25 January 2011 Cashin in on Gold
It was a bit of a whacky (financial term for mixed) day as some big player had earnings reports all over the place. More on those later. The good news bad news alarms from Europe and Asia we in bad news mode so it made us happy to have something to worry about. The flat day leads us into the Presidents State of the Union Address where every today said he would make nice nice smoochy smoochy with big business. He didn’t get all crazy with business but he did have some good things to say. The corporate tax break was one of the most positive comments of the night. Insisting on the continuation of the health care bill while soliciting input for improvements (like making it constitutional and fiscally responsible) will create some strange bedfellows in the days ahead, but I am optimistic.
On a side note, I hope you got to see the republican rebuttal as it was delivered by the brother of a guy who occasionally sits on my board of directors. Paul Ryan, brother of Tobin Ryan did a fine job of doing the rebuttal. That job regardless of who does it always reminds me of the little man at the end of those old cartoons who used to clean up the animal poop at the end of a parade. Let’s face it, although they have an advanced draft, that person and their staff have about 10 minutes to rebut-is that a word?- what the President of the US has just spent 3 months preparing for. Paul did a good job and pulled very few punches laying out the dire circumstances of not addressing our unsustainable debt. Tobin, please feel free to pass this on to Paul. Kudos to him.
More details about the sideways market.!
3M did nothing to help boost the market as it’s report was yucky. Corning Glass GLW had a great report and was handsomely rewarded. This one made me mad because We called it about month ago after reading a Barron’s article about their Monster Glass product. Do your homework as this is a stock to watch. It was up almost 8%. Harley had smaller loss than expected so they rode that bike up about 8%. VMware, one of our cloud virtualization dream team bets beat big but warned about a consolidating margin. Man why do they have to be so honest. The stock dropped 4% and picked up a couple of down ratings. DO YOUR HOMEWORK, possible buying opportunity. Cramer seems to think so.
One of the huge anchors on the day was the really poor report from JNJ Johnson & Johnson. If it weren’t for a tax allowance and some extraordinary expenses, the miss would have been huge. On the positive side we are happy to say one of our three legs of the iPhone Verizon, Vodaphone trifecta came in today. VZ had a beat on the bottm line because of wireless adds and nice margins. That is without the iPhone. Its not too late to play these three. With an expected 9-12 million iPhone expected in the Verizon network by this time next year, all three stocks should be happy. AX’s American Expresses whole story was really ugly today. Do I see a PUT opportunity?
All the Gold in California
We’ll we have been watching our nice profits on Gold (The ETN GLD) slide through some serious price supports so we took profits in all 9 portfolios that had the ETN. Profits ranged from 44% to 8% depending upon the portfolio. The Salve Lucrum portfolio enjoyed a 22 % gain. We got out at 129 and change. We are looking at weakenss down to the 125 level but will watch it closely.
It's All in the Game
Someone asked about Activision today so I will edit the reply, but share our response.
I went back two years and don’t remember buying or pimping ATVI. Since 06 I avoided all the gaming stocks except GME, Gamestop which we did OK with. So I had to take a look at the stock from scratch.
Below you’ll see a one year chart with some lines and notes.
1. In September you’ll see a cute little tea cup form, and then the handle corrects a bit then the stock takes off (Note the handle bottoms at about $11.25
2. Note what the correction over the last 15 trading sessions has done to the 50, 100, and 200 day averages (Green, Red, Blue Lines) ideally you want to see the 50 above the 100 above the 200 and all of them headed up.
3. I drew a line near the average volume so we could see what kind of institutional monies are making the price move. There does not seem to me much
4. Is the Put to Call ratio. As you know puts are options betting the price will go down and call are options betting the price will go up. Since this is a put/call ratio a reading of below .5 means there are lot more calls than puts. But this is a contrarian indicator that will eventually adjust to 1.0 so there is pressure on this for the price to come down because so many are betting it will go up.
Fundamentally I have attached another sheet from FinViz. It shows about about 2.36 a share in cash that with the fact that they have no debt is impressive. Their P/E ration is 13.87 which is not too shabby. Their ROE is yucky. It’s an indication of how well management uses their resources. We prefer companies with an ROE of 15 or more. Gross margin is great. The target price of 14.74 gives a safety of margin of 30%. I like that, but analysts are off as much as 20% with their target prices so you still have a bit of a buffer. I am thinking a fair value for this stock is 14 a share. According to my son, when Blizzard merged with Activision, it brought a slew of multi-player on line games that Activision did not have. The subscription based World of Warcraft is really pumping the margin. Call of Duty and Guitar hero gives ATVI endless sequel opportunities. On the down side and according to SEC filings by ERTS Electronic Arts their major competitor, ERTS has poached many of their top programmers from their Affinity Ward division. That could hurt future title developments.
At the end of the day, this is a 14 dollar stock straining to pay a small divided with a possible upside of 19 .00 by years end 2011 That would be a 66% gain. If you want to tie up 11.50 a share to do that, there are worse things. I like the 14.00 August call for 20 cents a contract. I just bought some. We might suggest of the 12 dollar August call for 70 cents a contract. It a little less risky and closer to the money.
A Reader Awakes
One of our regular readers, Hutch, was quiet for a while and I rattled his cage enough for him to get me caught up on his progress (or in some cases lack there of). Hutch for the most part is a value/dividend player with moments of spontaneous speculation. He gets some cool ideas every now and again. His alter ego is a true contrarian and last year he suggested we look at bottom sectors and looking for value in those sectors as he thinks sectors don’t remain at the bottom for too many years in a row. Interesting angle. Hope he does not mind me sharing, but he may have found a nice little gem today. DO YOUR HOME WORK. We Do Not Own This. Fly FLY Leasing Limited operates as a global aircraft lessor. The company acquires and leases modern commercial jet aircraft under long-term contracts to a diverse group of airlines throughout the world. Based in Dublin they have 62 aircraft in service and has what appear to be solid leases with 38 carriers. Fundamental look pretty good. It has a sexy sustainable dividend at 5.69%. We’ll be he used his dividend screener to find this off the radar company. It jumped pretty close to its target price today so the margin of safety in greatly diminished.
Here we see Representative Paul Ryan trying to explain what the concept of a little less government might look like: