Friday, June 10, 2011

9 June 2011 The Best Way To Make Money

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BAGAKOAA;

It was darn near normal, the new normal, today. We really don't know what we are going to write once we are back to normal. It was really quite benign today. We got up, let the dogs out, woke up man child, went for a swim, fed the big dogs (Devin does not trust me to feed the small dogs as it is a very discerning science.), let all the dogs out, picked up all the road apples from our "children of the fur", jumped in the shower, went to Bruegger Bagels, and was in the office at decent time.


Now I could digress and tell you about an older strange woman at the bagel shop who mysteriously set up a video machine on one of the tables, draped an electric cord across the floor where everyone could trip over it, tested the video so all the customer could hear it, waited for two other woman to show up and proceeded to show a 22 minute video (I left after 4 minutes.) to prospective customers for the fine cosmetic line she was pimping. About 7 high school students from Santa Margarita Catholic School watched in amazement as they were trying to study for their finals. This lady was oblivious!

We then hit the things to do list at the office and had an extremely productive day. We had a really good meeting in the afternoon. I'd love to tell you about but we have s few people in the industry who read this and I'd have to hunt them down and kill them. Let me just say it sucks to be our competitor.
Like I said, we are at the point where there is little drama at the house and my stories may have to shift to reminiscing about days gone buy.
While I was swimming this morning I thought about when I was in high school and it was my job to clean the pool. It was circa 1970-1971 and one day I was finished cleaning the pool and was always impressed with how the muriatic acid would burn the deck and my shoes and my jeans. I wondered what would happen if I mixed muriatic with chlorine.
Well I did not want my mom see me playing with the chemicals so I went into the pool shed which thankfully had no roof, got out the chemical pouring container, put about a cup of chlorine in the container, looked down into the container and then poured the muriatic acid into the container.
In seconds, a bright yellow cloud of smoke hit me in the face and the next thing I knew, I could not breath. Now I was a smart kid and knew that not breathing was not a good thing. I made my way towards the house and each attempted breath was rewarded with a very painful ripping feeling inside my chest. I got my mom's attention, who was busy watching The Mike Douglas Show and tried to tell her, "Ah Con Brith." She said, quit screwing around what did I want. I said, "Ah Con Brith." Now it was 1971ish and there was no such thing as 911 enhanced so my mother did what she did every time she had an problem, she dialed 714 540 8070, my dad's private line at his desk at US Diver's Company (Now Aqua-Lung, which it was Aqua-Lung Sprio Technique in France before they spent millions of dollars and 34 years branding the American Company as US Diver's Company, then in 1992 decide they liked Aqua-Lung. It Made George Bethel's Day as he was the trademark attorney for Liquid Air North America, parent company to US Divers, I mean Aqua-Lung, but I digress.) Don't ask me how I remembered that number, but that was the number.
So she explained to my dad that I was doing something out by the pool and I could not breath. In his loving way, he told her to put the idiot on the phone. I got on the phone and he asked, "What the hell did you do?" In very small words and very abbreviated sentences gasping for life saving air, I explained to him my science experiment. He quietly listened and said, "You F(^*^$ halfwit, you made mustard gas. That S_*^$ killed about 5 million people in World War One."


While I appreciated the history lesson, I was getting a little woosey and handed the phone to mom. Dad told her to get me to Dr. Law's office quickly. I don't remember much after that because I have blanked out all memories of my mother's driving during those years. I would not say she was a bad driver but dad used to call her Barney Oldfield. (Kids you will have to Google that one because its getting late and we have some stock stuff to go over.)
Hope you enjoyed this little trip down memory lane.

