Showing posts from August, 2009

IB Net Payout Yields Model

Chicago ISM Hits 50

After recording a 31.4 reading back in March, the Chicago ISM Index has rebounded all the way t0 50 for August. It basically has rebounded as fast as it fell and is consistent with a V shaped recovery that all the pundits scoff at these days. Expectations were at 48 after last months reading of 43.4 so this is yet another case of economic data being much better then expected and goes along with the Intel announcement of raising guidance on Friday. It also suggests to us that the market is on the verge of melting up as the shorts finally throw up their hands on this economic recovery. The market sharply fell from the 1,300 level back this time last year and we could easily see a similar rebound. Won't be too hard because just about everybody is positioned for a sell off in the dreaded Sept - Oct period. Inventories came in at 27.4 which will only add fuel to any rally. Businesses will be forced to restock empty shelves and parking lots. Everybody has seen the pictures of empty car l likes LIZ

Interesting article I pulled using InfoNgen. Not that I've ever heard of or that I have any knowledge of the fashion value of this source. What is interesting is that the writer has clear fashion knowledge and they have gone from thinking that Liz Claiborne (LIZ) is a 'granny' concept to hip enough for the writer to wear. My take is that Issac Mizrahi is making the brand hip. This is his 3rd season working with LIZ and should be close to when his impact really begins to be felt. Assuming he can lead a revival with the brand at the same time that the economy recovers combined with essentially wrapping up a restructuring of the company this could be an explosive period for the stock. Jones Apparel (JNY) which is a main competitor has already soared from $4 to $15 after reporting impressive results sooner then expected. LIZ hasn't seen such a turnaround especially on the bottom line, but that could change in a hurry if Mizrahi works his magic if only by c

Consumer Confidence Beats Expectations - Finally!

After a few rough months, consumer confidence has finally rebounded sharply after peaking in May. With the general economic situation much improved over the last 3-4 months, the confidence of consumers has been of the main laggards in the Leading Economic Indicators. Indicators that were up 6% on a annualized basis would've been significantly higher had consumer confidence been up to match the economic reality. The August report showed a significant jump over July from 47.4 to 54.1 The main gains took place in the Expectations Index while the Present Situation Index saw a very slight improvement. Its not surprising to see expectations soar to highs not seen since the recession started in Dec 2007, but its still disappointing to see consumers so gloomy about the present situation. A reading below 25 is absurdly low. I'd look for continual improvements throughout the next year unless the media can convince us otherwise. The Conference Board Consumer Confidence Index ®, which ha

Net Payout Yield Focus: General

In general, net payout yields are starting to drop as most companies haven't bought back stock in the first 2 quarters this year. Remember that net payout yields are the combination of dividends + buybacks over the past 12 months and most of the higher yields come from buybacks. In most cases companies like Caterpillar (CAT) and CSX were under extreme pressure and it was only prudent to conserve cash and curtailing a buyback has always been viewed with less disdane then cutting a dividend. Heck even cash rich companies like Microsoft (MSFT) bought basically no stock in the last 6 months. It was a huge mistake as they could've bought stock at a huge discount to the current price but the markets were very shaky. Our Net Payout Yield Portfolio and the general concept held up well during this turbulent environment regardless. Our portfolio has averaged beating the SP500 by 6% a year including last year. Over the next couple of weeks we'll begin to focus more on the individual n

Performance Review: Growth Portfolio up 84% Last 6 Months

With an 84% return in the last 6 months, the Growth Portfolio has out grown the SP500 by nearly 50%. Unlike most the 'experts' that you see on TV that have continually called for a significant correction or at least one of at least 10% Stone Fox has consistently expected the market to melt up similar to the melt down which would bring the market to at least the 1,200 level. A steep drop off like we had in October last year is typically followed by a similar rally. Our favorite stocks in this portfolio have mainly been techs like Apple (AAPL), Baidu (BIDU), Millicom (MICC), and Riverbed (RVBD) along with Internation Growth plays like ICICI Bank (IBN), Gafisa (GFA), and US Steel (X) combined with our favorite financial recovery play in Hartford Financial (HIG). Most of the stocks have seen major moves off the bottom, but for the most part they all still trade at discounts to most major valuations or substantially off highs. We expect all of the stocks to see more gains in the ne

