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Showing posts from September, 2011

Net Payout Yields Model Holding Up Well

The Net Payout Yields (NPY) model continues to perform well in this wild market. Naturally the model is down slightly for the year, but it has held up much better than the SP500.

The model invests in companies with over a $10B market cap and a heavy dose of dividends and stock buybacks. Similar to the Dogs of the Dow theory, the higher the yield the more attractive the stock.

If a company has enough money to pay a 5% dividend yield and a 5% buyback yield, than just maybe the market is overlooking its future potential. Any company with that much cash must be worth a second look. Instead though of spending hours upon hours of research, the model lets the management team provide the signals.

Not only is this more efficient, but it removes the emotion from investing. Sure a few companies might have bad management teams that are just wasting money, but in general it tends to work out that the company is signaling a brighter future for the stock than the market.

The model is only slightly d…

Business Down the Street Must Be Doing Bad

Great quote from the CEO of Manpower today on CNBC. Executive after executive has gone on television talking about how business remains strong. Clients are doing just fine, but somebody else must be having problems since the economy is supposedly lousy.

Our clients are telling us that business isn't that bad. It must be the guy down the street who has bad business. The CEO even claims that Europe remains strong.  How is that possible?

According to him the conversations about business are vastly different than 2008 which remains our thesis. The market has priced in a 2008 scenario already even though it doesn't appear to be a possibility.

See the video below:






Disclosure: No positions. Please review the disclaimer page for more details. 


Is Sears Holdings Finally Turning Into a REIT?

According to this news last week, Sears Holdings (SHLD) has apparently made a major move on the long hoped for leasing of their under utilized real estate assets. According to the real estate website, it now has numerous leasing options available for retailers at 3,768 locations. Or nearly all existing stores.

The real estate options include the following:

Store-in-Store Leasing: Establish presence within Sears Holdings Corporation (SHC) store.
Outlots: Outlots to build new retail locations.
Demised space: Establish an independent presence adjacent to an SHC store
In-Line Leasing: Establish an independent presence adjacent to an SHC store
License business: Provide specialized product/service from a location inside an SHC store, fully integrated into operating platform
Specialty Marketing Opportunities: Strategic partnership to creatively reuse non-traditional space


Please read the full article at Seeking Alpha.


Disclosure: Long SHLD. Please review the disclaimer page fore more details. 



Buckeye Oil Billions

Most investors have probably already heard about the new oil potential in Ohio via the Utica Shale. Great article in Forbes about the potential for thousands of jobs in this struggling manufacturing state. Would imagine that many a laid off employee in the manufacturing sector could potentially shift to the oil services sector. Sure it'll take training, but the skill set would appear similar.

Now if Obama's job ideas would just include money for retraining unemployed workers instead of short term tax breaks. Why does the government always come up short term ideas?

Or maybe Obama could just come up with an energy plan to take advantage of the new abundant oil and nat gas resources in the US. Sure he can for through with his green energy plan, but that is a long term plan for 2020 or 2030. What this country needs is a plan to make it to the 2020s living off the fuels already available. 

On a cautionary note, the more I read about the oil shale plays including our recent investm…

Rio Tinto Confirms Strong Commodity Demand

Interesting statement from Rio Tinto (RIO) ahead of an investor seminar. In summary, RIO continues to see strong demand for commodities not only now, but over the next 10 to 20 years. On the other hand, supply constraints remain due to regulatory issues, labor shortages, and geology constraints.

Based on continued strong demand and supply issues, one would think the stock would be trading towards not only recent highs but also all times highs. That person would be very wrong. RIO is in fact down some 20% from February/April highs and not even close to the highs hit in 2008.

The stock market disconnect just doesn't add up. Sure some commodities like Copper have plunged in the last few weeks, but prices remain close to all time highs. Clearly still at prices that suggest very healthy profits. One could easily argue that stock prices never reflected the commodity prices hit in the Spring.

Even more precarious is the surging stock prices on some momentum stocks like Apple (AAPL) or Ch…

Screw'd By Sears!

Nice to see Sears (SHLD) so involved in the internet and social media realm. This company has a split personality. Go into the stores and it seems like your grandfathers store. Check out the website and it appears like a new age company with a future.

As somebody said the other day, SHLD is attempting to become the Amazon.com (AMZN) with brick and mortar locations. Heck, if you can buy online and pickup at the store without really going into it they might just have a fighting chance of a solid retail future. Considering that I don't even count retail as part of the reason to invest in SHLD, any small contribution helps.

Nice creative Craftsman music experiment. Not what I'd expect from Sears!



Watch live streaming video from craftsmanexperience at livestream.com



Disclosure: Long SHLD. Please review the disclaimer page for more details.


Materials Very Weak Today

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Not only were materials weak, but anything to do with global growth such as infrastructure hit a wall today even with the market up .5%. Oddly utilities and consumer discretionary had a strong day.

FirstEnergy (FE) in the Net Payout Yields (NPY) model closed right at the 52 week highs hit in mid May. Amazon (AMZN) soared 5.5% after closing at a new 52 week high yesterday. It has now bounced from below $180 in mid August to nearly $240 now.

Global growth stocks such as materials, infrastructure, and emerging market stocks were very weak today.  Coal, copper, and crane stocks were smashed even with global markets up. What is this telling us? Maybe that global destruction is off the table, but global growth is still a concern. Investors appear headed for high dividend paying stocks as the NPY model was up nearly 1% while the Opportunistic model stocks were relatively flat.

Have treasuries finally hit bottom now that a Lehman type collapse for Greece appears off the table? Sure better to …

China Internet IPOs: Approaching One Year After The Boom

At the end of 2010, China internet stocks saw a surge in interest leading to some rather magnificent IPO pops. The next Facebook, Amazon (AMZN), Akamai (AKAM), and many other leading tech companies were launched onto the US markets at sometimes very expensive prices. Investors were eager to obtain the next big thing from the fast growing China economy. Back in April I wrote about how investors should beware of the meteoric rise in the below four IPO stocks. [See China IPOs Gallop Out of the Gate: Time to Buy?]

Unfortunately as months have passed, the picture isn't so bright for the sector these days. The problem relates to the distrust in China stocks in general due to numerous fraud allegations that hit the reverse merger sector. Then some previously thought to be legitimate China stocks like Longtop Financial and Sino-Forest were accused of frauds causing even the IPO stocks to come under question. Combine that with high valuations and the stocks have plunged since the post IPO p…

2 Eagle Ford Shale Plays Not Closely Followed

A few weeks back CNBC sent anchor and Mad Money host Jim Cramer up to the Bakken shale to get an on the ground view of the amazing changes taking place in the area. North Dakota is booming with an overwhelming demand for employees. The companies leading the drilling efforts such as Continental Resources (CLR) and Brigham Exploration (BEXP) have benefited handsomely from the massive growth in that area.

Though known by many industry experts and investors, another area exists in southern Texas that might match or exceed the oil produced from the Bakken. That area is called the Eagle Ford Shale. 


Read the full article at Seeking Alpha. 


Disclosure: Long CJES and CRZO. Please review the disclaimer page for more details. 





Investment Report - September 2011: Net Payout Yields

August was a decent month for this model with an active return of 1.02% (Portfolio was down 4.66% versus the benchmark S&P500 down 5.68%). Naturally on an absolute basis the results are disappointing, but this model is not designed to time the markets. The goal remains to outperform on the way down and remain even on the way up producing superior returns over time.

Trades
After several semi active months of trading especially in May and July, August saw no trades executed. Typically the model trades more in good markets as companies outgrow yields making them less attractive to keep. While down markets normally lead to higher yields and a improvement in the decision for keeping a security in the model.

Largest Weights
Lorillard (LO) remained the largest stock in the model as the tobacco stock was able to post a nearly 5% gain in the month. CSX Corp (CSX) remained a top weight even though the stock plunged. The railroad operator remains tied to a cyclical business and was the 2nd big…

Obama Odds of Being Re-elected in 2012 Drops Below 50%

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According to Intrade.com the odds of Barack Obama being re-elected President in 2012 has dropped below 50% now. Considering he spent most of the year at or above 60%, it shows the significant weakness he has faced as the economy falters.

Intrade is the world's leading prediction market though I haven't seen any details on the accuracy of the predictions. They are based on actual money invested so its people putting hard earned money at risk. Probably much better than a random poll of 1,000 people that would rather not have answered the phone.