The Best Way To Make Money

The best way to make money is not to loose it in the first place. A lesson we learned again this week.
As you know I have been cutting my teeth on an education in options this year. We have learned a lot. We have learned that you have to pay a lot more attention to option trades than long or short equity trades.
Movement in options have much more to do with volatility that value or growth. We learned that in stocks the trend is your friend and in options the trend is your friend and you enemy and your friend and your enemy all in one hour.
We also learned that you can make gobs of money writing naked calls (I won't bore you but if you care, look it up on the with the investopedia link on this e-mail.) and you can have your heart ripped out with a naked call. You can make a fortune selling puts and you can go bankrupt selling puts. If you have distractions like a full time job, a flood restoration, an 8th grade graduate, and not enough time in the day, option trading is not the thing to do.
This week we got stung with a sizable trade in what is called a short straddle around the CBOE which is the holding company for the Chicago Board of Option Exchanges. The strategy was to buy a put and sell a put and make money of the premium for the sold put. We eventually took a little profit from the bought put when the CBOE was down earlier this week, then did not pay attention to the sold put. A sold put has complete risk as the equity or asset head up. Before I knew it, we had a 494% loss on the sold put. We quickly took our medicine and will be licking our wounds for weeks to come. (Ok in trading terms that mean we cut our losses, took notes on our mistake, and look for more reasonable option trades to make up the loss.)
Cut To The Core
We stopped out of AAPL Apple Inc AGAIN. This is the third time we have entered this stock and hit our trailing stop and are out. A couple more of those and our overall return on the stock will not be positive. I was pretty determined to avoid the stock for a while, then I went into the iCloud Demo and it does look really cool. We are watching for a new entry point as we like the stock long term (18+ Months). Target prices are between 450-500 and the forward looking P/E ratio is below 12. The price to book is right around 5 deriving an inherent value of about 66 dollars a share. With AAPL permeating every corner of our lives (phones, music, movies, pcs, iPads, and the like) a B/B of 5 is not outrageous. The stocks 200 day average is about 324 and there is a major resistance line at 300. If the stock breaks 324 we will be back in.



It's TimeTo Go Shopping
OK that might a bit premature, but Mr. Market has been dragging a bit and it is a little easier to find some value out there. While I won't give the Value versus Growth speech again, now is a good time to be looking for value because even stocks claiming a good growth forecast WILL BE WRONG. Now by that I mean, expect analysts to be too optimistic in growth forecasts.
To night while waiting for man child to return from his 8th grade trip to Disneyland, I had some time to run some stock screens. While we won't have time to do due diligence, we wanted to pass on a couple of names for your to kick the tiers on.
GLW Corning Incorporated manufactures and processes specialty glass and ceramics products worldwide. It operates in five segments: Display Technologies, Telecommunications, Environmental Technologies, Specialty Materials, and Life Sciences. The Display Technologies segment manufactures glass substrates for active matrix liquid crystal displays (LCDs) that are used primarily in notebook computers, flat panel desktop monitors, and LCD televisions. The Telecommunications segment produces optical fiber and cable, and hardware and equipment products, such as cable assemblies, fiber optic hardware, fiber optic connectors, optical components and couplers, closures and pedestals, splice and test equipment, and other accessories for optical connectivity to the telecommunications industry. This segment also offers optical fiber technology products for various applications, such as premises, fiber-to-the-premises access, metropolitan, long-haul, and submarine networks. The Environmental Technologies segment offers ceramic technologies for emissions and pollution control in mobile and stationary applications, including automotive and diesel substrate, and filter products. The Specialty Materials segment manufactures products that provide approximately 150 material formulations for glass, glass ceramics, and fluoride crystals used in commercial and industrial markets. The Life Sciences segment provides general labware and equipment, as well as tools for cell culture and bioprocess, genomics and proteomics, and high-throughput screening. This segment also develops and produces various technologies, such as the Corning HYPERFlask Cell Culture Vessel for increased cell yields; and other novel surfaces, which include the Corning CellBIND Surface and the Corning Osteo-Assay surface. The company was formerly known as Corning Glass Works and changed its name to Corning Incorporated in April 1989. Corning Incorporated was founded in 1851 and is based in Corning, New York.
This company has been around forever. It's price to book is an incredible 1.5, which is amazing for a brand like corning. It forward looking P/E ratio is about 8, almost 35% below the S&P 500 average, and well below the industry average of 11.1. It's glass substrate products (especially Gorrila Glass) is in huge demand for phones, flat screens, tablets and all of those trends are positive. This has the making of a 24-27 dollar stock currently selling for 18 bucks. If it sound familiar, it is a stock we have owned and pimped in the past. WE DO NOT OWN at the moment, but with a 1.5 B/P, we will be giving it serious consideration.
TGB Taseko Mines Limited engages in the exploration, development, and operation of mineral properties in British Columbia, Canada. The company principally holds interests in the Gibraltar copper-molybdenum mine located north of the City of Williams Lake; the Prosperity gold-copper project situated in the Clinton Mining Division, southwest of the City of Williams Lake; the Harmony gold project located on the Queen Charlotte Islands, also known as Haida Gwaii; and the Aley niobium project situated in the Omineca Mining Division. Taseko Mines Limited was founded in 1966 and is headquartered in Vancouver, Canada.
This is a great valued Canadian copper miner. We will caution that we saw a BBC documentary last weekend (We may have mentioned it here.) about a copper glut. With China cooling, and the global recovery in question, this may be a risky play. The Price to Book is just at or under 2.0. ROA, ROI, and ROE look spectacular. Values are in the 7-9 range and the stock is selling for under 5 after a 5% jump today. Give this one a look, but DO YOUR HOMEWORK. WE DO NOT OWN this one.
Rosetta Stone Inc. provides technology-based language learning solutions worldwide. The company develops, markets, and sells language learning solutions, such as software, online services, and audio practice tools primarily under the Rosetta Stone brand name. It offers self-study language learning solutions in approximately 31 languages. The company's approach, called Dynamic Immersion, eliminates translation and grammar explanation and is designed to leverage the natural language learning ability that children use to learn their native language. It also provides Rosetta Stone TOTALe, an online language learning solution that integrates its online courses with coach-led practice sessions, fun and engaging language games, interaction with native speakers, and live support from customer service agents. In addition, the company offers an online peer-to-peer practice environment called SharedTalk, at www.sharedtalk.com, where registered language learners meet for language exchange to practice their foreign language skills. It primarily serves individuals, home school parents, educational institutions, armed forces, government agencies, corporations, and not-for-profit institutions. The company sells its products through direct sales channels, including its call centers, Web sites, institutional sales force, kiosks, and certain retailers, as well as through the sale of CD-ROM's and on line subscriptions. Rosetta Stone Inc. is headquartered in Arlington, Virginia.
Ya know sometimes when a stock get stepped on, beat up, spit on, and trashed, you can shake the dirt off and find a decent company in there. That MIGHT be what has happened to RST. This well known brand (Great product by the way. I learned English using it.) was flying around the 22-24 range until about March when TV and Print Advertising rates started to creep up and their advertising expense (and profits) went down the toilet. The stock has come down, well crashed down, well imploded to about the 12.50 cent level. It has made a bit of a recover to $13.50 making its Price to Book.
Now Hutch is reading this saying wait a minute Cronin you always tell me, "Don't catch a falling knife." And he would be correct in that POV. I think this knife may have fallen so far so hard that it is in the table and needs to be pulled out and brushed off. DO THE HOMEWORK.