Trade: Bought LIZ on Recovery Hopes

Liz Claiborne ( LIZ ) is a much maligned retailer that sorely needs a economic recovery. We've added shares in our Growth porfolo accounts just below $4 in hopes that a recovery will lead to a Jones Apparel ( JNY ) type of return. In the last 4 month JNY has soared from $4 to $15. LIZ still has some strong brands but its questionable whether management has been focused enough on building the strong brands or selling off the weak ones. If they can become more focuses and turn the results around to match that of JNY this could be a great Christmas for shareholders.

Leading Economic Indicators Continue to Soar

One of the most important indicators and one that has been grossly overlooked by the media continues Leading Economic Indicators of the Conference Board. The last 6 months show a annual growth rate of 6%. Sure sounds like a V to me. Even the coincident indicator was flat in July showing that the economy has clearly leveled out and is ready for substantial growth. Whats even more impressive is that if Consumer Confidence were to turn positive, this number would be off the charts bullish. It amazes me that such a predictor of the future could be this positive yet consumers are so negative. All consumers need to do is turn bullish and life is good. Incredible! Highlights of the LEI section of the report: The Conference Board LEI for the U.S. rose again in July, its fourth consecutive increase. The six-month change in the index has risen to 3.0 percent (a 6.2 percent annual rate) in the period through July, up substantially from -2.8 percent (a -5.4 percent annual rate) for the previous si

Eddie Lamperts Troubles at Sears?

Are they kidding? This is the major problem with journalists and why its so crucial to understand your investment. Journalists only know how to report the numbers and always seem to lack the ability to analyze the investment opportunity. Sears Holdings (SHLD) the operator of Sears and KMart stores reported a dismal quarter this morning. While I'll concede that it was a bad quarter, it wasn't exactly all that shocking that a bad retailer like SHLD would report a loss in this environment. If they hadn't have reported such a great Q that ended on May 1st, then this result would've been much more in line with expectations. Still the issue isn't with the earnings, but rather that investors just don't get the reason to invest in SHLD. It sure isn't because they own Sears stores. I've written a couple of articles and you can find many more on the web about the value of the real estate, brands, and net inventory (inventory - debt = roughly $6B). The current valu

Highly Leveraged Obama Play: TerreMark

One way to play the ever growing government reach under the Obama administration is to invest in internet companies that are helping the governments promise under Obama to be more transparent and internet centric. TerreMark (TMRK) fulfills that role as the Data Center operator that now runs some of the biggest government sites such as . The stock is also on sale after being hit 15% after reporting a strong Q2 with revenue and EBITDA a the high end of estimates. Its the 2nd time the stock appeared ready for a major breakout only to be hit by major selling. The last time was in early July when fears of internet security issues sent its stock plummeting. TMRK is highly leveraged like the typical data center/telecom provider of the 2000 era. It takes a lot of capital to buildout the data centers and thats been know different with TMRK. They recently completed a $420M debt offering. Thus they provide the opportunity to invest in a high risk leveraged play just as the economy is com

Airplane Lessors: AerCap Leads

The airplane leasing sector has been promising for a while now as emerging markets expand air traffic and airlines with weak balance sheets look to cut cash outlays for new planes. Its also a much better way to play this trend then to own a airline as they typically struggle to make profits with the fierce competition in the sector yet every time we turn around another company wants to open an airline. Owning one seems like a status symbol similar to a sports franchise except airlines almost always lose value. Airplane lessors on the other hand are typically very profitable. The airplanes typically hold their values and during a period where both Boeing (BA) and Airbus struggle to get new versions out, the planes on hand remain in high demand. Its also an attractive investment because the leases are typically for 5-7 years providing for a consistent return. Unfortunately though the stock prices are not nearly as consistent. Fears of bankruptcies in the industry (leases can be canceled)

