June 16, 2010 200 and counting

BAGAKOAA June 16, 2010 200 and counting

Well last night’s post was the 200th post of The Salve Lucrum Blog, since the middle of October 2009. That is ALMOST one a day. Proof I have no life.

Follow the Linkage

Sorry none today. I was really looking too and again it’s hard to make a separation of 3 links from a piece of news to a good stock play. I read a lot about Boeing tonight thinking I could make a third degree separation from the 737 production increase to their key suppliers to sub supplier or commodities.

No such luck. Here are key suppliers to Boeing who might see a pop because of BA production boost and there are some very sound stocks on the list. Mitsubishi, Kawasaki, Honeywell, General Electric, AZX International Corp., (Private I think), Bridgestone Corp., Cytec Engineered Materials Inc., (Private but keep an eye on them),Deharde-Maschinenbau H. Hoffmann GmbH a German company and no ADR that I could find, and Frontier Electronics Systems Corp., (Private).

The only other linkage, I would have to give Cramer credit for and that is the impact of the banking regulations and how it might make a huge play for Barclay’s and Duetche Bank. That is news not linkage since the Lenin look alike did ten minutes on it last night.

Under the category of "Damn I’m Good", the market did pretty much as we had indicated on Sunday night. We said housing starts would be off. We estimated 600-610M against a forecast of 650,000. The number came in at 593,000 units and much to my surprise by the end of the day, the market took the news with little volatility. We also called the beat by Fedex, ($1.33 vs $1.32) but the CEO had some wet blanket forward looking comments concerning their pension plans to take the stock down.

 Happy news for AAPL holders today. AT&T were beating customer off with a stick today selling more than 600,000 units of the iPhone 4G. It actually crashed (the say they shut it down) their servers. So AT&T can’t hand calls or internet traffic. AAPL was up almost 3% today.

 We did add to our UNG position on a dip early in the day and picked up some more FLS on the 1.2% dip today. Remember to ease into your positions in this WTF market. (Thanks Megan I stole that from you now that I know what it means. For those people who live under the rock with me WTF means What The &*@%)

Since I had no linkage to discuss today I will leave with a nice wine tip. Last night Devin and I enjoyed, well we ate, some meatloaf premade by our grocer who will remains nameless PAVILLIONS. It was far from the best meatloaf I have ever had but scads better than the gasoline fumed stuff my mom used to make. Don’t worry she does not read the blog, she passed in 1992. Anyway I was in the mood for a big cab and have been learning more and more about the Yakima/Walla Walla area of Washington State. I chose a 2003 Woodward Cab and it was incredible. Deep dark black purple in color. Clingy and thick on the glass, almost jammy. (I know, not a word, made it up) On the nose there was a smoky meaty smell, some florals but not exotics more like wild flower type smells kinda like a potpourri type of thing. In the mouth, it had some spice and earthy tones to it as well as the currant dark berry taste you would expect. It was terrific. I’d have to give it a 91. The meat loaf got a 43, but the wine was knock your socks off. If you see it, get it. The 2003 I had to get at auction (winebid.com) but I will be looking for the vintner from this point forward.

Speaking of auction, yesterday a 1937 bottle of Glenfidich Single Malt went for 37,000 Pound Sterling to an anonymous bidder and I just wanted to say thank you to who ever it was for remembering my birthday next month, July 20th. What a thoughtful gesture.

Salve Lucrum

June 14, 2010 Linkage Is Our Friend

BAGAKOAA;


June 14, 2010 Linkage Is Our Friend


We have a new word here at the Salve Lucrum Blog. Linkage. We will, as often as possible, identify the linkage between a data point or piece of news and the market, industry, sector, company impact. It will have its own heading called “Follow The Links”.


An example is the possible linkage we presented last night between PPI, CPI, Margins for WMT and the overall retail sector. This is important as it is more difficult now than ever before to identify the linkage. News is more abundant and instantaneous than at any time man has walked the Earth. That means that you can not just read and article and make a move.


Here is an example. Today at 6:00 AM EDT, Forbes reporter Ed Sperling reported about Google’s threat to AAPL. There was a time and a place, (and I will bet that was at 6:01 AM EDT Today) that people would read this well written factual article from a respected title, and they sold AAPL. (Thank you as we needed the liquidity.) Unfortunately almost everything Sperilng wrote could have been deduced about the two companies by doing the type of homework that Cramer and others, including this blog harp on, over the last few weeks. In other words, it has already been built into the price of the stock.


We need to look further ahead and determine the linkage forward looking rather than relying on historical data regardless of how recently it was published. Keep in mind that this linkage is based upon unique but separate pieces of news and data (the more the better-think at least 3 degrees of separation) and certain assumptions. If not, then it would not be linkage, it would be an article in the Journal or in Bloomberg.


Investing based upon linkage is risky, so in order to moderate the risk, the actual trade or investment (which is determined by the time horizon) we would want to feel real good about the underlying stock, commodity, or ETF. And you really have to protect your bottom using stops and stop limits in case the assumptions are bogus.


