Monday, November 15, 2010

15 November 2010 Let’s Get A Little Sideways

BAGAKOAA 15 November 2010 Let’s Get A Little Sideways

This week is supposed to be a reflective week for me as our industry trade show takes place in Las Vegas. Quite a few folk leave town creating a good opportunity to actually get work done. However, today I had the pleasure of doing my first pass of my budget for 2010,

And then to the dentist

With all of that, the market was going to have to be really bad for me to have a bad day. It was not all that bad. We did have a positive retail report followed by a very lack luster Empire State manufacturer report. This was set against a background of Ireland Debt questions. As we called it last night the VXX did drop 1.11%, but despite the promising retail number the retail ETF XRT did not rally.  It really did not do much of anything. So my advice from last night was either half good or half bad depending upon your view point. While the markets did not do much, there was not much volume either. Few shares were traded toady.

How Much Is That Doggie On The Website?

This week we will see the CPI, (Consumer Price Index). It is created the old fashion way with department of commerce pollsters walking the aisle of hundreds of stores to see how much stuff costs.

Two economists at MIT’s Sloan School of Management have come up with a project that tracks 1 billion items prices in 10 industrial nations in real time on line. It is really cool and you ought to go check it out, just click here . It shows Argentina with an annual inflation rate of 21% and the UK at a low rate of .5%. Ok if you are interested the US is shown to be at a 1.7% rate of inflation. Cool project.

Put Your Sunscreen On Before You Bet On This Stock

It is not too often you get teased into to making a speculative bet in Barron’s, but this week they suggested taking a flyer (Finance term for “Use Only Vegas Money) on a stock that has developed a new way of screening for Melanoma, one of the nastiest forms of cancer. On the 18th the verdict will be in. If approved, Barron’s is saying a double, if not its get knocked in the dirt for a long time. My bad, as I meant to mention this last night, but was enjoying dinner with a reader and a NEW READER, (hello Linda) and did not get it into my final post. The stock was up 13% on super heavy volume. I guess I was not the only one reading the report. One way to play this might be to look at the April call options

There is a lot of money betting on the 7-11 range. I would take a serious look at the 8.00 April call for under 2 bucks if you can get it.

Again this is a very speculative bet. The FDA does what ever the heck it does. I will try buying some 2.00 April 8.00 calls at the opening tomorrow and watch what the report says on Thursday.  (Sorry the stock was MELA. 

CISCO Kid Could Be A Friend of Mine

Hutch, one of our regular and most responsive readers asked me if I thought CSCO was a buy at this level. 19.95 today. While I am not adding any new positions at the moment because I do believe the rally is over, it does not stop me at looking for opportunities.

Cisco took a whack last week for two reasons, they cut their forward looking forecast and their margin contracted a bit (from 65.3% to 62.8%) That was followed by a few down grades. Even with several target price adjustments (from 28-30ish to 25-27ish) we have a great margin of safety in excess of 25%. Their debt is manageable. Management explained away the future earning deduction quite admirably by explaining that sales to state and local government was down, European business was disappointing, and cable TV box top sales were down. In that sector especially they admitted loosing ground to Motorola. (CEOs don’t normally do that in a conference call. They might acknowledge market share losses but not who they lost it to.) The explosion of cloud computing should help them maintain core router business growth even if they are loosing some of that to smaller competitors (Aruba and F 5). In reading more about the company and especially its Advanced technology segment which addresses network security, video conferencing and home networking, the company seems well positioned for future stability. Their management team is sound and Chambers the CEO has been at the helm for 15 years. I think that is a long time UNLESS his income is in line with shareholders interest and it is as he has a boat load (investment term for a lot) of shares and options.

So Hutch’s question was, “Would I pick up a few shares of CSCO at this level?" My answer would be yes and I will. I will get in below 20 and look for 23-24 by the end of Q 1 2011 and then reevaluate. If anybody else considers this, do your homework and keep an eye on Huawei Technologies out of China and Juniper who could change CSCOs game if they don’t pay attention. I will be out at $18.25.

And What Will Tomorrow Bring?

His guess is as good as mine.

Salve Lucrum


Blogger PADI Americas (west coast team) said...

Planet Money, one of my favorite podcasts recently did a story on how the CPI is calculated. It's a colorful 16 minute piece about how the government determines the CPI.

The Price of Lettuce in Brooklyn.

November 16, 2010 at 8:05 AM  

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