Sunday, October 31, 2010

31 October 2010 Trick or Treat we’ll find out. . .

31 October 2010 Trick or Treat we’ll find out. . .

BAGAKOAA;

We read Barron’s this week and you talk about hedging your bets. There were bearish articles and bullish articles. There were bearish bullish articles. And there were bullish bearish articles. Maybe the staff is running for office Tuesday?

I can’t really recommend you run out and pick up a copy of the publication this week. Alan Abelson covered that death of the 30 year bull bond market according to Bill Gross. Santoli tries to make heads or tales out of the Tuesday elections. Savitz once again is pimping Microsoft (We own it). Kopi Tan tells us we had a good October, dah, and takes a shot at what’s ahead. (I do like his column.) In a nutshell, he points to all the positives that have taken place and warns that we are due or overdue for a correction. Then he goes on to tell us burritos are good for our financial health (CMG). Randall Forsyth let’s us know what I thought was common knowledge, the Quantitative Easing will probably much less than anticipated. (That guy needs to watch Bloomberg). Don’t get me wrong, his article is well written and very educational as to the impact of QE II and his return comparisons of TIPS to 10 year yields and how QE impacts all of that will have me digging up some bond and economic educational materials for the rest of the week.

The Week Ahead.

The big announcements this week will be the results of the election on Tuesday, The Feds confirmation of the quantitative easing measure on Wednesday and then the jobs situation on Friday. In the background of those three penultimate events we have quite few others. Personal Income and outlays, The ISM manufacturing index, and construction spending all report on Monday. With the elections and QE on the horizon, only some very extreme data points are going to get the market attention. Tuesday we will have a couple of retail reports and the motor vehicle report. These too will be overshadowed by the election news. Wednesday besides the Feds announcement we will have the inaccurate teaser ADP employment report, factory orders report, the ISM non manufacturing report (Service sector), and the petroleum inventory numbers. Thursday we have new jobless claims and the productivity report as well as non news announcements from the Bank of England and the European Central Bank. And to end the week, we will have Pending home sales overshadowed by the Job situation report. Now it was a mixed bag on our survey as to what you thought of the week ahead segment of the blog. The rating (16 out of 38 voted, thank you.) So I will only take a shot at the employment figure. Look for private sector jobs to improve, not as much as expected. The consensus for private sector is 60,000 new jobs. I am guessing 50,000; unfortunately it will be overshadowed by a significant drop in government jobs. Look for the total unemployment figure to move from 9.6 to 9.7. Sorry!

Do I Cut The Red Wire or The Black Wire?

I am sure many of you followed the bomb in the baggage story this last week. We have been hunting a pecking looking for some possible plays in the market as a result of this avoided (for the moment) crisis). Here are few you might want to look at.

OSIS OSI Systems, Inc., together with its subsidiaries, designs, manufactures, and sells specialized electronic systems and components for applications in homeland security, healthcare, and defense and aerospace markets worldwide. It does not have a lot of margin of safety, but when homeland security beefs up baggage security they should be a winner.

LLL L-3 Communications Holdings, Inc. provides command, control, communications, intelligence, surveillance, and reconnaissance (C3ISR) systems; aircraft modernization and maintenance; and government services in the United States and internationally. They have a much better margin of safety (@16%) and have the some upside to HAS expenditures. LLL could be a take over target as well.

FLIR FLIR Systems, Inc. designs, manufactures, and markets thermal imaging and stabilized camera systems worldwide. It operates in three divisions: Thermography, Commercial Vision Systems, and Government Systems. It too has a nice margin of safety at 18% and no debt. It has had a couple of recent downgrades and we need to do our homework on this. We did loose money on FLIR in 09. We do not own it now.

ESLT Elbit Systems Ltd. develops, manufactures, and integrates defense electronic and electro-optic systems primarily in Israel, the United States, and Europe. We have this in the SL portfolio and it has been doing well for us. It has manageable debt and a sustainable but modest yield 2.2%. It is Israeli based and is very well positioned to work with The US and Israel on Middle Eastern and Arabian Peninsula threats. Oh yeah where were these bombs from? Yemen.

NICE Systems Ltd., together with its subsidiaries, provides multimedia recording platforms, software applications, and related professional services. Its enterprise business solutions include recording, monitoring, quality management, interaction analytics, workforce management, business performance management, and feedback solutions, which are designed to capture interactions, analyze them, and take action based on this analysis to drive enterprise performance.

VRNT Verint Systems Inc. provides actionable intelligence solutions and value-added services worldwide. Its solutions are used to capture, distill, and analyze underused information sources, such as voice, video, and unstructured text.

COGT Cogent, Inc. provides automated fingerprint identification systems (AFIS) and other fingerprint biometrics solutions to governments, law enforcement agencies, and other organizations worldwide.

Many if not most of these will be solid plays or takeover subjects as we invest more in our security for baggage handling. I know because I have said some key words in this post tonight that someone at Echelon has picked up this blog, but I’ll take readers anyway I can get them. Do your homework, but this is a sector that should do well into the next election cycle.

Go ahead and sell everything.

One intriguing article in Barron’s this week by Steven Sears caught my wallet. After bashing the inevitable increase in capital gains, he channels Wall Street Strategist Michael Schwartz who suggest selling all of you stocks with significant gains (I am guessing here but if I follow his logic, you would need at least a10-11% gain) and take the capital gains income this year. Then reestablish your positions with call options after the trade. You would enjoy future gains with less capital tied up and enjoy the lower current capital gains rate of 15%. Food for thought.

Jack Be Nimble . . .

This is a volatile week.  A wise man I paly golf with remided me that If I can guess it (Employment numbers, QE, the election possiblities), it has already been factored into the market.  It will take huge surprises to shake this market.  My advice is be nimble and make sure your stops are in place in case we get the surprise. 

The next time you think I have too much time on my hands please remember this picture.

Salve Lucrum

Thursday, October 28, 2010

28 October 2010 Everyday It’s a Getting Faster

BAGAKOAA 28 October 2010 Everyday It’s a Getting Faster

We are going to start out with some linkage today. If you agree with the idea that investors are getting more intelligent and are coming back to the idea (maybe not the execution, but the idea) of taking a bit more risk and that technology is playing a bigger role in the execution of trades in various baskets of assets classes, then a company best postioned for that occurrence might do well. Couple that with the volume increases in future options in everything from hog bellies to corn of the cob trading firms are going to be looking to exploit milliseconds in trade execution to make sure they have the best price or spread between their cost and their sale. That idea lead me to CME Group Inc. which operates the CME, CBOT, NYMEX, and COMEX self-regulatory exchanges. It provides a range of products available across various asset classes, including futures and options on futures based on interest rates, equity indexes, foreign exchange, energy, agricultural commodities, metal, and alternative investment products, such as weather and real estate. The company offers various products that provide a means for hedging, speculation, and asset allocation relating to the risks associated with interest rate sensitive instruments, equity ownership, changes in the value of foreign currency, and changes in the prices of commodities. The company also owns a clearing house, CME Clearing. In addition, CME Group offers market data and information products, as well as involves in real estate business. Its primary trade execution facilities consist of its CME Globex electronic trading platform and open outcry trading floors, as well as privately negotiated transactions that are cleared and settled through its clearing house. Its customer base includes professional traders, financial institutions, institutional and individual investors, corporations, manufacturers, producers, and governments worldwide. The company has strategic relationships with BM&FBOVESPA S.A., Bursa Malaysia Derivatives, Dubai Mercantile Exchange, Green Exchange Venture, Korea Exchange Inc., and Singapore Exchange Limited, as well as a joint venture agreement with Dow Jones & Company Inc. CME Group was founded in 1898 and is headquartered in Chicago, Illinois.


Let’s take a look at the fundamentals. In honesty, I have to say that is what first caught my attention tonight in a post market flash from Credit Suisse. Their margin of safety is a nice 27% even after the nice run up they had today. They are good size company with a 19 billion dollar market cap. They have a price to book ratio of just under one which is great. That basically means, if they did nothing and liquidated the company you would be guaranteed to get every dime of your principal back. Its forward looking P/E ratio is 16.8, which may be a teeny tiny rich compared to the over all S % P ratio. (Currently at 14.1) It hit a nice bottom in August and has come back nicely. They have debt but it is manageable. They have had 5 years of revenue growth above 20% and they just had a 17% quarter. The CEO sits on the Chicago Mercantile Exchange Board so he is in the cat bird seat. Now here is what some of you might call the bad news. The stock sells for 289 a share. Yes that is $289.00 a share. There are some of you saying wow that is really expensive. We will spare the lecture about the price of the stock has nothing to do with whether the stock is cheap or expensive. This stock is valued by many in the 312-320 range. Target prices are just north of there.

Here is my game plan. I would get in at below $290. Then I would put my stop in at $267. Look for 330ish by the end of Q1 2010. Now rather than pay up for the stock we will use a call option. We are looking at the January 21, 2010 $220 call option. We have to pay $71 a contract for it which means we would not be in the money until $291 a share. This would be one of the most expensive calls we ever bought but we like the play. DO YOUR HOMEWORK.