“Follow The Links”


In today’s WSJ there was an article about rivalries between US Farmers and Railroads. As Asian countries satisfy their appetite for a higher protein diet, US Farmers should benefit with increased tonnage of soy, feed corn, and other crops. In order to get those crops to market, they typically use rail to fill the bill. (Suddenly we see how Buffet might have used Linkage to buy the rest of Burlington Northern at a premium last year.) The article explains how farmers are complaining about the rail industry control and abusive pricing strategies. The Rail industry says they have rising fuel costs to deal with as well as infrastructure support. The two sides are lining up legislative battles as we can’t do anything in this country without the Federal Government being involved. So a battle is commencing. That was the crux of the article. Now here is the Linkage.


Both sides must be careful as farmers cannot afford to price themselves out of the market and drive that business to another grocer in another part of the world. That means you might see growth, but margin squeezes for the likes of Cargill International, Bunge Ltd. BG, and Archer Daniels Midlands ADM and Burlington Northern, Union Pacific, and Norfolk Southern.


Your linkage might be to find a solid rail company that does not have as much exposure to agribusiness and or geographically disposed to support the farming industry. A good choice might be CSX. The rail sector does look promising 2010-2011. They, CSX, are very strong in the north east, not a strong agri-base. They have a significant income from “Clean Coal” (one of the best oxymorons of all times). Financials are relatively strong except for their operating margin which is improving. The 52 dollar stock has valuations on it of 60-65 so it is cheap. If you agree with the assumptions and you like the company check out the Linkage. I would see this as a 12 to 18 month play making it an investment not a trade. Put a stop or stop limit at 46ish and look for a reevaluation at 60 a share. If the assumptions don’t play out, take the 15% gain and look for more links. We do not own CSX. I will do more homework to confirm the linkage and determine the value statement.


So how did we do today? As expected it was a slow news and economic day and the market did carry on the happy dance from Friday till about 1:00 PST. Then there was this noise from Europe about a Moody’s down grade of Greece’s debt. The Euro started to slide again and investors started yelling Ο ουρανός πέφτει ο ουρανός πέφτει. Which is Greek for The Sky Is Falling the Sky is Falling. (I think that is what is says or it could be, “cute sheep there fella?”)


Keep an eye on the Baltic Dry Index as it is coming down rather sharply. It is measure of ships on the high seas carrying cargo. Think stuff leaving China going to points elsewhere.


Cramer was pimping ACN today after reviewing notes from an analysts strategy meeting last week. I finally tracked them down (Call me the Google King), but all I could do was confirm what Carmer well summarized in the Real Money alert this morning. (This is a good subscription I highly recommend.) He indicates a significant income stream from Cloud Computing strategies over the next 2-5 years. We added to our position at 38 a share today.

Cool, just had a little shakey quakey.  Hope everyone is all right.  We called daughter and she did not feel it.  Must be south.  If your reading, hope you are all ok in Fallbrook.


Credit Suisse raised the target price on RIMM today to 100 a share. The stock is currently at 59. We do not own it and have not done enough homework to thumbs up it. Interesting and sizable upgrade. (Current P/E ratio is 9.4.)


Salve Lucrum

BAGAKOAA June 8, 2010 I’m goin’ up, I’m goin’ down

BAGAKOAA;

June 8, 2010 I’m goin’ up, I’m goin’ down


Mathis James, “Jimmy” Reed must have written the song, “Baby What You Want Me To Do”, for a day like today. The rest of that verse goes “I’m goin’ up down round oh baby where you want me to go, yeah, yeah, yeah.” Well, that is what the market did today, passing the centerline more than 13 times before finding some positive energy in the last hour of trading. The techs stayed moribund, but the DOW and S & P were both up about a point.


Nice comments about the economy by Uncle Ben Bernanke may have been the catalyst to get the number up a bit and the small business optimism report was optimistic. Despite my comments to the contrary on Sunday night, there was some equity news today that helped the market. Dollar General, had strong top line and bottom line figures. And MCD was up more than 2% today as same store sales were impressive. It made me glad we have been collecting the stock on the dips.


Cramer was out pimping the good news about McDonalds today in his Action Alert Newsletter, (one of the best for the money), and he had some interesting insight into MCDs growth in Europe and Asia. With a yield of 3% or better, it might be one to add to your pouch if you don’t have any.


We took advantage of the early dips in the day to pick up more AAPL, INTC, UNG on its first drop in several days, BA and FLS. Other than that today was a day to sit on the rail and watch the rodeo, while making sure your name wasn’t called to get on the big bull or big bear or was that a bull?


I did a reality check today and looked at our realized gain or loss since January first. The Salve Lucrum portfolio was down .3% also know as flat. A little disappointing but not bad.


Salve Lucrum

BAGAKOAA November 2, 2009 Back in the market again

BAGAKOAA;

November 2, 2009 Back in the market again

As I mentioned, I have changed my trailing stop strategy. I also added a few positions last night and was success in getting to most of them. Just to keep you up to speed.

I have added to my positions in ID and FLIR.

I have added to my positions in Intel, now one of my top 5 holdings.

