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Showing posts from November, 2011

Cramer on China's Game Changing Reserve Ratio Cut

Haven't been a big fan of Cramer lately, but I 100% agree with his opinion on the cut in the reserve ratio for China banks. This is a game changer for China as the economy was beginning to show signs of slowing.

China is clearly at the beginning of the interest rate cuts. Our favorite stocks to play the reemergence of China include coal producer Alpha Natural Resources (ANR), copper producer Freeport McMoRan (FCX), crane producer Terex (TEX), oil service company Weatherford (WFT) and ChinaCache (CCIH).







Disclosure: Long ANR, FCX, TEX, WFT, CCIH. Please review the disclaimer page for more details.


Disturbing Videos on the Market

Most people will probably find these videos normal. In fact, one can probably see similar clips 100x a day.

What disturbes me is how the media has become so conditioned to a down market. How the Bloomberg reporter almost appears uncomfortable interviewing a bullish guest. One that uses a proprietary system to trigger when he is bullish or bearish. Not a raging bull that never flips depending on the market conditions.

The other video is disturbing because the host and the analysts appear to blow off todays rally as if its all smoke and mirrors. They have a very strange mindset that stock markets never goes up. Not one of fighting history. True the market could slump in 2012 before the inevitable rally. Does anyone doubt that it will eventually be higher whether 2013, 2015, or 2020? An likely much higher considering the current PE ratios and earnings will undoubtedly continue ramping year after year.


Don Hays on Bloomberg:




FastMoney analyst Louise Cooper:




Sure Denis Gartman has turned b…

Transocean: When Dividends Fail

Transocean (RIG) used to be regarded as the top deepwater driller in the world. Its stock was considered a must-wn large cap in the energy sector. All that changed for the worse with the dramatic blowout of the Macondo well in 2010.

Unfortunately, what seemed like an isolated event was just the beginning of a downward spiral for shareholders. Since then RIG continues to have problems meeting analyst estimates. On top of that, RIG just announced a shocking share issuance of up to 30M shares that pushed the stock down to 7 year lows. Yes, lows greater than from the financial crisis of 2008 and lows greater than 2010 lows after the explosion. Both those lows were eclipsed.

How can Brent oil exceed $110 and a former premier driller be making a run at new lows? Other drillers such as Noble Drilling (NE), Atwood Oceanics (ATW), and SeaDrill (SDRL) are all currently attempting to claw their way to 3 year highs.


Read the full article at Seeking Alpha.


Disclosure: Long ATW. Please review the di…

Panera Bread Hits All Time High

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Amazing to see a stock liftoff to a all time high in this market, but Panera Bread (PNRA) achieved that feat today. After a rocky summer, PNRA has rocked higher. The below 3 year chart sure suggests how individual stock picking can easily beat index funds.

Of course this isn't a stock that I've ever owned. PNRA has never seemed like the stock with a catalyst for this type of growth nor one worth a 25 forward PE, but clearly I've been very wrong.

Congrats to all the longs that have held on. While all the high flying internet stocks especially the recent IPOs like Groupon (GRPN) have been crushed, PNRA keeps creeping higher.

Very impressive chart.






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


Impressive Though Interesting Guidance from Seagate Technology

After hours, Seagate Technology (STX) provided a financial update that included dramatically raising guidance for the next 2 quarters. Considering the flooding in Thailand impacting the industry, first glance would suggest that STX is benefiting from other customers being more impacted. 
It is hard to gather the true benefit considering STX claims to be impacted by external component supply constraints even though their factories were not impacted by floods. 
The company guided to $2.8B versus the $2.64B analyst estimate for Q4 and at least $3.75B for Q1. On top of that, STX guided to higher gross margins by up to 300 basis points for each quarter. So profits should be off the charts compared to estimates. 
The question remains whether these are one time gains from the floods or just higher demand for disk drives. Maybe some analysts more familiar with the sector will be able to opine on that subject. 
Regardless, the company trades at some absurdly low PE multiples which are hard to …