Mea Culpa Mea Culpa

 
In looking at the SL portfolio we are pretty happy and we will protect these gains as best we can. I did notice that all of our nat gas picks are doin stinky (a financial term meaning not as good as we would like). I along with others including one Mr. Cramer have been pimping natural gas and LNG for quite a while-UNTIL Tuesday night. That turn coat blinked. He is going to coal. Well we are going to suffer through this drought in nat gas. I will take a lesson from Mr. Buffet and have patience and focus. This is too logical an energy source to ignore. Prices are depressed and might be for quite a while. We have added PAA, UNG, and, WPRT (As well as an etn in the UK for another portfolio) in the drops. We are down almost 10% on most of these and as you know I like to bail at 8%. I am making a cognizant long term play on these. If you have done your homework and also took on some nat gas exposure, misery loves company.


Buffets New 40 Year Strategy
Todd Combs. Ever heard of him? You will. He is a 39 year old investment fund manager from Sarasota FL. (I think I have skin tag almost that old.) Anyway Buffet announced yesterday the Mr. Combs is the anointed one to take the helm of Berkshire Hathaways come Mr. Buffet’s demise.


All this has me thinking about the timelines I use for investing. I am 54 and most of my investment thinking is short term, 1-3 years. This 39 year old is now charged with taking the helm of a company from a guy who had no measurable time line for investments. When we were looking at the CME play tonight we were thinking longer than a year and how this is the best of breed and how they would really have to work hard at loosing their margin of safety, but even if all of that happened that company is one that will be around a long time. In 40 years it will be a heck of an investment.


Keep an eye on this Combs guy as you will be hearing a lot about him.

The Pope Had A House Warming Party

A few years ago, circa 1308, Pope Clement V must have been tired of all the pick pockets and traffic in Rome and moved the seat of the papacy to a little town called Avignon France. He did miss the wines so he started a winery in the area using many grapes but he a following Popes settled on the Grenache grape. Since the 1400s, Avignon is know for a great wine called Châteauneuf-du-Pape, loosely translated as the Pope new digs or home. Last week I opened one of my CdPs as they are known, at Hanna’s my local little piece of epicurean heaven. It was a wonderful 2003 Domaine du Pégaü Châteauneuf-du-Pape Cuvée Réservée. The color was a wonderful deep purple but not inky. On the nose, the first thing that came to mind was a trip we made a million years ago to Oregon and we jarred some blackberrys and smell of the house while we were making them was special. It was a sticky viscous pour clinging to the stemware with legs all the way up to the lip of the glass. In the mouth, we had smokey meaty peppery stuff happening. There was also some subtle mineral components goin on, but it was a lot of fun picking this beast apart. I enjoyed it with filet skewers over their incredible mushroom risotto.


Some Insight Into The Boeing Dreamliner Delays

As some of us BA shareholders know, the many delays of the new Dreamliner have us concerned.  Today a picture have leaked out of Seattle that at last assures us the the plane can take flight.





Salve Lucrum

Wednesday, October 27, 2010

26 October 2010 Go Easy On The Easing

BAGAKOAA; 26 October 2010 Go Easy On The Easing

Hey it was a whacky day in the market today. We have had a chance to unravel all the whos, whats, wheres, whens, hows, and whys of what might be happening. I’d have to say one of the best summaries and explanations for the initial pull back today came from our buddy Mr. Cramer. After reading the Credit Suise Report, and The UBS Research, The Schwab after makret alert, and all the pundits on line and on the air, Brother Jim did his usual succinct hit piece today entitled “10 Reasons Why A Pullback Makes Sense Now.”


His first point revolves around the fact that many pro business people are expecting really big wins for the republicans next week. They will have a lot of wins, but not enough to create a pro business Nirvana. We will have a typical dysfunctional congress and senate. At this state of the game with trillions at stake that is not necessarily a good thing as even I was suggesting a few months ago.


His next point was and it was really played up today, that with the SSSSLLLOOOWWWLLLYYY improving economy (yes I am ignoring the big bad scary liar loan mortgage issue about to bite us in the balance sheet) QE II aka QE 2 is going to end up being a paper tiger as there seems to be disagreement amongst the Fed presidents as to duration and size of the easing. Originally estimated 500 Billion then talked up to 1.2 trillion is now down to 40-50 billion for several months. Chances are it will be much less than anticipated and the big numbers have already been factored into the equity pricing and some bond adjustments.


His next point is an obvious one. How long can you keep the arrow on the indexes going up and to the right? Look at any interactive stock chart and look at the Dow or my favorite the S & P 500 and start the chart on or about September 9th. Mmmm someone called that the beginning of the next rally, mmmmm. OK, August 30 makes the chart look prettier, but the point is the market is up about 13% in two months and this is spooky bad things happen October. Do the math that is 78% annualized.


Then he cited a few stocks that were surprise underperformers of late, but I have stretched the limit of plagiarism for the night so I won’t spell them out.


He then wisely explains that big cap industrials with International exposure (Think CAT or UTX oops mia culpa Jim) benefit from a weaker dollar which is the goal of QE II. If it gets weakened and the economy stabilizes and we have a non majority congress and senate, we are doomed to have a long term GDP growth if 1.2-2% over the next 10-15 years. Sound familiar. That reminds me I have had sushi in a while.


Then he throws out a wiggler hoping for a poor day today before the jobless claim tomorrow so a 7 day bubble does not get burst by a weak jobs number. Now he does not go as far as to throw out a guess so let me take a crack at it. The 4 week floating average is 458,000 new claims. Last week the adjusted figure was 452,000. The estimate is 455,000. Companies are still waiting to see the election tallies and figure out how much new hires are going to cost. Cities and states are going broke by the hour dumping employees, look for a disappointing jobs figure. Initial claims will break 460,000. Watch you stop order boys and girls.


He acknowledges as we have mentioned here that put/call ratio and investor sentiments are getting white hot. To Quote Warren Buffet (again), “Be greedy when others are fearful and fearful when others are greedy.”


He then gives several examples of recognizable names that have had recent put cover buys which basically means hedge fund managers (big bucks) have to stop their put option shortages by buying the underlying stock driving the underlying stock up. You sometimes hear this called a short squeeze. Needless to say it artificially inflates the value of the stock somewhat.


He closes with what I mentioned earlier that October is good bear hunting season but we have caught our limit in the month with some of the most devastating corrections in the history of God. A little dramatic, but you get my point.



In summary, we would suggest that we and you do not know what the next week or so will bring. We have all seen a lot of upside in the last 2 months. Keep in mind the 10 year Treasury is still at 2.6% or so and getting twice that figure annually is a special feeling. I know many of you have seen 7,12, 15 and 20+ percent in the last few weeks. Consider patting yourself on the back and generate some tax revenues to help pay down our huge deficit by taking some money off the baccarat table. If and when the correction comes in the next week or so, get back on that bad horse and ride the balance of this rally into the Q 1 2011. Here is what we have done in a few positions. I’ll give details later this week. If you are up more than 20% in unrealized gains on a position, consider pulling 20% out. It really is that easy. You just have to take your insecure prideful greedy mind out of the decision making process.

 
A quick thanks to so many of you who have taken the time to complete my quality control survey, especially those of you who were clairvoyant enough to reply before it was sent out. I really do appreciate it and the message is load and clear, you all like the pictures.  The rest of ya, I'm waiting?

 
We are not posting a picture tonight. Tonight I am going to take a lesson from the Honorable Colonel Tom Parker, who after 1960 never let Elvis ever do an encore (he actually did a few in Vegas but not many). He often said to Elvis, “Always leave them wanting more, son.” But like Elvis would say on those occasional nights in Las Vegas, “We don’t give a damn what the Colonel says.”


"Is is is okay baby just pull on my finger, ain't nothin getting out this leather suit."
 
Salve Lucrum


27 October 2010 I Need Your Help

BAGAKOAA 27 October 2010 I Need Your Help

I’ve been under the weather a bit lately so you and I get a break from the blog. In my melancholy albuterol induced stupor, I became a bit retrospective and analyzed the Salve Lucrum Blog over the last year.

I know why I write it, but in many cases I don’t know what if anything you the reader might be taking away. In an effort to continuously improve (Dr. Deming would be so proud of me.) this blog, I need your help with a quick survey. Please cut and paste the following survey and send it back to me at brian.cronin@padi.com:

Here are few topics usually covered in our postings. Using a numerical rating of 1 to 5 with 5 being the most helpful, meaningful, or entertaining and 1 being the least, send me your opinions. At the end feel free to send any comments that might make this more useful for you:


The occasional snapshot of the SL portfolio performance.

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My Scorecard indicating how we did prognosticating economic data points or earnings calls.

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Linkage where we try and use a current news pieces and explain how it might be used for a future equity play.

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The week ahead where we attempt to forecast the economic data points and earnings calls and how they might impact a specific market segment or equity.

