Showing posts from August, 2011

IB Net Payout Yields Model

Stat of the Day: Investors Yank More Money From Stock Funds

After pulling $34B from US stock funds during the first two weeks of August, the hit parade continued last week with another $3.2B pulled . Not to mention another $610M removed from foreign equity funds for the week ending Aug 24. Note how the SP500 bottomed right in the middle of the frantic selling by retail investors. Now as the market pushes higher throughout August retail investors are still skittish. They are always a great contraian indicator. Disclosure: No positions mentioned. Please review the disclaimer page:

Large-Cap Hardware Stock Buybacks Don't Pay Off

In general my firm is very bullish on companies with stock buybacks and especially ones that contribute to reaching lofty net payout yields (combination of net stock buybacks and dividends). Studies such as  this one  show that buybacks contribute along with dividends to the ability to predict future alpha. Unfortunately the off-the-cuff results from the last 15 months suggest the hardware and communications equipment sub sector of tech doesn't benefit from buybacks, at least in the short run.  Read the full article at Seeking Alpha.  Disclosure: Long AAPL, CSCO, and MSFT. Please consult your financial advisor before making any investment decisions. Please review the disclaimer page for more details. 

DOJ Files Antitrust Complaint to Block AT&T, T-Mobile Merger

The Department of Justice sued to block AT&T's (T) proposed $39B aquisition of T-Mobile USA  a division of Deutsche Telekom (DTE). While the stock of T has dropped 4% and Sprint (S) has jumped over 7%, this news really shouldn't be that surprising. Maybe thats just a sign of how lax the DOJ had gotten over the last few years regarding mergers. The deal involves reducing the top 4 competitors down to 3. In all effective purposes the deal ultimately drops the competition to T and Verizon Wireless, a division of Verizon (VZ) and Vodafone (VOD). Clearly T was shocked by the DOJ move as they offered up a package of $7B if the deal gets blocked. This makes the chances of a deal being worked out a lot larger. Whats the odds of the government ultimately requiring T to send $3B to Germany? Especially now that the Communications Workers Association (CWA) is upset about the deal being blocked. Obama is too pro union to ignore the requests of the CWA. Ultimately the deal should c

Stat of the Day: Consumer Confidence Plunges to April '09 Lows

Really? Consumers feel the economy is so bad now that it feels like April 2009 all over again? Back then, the US economy was at the end of a horrible recession labeled as the Great Recession. Our banking system just about collapsed and the housing sector was collapsing. Now the economy is growing at a slow pace, jobs are being added at over 100K per month, and home prices have mostly stabilized. Oh, and don't forget that the stock market has soared in those 2 years. For August, Consumer confidence plunged to 44.5 from 59.2 in July and expectations around 50. Why are consumers so gloomy? Sure the debt ceiling debate and the downgrade of US debt was depressing to watch but it didn't impact any jobs. Nor did it impact the future of the US with interest rates dropping after the downgrade. Maybe all this explains why retail sales continue to rise while sentiment plunges. Consumers might feel gloomy due to the news, but it appears to be sending them to the shopping mall to cure

Market Ignores That Lowe's Yields More Than Home Depot

After recent Q2 earnings reports, the market was  impressed  with the talk from Home Depot ( HD ) management and  disappointed  with Lowe's ( LOW ). According to most analysts including Mad Money host Jim Cramer, HD is winning the home improvement market. Click  here  to see the video where Cramer breaks down the two companies. It's very difficult to argue with Cramer or any other Wall Street experts. Sure investors can spends hours researching the stores, but ultimately both are great companies. Consumers tend to shop at the closest store and HD is restructuring so the better results at HD might just be a bounce back from lackluster results previously. Please read the full article at Seeking Alpha.  Disclosure: Long HD and LOW in client and personal accounts. Please review the disclaimer page for more details. 