HMC Honda Motor Co., Ltd., together with its subsidiaries, engages in the development, manufacture, and distribution of motorcycles, automobiles, and power products primarily in North America, Europe, and Asia. Its motorcycle line consists of business and commuter models, as well as sports models, including trial and moto-cross racing; allterrain vehicles; personal watercrafts; and multi utility vehicles. The company also produces various automobile products, including passenger cars, minivans, multi-wagons, sport utility vehicles, and mini cars; and power products comprising tillers, portable generators, general-purpose engines, grass cutters, outboard marine engines, water pumps, snow throwers, power carriers, power sprayers, lawn mowers and lawn tractors, home-use cogeneration units, thin film solar cells home use, and public and industrial uses. In addition, it sells spare parts and provides after sales services are through retail dealers, as well as involves in retail lending, leasing to customers, and other financial services, such as wholesale financing to dealers. The company was founded in 1946 and is based in Tokyo, Japan.


Is it too early to place a bet in Tokyo. This is a household brand and its stock price has been clobbered because of the Earthquake and Tsunami. It crashed from a fair value of 44 to a low of 34 a share. Currently the 37 a share still looks good. At 37 the price to book is 1.22 suggesting a book value of 30 a share. This stock has a 40% run from September of 2010 to March 2011 and it took an act of God to whack this company down to its near book value. We think that this company can and will return to the 40-50 range. It is a question of when. We are looking to get in with a long position at the 37 range and wait and wait and wait. DO YOUR HOME WORK.

Salve Lucrum

Wednesday, June 08, 2011

7 July 2011 At The End Of Several Journeys

At The End Of Several Journeys

We say good bye to one of our contractors today as he finished the touch up and artsy fartsy finish to a few walls once buried in mud. We also began the paperwork to start a voluntary project, to extend our sons bedroom and god knows it needs extending. The end of one of our journeys was the prayer service this morning at Serra Catholic School. While it ran a little long, it was a moving emotional reminder of 9 incredible years of our sons involvement at catholic school. It really didn't hit me till we were on the main floor of the gym laying our hands on his forehead and reading the blessing for the kids. I looked at my wife who had big alligator tears in hers eyes and just assumed one more thing had gone wrong with the project at home. It was then when I realized she was mourning the end of Jack's years at Serra. Even then it hit me. The years of dropping him off at school, running his lunch he had forgot, endless hours of homework, the star watch night at the school, the sleep over on the tall ship Pilgrim and the 9 years flashed before me and it was moving. We had managed to give our son a great education founded in our faith and religion. Job well done.

