Thursday, August 19, 2010

August 19, 2010 What come after a Trillion?

BAGAKOAA; August 19, 2010 What come after a Trillion?

Ok it looks like we are going to have to learn a new word.  Quadrillion.  It is a one followed by 15 zeros.  If you Google the use of the word, it is used to measure scientific stuff like 784 quadrillion grams of carbon dioxide.  (That's how much more Co2 humans have pumped into the atmosphere since our arrival some 12,000 years ago.)  Or stuff like a quadrillion volt pulsar emitting from a star some 1,900 light years away. (That is a far way a way.  The light emitting from that star left the star in 110 AD which is when St. Ignatius of Antioch used the word "Catholic" for the first time.  If you were there you would not have noticed as he was speaking Greek), but I digress.  

The reason why we need to learn this word quadrillion is because we are headed towards record debt.  I usually save the picture jokes for the end of the post, but ran across this picture that seemed perfect for this segment: 

And as he passed, Washington uttered, "6.2 trillion in debt!"

Budget estimates were released today from Congress and the US budget deficit is expected to shrink this year but projected shortfalls over the next decade may jump by six trillion dollars and curtail growth.  There are at least two attorney's reading this as well as one person who is married to an attorney and yes I did steal that from Associated Press, which took it from the congressional budget report so as a tax payer I kinda stole it from myself.  So there.
Now I qutoe:

"The Congressional Budget Office estimated a federal budget deficit of 1.342 trillion dollars for fiscal 2010 that ends September 30 -- 71 billion dollars below last year's total of 1.413 trillion dollars.

It was also lower than the latest White House estimate of a 1.471-trillion-dollar shortfall.

But projected deficits totalling  (NOTE THEY SPELLED THAT WRONG) 6.2 trillion dollars for 10 years starting in 2011 will raise federal debt held by the public to more than 69 percent of gross domestic product by 2020, the CBO warned in a report.

It is almost double the 36 percent of GDP at the end of 2007, it said.

'Continued large deficits and the resulting increases in federal debt over time would reduce long-term economic growth,. warned CBO Director Douglas Elmendorf."

So how do you make money in this market?  Hell, if I know.  We did some buying today.  But before we get to that, when I signed off last night we were expecting a nice little pop in the morning as the big scary Eurozone was reporting some good news about a healthy forecast.  (Economic not meteorological.)

That meant I was surprised to get in my car and flip on Bloomberg on the XM/Sirius sat radio and hear we were off to a nasty start due to the unemployment numbers and weak Philadelphia Manufacturer's index number.  Both surprised to the down side so people sold.  It created some nice opportunities.  We picked up some Boeing today, some Chevron, more Intel (we'll talk about the MacAfee thing in a few lines).  We initiated some positions in CVX and BA in a couple of the portfolios we deal in.  Tonight I am doing something I DO NOT recommend you do, and that would be to move a few stops to lower sell points.  As you may know I pontificate about out at 7 or 8 % down and consider a profit at 20% up.  I am moving my stops down to a 10% loss because of the freakiness of this market.

The reason why this is not a sound long term policy is because you have to be 29% righter or more right or more accurate in your picks if you chose to use a 10% down side versus an 8% downside.  I know that looks wrong but here are the numbers.  You buy a stock at 100 and it drops to 92.  That is an 8% loss.  You need to get an 8.6% increase to get back to even.  Let's say you hold on to the stock as it falls from 100 to 90, a 10% loss.  You need to move the value up 11.1% to get back to even.  11.1% return is 29% greater than an 8.6% return.

Anyway, today was not a happy day at the casino.

Dog Day Afternoons of August

How about a company with lots of room to grow, having only 12-17% of its key markets, in an industry poised for mid single digit growth over the next few years, is almost mass merchandise proof, has a sticky factor as in customers don't leave once conditioned to shop there, has about a 2% dividend yield, and management has issued a 300 million dollar stock buyback program.  The down side is they had an 8% pop today because of a blow out quarter.  I am taking about PETM, Petsmart.  PetSmart, Inc., together with its subsidiaries, operates as a specialty retailer of products, services, and solutions for pets in North America. The company offers consumables, which include pet food, treats, and litter; and hardgoods, such as pet supplies and other goods comprising collars, leashes, health care supplies, grooming and beauty aids, toys, apparel, and pet beds and carriers, as well as aquariums and habitats, accessories, decors, and filters for fishes, birds, reptiles, and small pets. It also provides fresh-water tropical fish, birds, reptiles, and small pets; and pet services, such as grooming, including precision cuts, baths, toenail trimming and grinding, and toothbrushing; and training, boarding, and day camp services. Further, the company operates PetsHotels that offer boarding for dogs and cats, temperature controlled rooms and suites, daily specialty treats and play time, and day camp services for dogs; and hospitals, which provide veterinary services comprising routine examinations and vaccinations, dental care, a pharmacy, and surgical procedures. As of March 25, 2010, it operated 1,149 retail stores; and 162 PetsHotels. Additionally, the company operated 740 hospitals under the registered trade names of Banfield and The Pet Hospital; and had 12 hospitals, which are operated by other third parties in Canada. PetSmart, Inc. was founded in 1986 and is based in Phoenix, Arizona. (Courtesy of PETM I hope.)

