Thursday, July 15, 2010

July 15, 2010 You May Be Right. . I May Be Crazy


July 15, 2010 You May Be Right. . I May Be Crazy

Billy Joel said it best in 1980.  I was golfing a day or so ago, actually I was walking around and sweating not golfing and I was bragging about nailing a couple of earnings report this week and my buddy reminded me about a prognastication I have made regarding the DOW was way off.  

That obviously was someone else as I know I never miss on my predictions.  I was a bit annoyed as the reason I do this bloody blog is to keep track of my mistakes.  We'll after a little research, I discovered the e-mail (predecessor to the blog) from September 9, 2009 and you will see what my friend was reminding me about.  

Here is that e-mail in its entirety with comments IN CAPS FROM ME TONIGHT.



WOW, a 107 point day on the Dow. Cool.

I hope hope hope, you caught Mad Money last night. Cramer has a great tip. OK, he had several, but in his humble subtle way, (two wheelbarrows full of apples), he explained about a little FASB (that’s a real cool club of people in Connecticut who sit down and figure out what makes a credit a credit or a debit a debit.) ruling that makes makers of hardware that houses software (Dell, HP) amortize their earnings for 8 quarters versus taking the earnings in the quarter earned. That ruling will no longer apply to smart phone makers. Think Apple. That means AAPL’s earning should inflate. Cramer has had a target price of 200 on the stock for more than a year. He upped it last night to 264. He is ahead of the analysts on this, or he was until this morning. I did get in last night and increased 4 or our portfolios with more Apple. It was up $6.82 today. AAPL WAS SELLING AT 185 A SHARE MAKING IT A 35% GAINER SINCE THIS POST.

OK everything was up today. If you didn’t make some money today, you weren’t trying. Yeah I saw a little red with MDRX, but I still believe. Fundies are OK and I have seen the software in two doctor’s visits in the last two weeks. I asked the admin if they like it. The answer is NO, they love it. They could not show it to me due to patient privacy issues so I had to wait for them leave the room before I explored. Mrs. Kaplan needs to lay off the pasta, but the software seems real intuitive.  MDRX WAS AT 18 AND CHANGE AND IS AT 17 AND CHANGE TODAY

And yes my VLO Jan 2011 options were down another penny, but I don’t care because I can’t even remember why I bought them in the first place. PEP was down .30 cents today but that was my fault I had a Diet Coke last night. General Mill was down a buck twenty and I had my bowl of cheerios this morning with raspberries, anybody know where in the hell all the blueberries went?  I STILL HAVE VLO AT A HUGE LOSS IN A JANUARY 2012 LEAP.  I HAVE ONE OF OUR READERS TO BLAME FOR THAT. GIS IS UP ABOUT 29% SINCE THE POST.

Other than that today was one of the best days I have ever had in the market. I am now not only drinking the cool aide, but am starting to make my own. Well OK, its not cool aide but I am treating myself to a 2006 Fontodi Flaccianello, rated 99 by Wine Spectator. It will be magnificent this time next year.

In recent readings, thank you, Mr. Tunney for the 3 articles in last weeks UBS mailings. Economics:The Anatocy of Excess, Sugar Rush Recovery and Deflation-Inflation Knife Edge. Good stuff if you can get a hold of it. I was able to send it to my Kindle and enjoyed it on the go!

So how high will this rally go? My February year end prognostication of 9420 on the Dow is in serious trouble. If you look at the PE ratio for the S & P 500, it is creeping up on 17. At the markets peak, like in September of 07, the PE for the S&P 500 was almost 22. The big question mark is when all the money on the side lines will start returning to the equity market. Currently people are hoarding money and reducing debt. August saw a 21 Billion dollar drop in consumer debt. Personal savings have gone from 1.2% in 2006 to 7.15 in July. There is almost 4 trillion in money markets. In the last three month we are seeing some of this money move to the debt markets either in bonds directly or in debt mutual funds. That is the first sign of a shift towards bigger risks, equity markets.

Here is my new “drinking the cool aide” guess. 12,670 in the Dow by mid year 2010. Ok keep this in your files so you make fun of me. More importantly, PLEASE use your stop order to protect these beautiful gains. THERE IT IS, 12,670 BY MID YEAR 2010.  YOU CAN MAKE FUN OF ME NOW. 