Record Thanksgiving Weekend Sales

The headline says it all. Though analysts expect a weak consumer and poll after poll shows a very pessimistic shopper, consumers continue to spend at a record pace. 
Not only did consumers come out in droves for the holiday season, but they actually spent more as well. The total ended up 16% higher than last year mostly due to consumers spending roughly 10% more than last year while more shopped than normal. 
Naturally economists will point back to the strong 2008 Black Friday period that then saw spending fizzle. This will be the feared example that a weak consumer is only willing to buy deep discounts. 
While highly possible, nothing shows that 2011 will see anything close to a repeat of 2008. The economy isn't in a recession now like 2008. Not to mention, the whole world isn't falling apart like back in the period leading up to Christmas 2008. How could consumers even think about picking up spending back then as fear of a financial collapse spread?
Cyber Monday will be tell…

Chart of the Day: What Euro Demise?

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Great chart from Calafia Beach Pundit. If the Euro was so weak, than why has it held up so well against the greenback?

Sure the Euro isn't near the peak around $1.6, but it clearly isn't anywhere near the sub $1.20 it traded below for the first several years.

One possible answer is that traders expect some of the weak participants such as Greek to leave the Euro, therefore leaving the stronger countries like Germany that would cause a rise in the Euro. Other scenarios are that the US dollar has been just as weak.

Either way, the demise of the Euro seems very premature especially when looking at this chart. If that was about to happen wouldn't it sink below parity and fast?






Yet Another Debt Solution Floating Around Europe

Guess its good news that the European Union members continue to reach for solutions to the debt crisis. The bad news is that none of these grand ideas ever get implemented. Its only been a month since the last solution was announced but never implemented.

Now it appears the solution is for the ECB to lend the International Monetary Fund money to lend to Italy. The amount being floated amounts to roughly $800M. Presumably this would be enough to stave off the markets for 12-18 months in order to give the new Mario Monti government time to implement reforms.

Reducing the interest rates back down to 4-5% is crucial for a huge debt load. Imagine if Japan or the US had to start paying considerably high interest rates. Both countries would be sunk as only the absurdly low interest rates is holding us above water. 

Whether this new idea works is debatable, but it is a solution of significant size to give Rome time for reform. The IMF has been successful in Iceland and Ireland already. Portu…

Cluster Insider Buying at Terex

Terex (TEX) has seen 11 insiders make purchases providing a very strong insider buying signal called a "cluster-buy". The insiders purchases 32,502 shares at an average price of $14.71/share, for a total of $478K. 
Not a massive amount of money, but definitely a strong signal with the purchases being so wide spread. Of course, it could just be a internal scam to trick outside investors. 
The interesting opportunity presented investors today is the ability to buy shares at prices lower the insiders. As much as people think the game is rigged, other people realize that it does present opportunities to buy at the same price as people with inside knowledge. 
TEX has been saying for a long time that its business has been picking up, but the market has ignored them for the post part. It wouldn't be the first time that insiders were blind to changes in the global economy. 
TEX is a solid holding in our Opportunistic models as below so we're definitely hoping this insiders k…

The Super Committee Fail

Or at least that appears to be the path this great Super Committee has taken. Tasked with figuring out the best way to cut the federal deficit over the next 10 years, and the group can't come together on anything substantive.

Seriously? The federal deficit just reached $15 trillion and out great Congress can't figure how to slow spending over the next 10 years. Yes that's correct, the committee isn't even attempting to cut spending. It just wants to reduce the growth of spending. Possibly cut some stuff already planned to increase, but not actually decrease spending.

Without cutting back on spending, we're playing the dangerous game of relying heavily on growth to cut the annual deficit. Grow revenue faster than spending and the deficit begins to shrink. Naturally Democrats want that 1% to pay more taxes that would grow that revenue, but that isn't assured to work as it might just reduce growth.

Still, I'd probably be inclined to implement some tax increase…

Stat of the Day: Leading Indicators Jump Again

The Conference Board reported this morning that Leading Economic Indicators for October came in at 0.9% easily surpassing expectation (how is that considering the numbers are known?).  The leading indicators are usually an accurate predictor of economic conditions in the next months. This number continues to increase at a solid clip.

If only the US market could focus on leading indicators like these and jobless claims and less on Europe.