The reduction in the chances of Obama being elected in 2012 could help push the markets up. Otherwise, summer 2012 could be another rough year if the markets have to come to grips with Obama for another four years. Anybody recall the end of 2008 through March 2009?



Ulta Beauty's Earnings Show Continued Upside

After the close Thursday, Ulta Beauty (ULTAannounced earnings that easily surpassed estimates. Earnings came in at $.38 versus estimates of $.32 and 72% higher than last year on only a 22.6% increase in revenue. Revenue beat due to very strong comps of 11.3% over 2010. ULTA appears to be firing on all cylinders with gross margins up 170 basis points and inventory per square foot down over 1%. The ability to grow revenue while decreasing inventory suggests superb inventory controls.
Read full article at Seeking Alpha. 
Disclosure: Long DKS. Please read the disclaimer page for more details. 

Doug Kass Stands Somewhat Bullish

Anybody following this blog knows that I've been a big follower of Doug Kass for years now. Not only is he normally bearish so he provides a counter view to mine for a sounding board, but he is impeccable at calling bottoms in the market. He isn't a perma-bear like most shorts though. In a way he is the flip side of Jim Cramer known as a perma-bull. Cramer has a history of calling tops, but he typically turns bearish too long similar to March 2009 when he missed the generation low that Kass called.

Kass published a good article where he highlighted the reasons a recession is all but impossible currently. He lists numerous reasons why the market might be unable to rally, but expecting a major recession and a massive selloff just doesn't appear in the cards.

Doug's reasons that a recession seems unlikely:


large private payroll drops in excess of 175,000 a month (adjusting for nonrecurring issues, payrolls are still averaging about 95,000 growth over last four months);an i…

Sears Holdings Externalizing Brands Could Be Major Catalyst For Stock

With news last week that Sears Holdings (SHLD) would be selling Craftsman tools in Costco (COST) stores, Eddie Lampert has hopefully ushered in the era of breaking away from a retail store based operation. Ever since Lampert bought Sears and Kmart, investors have been looking forward to the day that the company would focus more on selling the brands worldwide and monetizing the massive real estate assets versus focusing on a dying retail operation that seems utterly lost.


Read the full article at Seeking Alpha. 




Disclosure: Long SHLD. Please review the disclaimer page for more details. 







Economists Back Off Recession Calls

This has to be the least covered story of the day. With everybody focusing on the Bernack, Obama, and even China inflation today, everybody seems to have missed that not only has the recession likely been taken off the table, but most economists now call for around 2.5% growth this quarter.

Even Goldman Sachs (GS) is going to likely raise their estimates for Q3 GDP from 1% to maybe as much as 1.5%. Remember they originally sparked a ton of fear when the supposed experts at GS reduced growth to such a meager level a few weeks back.

Interesting that so many 'experts' had previously stated that the US was already in a recession or was definitely headed into one, but now Q3 will be back to near standard growth.

Great interview with Jan Hatzius, GS chief economist. One very telling point was how the sentiment data factored into recession fears while the real data has turned out much better than expected. Clearly the sentiment data has clocked in much worse than normal primarily due…

China CPI Finally Cools

Chin'a inflation eased to 6.2% in August from July's three-year high thus allowing China to stop tightening monetary policies. More importantly is that inflation only increased .3% sequentially showing only a 3.6% annualized rate.

Part of what investors have missed in this whole inflation scare is that the huge year over year increases are due to the yo-yo pricing caused by the 2008 financial crisis. Are oil prices higher now? Are corn or wheat soaring above the highs seen back then?

Unfortunately though these commodity prices are significantly above the 2009 and 2010 lows. Are current gasoline prices in the US inflationary? They are relatively equal to the 2008 peaks so how could it be inflationary when flat for over 3 years?