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A Look In The Rear View Mirror where we go back about one year into the Salve Lucrum Blog and report back about stock ideas and strategies we posted.

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Book reviews.

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This week in Barron’s

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Stock analysis where we take one or several of your picks and do a fairly complete value and descriptive analysis.

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Basic investing education where we attempt to explain a term, concept, or strategy in brianspeak, not Wall Street jargon.

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Our photo of the day with clever captions written by our talented staff of comedy writers.

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PLEASE PROVIDE ANY HELPFUL, RUDE, OR SARCASTIC COMMENTS HERE:














END OF SURVEY.

Thanks for taking the time to do this. We currently have 39 readers of this blog so I am expecting 38 replies as I know my lovely wife will give me 5s on everything as she lives and breathes for my next post. Ooops must be the drugs.

Salve Lucrum

Sunday, October 24, 2010

24 October 2010 In one nostril and right out the other.

BAGAKOAA;

24 October 2010 In one nostril and right out the other.

Recently my wife and I were told that she has a memory like a steel trap. I have the memory of a sieve. Apparently in an effort to process all of the information I get exposed to in a day, a lot of it goes right through. In one ear and out the other.

That observation got me thinking that maybe there is nothing in my head to stop things as they enter my head. I have further evidence that might support this claim. Have you ever used a Neti Pot? I had some friends and current readers tell me about the amazing Neti Pot several years ago. About the same time my wife heard about it and she bought one and used it and had my son use it and even I used it. This weekend I have had a really crummy head cold. If you are not familiar with the Neti Pot, it is a little plastic pot that looks like a Barbie tea pot. You fill it with look warm water and saline solution and stick it up your nose and tilt and pour. It is actual proof I have nothing in my head as the solution flows through my head and comes out the other nostril. Really cool. The Neti pot has its origins in the Hindu culture and has been around about 800 years. If you ever get a nasty head cold, be sure to get a Neti Pot and give a try.

That may be the best advice you get in today’s blog but let’s see what else we can come up with.

This Week in Barron’s

We gave you a heads up about the cloud computing article and that alone is worth picking up this weeks issues. MICHAEL SANTOLI has a great piece this week explaining the strength of this rally. He notes the number and volume of retail investors and the bullishness of the call put option numbers of late. After reading this I was feeling pretty good as we called this a rally on September 9, 2010. The S & P is up almost 12% since then. Not too many other people including Barron’s authors were going as far as to call it a rally until the last week or so. That has me concerned. To Quote Warren Buffet, “Be greedy when others are fearful and fearful when other are greedy.” The positive investor sentiment and slow increase in volume have me a bit attentive. If you have made a profit in the recent 7 week rally, think about taking some profits in anything over that 12% gain. If you have a few beauties over 20%, take a little off the table.

Speaking of Buffet, Andrew Bary does a great article on some of Warren’s Whoopsies. It describes some of his less than stellar choices. Now remember anyone can go to the SEC website and look up Berkshires quarterly holdings and if you compare one quarter to the next, you can see some of his moves in his 13F filings. You can los keep an eye on the 13 D filings for when ever he is changing a position of more than 5% ownership. Bary cites KO, COP, JNJ, PG, WMT and WFC as some less than stellar performers that Buffet holds. I do caution that Berkshire also has vast holding in not publically traded investments. That means his little bucket (about 45Billion) in equities is not his entire fortune. Great article.

Eric Savitz does a great article about AAPL and its never ending hits parade. Kopi Tan took the opposite side of the argument that Santoli took explain what it will take to keep this rally going. He asks a good question when he challenges readers to come up with the next positive surprise that will take this rally higher. Near the highs of the year, the market seems to have valued in decent earnings report, squishy econ numbers and the Democrats giving up several seats in the house and the Senate. He asked what else can Keep it coming. He does lighten up a bit and shows some positive things in the tech sector and consumer staples. I don’t usually take ticker tips from these articles but one worth doing homework on is CCK, Crown Holdings, Inc. engages in the design, manufacture, and sale of packaging products for consumer goods. The company's products include beverage cans and ends, and other packaging products for use by various beverage and beer companies; a range of food cans and ends, including two-and three-piece cans in various shapes and sizes for use by food marketers; and aerosol cans and ends for use by manufacturers of personal care, food, household, and industrial products. In addition, the company produces a range of steel containers for cookies and cakes, tea and coffee, confectionery, giftware, personal care, tobacco, wines, and spirits, as well as non-processed food products. In the industrial market, it manufactures steel containers for paints, coatings, inks, chemical, automotive, and household products. Further, it manufactures and sells canmaking equipment. The company has operations in the Americas, Europe, and the Asia-Pacific. Crown Holdings was founded in 1927 and is headquartered in Philadelphia, Pennsylvania.

Do your homework. I like everything I see except a large debt issue. I want to look at the last 10Q to see haw they explaining the debt. Most target prices are in the 36-38 range giving a decent margin of safety.

Let’s Look Into The Crystal Ball

There are about 34 key earnings reports this week, so I will chunk them like I did last week.

TXN, Texas Instruments reports on Monday and is looking for 69 cents for the quarter. Motely Fool published a less than glowing heads up about the company using Accounts Receivable and DSO (Days Sales Outstanding) metrics to imply a soft quarter for TXN. We do not own it, but read some articles about their exposure to the auto industry, home security and smart phones. I am thinking we could see a slight beat. I am guessing 71 cents a share.

Tuesday we have BMY, Bristol Myers and they are looking for 53 cents a share in earningings. We thinkest a miss. Look for 50 cents a share. Ford is looking for 38 cents a share and I think they will have a blowout. My only caution would be how much advertising they are doing. Let’s call it 48 cents a share if they did not go crazy with their advertising budget.

SIDENOTE-We have seen a lot of earnings report come in short of expectations despite top line growth. Many of these is because these cowponies are back on television, radio, news papers, and social networking promotions. From a linkage point of view that means we should see television networks and other media show improved results. In 2009, we had a nice play with an ETF called PBS. It is an ETF that seeks investment results that correspond generally to the price and yield, before fees and expenses, of an equity index called the Dynamic Media Intellidex. The fund normally invests at least 80% of assets in common stocks of media companies. It may invest at least 90% of assets in common stocks that comprise the Media Intellidex. The Intellidex is comprised of 30 U.S. media companies. It is nondiversified. We rode this from the mid 5s to 8 early in 09. It is selling for 26, and I would look for a 30-32 by Q1 2011. Go to Morningstar and do your homework.

Also on Tuesday, Look for big beat on JCI, Johnson Controls. We do not own it but they are well positioned in the auto market and aerospace market. Yes I was drinking Cramer’s kool aid Friday night, but checked the 10Qs and he is spot on. They are looking for 57 cents and I am guessing 62.

On the economic front we have existing home sales reporting Monday. Keep in mind unemployment did not go up (didn’t really go down either), interest rates did go down, consumer sentiment appears to be going up so what do you think existing home sales are going to do? The consensus says it will go up a shtikl (From the Yiddish Financial dictionary meaning a little bit.) to 4.3 million units. I am feeling more optimistic and will look for 4.45 million units.

From the "Pull My Finger" Gallery
"Pull my finger or I will cut your finger off."

Saturday, October 23, 2010

23 October 2010 Not Ready For Prime Time

BAGAKOAA;

23 October 2010 Not Ready For Prime Time

I took a chance this Thursday and took the piece I did on Pharmaceuticals and posted in my blog on SeekingAlpha.com. If you are not familiar, Seeking Alpha is the premier website for actionable stock market opinion and analysis, and vibrant, intelligent finance discussion. We have sent several posts to SA only to have them rejected. I got back a note about the pharm blog making a few suggestions. I adjusted it, posted again and it was published. Wow, I got slammed. One person was actually annoyed they wasted their time reading my “drivel”. (They are very astute as even I have called it drivel.) The nicest comment I got was “Thank you for your long winded article about pharmaceuticals. What was the point?” I guess all of the readers screen 120 stocks boil it down to 15, do the homework and suggest two value pharms. Now all of this is good news as it tells me there are those who have less of a life than I do!

I started my day by sending an e-mail this morning at 5:30 to a few of my golf buddies letting them know I was under the weather and would not make golf. I was so ill I did not make breakfast so that puts it in the category of Near Death Experience. I was so sick (How Sick Were You!), I did not get Barron’s out of the Driveway until 10:30 in the morning.

We will crunch through it and give you the week ahead, by tomorrow night. One article that caught my attention (possibly because it was the cover story. Told you I was sick.) was called Private Cloud. Mark Veverka article is well researched and opens the door to unbridled speculation without concern for value based metrics like P/E ratios and shareholder’s value scrutiny.