The forward looking P/E Ratio as of today is above 15, a little rich.  It closed today at 32.82 a share.  There should be a slight sell off so if you want to walk this best of breed, I would consider getting it at 32 or less and look for an out around 36 by Q1 2011.  I know that does not sound like much, 12.5 % in six months or so.  Come on the 10 Year yield is at 2.6% be happy with anything over 5% right now.  Remember, Pigs get slaughtered.

From the Winner's column.

I was over in grand old England last week and I was talking to someone who dabbles in the LSE (London Stock Exchange), and they asked what is my best perfroming stock right now?  I responded my best perfroning stock right now is a bond.  (Laugh Laugh).  I had to think because right now I didn't think I had a boomers to brag about.  I got KO and MCD creeping towards double digit numbers, but most are either negative or in the 2-5% range.  When I looked at all the portfolios, I discovered a sleeper that we mentioned here back in May when we doin our homework on Waste Management and Republic Services.  We got in (actually it was my son's account) at a split adjusted price of 9.40 a share and is not at 15.66 a share after a 65 adjustment today alone.  I mention it as it could be worth a look.  At this level their P/E is 7.7 and they have a manageable debt load.  This could be an 18-20% stock in a year or less.  It took a hit today because of the poor economic news.  I will be adding to this tomorrow at the $15.50 or better. Here is some more info on the company.  Industrial Services of America, Inc. engages in ferrous and non-ferrous scrap metal recycling and waste management services in the United States and Canada. The company operates through two segments, Recycling and Waste Services. The Recycling segment collects, purchases, processes and sells stainless steel, and ferrous and non-ferrous scrap metal to steel mini-mills, integrated steel makers, smelters, foundries, metal brokers, refineries, and exporters. This segment purchases ferrous and non-ferrous scrap metals primarily from industrial and commercial generators of steel, iron, aluminum, copper, stainless steel, and other metals, as well as from scrap dealers and retail customers who deliver these materials directly to the company's facilities. In addition, it processes scrap metal through its sorting, shearing, shredding, cutting, and baling operations. Its non-ferrous scrap recycling operations primarily consist of collecting, sorting, and processing various grades of copper, aluminum, stainless steel, brass, and high-temperature alloys. The Recycling segment also involves in purchasing, processing and selling stainless steel, and nickel-based and high-temperature alloys, as well as providing fiber scrap materials. The Waste Services segment offers waste management services, including contract negotiations with service providers, centralized billing, invoice auditing, and centralized dispatching. This segment also rents, leases, sells, and services waste handling and recycling equipment. It sells its services on a contractual basis to retail, commercial, and industrial businesses. The company was incorporated in 1952 and is headquartered in Louisville, Kentucky. 

An Expensive But Strategic Purchase

Intel made a 60% premium offer for McAfee today.  It looks expensive, but from a strategic stand point of being able to offer security on a chip based solution which plays well in the smart phone and ipadish type products, it seem like a brilliant move.  Now this will cause INTC's competitors some headaches as AMD and ARMH do not have this product offering.  Right neither does INTC but with this acquisition, the products could hit market late 2011 and be a game changer in the chip industry.  I'd be interested in a few of my chip head readers giving feedback to me or via post a comment.  I don't think I am off base on the impact of this offer.  INTC was down 3% today to 18.94.  I'd have to say buy buy buy if I was Cramer.

Every Picture Needs a Caption.  If you have been following President Obama's travels lately, he has been logging more miles than George Clooney cris-crossing the country.  I was ent this picture from a nice visit with a family in Ohio.  Hope you enjoy.

President Obama Visited the Weithman Family in Ohio yesterday.  The President is listening intently as Mr. Weithman explains, "No, it's actually quite simple, you write down how much money you have coming in and then you list how much you have going out."

Salve Lucrum


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