Sunday, July 18, 2010

BAGAKOAA; July 18, 2010 Mia Culpa Mia Culpa

We left you with this comment on Thursday night, “Let's see how we wrap up the week tomorrow. My guess is we will see a little bump on real light volume.” Well we had 355 million shares traded which was well above average and we took a hit, a big hit.

Most of you can read so I won’t kill you with all the possible reasons why we took the hit, but it involved some soft economic news and good but not awe inspiring earnings reports. More importantly the fact that most “beats” in the earnings reports were due to cost management versus top line growth.

I am enjoying a vacation this weekend and week ahead taking the “Fishwhisperers” to Yellowstone for 4 days of death by fishing. This weekend has been family time, but I have been cutting and pasting Salve Lucrum worthy data and news since Thursday Night. Now I will attempt to wordsmith this into something entertaining and helpful for the week ahead.

As far as the portfolio goes, there was very little changes overall. Friday we would have taken advantage of the huge dip, but honestly, we are short on cash so we are just watching.

Just like Alcoa, the market watches GE very closely. It beat estimates but again that was due to good financial cost management as top line sales came down 4.3%. Energy and health care divisions were the driving positive force in the company. The positive news was that management is committed to growing earnings and expanding the dividend in 2011. The 4.59% drop on Friday puts it close to a nice value. I might be looking at some January calls on this beast.

BAC, one of my three banking stocks along with WFC Wells Fargo and C Citigroup all got spanked on Friday. BAC was down 9 % even though they beat and showed improvement in lending costs. I did what any good value investor would o and put an order in for more hoping to catch a 14.25 or lower tomorrow morning. We would be very surprised not to find out this was oversold.

We received our AAII newsletter this week. (American Association of Individual Investors) and again we highly suggest you consider joining. It’s affordable and very informative. (Much more so than this blog.) They send out a survey to their members (That would be me) and asks if their members are bullish or bearish over the next 6 months, That last several week we have seen a shift to the upside. Their long term average of bulls to bears is 39%. The latest survey came in at 39.4 and that has been trailing up for about 4 weeks. Again, this is just feelings of investors like me and is focused on the next 6 months.

Friday’s numbers did come as a surprise to quite few folk even at the halls of Barron’s Magazine. (Cramer seemed to take it in stride) We reviewed this weeks magazine and it is a goodie. It seems that our friend Alan Abelson was expecting more turmoil during the week due to the banking regulatory reform. He was a bit surprised to see the reaction to the lackluster economic news and soft top line sales figures. He did point out the JPM and Citi earnings were bumped because of provisions for losses which has nothing to do with growth. We agree. He and other in the magazine feel that real anchor to the numbers were associated with the huge drop in consumer sentiment. He indicates, although I could find no record, that the fed is on deflation watch. Personally I think Alan is reading a lot into Bernanke’s comments from last week. However he does meet with Bernanke from time to time and I as of yet had not had the pleasure.

With the carnage from Friday, I was looking for some, heck any good news. We did note a report from Singapore that they have adjusted their GDP outlook up from 7-9% to 13-15%. It is an export economy and growth like that is a good sign.

Which brings us to the week ahead.

Monday will see the National Association of Home Builders which is based on a survey in which respondents (people In the Industry) are asked about the general economy and housing market conditions. There is no consensus out there but I would think the survey will be lackluster if not negative.


Tuesday we will see the housing starts numbers, which if you remember fell back last month. The consensus is .583 million units, but we are not feeling that optimistic. Look for a number closer to 579 and the fact it is below 580 will be a wobbler for the market. Also, not a biggie, but the Bank of Canada will announce their monetary policy (Interest rates) and look for a little kicker of .25 basis points. Their economy is cooking with gas and oil and they need to tap the breaks a bit.

Wednesday the The Mortgage Bankers' Association compiles various mortgage loan indexes. This will tell us how busy mortgage banks are. The news will be soft.

Initial jobless claims report on Thursday and the consensus 450,000 but even the analysts say it’s a squishy number because of the inbetween automotive tooling season. My guess is the number will go up to about 470,000, which again will be bad news for the market.

Existing home sales report on Friday. If you remember they fell last month to 5.66 million units. The brains that know say it will fall further to 5.26. Unfortunately, from looking at the last 6 week trends, I don’t see 5.2. We are guessing 5.1 and yet another ding to the market.

Now to balance all this bad news, we have a heck of a week of earnings ahead.

Monday is IBM and Ford. Both will beat estimates. So will Texas Instruments, but we don’t follow the stock. Ford was down 4.5% last week and it is a bargain. It’s forward P/E ratio is 7.2 and they have about 7 dollars a share in cash. Revenues are doing well. (And there are about 46,000 12-14 dollar call option September Contracts) If you thought you missed the boat on F, this is a food chance to get in. It is conservatively valued at 16. They are looking for 41 cents a share. IF there are no accounting surprises we are suggesting 50 cents a share and some positive forward looking statements. IBM will beat the 2.58 cents a share estimates expect. Their 2% drop on Friday is a buying opportunity as at 128, it is affordable. The average target price for analyst covering the stock is 147. Forward looking P/E is 10.41. 2.68 seems like a very doable number for IBM and look for some top line growth and positive statements to kick this stock up a notch.

We will other earnings guesses tommorow.

Salve Lucrum


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