What he describes is a repeat of the internet bubble of 1995-2000. While a lot of people lost their shirts, cars, and homes in that bubble, a lot of folk made gobs of money. With that comment in mind, I would suggest we are closer to 1995 than 2000 in the current phenomenon of cloud computing. The reason we say this is because, just like the .com bubble, a critical mass of users was not attained until corporate America said, yeah we want websites and internet exposure and e-mail and transactional websites. (That would have been 1995ish.) Right now we are just beginning to see companies that they see some interesting opportunities in cloud computing. The real catalyst for the adoption of the cloud computing phenomenon could be seen in an article this Tuesday in the Wall Street Journal. In the board rooms of Fortune 500 companies, exec are waling in with their iPads and asking their IT department how to get on the company network and how do integrate their new toy into their existing network at work. Now at face value this is a huge linkage to AAPL as company IT departments build Mac and Apple networks to support the devices, but at the same time so many of the apps are cloud based that it is inevitable this conversion will happen. Unfortunately many of the key players have already been identified and their valuations are outrageous. P/E ratios of 50-150 are not uncommon, but they are playing in a filed which could see 5 year sales and profit increases of 100-1000%, not only making these valuations reasonable but down right cheap.

We are going to tear Veverkas article apart and look at the companies he mentions plus a few of our own and read the tea leaves. This batch of equities will be EXTREMELY speculative, and a few will make us money only because of the bigger fool theory. Just don’t be the last bigger fool, aka the biggest fool as that means you owned the equity as it went POP.

Until we read all the 10K report on these please pick up this weeks Barron’s and read the article. Imagine if you could have read the Wall Street Journal in 1995 and gleaned most of the top names in the internet bubble and had the guts to buy in early for the likes of eBay, Global Crossing, Yahoo. Amazon, Green Grocer, to name a few.

This will be like a horse race. There will be winner and lot of loosers, but it will be an interesting race.

Salve Lucrum

Thursday, October 21, 2010

21 October 2010 We live in a day and age. . .

BAGAKOAA;

21 October 2010 We live in a day and age. . .

We live in a day and an age when the longer you live, the longer you live. In the book “Debunkery”, Ken Fisher debunks a common assumption that even I have had faith in since I got in the market in the mid 80s. It was the age distribution strategy where you take your age subtract it from 100 and that is the balance of stocks to bonds ratio you want to keep in your portfolio. Example, you are 55. 100-55 = 45 so you would want 45% of your portfolio in stocks and 55% in bonds. This is based upon the assumption (one I have bought into for 25 years) that bonds are less volatile and safer that equities.

In any given rolling 30 year period from 1926 to 2009, which asset class performs better stocks or bonds? Stocks out perform bonds 100% of the time in the 30 year bracket, 97% of the time in 20 year brackets, 82% of the time in 10 year brackets, and 72% of the time in 5 year brackets. Even in the one year bracket stocks out performed bonds 63% of the time.

The point of all of this is to rethink the age old strategy that bonds are best for you as your income producing years become shorter. Each scenario is difference and you should judge your risk reward situation by your circumstances not your age.  If you are 65 and in good health and have a genetic history of longevity, perhaps a conservative equity heavy portfolio would serve you better than have most of your eggs in the bond basket.  This is a good book.

Checking the score card.

Last night we prognasticated:

"Economically we have the initial jobless claim out tomorrow. Most are looking for a downward trend after last weeks surprise bump. I would agree, but think the drop will more in line with the 13,000 bump we saw last week. Look for a jobless claims number of 449,000."

We got real close with that as the number came in at 452,000.  The base news on the report was the upward adjustment for the month before.  That will some cooling in China had the market in a funk most of the day.

We also said:

"Earnings wise, we have Union Pacific reporting looking for 1.50 a share. We think that trains a comin, its comin down the track, sorry got carried a way there. It will come in at 1.57 (We got real close with that as they came in at $1.56) a share. I know a few of you hold CAT Catepillar and feel that they will enjoy some bottom line growth as a result of the deflated dollar. The are hoping for $1.09 a share and we will go along with that (The CAT bulldozed its way to $1.22 a share). There might be a bit of a beat but not much. T AT&T is looking for .55 and they should beat by a nickel. Look for 60 cents a share (I got that one wrong as they met analysts expectations). AMZN Amazon (we own it) is looking for 48 cents a share. Look for a big beat. We are thinking 61 cents a share (Well they had a nice beat at 51 cents a share.  It looks as though they spent a lot of money on advertising and infrastructure which inures to future shareholder vlaue.). Then you have economic bellwether UPS reporting tomorrow. I got Fed Ex wrong a while back, so if I use logic they should miss the 88 cents they are looking for, BUT the book "Debunkery" teaches us not to do what is expected so they will beat by a nickel. Look for 93 cents a share (The logic actually worked, but they came in much hotter than I expected.  They got 99 cnets a share in profit.  Nice Big Brown)."

From the "A funny thing happened today at the White House" gallery.

"No, just act cool and don't lead on we have locked ourselves out of the White House."

Wednesday, October 20, 2010

20 October 2010 Not Another New Book

BAGAKOAA;

20 October 2010 Not Another New Book

Be very afraid. I am reading yet another book. Actually I am reading several books at the moment. Baby Let’s Play House about the sexual conquests of Elvis Presley (this guy had more baggage than Louis Vuitton), Empowered: Unleash Your Employees, Energize Your Customers, and Transform Your Business by Josh Bernoff. This is actually (I’m about 27% through it-can you tell I am reading it on my Kindle) a great book about empowering employees to make them brand heroes. I highly recommend this book to anyone responsible for sales, marketing and a bottom line. I am also picking away at the 900 page Christianity: The First Three Thousand Years by Diarmaid MacCulloch. This was given to me by a reader and buddy in England. He had seen a BBC documentary and this was the accompanying book. It made me religious as I thanked God when it came out on the Kindle because the book weighed about 11 pounds. I should be done with this hopefully before the next coming. The book I really wanted to tell you about, (Notice how I did not say “But I Digress”.) is Debunkery: Learn It, Do It, and Profit from It-Seeing Through Wall Street's Money-Killing Myths by Ken Fisher. I had heard him speak a few times on Bloomberg, but have never read any of his books (he has 8 books about the market, is a billionaire who runs an investment fund and writes for Forbes and other financial pubs.) I read about the book in the Journal last week and downloaded it Saturday Night. This is a good read because he puts down several of his earlier books and points out the silly things we do as investors and how to avoid the big mistakes. It’s an easy quick read, but loaded with good stuff. Definitely one for the book shelf.

The Shhhhhhhh Number

I have been involved with a website for about a year now. It is called http://www.whispernumber.com/ . They measure investor sentiment and track the whisper numbers of key stocks. Let me explain the whisper number. As I understand it, you have a group of analysts who follow one stock and they come up with an earnings estimate each quarter. The average estimate is published by all the financial journals and websites and blogs. Then you have a key analysts, the one “in the know”, called the AX who might know more about the company than others and they get recognized as the lead analysts on the stock. There will occasionally be the outlier and call an earnings outside of the average range. That number becomes the whisper number. Whispernumber.com attempts to accumulate those numbers and share them with their paid customers. I usually submit my guesses on their slate of companies they are looking for “whisper numbers’ for. Anyway, here is a recent slate of companies if you want to play along.

PRAXAIR, INC. (PX) Praxair, Inc. engages in the production and distribution of industrial gases primarily in North America, South America, Europe, and Asia. The estimate is $1.20 a share, the whisper number is $1.30. I put my bet in at $1.22 as this is very cyclical and reliant on a robust economy. Also they service the oil industry which was shut down for a while after the BP spill. So we see a small beat.

JDS UNIPHASE CORP (JDSU) JDS Uniphase Corporation provides communications test and measurement solutions, and optical products to telecommunications service providers, cable operators, and network equipment manufacturers. There is no whisper number, the estimate is 16 cents a share and our guess is a miss at 14 cents a share.

CARDINAL HEALTH INC (CAH) Cardinal Health, Inc. provides health care products and services primarily in the United States. The company's Healthcare Supply Chain Services segment distributes branded, private-label medical and laboratory, generic pharmaceutical, healthcare, and consumer products to retail customers, hospitals, and alternate care providers. There is now whipernumber and I can’t even find an estimate. Our guess is 50 cents a share.

CIT GROUP INC. (CIT) Not to be confused with C CIT Group Inc. operates as the holding company for CIT bank that provides commercial financing, leasing products, and other services to small and middle market businesses. The whisper number is 35 cents a share well below the analysts average of 43 cents a share. I am getting wild and crazy and look for a huge beat to 56 cents a share.

You might ask why I go through this exercise if I don’t own the stocks (which I don’t). We go through the iterations because we occasionally will find a good stock or discover a piece of information about a given stock or sector. A good example would be CYBX Cyberonics, Inc., a neuromodulation company, engages in the design, development, manufacture, sale, and marketing of implantable medical devices that provide vagus nerve stimulation (VNS) therapy for the treatment of refractory epilepsy and treatment-resistant depression. We tripped over this stock in August and after quite a bit of homework discovered a 35 dollar stock selling for 22 a share. We got in and mentioned here and are enjoying a 25% gain at the moment (8% realized 17 % unrealized). That is why we do it.