Chart of the Day: Investors still Bearish

Even after the huge surge in the markets, the investors at still are in the bearish camp. This is an unscientific poll and its hard to tell who the people are voting, but they have to be somewhat involved in the market to follow a site like this. This continues to support our bullish theme that investors still don't buy the recovery. Too many people look at how far the market has come and not hot far the market fell. We're still 20% below the Oct highs before Lehman Brothers collapsed.

Why is the Consumer so Depressed Still?

The University of Michigan consumer sentiment survey came out with much worse then expected results today. Why in fact is the consumer sentiment down in August from July? And why are consumers have such lower personal expectations while being more bullish on the national economy? My guess is that the media spent most of July and now August obsessing about job losses, foreclosures, and such that its gotten the average consumer downbeat when they should be more positive. The economy clearly isn't peachy so it's not about whether its a great economy, but consumers should be much more bullish then they were in June and even July. Its so much clearer now that the economy has turned the corner and at this point all we lack is a stronger consumer in the US for an all out bullish scenario. About the only reason a double dip recession could happen is if the consumer were to remain hidden. Luckily though, consumer confidence surveys don't always align with spending. Consumers tend t

Can the Terra Board Afford to not Accept the CF Industries Sweetened Bid?

Just last week on the 5th, CF Industries (CF) upped their bid for Terra Industries (TRA) from its prior bid of 0.4129 to 0.4539 shares to 0.465 CF shares. The deal currently values TRA at nearly $39 share (.465 x $83 CF share) or 30% above its Friday closing price of $29.91. How could the TRA BOD turn down that sweet offer? Many reasons exist for turning down a premium offer such as shareholder growth would be higher as an independent compared to being part of a conglomerate, shareholders want cash for various reasons including the premium can be wiped out if the aquiorors price drops after announcing the deal, or the premium just isn't large enough to cash out. In this case, the BOD is definitely leaning to the later but it just doesn't add up. Both companies have similar revenue, income, and growth prospects. TRA shareholders are basically getting a big company with the same basic growth - analysts list both companies with identical 5 year growth rates. The main wrinkle in

Trade: Bought Terra Industries and Sterlite Industries India

After the market dipped from its highs in the first 30 minutes today, Stone Fox added Terra Industries (TRA) and Sterlite Industries India (SLT). The very positive jobs report likely sets the market up for an eventual run to the 1,200 -1,300 which is where the market was before it fell off the cliff with the Lehman Brothers blowup. TRA is a nitrogen fertilizer company trading at $30 with a .465 share offer from CF. The deal was just recently upped and values TRA at over $38. The market doesn't believe the deal will be completed, but I'll post later why the BOD of TRA almost has to accept the deal. Even if not accepted, Stone Fox wanted more investments in this industry. SLT is a copper and power generation play in India. With the big push by India to upgrade infrastructure and increase power generation, this company is in the sweet spot. They also recently raised $1.5B for investments.

Apple to $1,000?

Pretty shocking to see a site like listing a article detailing how Apple (AAPL) could reach $1,000 in 5 years from what was $140s when the report was written in June. Anybody following the markets knows as being a normally bearish site. AAPL has huge potential as the article points out via 13 reasons. The iPhone is dominating the smartphone world yet its only avaliable via one carrier - AT&T. The Mac continues to gain market share but still has a very, very low market share that the iPhone and iPod will continue to help drive higher. The iTablet is now being rumored and that could have a huge potential. As of late we've not put much focus on the long term value of a stock as its become a trading market. AAPL is very undervalued compared to its $30 in cash and $10+ eps for '10. Those conservative estimates during a tough economy should give AAPL a much higher then 13x EV multiple. Multiple will easily expand to double that. Some key points fr

