Tuesday, March 09, 2010

BAGAKOAA March 9, 2010 The Rally Continues


 March 9, 2010 The Rally Continues

If you were reading the blog, I went out on a limb and suggested a rally has begun as of February 19th. I believe it was described as a two to three month rally. That still seems to be a good bet. However, here are some suggestions.

The portfolio was heavy in GLD as a safe haven during the doldrums of November through February. A stronger dollar, along with a Euro zone crisis has made equities and treasuries look approachable again so you might want to adjust your gold holding down just a bit and take some of the profits we have seen since the 1000.00 low in November.

Also, watch RIG. It is still cheap at a PE ratio of 8 and forward looking of 7.7, however it is driven by the commodity itself. According to Baron’s and The Journal, we won’t see as many speculators pimping the price like we did a year ago so 80-85 might be a moribund range for the black gooey stuff. Yesterday Chevron announced cut backs and expense adjustments and this is a bit prevalent at the moment in all of the big oil companies (More on that in a minute). That is a good sign they are not expecting 100 oil any time soon. My suggestion is, if you got RIG at 85 or lower sit on it. If you want a good source for industry data and updates for the natural resource, agriculture, metals, mining, and oil sectors look for press releases from Dahlman Rose & Co. They have been around a while but they have what appears to be a good handle on those sectors. They along with several other analysts have recently down graded RIG but still have target prices in the 100-110 range. Those are typically 12-18 month target ranges.

In December the blog did a summary on CVX and I quote:

“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.”

Since that time when the equity was trading at 77.50, none of the above is happening and it looks like they might not happen till 2012-2013. As a result, look it’s a $75.00 stock. I am keeping the stock as my oil play (along with RIG)as I like the yield of 3.6%. (Remedial learning for those that want it. Companies that pay a dividend, in other words sharing the profits of the company with its shareholder’s, create another incentive to own the company besides the possibility of an increase in the price of the company’s stock. To determine the yield of the stock, take the annualized value of the dividends and divide it into the closing price of the stock on that day. In the case of CVX it issues $2.75 a share in dividends this year, money given to you the shareholder just for owning the stock. Take the $2.75 and divide it into the closing price of $74.30 and you get a yield of 3.6%) Compare that to putting the money in a savings account earning .8% or buying into a California General Obligation (GO) Bond with a yield of 10%. (More about that in an up and coming post to this blog. If you have some money to park check out the 2 billion in CA GO bonds being floated this week.) Anyway, I am sticking with CVX, putting my stops in at $68.50 and being patient. While I can’t tell you what Cramer is doing because he charges dearly for that information, I can tell you he took some profits in CVX and is going to what he considers more near term growth energy plays. While I can’t tell you what they are, I would not run a Marathon to buy these stocks or even pick them up off the Flour but I might drive away from them in an all Weather Ford.

Another one to keep an eye on is AMT American Tower. If you have been following along, I got into this in September as a result of a lot of homework about the AT&T Verizon war over 3G cellular coverage and a coincidental mention by Cramer on Mad Money. I was actually not liking Cramer that week back in September and almost did not get into AMT at 32 because he was pimping it so hard. My own homework indicated a good play so I bought in looking for a 25% gain in six months. I placed my stops accordingly, and got out at 42 and change in January. After hearing more good news about new tower construction and some subletting of towers by AMT, I was back in again at 40 on or about the 8th of February. It has been trading sideways since. I am sticking with but not adding to the position at the moment.

IBM is another to keep an eye on. This has just stalled on us since mid January. I really like the stock. It is kicking booty in several categories like storage disk technology and there will be some exciting voice recognition stuff coming out later this year. What concerns me is the recent news posts about IBM is all about plastic recycling. With all the things going on at IBM, for them to spend so much time about being green, it has me a bit apprehensive. For the last couple of months, knowing I could pick up IBM at 12-14 PE multiples had me all excited. Now I am on the sidelines to see what they are going to next. I could not recommend buying IBM at 125 right now. On the other hand a lot of analysts have target prices of 135-150. I hope they are right.

We had a good Redbook Retail Sales report and that should bode well for Fridays Dept of Commerce Retail Report. That may help keep this rally going. The Oil inventory report tomorrow should show high levels which combined with the strengthening dollar will cause the energy related stocks to take a hit. It may also bring down overall materials a bit as well. Thursday we have the International Trade report and we should see a continued strengthening in the export figures. This growth should slow as the dollar gets stronger because it makes our goods and services that much more expensive. Look for that impact in next month’s report. Then on Friday look for the retail report and the consumer sentiment report. If you recall, last month the Consumer Sentiment report edged down a bit. I am thinking we are headed back up. Guess well see.

Salve Lucrum


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