The Scorecard

Last night we pegged the bank formerly know as Wells Fargo WFC (which we no longer own) for a beat at 59 cents a share. The did that and a pence more to come in at 60 cents a share. Will call that a good call. We said ABT Abbot Labs would miss by 5 cents and they did MISS BIG. We were looking for 99 cents a share, they actually came in at 57 cents. We would have thought we’d see a bigger hit to the stock than a 1% drop. Ebay reported today and we will take a win and a loss on that guess. We suggested a miss over all of 2 cents. The estimate was 37 cents and we guessed 35 cents. Once you washed out the non GAP items and one time charges they beat at 40 cents a share. We will take it as win because most of the upside was due to Pay Pal as we called it. We really missed the boat (or should we say plane) when we guessed BA Boeing for a miss of four cents. The reported strong earnings of $1.12 a share and raised 4th quarter guidance (That means the CFO said it was OK for the CEO to say good things.). All in all we got most of it right except the Boeing announcement.

The Crystal Ball

Economically we have the initial jobless claim out tomorrow. Most are looking for a downward trend after last weeks surprise bump. I would agree, but think the drop will more in line with the 13,000 bump we saw last week. Look for a jobless claims number of 449,000.

Earnings wise, we have Union Pacific reporting looking for 1.50 a share. We think that trains a comin, its comin down the track, sorry got carried a way there. It will come in at 1.57 a share. I know a few of you hold CAT Catepillar and feel that they will enjoy some bottom line growth as a result of the deflated dollar. The are hoping for $1.09 a share and we will go along with that. There might be a bit of a beat but not much. T At&T is looking for .55 and they should beat by a nickel. Look for 60 cents a share. AMZN Amazon (we own it) is looking for 48 cents a share. Look for a big beat. We are thinking 61 cents a share. Then you have economic bellwether UPS reporting tomorrow. I got Fed ex wrong a while back, so if I use logic they should miss the 88 cents they are looking for, BUT the book "Debunkery" teaches us not to do what is expected so they will beat by a nickel. Look for 93 cents a share.

We only have a couple of interesting earning items on Friday so let’s get them out of the way. HON Honeywell reports and is looking for 63 cents a share, but before you get my guess, in researching the stock for a feel of where earnings might end up I ran across this headline:

“Why NASA Banned Cabbage, Broccoli From Flight Menus”

I can’t write stuff that funny. Anyway look for a slight beat to 65 cents a share. We also have Verizon looking for 54 cents a share and that should be a miss. 50 cents a share seems to be more in line.

A look in the rear view mirror

Here is a post from 19 October 2009


“IBM is getting whacked pretty good right now as their revenue and profit were disappointing. It did raise its total year earnings expectations. Most of the analysts are saying hold and 12 month target prices are in the 140ish range. I am very close to stopping (118) out. My average cost is 102.61. If I stop out I will wait a bit and get back in. Please protect your gains on this one if you have it.”

We hope you took that suggestion as we have had a long and volatile relationship with Big Blue. You can see the last 12 months here.



We are enjoying a 10% unrealized gain at the moment and have taken profit a couple of times earlier in the year.

It seems as though our President is feeling a little threatened by every one as we come up to election time.

"I don't care what award your here to collect.  Don't ever wear the same suit as me again!"

Salve Lucrum

Tuesday, October 19, 2010

19 October 2010 Focus and Patience

BAGAKOAA;

19 October 2010 Focus and Patience

Kinda weird day. We had some good earnings reports early on but the rate hike out of China and spooky news about BAC must have had some people taking profits. (Are you smelling the methane form the BAC oil platform yet? Last week was a good time to get out.) We tried to load up on AAPL at the 300 level in the pre market market, but those limit buys were passed instantly. We did pick up some AAPL later in the day in a few portfolios (Not the main SL Portfolio) in the 309 range. That should still be a decent entry point. We added to our position on RINO on the 7% drop. We like the huge insider ownership (even if a lot of it is the Chinese Gov’t), Great ROE, Great Sales Growth, Great Earnings Growth. I am sure the Chinese currency news had to be a factor in the move today. The argument could be made with a higher Yuan, the plants and factories and municipalities buying the RINO anti pollution products will suffer. We are thinking phisha or is it fisha (financial terms meaning we don’t think so) as the Chinese GDP growth rate is one of the fastest in the world. Whether they grow at 11% or 9% will not put a serious dent in these companies’ earnings. This was a great buying op.

We also doubled our bet on VXX with more of the December 18 calls 21 dollar calls. We are expecting more of an adjustment in the market by 18 December so we are considering this a cheap insurance bet. We also bought more Microsoft on the dip. We inadvertently took a little profit on KO as we must have had a small stop order that got executed today. We will re-establish that position soon. On this one (KO) I will agree with Cramer as he was pimping the stock today.

Check the Score Card

Well we said the housing start would be poor and they came on strong reporting 610 thousand news home starts. It did not help the market.

We called a beat by GS as they were expecting 2.28 and we said 2.32 a share. They came in huge at 2.98 a share. The M & A and wealth investment division had real strong showings. All other sectors were very disappointing.

We were expecting a miss out of BAC, but they had a heck of a beat coming in at 27 cents a share income versus and estimated 14 cents a share. That did nothing to qualm the fears about their foreclosure buyback situation.

Things go better with KO which we almost nailed as for their beat of 89 cents a share. We guessed a 91 and they came in at 92. Darn we are good some times.

Before my crystal ball faded last night, I pegged JNJ income at 1.20 a share versus the estimate of 1.15. The actually came in at 1.23 a share. Now I did say my crystal ball was fading.

Follow the Bouncing Ball

I know I killed most of you with my pharm analysis from last night. One of my good friends acknowledged my blood, sweat, and tears by saying, “Dude, you need a life.” I can say I actually enjoyed the exercise. We learned a lot about pharms and the FDA and different diseases. But most of all we found that the run up in the market over the last year has taken a lot of the bargains off the table. We started with 120+ pharms and screened them down to the 15 we posted about. Of them we could only suggest two for you to do your homework.

This goes back to the title line of this post. In this market, patience and focus will win the day. It is getting harder and harder to find the companies of value or should I say with a great margin of safety. We are staying with our known winners and buying on the dips with a disciplined approach.

A Look into the Crystal Ball

Tomorrow is a quiet day for economic news, but like a scene from “The Jerk”, if you are around tomorrow about 11:00Am you will see me running down the street saying “The New Beige Book Is Here, the New Beige Book is Here.”


Yes the Fed’s Beige Book is out tomorrow and many will be looking for tells about employment and housing. My guess is we will hear about “modest improvement”. Beyond that, we will see some petroleum figures but there should not be any surprises. The level of inventory should support the current price or a slight move upward. We might see 85 dollar oil by years end.

We have some earnings tomorrow so let’s rub that ball and see what they will bring. WFC, another bank we just dumped, will probably beat by 4 cents to 59 a share. ABT, Abbot Labs one of the pharms we took a peak at will miss by at least 5 cents making that number 99 cents a share income. I see eBay coming into the crystal ball, I don’t know why, we don’t own it and quite honestly have not used the site much anymore. (Can you imagine what that company would be if they had not bought PayPal?). Anyway our ball is saying a slight miss with PayPal holding the place together. Look for a 2 cent miss to 35 cents a share. Boeing will miss and everyone will get spooked and it will drag the market down some more and the wise people will buy. Look for a 4 cent miss to $1.01 a share income.

And the crystal ball is fading.

From the "I have heard one too many political television ad!" gallery.

Salve Lucrum!

Monday, October 18, 2010

18 October 2010 Pharms and Worms in the AAPL

BAGAKOAA; 18 October 2010 Pharms and Worms in the AAPL

We owed you an answer on pharmaceuticals and we have it now. I will be the first to admit I was not able to answer 8-10 of the 5% guarantee post seen here over the weekend, but we did our best. We crunched the numbers and did the homework on the following companies:



NVO Novo Nordisk A/S, a healthcare company, engages in the discovery, development, manufacture, and marketing of pharmaceutical products. It operates in two segments, Diabetes Care and Biopharmaceuticals. The Diabetes Care segment covers insulin franchise, including modern insulins, human insulins, protein-related sales, and oral antidiabetic drugs, as well as GLP-1 analogue. The Biopharmaceuticals segment provides products in the areas of haemophilia, growth hormone therapy, hormone replacement therapy, and inflammation therapy. The company's products are marketed and distributed through subsidiaries, distributors, and independent agents in the United States, Japan, China, Russia, India, Brazil, and Turkey. Novo Nordisk A/S was founded in 1925 and is headquartered in Bagsvaerd, Denmark.