Not going to spend much time highlighting the individual components because it just doesn't matter. The numbers have been strong and will likely continue as like as monetary policy is accomondative. It likely won't change until investors become overly bullish on the stock market.

The economy will continue rolling along producing jobless claims below expectations, but the stock market will get roiled by Europe. Some day though that will end and this bullish data will matter.


10:02 AMOct. Leading Indicators: Leading Index +0.9% vs. +0.6% expected…

Why Angie's Shouldn't Be Listing An IPO

Angie's List (ANGI) offers independent reviews of local service providers via its subscription-based web platform since it was founded in 1995. At first glance, ANGI provides a more proprietary system with a defensible moat than fellow internet listings of Groupon (GRPN) that recently listed or Zynga (ZNGA) that is in the process of listing. ANGI would appear to be a more attractive investment.

After all, the company has a long history of service provider reviews that a new service could never match. Knowing the work history of a contractor over the last 5-10 years has to be invaluable and this kind of information would prevent any startup from matching the Angie's List's offerings. Conversely, a new startup has the potential to offer a better daily deal than GRPN or a better Facebook game than Zynga.

Read the full article at Seeking Alpha.


Disclosure: No positions. Read the disclaimer page for more details.


Investment Report - November 2011: Net Payout Yields

October was an excellent month with a 9.41% gain for this model, but the relative performance was lacking with the benchmark up 10.77%. This was the reverse of the results during the summer swoon, but mostly inline with what would be expected in this large cap model. Stocks with market caps over $10B typically underperform when the market soars.

Trades
The model had three trades in October.

FirstEnergy (FE) was sold as the stock saw decent gains during the summer months hence reducing the net payout yield below normal levels in the model. Typically the model looks to sell when a stock hits 52 weeks high and either buybacks tail off and/or the dividend yield slumps if the company doesn't raise the rate.

The other sell was Microsoft (MSFT) since it has reduced buybacks over the year making the stock less attractive. Possibly this was due to the Skype purchase or other potential deals that could be in the pipeline. Regardless the yield dropped to an unappealing level for a considerabl…

Stat of the Day: Industrial Production Increases 0.7%

Industrial production continues to increase at a solid clip per the Federal Reserve report released this morning. While the market fretted during the summer about a double dip recession, the 1.2% increase in July was telling a different story. Now after a couple of flat months, industrial production has soared another 0.7% for October. This makes the year over year increase at 3.9%.

Capacity utilization ticked up to 77.8 from 77.3 also beating estimates. Interesting to note that this level of utilization is still below the '90-91 recession low of 78.8. Still lots of room for industrial companies to increase profits before having to expand.

The major group that continues to stick out is the 10.2% increase in business equipment. Also noteworthy is that it has been up over 1% sequentially in four of the last six months.

Typically this isn't a report that I review very heavily, but it caught my attention that growth remains strong and the numbers continue to beat estimates. Not ex…

Dicks Starts Paying Dividends

Dicks Sporting Goods (DKS) has long been a favorite investment pick for Stone Fox Capital. Just search this blog and you'll see plenty of articles. Not to mention the recent post of the store openings in our area.

DKS reported strong earnings this morning and surprising established a dividend. DKS announced a $.50 dividend for 2011 payable on December 28th and plans to start a quarterly dividend in 2012. Does this mean that the growth story is over?

Hopefully is just means that with $483M in cash that DKS is over flowing with money and thinks dividends are the best way to reward shareholders. Unfortunately in the past it has signaled that companies lack growth opportunities to use that cash.

DKS is now in at least 43 states with the entry into Oklahoma at the beginning of November. Little growth opportunities exist in moving into new areas. Maybe it still has growth potential in existing states. The sporting goods industry does remain fragmented and less than 500 stores doesn'…

Best Earnings Report From Wednesday: Liz Claiborne, SodaStream, or C&J Energy Services?

Wednesday was another day of the market focusing on the sovereign debt troubles in Europe, and another day of not focusing on individual fundamentals of companies other than maybe the first hour after an earnings report.

Several stocks that we own reported very impressive if not shockingly good numbers, recording numbers that easily surpassed analyst estimates, making us wonder whether analysts really were researching these stocks.

