9/13/07

Economics

protectionism (Free trade is a major positive for world and US economic growth.).

http://article.nationalreview.com/?q=ODNhNTAyOTQyZjk5NjIwYTZjYWI0Yjk1YzIyNDhkMTY=

fiscal profligacy (Government spending as a percent of GDP is too high and the looming explosion in entitlement expenditures will make it worse. There is no good solution save spending discipline.).

http://www.clubforgrowth.org/2007/09/update_on_senate_pork_debate.php

http://www.realclearpolitics.com/articles/2007/09/americas_absurd_farm_subsidies.html

Politics

Domestic

International War Against Radical Islam

That Israeli air raid over Syria was apparently to attack a nuclear installation paid for by Iran and supplied by North Korea:

http://www.ynetnews.com/articles/0,7340,L-3448829,00.html

The Market

Technical

Technical thoughts:

http://www.bloggingstocks.com/2007/09/12/marketwatch-technican-sets-sandp-breakout-levels/

Fundamental

In an environment where the US economy appears to be hovering between a ‘soft’ landing and a recession and the global economy continues to grow, large international consumer staple companies will likely be investor favorites. We remind you that we have two quality giants that fit this description on our Dividend Growth Buy List:

Johnson & Johnson ($62)

Johnson & Johnson is a major manufacturer and marketer of health care products. Its major divisions are: Consumer (baby care, non-prescription drugs, sanitary protection and skin care), Medical Devices (wound closures, minimally invasive surgical instruments, diagnostics, orthopedics and contact lenses) and Pharmaceuticals (contraceptives, psychiatric, anti-infective and dermatological). This company has maintained an amazing 28-30% return on equity with almost no debt for the past 15 years. In addition, JNJ has grown its earnings and dividend at a 14-15% annual rate. We believe that its strong, well diversified product line will continue to grow rapidly, supplemented by acquisitions.

EPS: 2006 $3.78, 2007 $4.10, 2008 $4.45; DVD: $1.62 YLD 2.7%

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

Proctor & Gamble ($67)

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-42%. 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 2.0%

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

We would also include the caveat that the Dividend Growth Portfolio already owns the stocks of both of the aforementioned companies AND has approximately 10% of its assets in cash. We would not go into next week (FOMC meeting, earnings reports from major financial institutions, triple witching) without at least that much cash.

Finally, as the probability of the risk that the economy is weaker than expected rises, we are stepping up the pace of our normal Quality Discipline review process in particular focusing on companies that are largely domestic durable goods producers. One company that stands at the top of our list of worrisome Holdings and whose stock price has continued decline after it traded below the lower boundary of its Buy Value Range is Polaris (PII-$45). While its stock price is fractionally (less than a point) above its Stop Loss Price, we are again electing discretion over valor; and, accordingly, the Dividend Growth Portfolio is Selling its PII position this morning on the Market open.

Cramer’s take on the credit market freeze up:

http://www.thestreet.com/p/_htmlrmd/rmoney/jimcramerblog/10379337.html

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