Sunday, May 02, 2010

BAGAKOAA May 2, 2010 I am stuck on Band Aids and the week ahead


May 2, 2010 I am stuck on Band Aids and the week ahead

Ok, a week in Augusta, a week doing strategic planning meetings, and a week with the best bunch of salespeople in the entire scuba industry, (and I am not saying that because a few are now following this blog), but now its back to watching this precarious market we are playing in.

My investment week usually begins at about six to six thirty Saturday Morning when Barron’s slides up the driveway. I was actually kinda getting upset Friday night as I sat in Chicago watching my flight to Orange County get cancelled and truly concerned I would have to spend the night in the “Windy City”. I don’t know why as they sell Barron’s in Chicago and I get the internet access version as well as the Kindle version, but either way, I could not wait for this week addition and I was not disappointed.

The cover story was about JNJ, Johnson and Johnson. Remember, in 2009 Barron’s front page positive exposes has a return of 11% better than the S & P 500. This was a good article but not over the top. It did get my interest as it hit the trifecta of shareholder’s yield. Look back in the blog and you will remember. (Use of free cash flow to pay down long term debt, to fund dividends, and to buy back share-or make strategic acquisitions.) JNJ scores well in all three areas. Their long term debt is high but manageable, the just increased their dividend by 10.5%, and they are continuing to buy back shares. The article by Larry Strauss goes into great detail about the different business sectors and geographic exposure. This is not a get rich quick stock. Do your homework and get in gradually over the next 2-3 months. I am getting in with 25 shares tomorrow. I am in at below 65. I will add to it on dips at or below that price. I am guessing it a 85-90 dollar stock in 12-18 months. Remember it throws a nice 3+% dividend yield.

Michael Santolli’s article “The Provisional Pullback” is great. He basically explains how hard it is for big money managers to get a read as to what is really going on and shares a few relevant sources as to what might be going on. I recommend the article, but it a nutshell the market may have gotten a bit ahead of itself, but not as much as some say.

Gene Epstein revisits a March 22 article about the double dip recession and changes our minds about the possibility of a double dip happening. There were several articles by writer who had earlier (two to three months ago) played the role of bears sounding more bullish. There are a lot of people betting in the bull pool.

There was a great but small article about the value of JPM over C. I agree with everything Andrew Bar said in the article. I have to as I had about 6 accounts profitably stop out of C at 4.50 this week. I am not ready to jump in at JPM until I hear more about the criminal charges against GS. Remember way back when in the junk bond days, just the mention of criminal charges caused Drexel Lambert to liquidate and close the doors. Don’t get me wrong, I still feel GS will prevail and return to the 180-200 range, but I have some July calls that are down 45% at the moment and don’t want to add to those losses with a JPM gamble. If you are looking for a safe bank bet with some legs, look at HBAN and ZION. HBAN recent one cent a share profit got a lot of analysts attention and few upgrades. Do your homework, but this 6 dollar stock could see 9 in 6-12 months. ZION is getting some attention after announcing a dividend. It loan efficiency is stabilizing and that can be good or bad depending upon what if any loans there are taking charges on. I think they are good play and the 26 dollar stock could see 30-35 in a year. PLEASE do your homework.

There was a pretty critical article about DELL, but I don’t own and haven’t for years. It’s a good read and pumps HP and IBM. (I own IBM). The article by Shirly Lazo makes me glad I do own IBM with its 18.7% dividend yield. It was a November Barron’s article that got to pull the trigger on IBM.

In a nutshell, pick up this weeks Barron’s it’s a great read.

Here is what has been going on in the Salve Lucrum portfolio. (I will give a breakdown as a couple of you have asked for it and it has changed a lot since the last breakdown I provided. I hope to have it broken down for you by Wednesday.) Remember I have about 20% in bonds, about 15% in gold and silver ETFs and the rest in equities long or calls. I added to my position on RIG with the intial news of the Lousisana tragedy. More on that later. I got my first small but important Starbucks Dividend. Stopped out of JPM with a small gain, (1.2%). Stopped out of COCO which bummed me out. I nad about 4 bucks a share but I found this one on my own and did all the homework from a shareholders yield POV and was expecting big things for COCO. Don’t get me wrong, I am happy with a 22% gain but I was really looking for a double. I am going to do a forensic on this and keep in the closely watch watch list. I profitably (98% gain) stopped out of my May 26 dollar calls from Starbucks. That again came from reading the Preist book about Free Cash flow. SBUX paid down debt, issued it first dividend and is buying back shares. This three elements is what the money managers look for. I bought more AAPL on the dip (257) on Wednesday and will add more at the opening tomorrow. I bought more GS July calls at 160 and 180. I do not recommend this for anyone this is a very risky gamble at this moment. I am down about 50% on all of these calls involving GS. Don’t try this at home kids. I added to my INTC position on the Wednesday dip and probably will add more tomorrow. I took a slight loss on my Americn Tower when it stopped out this week. I will be back in at the 38-39 price when it gets there. I have some homework on this one. I also took a small loss on my clean water play, Calgon Carbon Corp and have not had a chance to figure out what happened to it this week. We were up about 11% and then it came down to a point below my entry point. You’ll here more about this one later. I got a real nice interest payment on my Citigroup bond.

And then there is RIG. I am stopped out at a slight gain after the explosion in Lousiana. Andrew Bary pens another great article about the spill and how it impacts all the players like Rig, Andarko, BP (Sorry Douglas), and Haliburton. The article had me reaching for the cheap scotch and then he closed the article saying that Wall Street is over reacting. That maybe true, but my stops triggered and I am taking a cleansing breath to see just how big this mess is. I know a few of you followed me into RIG. If you did I kept reminding you to keep a close eye on your stops because of currency fluctuations. Needless to say if your stops were in place you either broke even or made a couple of bucks. I will let you know when its safe to get back in the water.

Before we take a close look at the week ahead, please go back to last Sunday’s post about the week ahead and compare it to what happened. Damn I’m good.

Monday we have the personal income and outlays report. Look for an improvement. The best guess is .4% improvement in income and .6% increase in spending. I think both are conservative. Look for .5 or eve.6% on income and .7% on spending. This should kick the market in the but, but with Greek, Portuguese, and now Spanish credit fears along with the GS Lynch Mob, look for the market to trading sideways all day and most of the week.

The manufactures index report tomorrow as well. The consensus is a nice increase to 61. I am also thinking this is conservative. Look for 62 or even 62.5 but again a squeamish Wall Street will take the number in stride.

Construction spending reports tomorrow, but don’t expect any good news or any help to the market.

Durable goods/factory orders reports on Tuesdays and it does not sound promising. Aircraft orders were down we already know. The wise oracles expect a drop of .1%. Again I am a little more positive and let me tell you why. There is more cash in the coffers of companies all over the world since World War II. I have a feeling that many companies are slowly increasing their capital expenditures. I won’t bore you with the anecdotal examples I witnessed over the last couple of weeks, but I see spending by companies. Look for the factor order number to be in positive territory to the tune of .2%. Wednesday we hear from the service sector and look for that to beat estimates as well. The number to beat is 56.4 and I am guessing 57.1 which is very aggressive. Thursday and Friday will have some employment data, but I have not done enough homework on it to make a guess. I have to leave something for you to read this week.

So until then, get in on the AAPL dip early tomorrow as it may be a while before you see 261 again. You might also put some SBUX and INTC in your shopping cart. Oh yeah do some home work and get stuck on Band Aids JNJ.

Salve Lucrum.


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