TEVA, Teva Pharmaceutical Industries Limited engages in the development, production, and sale of a range of generic and branded pharmaceuticals, biogenerics, and active pharmaceutical ingredients (APIs) worldwide. The company's principal products include Copaxone for multiple sclerosis; and Azilect for Parkinson's disease. Teva Pharmaceutical also provides specialty pharmaceutical products, which include respiratory products based on its proprietary delivery systems, including Easi-Breathe, an advanced breath-activated inhaler; Spiromax/Airmax, a multidose dry powder inhaler; Steri-Nebs, the blow-fill-seal based nebulizers; and Cyclohaler, a single dose dry powder device. The company's branded respiratory products include ProAir, a short-acting beta-agonist for the treatment of bronchial spasms and exercise-induced bronchospasm; and Qvar, an inhaled corticosteroid for long-term control of chronic bronchial asthma. In addition, it offers APIs for respiratory, cardiovascular, anti-cholesterol, central nervous system, dermatological, hormones, anti-inflammatory, oncology, immunosuppressants, and muscle relaxants. Further, the company provides women's health care products, such as oral contraceptives, intrauterine contraception, and hormone therapy treatments for menopause/perimenopause, as well as therapies for use in infertility and urinary incontinence. It also holds a biotechnology platform focused on the development of peptide and protein-based medicines. Teva Pharmaceutical has cooperation agreements with Kowa Company, Ltd.; Lonza Group Ltd.; H. Lundbeck A/S; Impax Laboratories, Inc.; Anchen Pharmaceuticals, Inc.; sanofi-aventis; and OncoGenex Pharmaceuticals. The company was founded in 1901 and is headquartered in Petach Tikva, Israel.

FRX, Forest Laboratories, Inc. develops, manufactures, and sells branded and generic forms of ethical drug products. Its principal products include Lexapro to treat depression; Namenda to treat Alzheimer's disease; Bystolic, beta-blocker to treat hypertension; and Savella for the treatment of fibromyalgia. The company also provides Sudocrem, a topical preparation to treat diaper rash; Colomycin, an antibiotic to treat cystic fibrosis; Infacol, which is used to treat infant colic; and Exorex, which is to treat eczema and psoriasis. In addition, its products include Dutogliptin, a small molecule dipeptidyl-peptidase-4 inhibitor, which is in Phase III studies to treat Type II diabetes mellitus; F2695 that completed Phase II study and is a selective norepinephrine and serotonin reuptake inhibitor for the treatment of depression and other central nervous system disorders; and ceftaroline acetate, a injectable cephalosporin antibiotic that exhibits bactericidal activity against the strains of gram-positive bacteria. Further, the company's products comprise NXL104, an intravenous beta-lactamase inhibitor; Linaclotide for the treatment of constipation-predominant irritable bowel syndrome and chronic constipation; Aclidinium, an inhaling therapy, which is in Phase III studies for chronic obstructive pulmonary disease; and Cariprazine, an atypical antipsychotic in Phase II(b) studies for the treatment of schizophrenia, bipolar mania, and other psychiatric conditions. Additionally, its products include Oglemilast, a phosphodiesterase-IV inhibitor in Phase II study to treat COPD and asthma; and Benicar, an angiotensin receptor blocker to treat hypertension. The company has collaboration and license agreements Phenomix Corporation, Pierre Fabre Medicament, Novexel, S.A., Laboratorios Almirall, S.A., Gedeon Richter Ltd., Glenmark Pharmaceuticals Ltd., and AstraZeneca plc. Forest Laboratories, Inc. was founded in 1956 and is based in New York, New York.

VRTX, Vertex Pharmaceuticals Incorporated engages in the discovery, development, and commercialization of small molecule drugs for the treatment of serious diseases worldwide. Its product pipeline includes Telaprevir (VX-950), a Phase III clinical trial product for the treatment of hepatitis C virus (HCV) infection; VX-222, a Phase IIa clinical trial product targeting HCV infection; and VX-985 and VX-759, which are in Phase I clinical trials for the treatment of HCV infection. The company's products also comprise VX-770, a Phase III clinical trial candidate for the treatment of cystic fibrosis; VX-809, a Phase IIa clinical trial product targeting cystic fibrosis; VX-509, a Phase IIa clinical trial product for the treatment of rheumatoid arthritis; and VX-765, a Phase IIa clinical trial product targeting epilepsy. It has collaboration agreements with Janssen Pharmaceutica, N.V.; Mitsubishi Tanabe Pharma Corporation; Cystic Fibrosis Foundation Therapeutics Incorporated; Merck & Co., Inc.; and GlaxoSmithKline plc. Vertex Pharmaceuticals was founded in 1989 and is headquartered in Cambridge, Massachusetts.

WCRX, Warner Chilcott plc, a specialty pharmaceutical company, focuses on the development, manufacture, and promotion of branded pharmaceutical products in gastroenterology, women's healthcare, dermatology, and urology segments in North America and western Europe markets. The company primarily offers ASACOL for the treatment of ulcerative colitis for orally administered 5-aminosalicylic acid products; ASACOL HD that provides dosing advantages for patients in the treatment of moderately active ulcerative colitis; ACTONEL for the prevention and treatment of postmenopausal osteoporosis; FEMCON Fe, OVCON 35, OVCON 50, and ESTROSTEP Fe, which are oral contraceptives for the prevention of pregnancy; ESTRACE cream for treatment of urogenital symptoms of menopause; and FEMHRT, a systemic therapy for the treatment of menopausal symptoms. It also provides DORYX, a tetracycline-class oral antibiotic for the treatment of severe acne; and ENABLEX for the treatment of symptoms of overactive bladder. The company markets its products and services through wholesale pharmaceutical distributors, and retail drug and grocery store chains. Warner Chilcott plc was formerly known as Warner Chilcott Limited and changed its name on August 21, 2009. The company was founded in 1968 and is based in Ardee, Ireland.

PFE, Pfizer Inc., a biopharmaceutical company, engages in the discovery, development, manufacture, and marketing of prescription medicines for humans and animals worldwide. The company's Biopharmaceutical segment offers products in the areas of primary care, specialty care, established products, emerging markets, and oncology customer-focused units. Its principal products include Lipitor for elevated cholesterol levels in the blood; Norvasc for hypertension; Caduet for cardiovascular events; Chantix/Champix for smoking cessation; Lyrica for neuropathic pain; Revatio for pulmonary arterial hypertension; Geodon/Zeldox, a psychotropic agent; and Aricept for Alzheimer's disease. This segment's products also comprise Celebrex for osteoarthritis and rheumatoid arthritis and acute pain; Zyvox for Gram-positive pathogens; Viagra for erectile dysfunction; Detrol/ Detrol LA for overactive bladder; Sutent for advanced renal cell carcinoma; Xalatan for open-angle glaucoma and ocular hypertension; Genotropin for growth disorders; Vfend, an antifungal agent; Effexor for depressive disorders; Prevnar/Prevnar7 for invasive pneumococcal disease; Enbrel for rheumatoid arthritis; Protonix, proton pump inhibitor for erosive esophagitis; and Spiriva for breathing problems. The company's Diversified segment offers animal health products, which include antibiotics, anti-inflammatories, antiemetics, parasiticides, and vaccines; consumer healthcare products comprising dietary supplements, pain management, respiratory, and topicals/gastro-intestinal products; Nutrition products; and Capsugel products that include gelatin, liquid, softgel, non-animal, and fish gelatin capsules. Pfizer Inc. serves doctors, nurse practitioners, physician assistants, pharmacists, hospitals, pharmacy benefit managers, managed care organizations, and government agencies. It has a strategic alliance with Acacia Living Inc. The company was founded in 1849 and is headquartered in New York, New York.

JNJ (we have a coupld of calls on this), Johnson & Johnson engages in the research and development, manufacture, and sale of various products in the health care field worldwide. The company operates in three segments: Consumer, Pharmaceutical, and Medical Devices and Diagnostics. The Consumer segment provides products used in baby care, skin care, oral care, wound care, and women's health care fields, as well as nutritional, over-the-counter pharmaceutical products, and wellness and prevention platforms under the names JOHNSON'S, AVEENO, CLEAN & CLEAR, JOHNSON'S Adult, NEUTROGENA, RoC, LUBRIDERM, Dabao, Vendome, LISTERINE, REACH, BAND-AID, PURELL, CAREFREE, STAYFREE, SPLENDA, TYLENOL, SUDAFED, ZYRTEC, MOTRIN IB, and PEPCID AC. The Pharmaceutical segment offers products in various therapeutic areas, such as anti-infective, antipsychotic, cardiovascular, contraceptive, dermatology, gastrointestinal, immunology, neurology, oncology, urology, and virology. Its products include REMICADE, a biologic approved for the treatment of immune mediated inflammatory diseases; PROCRIT, a biotechnology-derived product that stimulates red blood cell production; LEVAQUIN, which is used in the anti-infective field; RISPERDAL CONSTA, a injectable for the treatment of schizophrenia; CONCERTA, a product for the treatment of attention deficit hyperactivity disorder; ACIPHEX/PARIET, a proton pump inhibitor; DURAGESIC/Fentanyl Transdermal, a treatment for chronic pain; VELCADE for the treatment of multiple myeloma; PREZISTA for treating HIV/AIDS patients; and INVEGA, a atypical antipsychotic. The Medical Devices and Diagnostics segment primarily offers circulatory disease management products; orthopaedic joint reconstruction, spinal care, and sports medicine products; surgical care, aesthetics, and women's health products; blood glucose monitoring and insulin delivery products; professional diagnostic products; and disposable contact lenses. The company was founded in 1886 and is based in New Brunswick, New Jersey.

