7/24/07

Economics

Some thoughts on the weak consumer:

http://bigpicture.typepad.com/comments/2007/07/modern-versus-6.html

Politics

Domestic

International War Against Radical Islam

The Market

Technical

Fundamental

Stocks of raw material, oil and industrial companies are smoking; and that’s good because our Portfolios own them. On the other hand, stocks of consumer staples have definitely lagged. In the last couple of weeks, three such stocks of high quality companies were Added to the Dividend Growth Buy List. These companies all have international exposure so they will benefit from the weak dollar as well as the global economic boom. Further, if the housing/sub prime problems continue, earnings for these companies should be relatively safe from any negative surprises. To review:

Abbott Laboratories is a manufacturer of drugs, diagnostic tests, intravenous solutions, laboratory and hospital instruments, prepared infant formulas and nutritional products. The company has several new drugs in its pipeline which should allow it to continue its historical 10-11% annual earnings and dividend growth. Abbott earns 25% return on equity and has a debt to equity ratio of only 21%.

EPS: 2006 $2.62, 2007 $2.82, 2008 $3.20; DVD: $1.30, YLD 2.3%

http://finance.yahoo.com/q?s=ABT

Clorox is a producer of household products which include Clorox bleach, Formula 409, Tilex, Pine-Sol, Brita, Glad, Kingsford (charcoal), Match Light, Fresh Step, Scoop Away (kitty litter), Armor All, STP, K.C. Masterpiece and Hidden Valley. The company has a great record of earnings (12%) and dividend (9%) growth achieved by acquisition as well as internal product development. While Clorox has faced rising commodities in the recent past, it has been able to raise its products’ prices to compensate. The company has a 30%+ return of equity which has been aided by an aggressive stock buy back program. (There are rumors of a deal for CLX)

EPS: 2006 $2.89, 2007 $3.25, 2008 $3.60; DVD: $1.31, YLD 2.6%

http://finance.yahoo.com/q?s=CLX

Proctor & Gamble makes detergents, toiletries, foods, paper and industrial products which include Tide, Swifter, Cascade, Febreze, Dash, Cheer, Bounce, Pantene, Olay, Head & Shoulders, Herbal Essences, Secret, Prilosec, Sure, Always, Tampax, Pampers, Luvs, Charmin, Bounty, Crest, Iams, Actonel, Pringles and Folgers. The company has an outstanding return on equity ranging between 35-40% over the last fifteen years; though it has utilized more leverage than we like to see-27%. PG has grown its earnings and dividends 10-11% consistently over the last ten years. We believe that it can continue to grow sales, earnings and dividends by adding new products through development or acquisition and leveraging its fixed costs through higher unit sales.

EPS: 2006 $2.64, 2007 $3.02, 2008 $3.45; DVD: $1.41, YLD 2.3%

http://finance.yahoo.com/q?s=PG

News on Stocks in Our Portfolios

Simpson Manufacturing (Aggressive Growth Portfolio) is acquiring Swan Secure Products, a manufacturer and distributor of stainless steel and other fasteners, for $43 million.

EPS: 2006 $2.10, 2007 $1.75, 2008 $2.14; DVD: $.32, YLD 1.2%

http://finance.yahoo.com/q?s=SSD

Forward Air (Aggressive Growth Portfolio) reported second quarter operating earnings per share of $.40 versus $.41 posted in the similar quarter last year. In addition, the company announced that it had purchased USA Carriers, a privately held provider of pool distribution services.

EPS: 2006 $1.55, 2007 $1.65, 2008 $1.85; DVD: $.30, YLD .9%

http://finance.yahoo.com/q?s=FWRD

Eli Lilly (Dividend Growth Portfolio) reported second operating quarter earnings per share of $.90 versus expectations of $.82 and $.76 reported in its 2006 second quarter.

EPS: 2006 $3.18, 2007 $3.40, 2008 $3.65; DVD: $1.70, YLD 3.2%

http://finance.yahoo.com/q?s=LLY

UPS (Dividend Growth Portfolio) reported second quarter earnings per share of $1.04 versus expectations of $1.03 and $.97 recorded in its 2006 second quarter.

EPS: 2006 $3.86, 2007 $4.15, 2008 $4.50; DVD: $1.68, YLD 2.4%

http://finance.yahoo.com/q?s=UPS

Brown and Brown (Aggressive Growth Portfolio) reported second quarter earnings per share of $.37 versus expectations of $.32 and $.32 recorded in the comparable quarter of 2006.

EPS: 2006 $1.24, 2007 $1.40, 2008 $1.55; DVD: $.24, YLD .9%

http://finance.yahoo.com/q?s=BRO

Ecolab (Aggressive Growth Portfolio) reported second quarter earnings per share of $.44 versus $.36 recorded in the similar quarter of 2006. It also announced that it had bought back 4 million shares in the second quarter.

EPS: 2006 $1.43, 2007 $1.65, 2008 $1.85; DVD: $.46, YLD 1.2%

http://finance.yahoo.com/q?s=ECL

Peabody Energy (Aggressive Growth Portfolio) reported second quarter earnings per share of $.40 versus $.57 recorded in the comparable quarter of 2006. A $51 million charge for an acquisition was the primary reason for the shortfall; without that charge, profits would have been flat.

EPS: 2006 $2.23, 2007 $2.30, 2008 $3.10; DVD: $.24, YLD .5%

http://finance.yahoo.com/q?s=BTU

Chicago Mercantile Exchange (Aggressive Growth Portfolio) reported second quarter operating earnings per share of $3.69 versus expectations of $3.36 and $3.12 posted in the comparable quarter of 2006.

EPS: 2006 $11.60, 2007 $14.30, 2008 $16.25; DVD: $3.44, YLD .6%

http://finance.yahoo.com/q?s=CME

Quest Diagnostics (Aggressive Growth Portfolio) reported second quarter operating earnings per share of $.76 versus $.78 recorded in the last year’s second quarter of 2006.

EPS: 2006 $3.22, 2007 $2.80, 2008 $3.25; DVD: $.40, YLD .8%

http://finance.yahoo.com/q?s=DGX

Smith International (Aggressive Growth Portfolio) reported second quarter earnings per share of $.76 versus expectations of $.76 and $.59 reported in the similar quarter of 2006.

EPS: 2006 $2.49, 2007 $3.15, 2008 $3.70; DVD: $.38, YLD .8%

http://finance.yahoo.com/q?s=SII

Synovus Financial (Dividend Growth Portfolio) announced that its Board is considering the spin off of TSYS. It also reported second quarter earnings per share of $.49 versus $.46 recorded in the comparable quarter of 2006.

EPS: 2006 $1.90, 2007 $2/00, 2008 $2.15; DVD: $.81, YLD 2.6%

http://finance.yahoo.com/q?s=SNV

A positive story on General Electric (Dividend Growth Portfolio):

http://www.bloggingstocks.com/2007/07/24/swing-trader-sees-new-life-for-ge/

Market Analysis

More Cash in Investors’ Hands

Transocean and Global Santa Fe are merging. As part of the deal, the companies will payout $15 billion in cash to shareholders of both companies.

Cerberus is buying United Rentals for $4 billion in cash.