Got back in AAPL, not as large a position but I will be adding to it over time. Dumbest thing I ever did was to stop out of that entire position. Please read my post about the change I have made in stop strategies, as it might be helpful.

Added to my VXX which is a Barclays ETN following the VIX Volatility trade.

I increased my position of Verizon

I added to American Tower. We are hoping for nice report tomorrow morning. The estimate is 17 cents I am hoping for 22. We’ll see. They are the predominant cell tower builder in many markets.

I started a position in Flowserve today. Please see the blog from Sunday regarding FLS, HON, and PFH. You’ll see why I liked it.

On the drop in value I added to SQM.

There are a few holdings I am worried about in this crazy market, (why I bought VXX), such as BKE, fabulous brand well run company so why is it down almost 6% since I got in? I am down 11.25% on MTNOY, the south African cell provider. I will take a look tonight and probably get out. This is well below my 8% rule. I am breaking the rule for CHU, China Unicom. I have set a stop at 15% down instead of 8%. We should wait and see what if anything a month of selling the iPhone will do for this stock. It is the second largest cell provider in China. It should pay out well for them.

Salve Lucrum

BAGAKOAA October 31, 2009 Speaking of trick or treat

BAGAKOAA *

October 31, 2009

Speaking of trick or treat. October is our fist down month in the general market since February. On the week alone, we were down 3.9%. I am embarrassed because the correction I was sure was going to happen and mentioned on several occasions in August September, has now set in.

Personally I have had some major stops trigger, taking profits, but on the downside, creating a 2009 tax burden that has made me stop and think about my stop strategy.

In August I converted most of my manual stops to trailing stops. (Courtesy of wikipedia-A trailing stop order is entered with a stop parameter that creates a moving or trailing activation price, hence the name. This parameter is entered as a percentage change or actual specific amount of rise (or fall) in the security price. Trailing stop sell orders are used to maximize and protect profit as a stock's price rises and limit losses when its price falls. Trailing stop buy orders are used to maximize profit when a stock's price is falling and limit losses when it is rising.)

Well it worked, but a bit too broadly than what I intended. As you know I was heavy in AAPL, (about 8% of my portfolio). My average entry prices was 136 My trailing stop was a percentage trailing stop of 8%. AAPL topped about a week ago at 209ish creating a trailing stop of 191.36. Well we hit that on Friday, creating a nice chunk of change and tidy profit. BUT, (Behold the Underlying Truth), I can’t say I am proud of the move.

Here is why. AAPL is poised to easily be a 230-300 dollar stock. I encourage you to read the Q4 conference call notes. There is no down side. http://tiny.cc/NrRbW

So now I am faced with having to get back in and decide how to do that. Do I get back in at the level I was before or average my way in as I did in April-June? To answer that question I looked at why the stop out was so bad. What would I have done differently?

Let’s use some numbers so we can understand my thinking without telling everybody how much money I actually invested. Let’s say I averaged into the 136 price with an eventual total of 100 shares. In due time (after a 20% gain), I put an 8% trailing stop on all 100 shares in at the house of Chuck. It triggered and now I am out of AAPL, I paid Chuck to get out of AAPL, (I also found out that trailing stop orders are market orders, shame on me?), and now I have the gain which I will share with The firm of Reid, Pelosi, and Obama next April. I still want to be in AAPL.

Having considered everything, here would have been a better play. Once I hit my 20% gain, put a normal stop at the 8% down side for all one hundred shares locking in a 12% gain for sure. As AAPL hit a 25% upside, take the number of shares equal to the value of the 5% additional up and put a trailing stop on those shares only. Continue this all the way up keeping and possibly adjusting the regular stop on the initial investment dollars.

OK I just wrote that and it seems confusing. Here is how it would look. As AAPL hit 163 (20% gain), a stop on 100 shares at 150 (8% off the current price) is set, “locking in” at least a 12% gain on the initial investment. When the stock hits 170, 25% up from the entry point, put an 8% trailing stop on 20 shares of AAPL leaving 80 shares with a stop at 150. When the stock goes up another 5% to say 176, change your trailing stop order to 23 shares and consider bumbling your remaining stop order of, now, 77 shares to say 160 now guaranteeing you a 17% gain with more upside on the 23 shares with the trailing stop. If you continue this pattern, adjusting each week, last Friday here is how the picture would look.

You would have stopped out of 28 shares of AAPL instead of 100, you would still have 72 shares left with a regular stop in the 175 range (guaranteeing you a 28% gain on the initial investment), and you would share ONLY the gains on the 28 shares with R,P, and O Inc.

Ok I read it twice and it makes sense, to me. So let me get to work resetting the remains stocks I have with a formula like this.
BTW on Friday I was also stopped out of HON for a 16% gain. Good stock and I did not want to get completely out. I will listen to the conference call and probably get back in.

Say Hi to all the goblins tonight.

SALVE LUCRUM**

http://scenicroad.blogspot.com/

http://www.facebook.com/brianpcronin

http://twitter.com/jjphineas

* New comers that means Boys And Girls And Kids Of All Ages

** New comers that is a rough translation from the Latin “Hurrah from Profit”