Corporate Profits Continue to Surge to Record Highs

Great info from Mark Perry at the Carpe Diem blog . A must read blog for economic data. As Mark points out, corporate profits have not only recovered from the Great Recession in 2008, but they've now soared way beyond the 2007 peak. This chart over laid by the SP500 performance should be standard review in any finance class. Profits peaked back around 1998, but the stock market soared into 2000. On the contrast, profits continue to soar heading to nearly double that of 1998 levels yet the market is still struggling to obtain a faction of the stock prices in 2000. This should undoubtedly prove to any investor that the market is based solely on future profit potential and momentum. Never pay attention to anybody discussing the trailing PE. Utterly useless! Every corporate indicator alone would suggest a booming stock market reaching record highs, but the market struggles some 25% below the 2000 and 2007 peaks. It should also be a warning to those down on the market currently. W

Lockheed Martin's 'Accidental' High Net Payout Yield

Today Lockheed Martin ( LMT ) announced an additional $1B stock buyback on top of the current $3B authorization that is expected to reach its limit soon. While the news appears good, market analysts have lately become very bearish on stock buybacks. See  interview  of Joshua Brown from Fusion Analytics. Note though he claims Cisco Systems ( CSCO ) is the worst in issuing new shares, the latest quarterly report shows a nearly 300M share drop from last year - 5,795M to 5,496M shares. The key points missing from this interview is that investors naturally want to focus on companies that actually follow through on the announcement and ones that have net buybacks, ones that reduce the outstanding shares rather than just replacing the stock option issuance. Read the full article at Seeking Alpha.  Disclosure: Long CSCO and LMT in Net Payout Yield modle. Please review the disclaimer page for more details. 

iPad Captures the Paperless Flight Deck

Interesting news out of United Airlines (UAL) today. United announced that they will utilize 11,000 iPads  to convert to paperless flight decks for United and Continental pilots. This is huge news considering that HP (HPQ) just folded from the tablet market last week. With a market that is clearly opening up, Apple (AAPL) has garnered a major foot hold into the business sector. Now these 11K pilots and support personnel at UAL will likely be drawn into buying iPhones and iMacs for the home. Continues to lead to a major shift towards AAPL hardware and farther away from HPQ, Dell (DELL), and Research in Motion (RIMM). These electronic flight bags (EFB) replace paper flight manuals providing pilots with paperless aeronautical navigational charts through an iPad app. The estimates of paper and fuel savings are amazing. 16 million less sheets of paper per year even saving 326,000 gallons of jet fuel a year. Not only will it improve efficiency, but it will reduce the risk of injury fr

Net Payout Yield Focus: WellPoint

Similar to Travelers (TRV) profiled earlier today, WellPoint (WLP) had one of the largest stock repurchase plans over the past year or so making them a top Net Payout Yield (NPY) stock. Until the recent selloff, WLP was hitting levels that apparently made management slow down on purchases. Now that the stock has slumped it will be interesting to see how management reacted. Sill with the new yet small 1.6% dividend yield, the stock had a roughly 10% annualized yield using Q2 numbers. Very solid numbers, but also highlighting how if the stock hits $80 again it might be time to take profits based on the NPY model. For now, WLP will remain a solid fixture of the Net Payout Yields model . Disclosure: Long WLP and TRV in client and personal accounts. Please review the disclaimer page for more details. 

Net Payout Yield Focus: Travelers

Since a picture is worth a thousand words, thought we'd start throwing in some graphs on the Net Payout Yield stocks. Travelers (TRV) has had one of the highest NPY's over the last year with the massive buyout they've undertaken. The below chart shows the quarterly combined dividends and buyback percentages based on the current market cap of $21.7B. Note the Q2 2011 buyback dropped substantially due to the tornado related losses in the US. Add up the last four quarters gives a NPY of roughly 17%. Incredible how little attention the NPYs obtain these days. All the focus is on dividends. Imagine a SP500 stock with a 7% quarterly dividend like TRV posted in Q4 and than again almost in Q2 2010 as well. Disclosure: Long TRV in client and personal accounts. Please review the disclaimer page for more information. 

Dell Smashed After Hours

Dell (DELL) handily beat earnings estimates but posted revenue numbers that were disappointing sending the stock down 8% in after hours. Reviewing the numbers, it's difficult to understand what the market wants out of companies today. DELL only has a forward PE of 8 so the expectations should be significantly lower than what the market apparently wants. DELL reported record cash flow of $2.4B for the quarter and $5.2B over the last four quarters. With an enterprise value around $22B, it only trades at 4x operating cash flow. Wow! The company has a record cash balance of $16.2B even after buying back $1.1B in stock during the quarter. Though DELL does have over $7B in debt. DELL remains very attractive on a valuation basis, but it appears to be a value trap where the multiple will never match the cash flow. Too many investors want revenue growth or nothing at all. The market remains incredibly binary. Results: Revenue in the quarter was $15.7 billion,

Is Cramer Correct About SodaStream?