ABT, Abbott Laboratories engages in the discovery, development, manufacture, and sale of health care products worldwide. It operates in four segments: Pharmaceutical Products, Diagnostic Products, Nutritional Products, and Vascular Products. The Pharmaceutical Products segment offers adult and pediatric pharmaceuticals for rheumatoid arthritis, psoriatic arthritis, ankylosing spondylitis, psoriasis, Crohn's disease, dyslipidemia, HIV infection, hypothyroidism, advanced prostate cancer, endometriosis and central precocious puberty, anemia, obesity, epilepsy and bipolar disorder, migraines, secondary hyperparathyroidism, gastroesophageal reflux disease, duodenal and gastric ulcers, and erosive esophagitis, as well as provides anesthesia products and anti-infectives. The Diagnostic Products segment offers immunoassay systems; chemistry systems; assays used for screening and/or diagnosis for drugs of abuse, cancer, therapeutic drug monitoring, fertility, physiological, and infectious diseases; instruments that automate the extraction, purification, and preparation of DNA and RNA from patient samples, and detect and measure infections agents; genomic-based tests; hematology systems and reagents; and point-of-care diagnostic systems and tests for blood analysis. The Nutritional Products segment provides a line of pediatric and adult nutritional products. The Vascular Products segment offers coronary, endovascular, and vessel closure devices, such as drug-eluting coronary stent systems, coronary metallic stents, balloon dilatation products, coronary guidewires, vessel closure devices, and carotid stent systems to treat vascular disease. Additionally, the company provides blood glucose monitoring meters, test strips, data management software, and accessories for people with diabetes; and medical devices for the eye, including cataract surgery, lasik surgery, contact lens, and dry eye products. Abbott Laboratories was founded in 1888 and is based in Abbott Park, Illinois.

LLY, Eli Lilly and Company develops, manufactures, and sells pharmaceutical products worldwide. It offers neuroscience products to treat schizophrenia, manic episodes, and bipolar maintenance; depression and diabetic peripheral neuropathic pain; attention-deficit hyperactivity disorder in children, adolescents, and adults; depression, bulimia nervosa, and obsessive-compulsive disorders; and bipolar depression and treatment-resistant depression. The company's endocrinology products are used for diabetes; type 2 diabetes; osteoporosis in postmenopausal women; osteoporosis in postmenopausal women and men at high risk for fracture; and human growth hormone deficiency and pediatric growth conditions. It also provides oncology products to treat malignant pleural mesothelioma; pancreatic, metastatic breast, non-small cell lung, ovarian, and bladder cancers; and colorectal cancers, as well as offers cardiovascular products for treating erectile dysfunction, for the reduction of thrombotic cardiovascular events in patients with acute coronary syndrome, as an adjunct to percutaneous coronary intervention, and for the treatment of adults with severe sepsis at high risk of death. In addition, the company offers animal health products, such as cattle feed additives; antibiotics used to treat respiratory diseases and other diseases in cattle, swine, and poultry; leanness and performance enhancers for swine and cattle; protein supplements to improve milk productivity in dairy cows; anticoccidial agents for use in poultry; antibiotics used to control enteric infections in calves and swine; parasiticides for use on cattle and premises; and products that prevents flea infestations on dogs, as well as other pharmaceutical products to treat staphylococcal infections and bacterial infections. Eli Lilly distributes its products principally through independent wholesale distributors, as well as directly to pharmacies. The company was founded in 1876 and is based in Indianapolis, Indiana.

NVS, Novartis AG, through its subsidiaries, engages in the research, development, manufacture, and marketing of healthcare products worldwide. Its Pharmaceuticals division engages in the research, development, manufacture, distribution, and sale of pharmaceuticals in various therapeutic areas, including cardiovascular and metabolism; oncology; neuroscience and ophthalmics; respiratory; and immunology and infectious diseases. The company's Vaccines and Diagnostics division offers preventive vaccines and diagnostic tools. This division provides influenza, meningococcal, pediatric, and traveler vaccines; and blood testing and molecular diagnostics to prevent the spread of infectious diseases. Its Sandoz division offers prescription medicines, as well as pharmaceutical and biotechnological active substances. This division provides active ingredients and finished dosage forms of pharmaceuticals; anti-infectives; protein or biotechnology-based products; and cytotoxic products, as well as offers biotech manufacturing services to other companies on a contract basis. The company's Consumer Health division consists of three business units: over-the-counter medicines (OTC), Animal Health, and CIBA Vision. OTC offers readily available consumer medicines. Animal Health provides veterinary products for farm and companion animals. CIBA Vision manufactures contact lenses and lens care products. Novartis AG has a strategic alliance with Intercell AG to develop vaccines; a strategic partnership with Lonza, a Swiss pharmaceuticals manufacturing company; and an agreement with Synthetic Genomics Vaccines Inc. to apply synthetic genomics technologies for the development of influenza drugs. The company was founded in 1895 and is headquartered in Basel, Switzerland.

JAZZ, Jazz Pharmaceuticals, Inc., a specialty pharmaceutical company, develops and commercializes products for neurology and psychiatry primarily in the United States. The company's marketed products include Xyrem, a sodium oxybate oral solution for the treatment of excessive daytime sleepiness and cataplexy in patients with narcolepsy; and Luvox CR for obsessive compulsive disorder and social anxiety disorder. The company's late-stage product candidate comprises JZP-6, which has completed two Phase III pivotal clinical trials, for the treatment of fibromyalgia. Its other product candidates in clinical development consist of JZP-8, an intranasal formulation of clonazepam for the treatment of recurrent acute repetitive seizures in epilepsy patients who continue to have seizures while on stable anti-epileptic regimens; JZP-4, a controlled release formulation of an anticonvulsant for the treatment of epilepsy and bipolar disorder; and JZP-7, a transdermal gel formulation of ropinirole for the treatment of restless legs syndrome. In addition, the company is developing oral tablet forms for sodium oxybate. Jazz Pharmaceuticals, Inc. was founded in 2003 and is headquartered in Palo Alto, California.

RDY, Jazz Pharmaceuticals, Inc., a specialty pharmaceutical company, develops and commercializes products for neurology and psychiatry primarily in the United States. The company's marketed products include Xyrem, a sodium oxybate oral solution for the treatment of excessive daytime sleepiness and cataplexy in patients with narcolepsy; and Luvox CR for obsessive compulsive disorder and social anxiety disorder. The company's late-stage product candidate comprises JZP-6, which has completed two Phase III pivotal clinical trials, for the treatment of fibromyalgia. Its other product candidates in clinical development consist of JZP-8, an intranasal formulation of clonazepam for the treatment of recurrent acute repetitive seizures in epilepsy patients who continue to have seizures while on stable anti-epileptic regimens; JZP-4, a controlled release formulation of an anticonvulsant for the treatment of epilepsy and bipolar disorder; and JZP-7, a transdermal gel formulation of ropinirole for the treatment of restless legs syndrome. In addition, the company is developing oral tablet forms for sodium oxybate. Jazz Pharmaceuticals, Inc. was founded in 2003 and is headquartered in Palo Alto, California.

AZN, AstraZeneca PLC, a biopharmaceutical company, discovers, develops, manufactures, and markets prescription pharmaceuticals in the areas of cancer, cardiovascular, gastrointestinal, infection, neuroscience, and respiratory and inflammation illnesses worldwide. Its product line primarily comprises Crestor for managing cholesterol levels; Nexium for acid reflux; Synagis for RSV, a form of respiratory infection in infants; Seroquel for schizophrenia, bipolar disorder, and major depressive disorders; Arimidex for breast cancer; and Symbicort for asthma and chronic obstructive pulmonary disease. The company also engages in the research, development, manufacture, and marketing of medical devices and implants for use in urology, surgery, and odontology. In addition, it develops and manages hospital-based outpatient cancer centers in the United States. Further, the company focuses on the discovery and development of anti-viral therapies; and designs and manufactures bespoke dental implant abutments using a patented CAD/CAM method. The company markets its products primarily to care and specialist physicians, as well as to other healthcare professionals through distributors or local representative offices. AstraZeneca PLC has strategic alliances with Alcon Research, Ltd. to identify eye care products using AstraZeneca compounds; and Quintiles Limited to provide integrated services for various clinical pharmacology studies. The company was formerly known as Zeneca Group PLC and changed its name to AstraZeneca PLC in April 1999. AstraZeneca PLC was founded in 1992 and is headquartered in London, the United Kingdom.

