Monday, May 03, 2010

BAGAKOAA MAY 3, 2010 Close but got the cigar anyway


May 3, 2010 Close but got the cigar anyway

I was a little aggressive in my estimation of income and spending, but the number perked up the market from the very opening. So much so I did not get some of the limit orders placed last night on AAPL, JNJ, SBUX,and INTC. The good news was the Eurozone debt issue seems a bit subdued today and Warren Buffet’s verbal support of Goldman allowed the market to react positively to the economic news.

Unfortunately my guess for the ISM Manufacturing index was a little hot as well. I was thinking 62 or 62.5 and it came in strong at 60.4. This news was also met very positively by the market for two main reasons, despite the number NOT meeting expectations, the news order segment of the index was HUGE at 65.7 and the employment segment of the index showed factories are adding workers. This will take some of the wind out of what should be a positive job report on Friday.

After the close today, I added to my position in AAPL, SBUX, INTC, SLV, BA (which may have been ill timed as there are stock alerts about the European Air Bus is now back in the running on the naval/airforce supertanker contract), GD, HBAN (a new position in a stock I used to own), and HAS.

I mentioned a while back that Devin my wife asked me to start informing of why and how I make decisions in equity trades. While I am doing that, I wanted to try and understand her threshold of understanding about stock valuations. I asked her to read the JNJ article in Barron’s and highlight any concepts or verbiage she found confusing or that I could help explain. In just a few minutes, she had convinced me that JNJ is probably a good by at 65. She was more familiar with the drug pipeline issues than I was. She had a better grasp of the medical device market than I, and she was able to breakdown products by demographic demand. After a quick primer on free cash flow she was showing me where in the article JNJ has the trifecta of shareholder’s yield-paying down long term debt, issuing dividends, and buying back shares. More importantly, she explained some of the many brands of JNJ that we have around the house. Not only is she pretty, generous, and fun, she is a natural born value investor. I am a lucky guy.

We got MRK and PFE reporting tomorrow. I can’t excited about either of these. I did well with PFE last year. My pharm stock is TEVA as its better situated with all of the other pharms big hit formulas going generic over the next two years. Look for MRK to hit and possibly break the estimate of 75 cents a share. Let’s say 77 as they increased their gross margin substantially over the last three quarters. You could probably do well with a little day trading at the opening. Get in at 35.35, stop out at 35. and look for a 50 to 75 cent pop tomorrow. ONLY use the Vegas money on that play. PFE does not to seem to fair as well. I think they will disappoint tomorrow and not hit the 53 censt a share the analysts are looking for. Their margins are in the dirt, they have an increasing LTD and their fundies are not pretty. Look for them to disappoint by at least 2 cents and look for a 15-20 cents drop in the stock.

If you got drugs, you to have some place to sell them. Watch CVS tomorrow. They have some nice free cash flow and manageable debt, but that won’t matter as everyone will be watching to see if they can hit that 58 cents a share. If you go back to 4th quarter same store sales for the drug store chain, CVS lead the group with a 4.9 rebound. There is no reason why this should not have continued and possibly even improved unless if weather kept people away. However if it was a weather issue people were fluish, sneezing, hacking, and have a headache kinda need to visit CVS. Look for 60 cents a share earnings and watch it come close to 38 bucks a share.

Ok folks, keep me honest.

Salve Lucrum


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