Last Thursday, SodaStream (SODA) reported results that easily surpassed quarterly estimates. The stock unfortunately plunged roughly 34% due to guidance that was puzzling. The company guided to flat growth in Q3/Q4 while the street was expecting a massive Christmas for the home beverage carbonation market. The confusing part was whether the company was being conservative or whether the street just doesn't understand the revenue model. SODA reported Q2 revenue increased 38% with the less established Americas up 136%. Remember this is an Israeli company that first expanded in Europe. Adjusted earnings jumped to $.42 with Americas soda makers units increasing 224%. All numbers that would lead analysts to expect numbers to only soar from here in Q3 and especially Q4. Instead the company only forecast revenue that assumes a 20% growth rate from 2010. Numbers that suggest a massive deceleration from Q2 growth of 38%. Not the growth you want in high multiple stock. During the confer

Investment Report - August 2011: Net Payout Yields

July was a negative month for the Net Payout Yields model on a relative basis. The model underperformed the S&P 500 by 0.36%, with a loss of 2.5% versus the 2.15% loss for the benchmark (Covestor calculations). On a three month basis, the model has outperformed nicely during a very weak period in the market. It outperformed the S&P 500 by 1.45%, with a loss of 3.78% versus the 5.23% loss for the benchmark (Covestor calculations).  Trades The model sold Boeing (BA) and bought Travelers (TRV) and Campbell Soup (CPB). As always, the moves are triggered by the decreases or increases in the Net Payout Yield of each stock with a bias towards limiting trades so stocks are not immediately removed or added based on a top 20 yielding list.  BA has a decent 2.7% dividend yield, but recently has eliminated buybacks. With normal yields in the model consistently adding up to greater than 10%, BA no longer fits into the requirements.  TRV has a solid 3.2% dividend yield. It has a

Poll of the Day: Should Obama Cancel His August Vacation?

Note: Main computer was without connection to the internet last week so I'm just now getting back to being able to post.  Interest poll results from CNBC on whether Obama should cancel his vacation due to the markets and economy or take it anyway. Surprised to see that 47% said he should cancel his vacation. Considering he tends to spook the market when he speaks wouldn't it be nice to go a week without his constant bashing of the wealthy? Of course, 53% of the voters want him to go on vacation or said it doesn't matter so maybe that's a sign that investors think the market would be better with him gone. At least a signal that him being at work sure doesn't help. Should President Obama Cancel His August Vacation? He should cancel his vacation 47% He should go on vacation 24% It doesn't matter 29% Total Votes: 13486 Not a Scientific Survey Results may not total 100% due to rounding

Fastest Growing Earnings: Best Remaining Stocks

This is the fourth and final article focusing on the stocks with the fastest earnings growth rates for 2012 according to the SteetAuthority report . The first three articles focused on Take Two Interactive ( TTWO ), Patriot Coal ( PCX ), Accuride ( ACW ), and Meritor ( MTOR ). The final article will focus on the better remaining options. All of the companies on the list expect earnings to soar more than 100% from fiscal 2011 to 2012. If the numbers are hit, than any of the picks could provide solid stock returns. The remaining list includes Allstate Corp ( ALL ), with a market cap around $16B, all the way to SMART Modular Tech ( SMOD ), with only $580M in market cap. All of them have relatively low forward PEs considering they expect earnings to expand by triple digits. The key is to determine which stocks have the potential to expand on these earnings beyond 2012. One-off situations such as ALL aren't as appealing. Read the full article at Seeking Alpha. Disclo