Now inflation has a lot more to do with just pure commodity prices especially in the US. In emerging markets though food prices can have a dramatic impact. One has to wonder if the US would quit burning its corn if food inflation wouldn't plunge. See…

Salesforce.com: Market Ignores Expenses Growing Faster Than Revenue

When reading through the recent Salesforce.com (CRM) Dreamforce Analyst Session presentation (obtain from the upper right hand corner box), a reader should be constantly struck by the desire to grow at all costs. Both Sales & Marketing and Research & Development costs soared beyond the rate of revenue growth. Another striking point is slide 55 that shows how the FY12 Guidance Midpoint for revenue has increased by $185M or roughly 9% while the Non-GAAP EPS has dropped. Now the earnings drop is mostly associated with the purchase of Radian6, but it further highlights how CRM is buying revenue.


Read the full article at Seeking Alpha.

Disclosure: Long MSFT. Please review the disclaimer page for more details.




U.S. Renewable Firms Going Bankrupt, What About Investing in China Counterparts?

Back in February, I did a webinar for Covestor and highlighted that renewable energy was my least favorite sector due to the expected reduction in subsidies in Europe. Witin the last couple of weeks, numerous US solar companies have gone bankrupt including the infamous Solyndra that US President Obama visited. The biggest cause for the bankrupties has been the claim that China subsidizes their solar industry to the detriment of US firms. Considering the previous negativity on the sector, the thought crossed my mind that the collapse of competition and continued high prices of oil and gasoline might make the sector worth another look.
Read full article at Seeking Alpha. 
Disclosure: No positions. Please review the disclaimer page for more details. 

Walter Energy Soars Nearly 30%

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Walter Energy (WLT) is a leading met coal pure play not only in the US but in the world. The stock is up nearly 30% this morning on news of a potential bid from Anglo American at $120 share.

While yesterdays closing price of $75 does make a $120 bid appear attractive one needs to step back and realize that the stock traded over $130 as recent as the end of July. Not many long term investors would be willing to take such a low price.

This stock along with our favorite met stock, Alpha Natural Resources (ANR), and the sector have just been crushed with the fear of a global recession. Ironically the main growth drivers of China and India don't appear to be weakening much at all. The assets of ANR and WLT remain just as attractive as it did back in July.

WLT has a 52 week high of $143.76 and I'd expect any accepted offer to exceed that price.

ANR appears more attractive with a much larger met coal reserve base. The stock also remains over 50% below its 52 week high of $68.05.

The …

Double Top in Gold?

Not much talk today about the stunnng reversal in gold for the second time in the last month. Gold has now made two attempts in overnight markets to break above $1,900 and more specifically the $1,915 to $1,920 range. Both times the move has failed miserably. Interesting to see the home page of Seeking Alpha this morning featuring the potential move of gold going to $2,000. Ominous sign of a peak?
Read the full article on Seeking Alpha. 
Disclosure: Long FCX. Please review the disclaimer page for more details. 

Has Ciena Finally Turned the Corner?

Ciena (CIEN) soared after reporting an EPS beat and non-GAAP profits for the first time in several quarters. CIEN had a impressive mix of improved revenue combined with a reduction in operation expenses. The real question is whether this combination can last in the competitive environment.

Ciena has long been a leading optical and networking equipment provider back to the internet bust in 2000. Since the bust, CIEN has had some good periods, but it has never been able to flourish. The company continues to make lower highs every 4 or so years with peaks around 2004, 2007 and 2011. 


Read the full article on Seeking Alpha. 




Disclosure: Long RVBD. Please review the disclaimer page for more details. 



United Technologies Reaffirms 2011 Guidance

Good news before the opening today from United Technologies (UTX) as it reaffirmed 2011 guidance of $5.35 to $5.45 per share and %58B in revenue.

The European Union could collapse and completely washout this guidance, but it very encouraging to see a major industrial to keep guidance intact after the weak markets in August and the start of September.

For those betting on a collapse in earnings estimates, UTX says not so fast.


Disclosure: No positions mentioned. Please review the disclaimer page for more details. 


Recession of Confidence

Jeff Kleintop of LPL Financial speaks to the Breakout crew over at Yahoo on the difference between sentiment indicators and actual data.

As Stone Fox Capital has been saying for a few months now, the data such as retail sales, industrial production, initial jobless claims, yield curves, and leading economic indicators have been relatively strong or at least not indicating a recession. On the flip side, the sentiment data such as consumer confidence and the regional fed manufacturing data have been bad.