Which company had the most impressive report?

Read the full article on Seeking Alpha.


Disclosure: Long LIZ, SODA, CJES. Please review the disclaimer page for more details. 



Why is Congress Still Allowed to Own Stocks?

Not only why are members of Congress allowed to own stocks, but why are they allowed to trade while serving in Congress? These guys have insider information and the ability to sway the political direction. Why are they allowed to gain from that?

How many decisions are made based off investments? Is that why coal seems to be favored over natural gas? Or why certain companies are brought to the capital for 'investigations'? Maybe certain politicians were short these stocks and wanted a catalyst to send them lower.

Great interview with former high flying lobbyist Jack Abramoff with insights on Congress and investing. Why is this still legal?






Investment Report - November 2011: Opportunistic Levered

October was an exceptional month with a 47.9% gain versus the 10.8% gain for the benchmark leading to a 37.1% outperformance. Unfortunately, this was only a small recovery from the July, August and September selloff. With many stocks in the model still trading far below the July highs, substantial upside remains just to recapture those levels.

Though global GDP growth came under pressure during the summer and fall months, US corporations are reporting record profits. The yield curve remains very positive suggesting an attractive environment exists for equities. On a daily basis, it's becoming more apparent that the summer swoon was more of investor panic than a economic reason suggesting a return to even the April and May highs of 1,370 on the S&P 500 is probably warranted.

China remains a key focus of the model. While investments in China based stocks have been greatly reduced, the model still relies heavily on the demand for materials and construction related items coming ou…

China Inflation Drops, Signaling Materials To Boom

Tuesday night, China reported October inflation close to expectations at 5.5%. Though the whisper numbers expected something possibly around 5.3% and could cause a minor market sell-off on Wednesday, the news was wildly bullish.

Short term the market always trades off estimates. Long term though, the trading is based on the trend. The trend for inflation in China is clearly downward.

Inflation in October eased from the 6.1% annual rate in September with food prices declining 0.2% in the month.


Read the full article at Seeking Alpha.


Disclosure: Long ANR, FCX, CCIH. Please review the disclaimer page for more details.



Impressive Grand Opening for Dick's Sporting Goods in Tulsa Metro Area

After years of being an investor in Dick's Sporting Goods (DKS) and not actually being able to shop at the retail locations, the company finally opened a sporting goods store in my area. In fact it opened three stores in the Tulsa metro area over the weekend.

As a sports enthusiast and investor, DKS probably provides me the ultimate junction of hobby and professional life of any stock worth owning.

The grand opening was complete with one of the biggest media blitzes that I've seen or maybe just noticed. Possibly its just that I listen to the sports show on the radio or read the local sports section that I happened to notice the advertising by DKS more than say a women's clothing store or the Chipotle Mexican Grill (CMG) when it arrived.

Most people have probably witnessed grand openings of DKS prior so this is already first hand knowledge, but the grand opening ordeal was complete with autograph sessions of OKC Thunder players, past local football greats like Barry Sander…

Mixed Results in Engineering and Construction

Earnings results for Flour (FLR) and Foster Wheeler (FWLT) were less than stellar last week after horrible numbers for McDermott (MDR) the previous week.

Looking into the details for at least FLR and FWLT the numbers weren't as bad as first glance. Revenues have been increasing since the lows in 2010 and order expectations remain strong for 2012. Not to mention FLR reported a record backlog.

For this sector, it really comes down to global growth expectations and confidence. Everybody knows that demand will exist in the future has power demands continue to grow. The question is when companies will move forward with large multi billion dollar projects. Projects that will utilize any existing over capacity in the industry there by pushing up margins.

Even though margins are not overly robust both FLR and FWLT have great balance sheets that allow for strong share repurchase programs. FWLT has reduced the float by 8M and FLR by 5M in the last 12 months so shareholders are getting pa…

Interesting Modified Dutch Auction Offer by Amgen

Very interesting announcement today by Amgen (AMGN) that the company would buy $5B of it's outstanding shares via a modified dutch auction. This would amount to roughly 10% of the outstanding stock.