SNTS, Santarus, Inc., a specialty biopharmaceutical company, engages in acquiring, developing, and commercializing proprietary products for the treatment of upper gastrointestinal diseases and disorders. Its products include Zegerid capsules and powder for oral suspension, which are proprietary immediate-release formulations that combine omeprazole and antacids to treat upper gastrointestinal diseases and disorders, such as heartburn, gastroesophageal reflux disease (GERD), erosive esophagitis, and gastric and duodenal ulcers; and Glumetza tablets for the treatment of type 2 diabetes. The company also offers Omeprazole tablet, which is approved for the treatment of upper gastrointestinal conditions, including GERD; and Zegerid OTC that is approved for the treatment of heartburn. In addition, it is developing Budesonide MMX, which is in Phase III clinical trails for the treatment of mild or moderate active ulcerative colitis; and Rifamycin SV MMX that is in Phase III clinical trails for the treatment of travelers' diarrhea. The company has strategic alliances with Schering-Plough to develop, manufacture, and sell Zegerid brand OTC products in the lower dosage strength of 20 mg of omeprazole in the United States and Canada; GlaxoSmithKline to develop, manufacture, and commercialize prescription and OTC products in approximately 114 countries, including in Africa, Asia, the Middle-East, and Central and South America; Norgine B.V. to develop, manufacture, and commercialize prescription omeprazole products in western, central, and eastern Europe, as well as in Israel; and Cosmo Technologies Limited, which grants Santarus, Inc. exclusive rights to develop and commercialize Budesonide MMX and Rifamycin SV MMX in the United States. Santarus, Inc. sells its products to the pharmaceutical wholesale distributors. The company was founded in 1996 and is based in San Diego, California.

ENDP, Endo Pharmaceuticals Holdings Inc., through its subsidiary, Endo Pharmaceuticals Inc., engages in the research, development, manufacture, marketing, and sale of branded and generic prescription pharmaceuticals in the United States. Its primary products include Lidoderm, a topical patch product for the relief of the pain associated with post-herpetic neuralgia; Opana and Opana ER, and Percocet for the relief of moderate to severe pain; Voltaren Gel for use in treating pain associated with osteoarthritis; Frova for the acute treatment of migraine headaches in adults; Supprelin LA for treating central precocious puberty (CPP) or the early onset of puberty in children; Vantas for the palliative treatment of advanced prostate cancer; Valstar, a sterile solution for intravesical instillation of valrubicin and BCG-refractory CIS of the bladder; Hydron Implant, a reservoir-based drug delivery system available for parenteral administration; Sanctura for the treatment of overactive bladder (OAB) with symptoms of urge urinary incontinence, urgency, and urinary frequency; and Sanctura XR to treat OAB symptoms. The company also offers generic products, including Endocet and morphine sulfate. In addition, it provides various development stage products, which primarily comprise Aveed for the treatment of male hypogonadism; Fortesta for testosterone replacement therapy in male hypogonadism; Octreotide implant for the treatment of acromegaly; Urocidin for the treatment of non-muscle-invasive bladder cancer that is currently undergoing Phase III clinical testing; and Axomadol in Phase II development for the treatment of moderate to moderately severe chronic pain and diabetic peripheral neuropathic pain. The company has a strategic alliance agreement with Penwest Pharmaceuticals Co. Endo Pharmaceuticals Holdings was founded in 1997 and is headquartered in Chadds Ford, Pennsylvania.

DEPO Depomed, Inc., a specialty pharmaceutical company, develops and commercializes pharmaceutical products based on its proprietary oral drug delivery technologies in the United States. It markets GLUMETZA for the treatment of type 2 diabetes in the United States and Canada; and Proquin XR for the treatment of uncomplicated urinary tract infection in the United States. The company's product candidates include DM-1796 for the treatment of postherpetic neuralgia, which has completed a Phase III clinical trial; Serada for the treatment of menopausal hot flashes, which has completed a Phase III clinical trial; DM-3458 for gastroesophageal reflux disease; and DM-1992 to treat Parkinson's disease, which has completed a Phase I clinical trial. It sells its products to wholesalers and retail pharmacies. The company has collaboration and license agreements with Solvay Pharmaceuticals, Inc.; PharmaNova, Inc.; Santarus, Inc.; Merck & Co., Inc.; Covidien, Ltd.; TEVA Pharmaceuticals USA, Inc.; King Pharmaceuticals, Inc.; Esprit Pharma, Inc.; LG Life Sciences, Ltd.; Rottapharm/Madaus S.r.l.; PharmaNova, Inc.; and Supernus Pharmaceuticals, Inc. Depomed, Inc. was founded in 1995 and is based in Menlo Park, California.

Now after looking into all of these, at face value I have to say there are not many with a nice safety of margin, at least from the larger cap pharms. For example, LLY and AZN have no margin of safety. I am looking for at least a 20% margin of safety meaning the target prices are at least 20% above their current price. That puts many of the big boys out of the game. I had to pick apart NVO because the target price was stupid high and sure enough we came back to a 23% margin of safety. With that adjustment, NVO looks very interesting. Many readers with think the 95 dollar a share is expensive, BUT (we know what that means) it is a little rich on its forward looking P\E ratio at 20. This is a leader in the diabetes market and I can’t think of a better pharmaceutical market to be in. I only know of one individual who actually exercised their way around diabetes drugs for few years, the rest of us just take the drugs.

RDY The India based generic drug maker had a really stupid high gap between current price and target price. I cannot explain the gap so I would not be buying it right now.

SNTS Santarus specializes in gut pills for gassy stomachs and GURD. This is an interesting speculative trade. They have a 34 % margin of safety (although there are not many target pices out there for a base to average from). It forward looking P/E is a little rich at 24, but it has little debt, and at this level lends itself to a possible buy out at times three or four current value. That is all Speculation. DO YOUR HOMEWORK. I would consider getting into this stock. I want to read some of the quarterlys first and suggest you do the same. Another speculative trade would be DEPO which focuses on diabetes and urinary tract oral deliver drugs. It has a healthy margin of safety, but it is rich at a forward P/E of 50+. It looks like an analyst or two might know something about future FDA announcements because I can’t come up with the 7.75 target price. If you can it might worth the spin of the roulette wheel. Then you have TEVA which Cramer loves. It has a decent margin of safety (23%). It’s cheap at a P/E of 10. It has no meaningful debt. It has teeny tiny dividend at 1.2%.

For an investment of more than a year I would look at TEVA and use a limit of 54.25. Get out at 49.75. Look for 60 by Q 1. For the more speculative play, I am liking SNTS. This is a really small cap stock but try and get in at 3.15. Protect your bottom at 2.75. Chase a double by this time next year. Be careful as one bad piece of news and this is a one dollar stock.

Is there a worm in that AAPL?

A couple of the options alerts I got are suggesting a November Buy to Open Call at $320 as share for AAPL. AAPL was selling for 316 when I got the alert. That is a good indication that there is still upward momentum in the stock. Some Target prices are in the 240-385 range today. Well the stock got whacked today even with a phenom earnings report. I had three people drop me a note to ask what was going on. We guessed at a huge beat by AAPL at 4.31 a share. They reported a whopping 4.64 a share. BUT they had huge miss on the sales of iPads. Don’t get me wrong, they sold 2 million I believe, but expectations were at 2.5. They had a great quarter and after horus trading is bring the stock below 300 a share. This is a good buying opportunity folks. Do your homework.

In the SL Portfolio

We added to our position in AMZN today bring it to about 1.5%. We converted our $30.00 open calls for WM to long shares. We are enjoying a net unrealized gain of about 6.7% on the long shares as well as 53% realized gain on the options sold a week or so ago. Thank you Lauren, WM has been very good to us!

Our score card today.

We talked about Apple as we called a beat and got a huge beat. I missed the industrial production numbers and they were yucky! (A financial term meaning worse than expected.) That kept the market moribund for most of the day. We got the homebuilder survey correct as it was positive. We called for a beat by IBM of 2.81 and they actually hit 2.82 and we will take that as a good guess. The stack went down in after hour trading and we can only think it is due to top line sales being weak, improved, but weak.

The Road Ahead

Housing starts report tomorrow and I had the luxury of listening to Bloomberg all day and I can tell you the guesses are all over the place. .560-.590 million units is the range. I am going to be pessimistic on this as take it down from last months number of .598 to .571 million units.

There are so many earnings report tomorrow it could be a big market moving day. Here are my guesses with out too much explanation because its late and I’m tired. (I can hear readers now-“He’s tired we are the ones who have to read this crap.”) Goldman Sach’s is expecting 2.28 look for a beat as M & A is doing better than expected 2.32 as share. BAC, the bank I just pulled out of will miss by 2 cents a share having 14 cents a share earnings. KO should have a beat but with all the currency exchange issues, I am not sure. They are looking for 89 cents a share, let’s give it to them and two cents more. My guess is 91 cents a share. JNJ is looking for 1.15 a share and they should beat to 1.20 a share.My crystal ball is fading now so enough.

Many of you did not believe that Betty Presley is a friend and a reader of the blog, so to show that the photo of her next to the guy in the green shirt was not just a fluke, I will share one more photo of Betty.  Below, you will see her to the left of the guy in the red tie.  

Told ya she was a friend and reader.

Salve Lucrum