The Philly Fed indicator is the main number that triggered the panic, but in reality this number records sentiment and not actual manufacturing activity. Note how the ISM reported 50.6 for August though Philly Fed was negative 30. Clearly the reality is a ton better than the sentiment. Guess the question is which one catches the other.

Interview with Jeff:





Monster Employment Index Hits Post Recession Highs

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Considering the weak government jobs report today, its interesting that the Monster Employment Index (MEI) hit a post recession high in August. With the doubts over the validity of the government report, why not look at this index instead combined with ADP and jobless claims.

All of the other jobs reports were mostly encouraging. Jobless claims have been flat around 400K, ADP showed 91K jobs gained, and the household survey had 330K in gains.

Honestly Stone Fox hasn't used the MEI in the past so understanding what the data represents isn't probably 100% accurate. The MEI is reportedly a gauge of US online job demand based on real-time review of millions of employer job opportunities culled from a large representative selection of career Web sites.

So clearly the index could have issues with certain firms moving hiring decisions to the internet or the Web sites used lacking key representation. Logically any company probably wouldn't still be in busines if they just now bega…

Austerity vs Default

Anybody wanting to debate what Europe should do with specifically Greece and possibly Italy and Spain should look no further than the results from Iceland (default) and Ireland (austerity). Iceland just exited the IMF program as a success and though Ireland is muddling along it has at least returned to solid growth.

The Bond Vigilantes blog has a good post on the two options. Clearly the best path is to decisively pick an option and move forward. Both countries are moving forward while Greece continues to flounder.

The problem with Greece is that austerity plans and the lack of growth initiatives are killing the country. Less government spending leads to a smaller economy and in the end it makes no progress on the debt plans.

Have to agree with Jim that a quick haircut by the bondholders would've helped move the Greece situation forward a lot quicker. The market continues to fret over default or no default, but the real question is the size of the default. Honestly, most people ha…

BeKnown That You Own Monster Worldwide

Ok, so that's a catchy title to correspond with the new Facebook app that Monster Worldwide (MWW) created to counter the trend towards social media recruiting especially by LinkedIn (LNKD). In reality, 2011 has been the year to not own MWW. Clearly any investor holding this top S&P 500 loser all year doesn't want to be known by the public. Times might be changing though as anybody buying since mid August could've participated in the 21% gain on Tuesday.
Read the full article at Seeking Alpha. 
Disclosure: No positions, but might purchase MWW within the next 72 hours. Please review the disclaimer page for more details. 

C&J Energy Services Reports 336% YoY Growth

If anybody wants a growth company trading at a cheap valuation, recent IPO C&J Energy Services (CJES) might just be the stock for you. CJES is a independent provider of hydraulic fracturing, coiled tubing and pressure pumping services operating mainly in the Eagle Ford and Haynesville Shales. The company IPO'd at the end July and has traded down from the $29.50 IPO price even with initial trading reaching $33.

CJES reported Q2 adjusted earnings of $.78 versus $.60 in Q1 and $.04 last year. Revenue jumped 43% from Q1 to $182.2M and a amazing 336% from Q210. The majority of growth is from deploying additional hydraulic fracturing fleets with minor gains from the Total E&S acquisition that added $4.5M in revenue or roughly $2.2M per month.

Earnings should continue to grow with expanded fleets, but Q3 will see a higher share count from the IPO. It was unclear from information provided exactly what the impact will be in Q3. The Q2 report showed 44M shares outstanding though the…

Brazil Slashes Interest Rates 50 Basis Points

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After the markets closed tonight, Brazil cut interest rates 50 basis points to 12% from 12.5%.

Wow! Guess I haven't paid enough attention to the Brazil economy as I was not expecting an interest rate cut much less a 50 basis point cut. Many an investor would probably be surprised to realize that Brazil interest rates remain as high as 12% after a big rate cut.

Apparently this move caught investors off guard as the expectation was for a 25 basis point cut if at all. With inflation running around 7%, I'm surprised as well though inflation rates should moderate as material costs maxed out earlier this year. Year over year numbers will eventually subside as 2012 rolls around.

This bodes well for emerging market stocks that have been rocked this year due to interest rate increases due to rapidly rising inflation fears. Some economists think China might be done raising interest rates as well which could usher a major rally in Chinese stocks that have underperformed for well over a y…