Sunday, August 22, 2010

August 22, 2010 Bringin it back

BAGAKOAA; August 22, 2010 Bringin it back

It was great weekend. Friday we went into a time warp to the 1970s and saw the group Chicago perform. I was never into their music, but have a better appreciation for them. I won’t brag about the seats we had, but on at least two occasions we had to dodge the spit dump from the slide trombone. It was really bringin us back.

Saturday there was a nice party for one of the three special ladies in my life, my assistant Ellen.  (My wife and daughter are the other two.) We were celebrating her birthday. At the party were at least four people who occasionally read this blog. All of them commented on how much of it was “over their head”. Again, guilty as charged and I will make an effort to turn it down a notch.

The purpose of this blog is to keep me as honest as possible on my picks and strategies. It is also designed to give me a historical perspective of how and why I was making some of my decisions. We also try to answer as many questions put forth as possible based upon the limited knowledge and experience I have.

All of this is a bit timely as if you had caught Mad Money from Friday, you might have notices something a little strange. Almost every Friday since I have been DVR'ing Mad Maney, Cramer usually does two segments called The Plan for Next Week and Speculation Friday. Spec Friday is where he tells you about a speculation play so you have all weekend to do the homework and cool down before the market opens on Monday Morining, keeping in mind that these stock and trading ideas are a bit riskier and are as he described them, “Speculative”. (In other words only use the Las Vegas Trip Money on them.)

Well, Friday’s Mad Money had neither segment and Jim put on the Professor hat and took us all back to Mad money 101. If you think a lot of what I put in the blog is over your head I guarantee you the iTunes Download podcast of Friday’s Mad Money is well worth your time. Jim takes us all though some of the fancy shmancy jargon of the investment lexicon and brings it on back. (Flashback, Elvis Presley recorded a song in March 1975 called Bring it on Back and the refrain goes something like:

Everything's bringin' it back, good songs bringin' it back
Even after so much time, you know everything's bringin' it back)

But I digress, Cramer does a phenom job of explaining cyclical versus secular stocks. What a rotation is. As usual he let’s you know the heart and soul of comparative analysis using Price to Earning Ratios aka “The Multiple”. He demonstrates the importance of EPS, aka Earnings Per Share and why future earnings (Net income or profit or bottom line-what ever you want to call it) are weighted more heavily that past earnings. He tells why fund managers and institutional investors (That would be people handling bank and insurance companies investment funds) focus on what is called Accelerated Revenue growth. He spends some time on Gross margins. He makes it clear it is silly to own stock in a company you cannot figure out how they make money. i.e. Know what you own. Cramer than goes on to explain the balance between risk/reward via downside (value) analysis and upside (growth) analysis. This include one of the best explanations of the importance of the PEG ratio or price to earnings growth. He went on to explain the significant difference between Trading and Investing and delivered a message that I should take to heart regarding trading and investing, Never The Twain Should Meet. Many time I will buy a stock because of an event or some “Linkage” I may have discovered, made my 2-5% in a month and decided to hang on to the stock after the event because I thought it was a sound company only to have the gains wiped out and decide later it was a poor decision. And he closed the episode pontificating about the nebulous term “correction”.

Honestly, he gave up so much of a couple of his books in this episode, I was quite surprised. Perhaps even he could not figure out a plan for the week ahead. Let me give it a crack.

From the economic calendar, Monday is very quiet, but if you are hungry for some investment news that may move the Markey, look for some forward looking comments (these are comment made by CEOs about the future of a company or an industry sector. The more influential the CEO the more it impacts the market.), by Otellini the CEO of Intel as he speaks at a Technology Policy Institute forum in Aspen Colorado. He may provide more insight into the INTC purchase of McAfee last week.

Tuesday could be volatile as there will probably be a huge drop in existing home sales as the stimulus is completely out of the numbers now. Also the July mortgage application numbers were really sucky. This should be no surprise so it should be factored into everyone’s thinking. If it drops below 400 thousand sales, we could see a significant drop in the market. (Maybe 2%). We also have Burger King, Medtronic and Barnes and Noble reporting Tuesday. Look for Burger King to miss again. It is looking for 34 cents a share, but we are thinking about 30. This will undoubted be blamed on international sales. (We thinkest MCD is kicking their buts). For those that want me to tone it down a notch, Big Macs are selling better than Whopper’s in most parts of the world. They are also giving out a 3+% dividend yield versus and bout a 1.2% for BKC. (Remember there are two ways to make money on a stock, an increase in share value or a return via a dividend paid by the company as a reward for holding their shares. Medtronic is a bit harder to read as there are a lot of currency issues to deal with. My guess is a beat of the 81 cent consensus, but not by much. (I’ll call it .83 a share) They do pacemakers and internal defibulators and such and they have a good product. Their earnings growth curve of 3-5% annually looks pretty good. Barnes and Noble, the word icky comes to mind. Look for them to miss their loss expectation of minus 81 cents a share. They will loose more if there is no accounting games.

Sorry, The two pictures I got from the White House this weekend did not lend themselves to cute captions. That really disappoints me as at least three people have told me they are reading the blog more because of the funny pictures.  So I had to search for one:

"Ok, if I can make it to the gate, I can get out of this crazy place called D.C."

We'll get back to you about what else is going on this week.

Salve Lucrum


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