My buddy Ben sent in some encouraging info one of my winners from earlier in the year Grainger, GWW. (This is till in my son’s portfolio as I took some profit a while back and got out.) Here is the highlight from his note:

Case in point: W.W.Grainger recently held a distribution center tour in New Jersey. Some comments were outlined by BB&T Capital Markets analyst Holden Lewis and his team in their weekly newsletter. (Get on their mail list for some great insight on industrial and commercial equipment markets as well as a select group of distributors they cover.)

Among the interesting insights in this report:

Grainger is benchmarking other distributors, some of which have 500,000 SKUs, to explore further product expansion. BB&T notes it is contributing 200-300 basis points to annual sales growth.

Grainger's global sourcing is now 11 percent of sales and rising.

E-commerce is now 24 percent of sales with potential for eventual 40 percent.

Managed inventory programs (both vendor and customer) are small but growing.

Remember when Grainger threw millions of dollars in the 1990s into producing the first large-scale catalog on CD-ROM? Feels like ancient history perhaps, but little more than ten years later their e-commerce sales are about a quarter of their business. That tends to be higher margin and higher average order size business. Not a bad transition from a ten-pound catalog that cost a lot to get onto a lot of order desks in America.


My apologies again to all last week about the ETF UNG, I hope you shifted to FCG as it has turned out to be a good Liquid Natural Gas Play, up 5.6% this week. In that same note I mentioned XTO, up 8.20 5 this week and APC up 10% this week (mostly today). LNG is going to get its political foot print together in Washington and this market will be very lucrative.


We have at least one new reader this week, hello Megan.

In closing, please remember to save those gains with a stop. I am tonight. I have quite a few positions up well over 20% and will secure 12% gains on all of them by setting stops at 8% below their current marks.

If anyone wants to drop off this note, I would not be offended, so please send me a note and you will be off the list.

Ok let's look at those earnings reports from today see how we did.

JPM reported today and street estimates were bewtween 67 and 72.  We thought they would beat and the did, BIG, but not as BIG as we thought.  We had them at 75 cents a share and they came in at 73.  Still a great quarter.  This stock, now that Fin Reg has been put to bed shuld start creeping towards 50-54 a share.  It closed today at 40.46.  Dimon the CEO had some cautionary comments which kept the stock from popping late in trading. 

AMD had a consensus of minus 7 cents a share.  We thought that would be close but had the overall chip makret recovering well so we said minus 4.  They reported minus 6.  They were really strong top line growth at 40 % over last year.  We will take a close look at the reporting as there were a lot of references to GAP verusu Non-GAP items and I want to check out the 45% gross margin reported and see how that compares ti INTC and ARMH.  

PPG we mentioned Sunday is a good bell weather for the economy.  We had them missing the street guess of 1.40.  We were way off.  In yet another tell for the underlying economy, they blew away the dollar forty, made our guess of 1.32 look stupid and came in at 1.64.  We do not own this but will be taking a close look at it.  Sales were up 11% and the CEO had some promising forward looking comments.  He was talking about acquistions and he has the cash to pull them off.

WWG, Grainger is still in one of the portfolios.  Because of a lot of homework, we pegged them easily beating the 1.50 a share street guess.  There were a couple of whisper guesses out the at 1.55 which made me feel better about taking a leap of faith and saying 1.60 a share.  The reported 1.65 a share a true blow out.  Grainger is yet another great candloe in the coal mine of our and other country economies.  They provide MRO materials for companies and job sites.  It popped nice today as we suggested (OK who said you can't make money reading this blog.)  The stock was up 3% + today but it is getting to the high side of value.  I'd be looking to take a samll bit off the table.  (Next quarter's earing will be even better, but let's not be greedy.)

GOOG, Google missed today much to my surprise.  They had some good revenes but spent BIG on advertising and it whacked the heck out of the bottom line.  The street number was about 6.54.  I had them coming in at 7.00 a share.  They reported 6.45 a share which is a big miss, but it was for a good reason.  They were investing in the brand with some huge advertising programs.  I'd keep a close eye on this as it is fairly valued at 494 as of today.  Other must think so too as the stock was up 2.5% today on a MISS?

Let's see how we wrap up the week tommorow.  My guess is we will see a little bump on real light volume.

Salve Lucrum


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