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


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