Once SHLD Breaks $70 Its off to $100

Sears Holdings ( SHLD ) looks poised to breakout. Once above $70, the next stop is likely $100. Now the market seems do for a pullback according to most analysts and media outlets, but not much of that happened when the market fell off the cliff last fall. Its currently solidly above the 20EMA which is above the 50EMA which is above the 200EMA. Its a beautiful chart once it breaks $70. Its also will have clear higher lows and higher highs at that point. Until something changes don't fight the trend. Also, ignore all the nonsense about SHLD as a company. They have a ton of assets not fairly valued in the current market. SHLD can easily surpass old highs. Dicks Sporting Goods ( DKS ) has a similar chart and setup. Any move above the current close at $20 solidifies a breakout that has some resistance around $24, but mostly opens up the stock to a move back to $30. Both moves net close to the same game so pick your stock. Most people favor DKS for its better run operation, but SHLD lik

Performance Review: Net Payout Yields

Results from Year 1 on were 6.3% better then the market. RETURNS Last Week 0.48% Last Month 8.66% Last 3 Months 16.59% Last 6 Months 28.14% Last 12 Months N/A Last 2 Years N/A Last 3 Years N/A Last 5 Years N/A Since Inception -14.23% (Annualized) -14.23% S&P500 RETURNS Last Week 0.86% Last Month 7.09% Last 3 Months 13.19% Last 6 Months 21.18% Last 12 Months N/A Last 2 Years N/A Last 3 Years N/A Last 5 Years N/A Since Inception -19.51% (Annualized) -19.51% RETURNS VS S&P500 Last Week -0.38% L

Doc Copper Surges in the Last Few Trading Days

Copper has surged the last few days and this signals the world economy is back to growing. Its surged from $2.46 to close around $2.74 today. Copper has long been designated as the Doctor of the commodity world as its products are used so much in the construction space for basics such has housing and autos. Copper also is so dramatically controlled by China and the emerging markets since they have a larger need for the basics such as housing. While oil is still controlled by the US and the developed world because its use is based on the amount of commerce and vehicles owned as opposes to sold. Freeport-McMoran (FCX) and Sterlite Industires (SLT) are two of the best copper plays right now. FCX is the best all around play and SLT is a great domestic play in India.

India PMI @ 55

More clear signs that the global economy is back into growth mode after the US just finished its longest post WWII contraction. India continues to see strong manufacturing growth with it's fourth consecutive month of growth. India actually has stronger growth then China which reported a number arorund 53 versus the 55 from India. If India actually follows through on its infrastructure plans, stocks like Sterlite Industires (SLT), Foster Wheeler (FWLT), and Terex (TEX) could see huge growth from this country and hence stock prices. Markit Economics’ Purchasing Managers’ index stood at 55.3 in July, unchanged from June, according to a report released today. It was the fourth monthly reading above 50, which indicates factory production increased. The Reserve Bank of India last week raised its growth forecast for the year to March 2010 to 6 percent “with an upward bias” from the 6 percent estimated in April, citing favorable funding conditions for companies and a revival in indus

July ISM Manufactures Report Highest Since August 2008

A huge rebound in this months ISM Manufacturing report solidifies the believe that not only has the recession ended, but that the economy will rebound in a V shaped pattern. The report came in at 48.9 which was way above the 44.8 in June and the consensus expected increase of 46.2. With new orders, production, export orders, and backlog now above 50 its only inventory levels that is keeping the report below the growth level of 50. Check out the report from First Economic Trust - Brian Westbury for more details on the V shaped recovery that almost nobody was giving a chance until just the last week. The graphs sure look like Vs to me. Those inventories will have to be restocked soon and that will really boost the economy. The imbalance of new orders at 55 and inventories at 33 can't last for much longer. The Institute for Supply Management, a trade group of purchasing executives, said Monday that its manufacturing index read 48.9, up from 44.8 in June. That's better than the 46