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 whitehouse.gov 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 www.childrensplace.com. 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


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