Monday, July 19, 2010

July 19, 2010 It’s hard to be a gambler . . .


July 19, 2010 It’s hard to be a gambler . . .

Elvis may have said it best in one of his last recordings, Moody Blue with the lyrics, “Its hard to be a gambler bettin on a number that keeps changing everytime.”

Well the housing market index was weak as we suspected here last night. I have been hunting down the results from F Ford only to find out they actually report this Friday. Barron’s fooled me. If I had checked Yahoo Finance (One of the best line ups of earning reports and estimates out there, I would seen it was Friday.)A tell of good news today was a press release about Ford putting up 300 million in a joint venture in Mainland China. 300 million is not a lot to Ford, but if things were going the wrong way they may not have considered it. We will stick with our guess of 50 cents a share versus the consensus of 41 vents a share. IBM did beat the 2.58 on the street and came very close to the 2.68 we called last night to hit 2.65 a share. If you adjusted 500 million for currency exchange allowances for a weaker Euro you would have seen a number closer to 2.70 a share. Seeking Alpha has a transcript of the earnings report if you want to get it. We will be perusing it tonight in depth as it is a large holding in the Salve Lucrum and other portfolios. While top line and bottom line numbers beat estimates, concerns were voiced by management about their important service sector as those revenues were down 12%. That and some cautionary statement about the breadth of the global recovery tempered the enthusiasm of the good quarter. Wow I wrote that with too much plagiarizing.

Today’s volume was light but not non-existence. The market finished up, but not as well as I had hoped. The crummy housing index report had the market down for a while and some shaky credit news out of Ireland and a German real Estate Bank rattled the market. Then there was a comeback later in the day.

We did add more AAPL on the continued oversell due to the antennae debacle. We got some at $245. As we suggested we also picked up more BAC at 13.99 a share. BAC did not bounce back as we had anticipated. Part of their earnings announcement last week was the prediction that the banking reform bill would cost the company between 1.8-2.3 Billion in profits. That explains the 9% hit last week and the additional point today. We think it is enough and at 13.75 it is a good value. Moynihan’s comments on Friday, and I read them today on my Kindle waiting for a lube job in beautiful Draper Utah, (Actually my vehicle needed the lube job.) were very pessimistic and accounted for no passing of fees onto the customers. Having been a loyal prisoner (I mean customer) of BofA fro more than 25 years, I know they will fee their customers, vendors and partners to death and offset the losses. They will also probably follow Wells Fargo lead and disemploy some people. Those job losses will be directly attributed to the firm of Obama, Reid, and Pelosi. In essence, all analysts following the banking sector think that Moynihan was exaggeratingly negative in his statements and that BAC will fee they way back to prosperity. Also if you read the 2,371 page financial regulation reform bill and I know you did as I sent you the link to the PDF last week, Bof A and other banks can hike annual credit card fees and monthly maintenance fees on deposit accounts and regulators have not yet determined what the fee restrictions will be yet. Most analysts do not think the end result will be as Draconian as Moynihan suggests. Once everyone figures this out, like tomorrow, we would see some repair to the stock. Target prices remain anywhere from 19-24, and we are looking for 20 by mid year 2011.

What do Goldman Sachs, Gilead Science, Apple Computers, United Health Group, Johnson & Johnson, Mellon Bank of New York, and PepsiCo have in common. Ok they all report tomorrow. We don’t follow all of these, but a few we do.

Despites all the grief of late and the settlement with the government over some malfeasant trading schemes and communications to investors, Goldman should beat the 2.07 a share estimates. We did big with GS in the trials and tribulations of 08-09 getting in at an average price of 89 then selling taking a nice profit at 137 in June of 09. We got back in around mid July at 160 and finally got out at 179 in October. Since then we have watched and got real tempted in May at the 136 range. Its fair value is about 180 and its trading at 145. I know there are some of you saying that is a pricey stock. I assure it is not expensive because it is selling for 145 a share. Its forward looking P/E is 7.4. That is dirt cheap for a company like GS. I have looked everywhere to get a feel for where earings are going to end up, but the media is focused on the fraud case which is now settled for 500 million. (pocket Change for GS). Now there is a lot to read about to determine how the financial regulatory reform bill will affect GS, but it appears as though the restructuring as a holding company will somewhat reduce how the company can leverage their proprietary trading which might reduce investor returns. However they will have to boost their assets as part of this make over and the returns on the assets should offset the leverage they were enjoying before. All of the big banks have gone through some restructure and we feel that some of the comments tomorrow will indicate a shift in market share to GS. Look for a beat at 2.15 a share tomorrow and a nice kick to the stock.

Gilead Science GILD we don’t follow but it is huge player in the HIV Virus filed and now that the CDC in Atlanta is now recommending HIV testing I would suspect this plays well for GILD so look for a beat.

AAPL, Apple computer will beat. Quarterly revenues are expected to jump more than 75%. The real question will be can they keep or improve their margin. There are so many top analysts watching this stock that the beat will not be huge. I am thinking 3.11, which would be nice and can we finally stop talking about the antennae.

United Health Group. Don’t know and don’t care. From all I can see at the surface look for a small miss.

Johnson & Johnson. We were really bullish about this stock back in February but never pulled the trigger. They are looking for 1.21 a share and they should hit and beat. It has a great yield and plenty of cash to support the 3.5 % yielding dividend. I can say we are glad we did not get in at 64, but at 59, this is a sexy stock. I will be checking out some January 60.00 calls tonight. If I can get in below 2.75 I might give it whirl. That would mean we would be in the money at 62.75 which seems very doable by January.

Bank of NY Mellon, we do not follow as we focus on C, WFC, and BAC. It is ahuge behind the scenes kind of international financing companies and like a lot of other banks they are trading at the low end of their value range. Look for a beat, but we have no idea how much.

Pepsico, we also do not follow. We have a sizable position in Coke. Yeah me and Warren buffet have a lot of things in common. He owns coke, we own coke, he owns jets, we fly on jets, he owns a railroad company and I saw a train today. 1.08 a share is what Pepsi needs to beat. I don’t see it happening. Look for a near miss of 1.05.

We will have a new regular reader as of tonight. My lovely wife Devin will become reader 35, but in my book she is number one. She has visited the blog on occasion, but will now be receiving it on a regular basis. She is very supportive of the long hours I put into this drivel and I do appreciate it. One of my fondest memories was getting a phone call back in 1989ish from Devin saying “buy Disney, they just bought ABC”. It was a good move for us and helped with a down payment on a home. Welcome aboard dear and enjoy the ride.

Salve Lucrum


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