This puts AMGN into play for out Net Payout Yields model that looks for high yielding dividend and stock buyback companies.

AMGN just recently became a dividend payer yielding roughly 2%. Also, previous buybacks have yielded about 4% over the last 12 months giving it a previous 6% NPY. Not to shabby considering most investors get excited about 3-4% dividend yields.

Unfortunately AMGN announced a Senior Notes Offering to at least partially pay for this share auction. While studies aren't conclusive on whether buying stock with cheap debt is long term beneficial to shareholders, our model tends to stray away from such financial engineering.

Companies that are so cheap that it can pay high NPYs via free cash flow are much more attractive. Regardless, AMGN will make our list to researc…

Apple Dominates Wireless Operating Profits

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According to a report by Canaccord Genuity posted on All Things D, Apple (AAPL) appears to be the only wireless handset maker with a decent profit margin. Incredibly AAPL was able to capture more than a third of the operating margins in the industry.

Yet another sign of why market share analysis tends to focus on the wrong measurement. Lots of news lately about Samsung selling more phones in Q3 and of course Google (GOOG) selling more operating systems via the Andriod than AAPL.

The ultimate score card shows AAPL with margins roughly double that of Research in Motion (RIMM) and Samsung. Also, notable is that the majority of the operating profit gains since 4Q09 went directly to AAPL. Profits were shifted from Nokia to Samsung and HTC though.

By having a limited supply of really good products, AAPL has figured out the holy grail of profit generation. Less is more. Like in investing, the 15th best idea just isn't going to make money like the best idea so why spend time and money on …

The MF Global Debacle

Prior to the collapse last week, MF Global (MF) appeared to be an excellent candidate to take market share in the financial sector. MF was already a respectable commodities trader and primary broker dealer. On top of that, it hired prominent figure John Corzine with experience at both Goldman Sachs (GS) and the political arena to expand into the investment banking sector.

The combination provided a catalyst for a what could be a game changer. Unfortunately last week the concept completely collapsed as MF couldn't handle the high leverage of European Soveriegn debt. Debt that likely will payoff as expected, but debt that unfortunately scared the market into a panic.

Lesson revisited that perception trumps reality at least in the short run.

Last week we wrote about the thesis for buying into MF prior to the earnings report and even after [See Wild Times at MF Global Holdings]

At the time, the trade seemed to have a good risk/reward thesis. The stock had already been cut to half of b…

Stat of the Day: Jobless Claims Below 400K

Jobless claims is one of the most useful economic stats since it is basically real time as opposed to most numbers that can be a month or two behind. It is also one of the best predictors of economic growth.

As economists an investors panicked about a recession in Q3, the jobless claims were telling a different story. Naturally it wasn't one of economic strength, but it clearly wasn't one of a double dip recession. Week after week the numbers came in around the low 400Ks and showed continual progress downward from the April peaks.

This mornings US Department of Labor reported seasonally adjusted initial claims of 397K. A decrease of 9K from the previous week's revised figure of 406K. More interesting is that the unadjusted initial claims were 367K.

Most people would be surprised to know that the unadjusted numbers have been consistently below 400K. In fact, just a few backs on October 15 the number was 357K.

Below is the difference between seasonally adjusted and unadjuste…

Covestor Net Payout Yields Model Completes First Year

Our Net Payout Yields model on Covestor began last year on November 2nd. It wasn't the greatest of starts as the market soared before the model was fully invested placing it behind the SP500 benchmark by 2.5% as of Nov 6th.

Invest like me - only at Covestor.com


Considering this model invests in high paying net payout yields (NPYs) and moves as a normal dividend paying fund would, recapturing a 2.5% deficeit was a very daunting task.

Ultimately though, the model has performed as expected. Even beating expectations if excluding the first week.

The model was up 6.44% for the year compared to the 2.07% for the SP500 (since inception data in the table below). Even better, YTD the model is up 3.73% versus the 3.13% decline of the SP500. That's a nearly 700 basis point outperformance on a very conservative (Covestor risk score 1) model.

Clearly once fully invested,  the model has done exceptionally. Constantly outperforming in weak months while keeping pace with gains in stronger pe…