. I pegged it at 37 and it came in at 32 cents. The street liked it as it ran up a buck or more than 3%. I am liking this one a lot.

Fact Research, FDS. reported today and I suggested they came in strong. The financial information stronghold was due to hit 73 cents a share and I was saying 80 cents a share. A respectable 75 cents a share was the number and it to went up 3% today. BTW both stocks we up due to increased revenue as well as savings. We are hearing that more and more.

And in the two out of three ain’t bad category, DFS, Discover Financial was supposed to hit nine cents a share. I had them coming in stronger than that, but they actually lost 20 cents a share, a huge miss. The company explained the loss as needed to meet reserve capital under the TARP repayment plan. Which I guess makes it a good loss. Show me a good loss and I’ll show you a loss.

So there you have it. Two outa three. Not too shabby. I am thinking a decent day in the market if we get some decent volume. Maybe another 9-10 points on the S & P. What do you think? Let me know.

Salve Lucrum

Monday, March 15, 2010

BAGAKOAA; March 15, 2010 Time to take a bite?


March 15, 2010 Time to take a bite?

OK I suggested you keep an eye on your stops and that still holds true. That will be tomorrow when we hear from the Fed. I wanted to go over a few more earnings call for Tuesday and Wednesday. But first, a word from our sponsors.

We’ll I don’t realty have sponsors. I don’t have subscribers either. So I am not really sure why I said that. And I don’t know why I am not going back to erase it. But I digress

Today AAPL got hit for 2%. I do not understand this as all rumors about the pre-sales for iPAD are very promising. In fact the rumor number for iPad sales in their first weekend is 150,000 units. That is a higher number than when they launched the iPhone. 150 thousand works out to about 100 million in sales. My point is that this could be last time you get into AAPL below the 225 mark for a while. Another rumor is that there have been more than 40,000 apps built for the iPad in the last 8 weeks. In researching possible purchase of additional shares, there was a quote from a Piper Jaffary Analyst who disclosed information from a research paper from NDP inc. that Mac and iPod shipments are much higher than expected. This could make for a very exciting 1st quarter report from AAPL in a couple of weeks. Anyway if you think you missed the Apple cart, think again. 12 to 18 month target prices are in the 280-300 range.

Now before we get to earnings how did I do on the Empire State survey prognostication. The guess was flat and I suggested we’d see a bump. We’ll we got a bump. It was less than a point and obviously not enough to excite the market, but more importantly I was right.

Now let’s look at the two earnings calls I guessed at. Apparently I goofed or Baron’s goofed and WSM does not report until the 22nd. I still like the 75 vs 73 cents a share.

And I guessed a nickel in earnings compared to eight cents for COMS 3COM, but we won’t know till Wednesday.

Ok who else is reporting earnings this week and how will they fair. The two assumptions I make here is no interest increase tomorrow and no surprised from China.

Here is a little sleeper you might want to do homework on. RUE Rue 21 is a small retailer that is getting some good press. It has a manageable amount of debt and a great return on equity. IBD (Investors Business Daily has it as a top rated equity.) I do not own it but have put it on a watch list. They are hoping for 30 cents a share. I am thinking 37 or better. This is a 40 dollar stock by years end.

OK another one to watch is FDS Fact Research Systems. They provide financial and economic information to institutional traders. This is a promising stock with a great balance sheet and a great Return on Equity. It has legs to 80 a share in 12 months. At 71 a share the PE ratio is a little rich at 21. look for better than expected earnings tomorrow to bring that PE down to 16-18 which would mean an earnings number of 80 cents versus the 73 cents currently being suggested.

Also look at Discover Financial DFS to post better than the 9 cents being suggested. This of course is the discover Card people. Remember what I mentioned last weekend, people are spending again and paying down their credit card debt. I am thinking 14 cents a share.

Remember to do your homework and watch your stops.

Salve Lurcum