Hartford Financial Trading at Half Book Value

After the close today, Hartford Financial (HIG) reported earnings basically in line with expectations following the tornado disasters in the US during Q2. More importantly though, HIG announced plans for a $500M share buyback equalling 5% of their current market cap of $10B. This always begs the question of why the stocks of insurers such as HIG and Lincoln National (LNC) remain so weak. Both stocks are solid position in our portfolios since they have consistently strong earnings and trade below book value. HIG trades at a PE of sub 6. Sure they are a financial, but they don't face the regulatory issues as banks. Based on a quick estimate, the book value per share for HIG would rise by $2 to $45.26 if the complete buyback were completed around the current price of $22.50. Naturally HIG is likely to rebound higher before it gets the opportunity to complete this buyback, but if not 22M shares will be removed from the market. Another nugget is that the BV will jump to $50 with e

Stat of the Day: NY Fed Says No Recession

The New York Fed has a   great chart   that I've used in the past that predicts the possibility of a recession over the next year based on the treasury spread between the 10 year bond rate and the 3 month bill rate. The monthly average for July was nearly 3% again suggesting very little odds of a recession.  The probability of a US recession in the next 12 months predicted by the Treasury Spread is actually below 1%. Recessions just don't happen when the treasury spread is this bullish. Weak ISM reports should be counter balanced with weekly claims below 400K.  Investors seem to be rushing to judgement based on numbers that bounce around. Recessions have always been caused by the severe tightening of monetary supply which once put into place can't be reversed easily. The recession odds remain very low with corporate profits continuing to soar and monetary policy very positive. 

China Rating Agency Downgrades US Debt

Interesting to see a Chinese Rating Agency downgrade the US sovereign debt rating when the US rating agencies have been unwilling or unable to make such a move. Its clear that the US doesn't deserve the highest credit rating with $14T of debt growing at an alarming rate. Not to mention a government unwilling to make the tough spending cuts. The Dagong Global Credit Rating agency (never hear of them) cut the credit rating to A from A+. Not even sure from the report whether the highest rating for them is AAA as well. Assuming so they had already downgraded the US several levels prior to this move. What is ironic is that Franklin Templeton complained about the Chinese rating agency lacking transparency. Really? What about lack of accuracy by the big three firms - Moody's, S & P, and Fitch? Not sure why the obsession still exists with agencies proven to lack independence. Another interesting point is that China is the largest holder of US Treasuries. Downgrades of US deb

Dr. Copper Continues to Yawn at Economic Worries

With the US equity markets down and sharply for 7 and 8 consecutive days depending on the index, Dr. Copper spent the start of yesterday in record territory above $4.5. Outside a week in February, the initial trading yesterday equaled the highest prices in history signaling a very bullish global economy. Sure the BHP mine in Chile that is the largest mine in the world has been shut down by a strike for 12 days now, but I doubt that would matter if global demand was about to slump? Definitely worth watching the rest of the week. The equity markets are extremely oversold and any bounce in them could spring copper to all time highs above $4.6. Can copper hit record highs with the US heading into a recession and China facing a hard landing?

Chart of the Day: Tight Market Range About to be Resolved

Widely followed technical analyst Carter Worth of Oppenheimer was on Fast Money last night. He has consistently for awhile now been bullish on a breakout of the market once the current range is broken. The major reason is that the market spent 7 months in this range back in 2008 before finally breaking down. Now the market has spent nearly 7 months in the same range and the normal outcome would be the opposite of the last time it spent time in this range. Logically it makes sense that numerous funds are exciting positions that they have held for the last 3 years. Once they are done and the market breaks out or down the move will likely be strong. Clip with Carter Worth:

With Verizon Wireless Dividend, Vodafone Is the Better Investment

On Thursday, Verizon Wireless  announced  it was finally going to distribute dividends to shareholders Verizon ( VZ ) and Vodafone ( VOD ) in January 2012. The last dividend paid was back in 2005. The theory goes that Verizon Wireless was going to hold onto the cash until Verizon could consummate a purchase of the 45% of Verizon WIreless from Vodafone it didn't already own. Apparently Verizon was unable to hold off any longer and needed the cash to pay its own dividends. Clearly, from the stock reaction and the planned use of the proceeds, Vodafone is the better investment. Vodafone was up 4.5% Friday and  plans to pay  nearly $3B in special dividends in February 2012. Meanwhile, Verizon was down 2% as the company indicates it will use the cash to just keep the current dividends going.  Read the full article at  Disclosure: Long VOD in client and personal accounts. Please review the disclaimer page for more details.