Tonight our 5 foot 9 son enjoyed himself at the 8th grade graduation dance while mom and I celebrated our success with a great dinner at Hanna's. Jessica took care of us like a sister or mom would take care of her family. Dave came by to say hey, patron extraordinaire. Life is good.
 Life is good.

 
Mr. Market Opened up in a good mood today.

 
The Frenchies ala Mr. Jean-Claude Trichet came around to supporting a bond shell game for Brother Greece. The supportive rumors that boosted the market last week, which we complained did not have any details attached turns out to be a roll over of bonds for Greece. It is a classical case of robbing Nikolas to pay Maximus (Peter to Pay Pal). Trichet is encouraging Eurozone members to buy new Greek bonds to pay off the ones that are coming due. That makes about as much sense as a central bank buying its own bonds and financing it by printing more money. Hey wait a minute that what the US had been doing for the last two years with QE I and QE II. There was also good retail number in many parts of Europe. German factory order also made for a nice awakening of Mr. Market today. The Bank of Australia chose to leave interest rates alone last night so that threat was taken off the table. Inflation in the Phiilipines (which had been heating up) cooled off based upon the figures release last night.

 
All of that made for a good opening and that feel good high lasted until the last hour of trading. The consumer credit number came out rather healthy as we expected, but we can't take a win in that category. We called the number a full billion over the consensus. We said 6 Billion versus 5 billion. The number came in at 6.2 billion, but when you drill down into the report, the largest jump was in student loans. That does nothing for the economy. When you back out the student loan numbers, the consumer credit number is 4.9 billion. I can't believe Mr. Market dissected that before the close of the market today, so the last hour drop must have had something to do with what Bernanke might say in his speech in Atlanta. There were rumors he might start suggesting we tighten capital reserves at member banks which would have the same impact of interest rate increases.



Flotsam and Jetsam



Just some stuff that has been asked or run across my desk of late. Tim from UBS is good about sending out a daily package and today's had a nice piece about sectors to lead us into the back part of the year. Keep an eye on the consumer staples, health care, telecom and utilities. Our suggestion would be look for value over growth. Everything I am reading is that growth estimates for the balance of the year are overestimated.



I tripped over a great brand with a .82 price to book with little debt and decent cash flow. With a 2.78% dividend yield, it might be interesting to look at this for a long term 18-36 month hold and see this 30 dollar stock return to the 40.00 range where to probably belongs. ALL Allstate. Yeah the same company that schlepped me on my home owners insurance. Maybe that is how their cash flow is so decent. Another stock with a sexy price to book is GE, General Electric. The price to book is 1.6. That means with its current selling price of 18ish, it is an 11.00 stock.

 
Now if you go way back to the first posts we did in 2009, you would see where we called GE an 8 dollar stock selling for 12 dollars. NOTE the price to book. Back then it was 1.6. They have lousy financials and are still way too in debt, but the 3.25% dividend and the GE franchise looks appealing at this level.

 
In the category of linkage, we were unloading a bunch of groceries into our home and could not help but note all the packaging. By the time we got everything put away, we had more bags of trash than we did of groceries. Then I read an article about all the growing middle classes in emerging markets and said they will need this packaging. Who makes it? I found a decent play I am going to put some more work into, but the name is SEE Sealed Air. Their debt is a little high but their cash flow is pretty. They just acquired a company and they themselves are an attractive takeover target. This is a 26-28 dollar stock selling for 22. DO YOUR HOMEWORK.

Somebody asked me about Natural Gas. You know we had some serious money in PNG and UNG and walked away after loosing more than 8%. This may be a time to take another look. They were specifically asking about a Canadian firm CNQ. Have not done the homework, but at quick glance it looks decent. Its debt and cashflow leave a lot to be desired. We are going to look back into the field again as UNG has enjoyed an 11% bump in the last 30 days. Terry from Australia sent me a not sharing a news piece that US congressmen and senators have unusually high stock returns. How could they when they are so busy Twittering their photos of their favorite private places to everyone.

Salve Lucrum











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