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The Citigroup (see below) announcement jump started the Market and stocks surged. Two points : (1) the S&P once again traded above its 2000 high [1527]. I am not going to get jiggy with this and declare it in an uptrend until it proves that it can hold that level. (2) the DJIA is now 7 ½% overvalued [by my calculations] and the S&P just barely so. I noted in last weekend’s The Closing Bell that stock prices were beginning to look a little pricey. There is more upside before they hit the red zone but my attention is now on the Sell Half Price Discipline.
News on Stocks in Our Portfolios
When I noted the Citigroup (High Yield Portfolio) earnings announcement yesterday morning, I mentioned that I thought that the bad news was in the stock but failed to give enough credence to my own initial analysis and ended being surprised by the impact of the news on the stock and on the Market. By that I mean that I had noted at the outset of the sub prime problem that, in my opinion, the fear (and as a result, the negative Market impact) being then generated by the uncertainty surrounding the magnitude and dispersion of potential losses from this problem would only be assuaged by (1) the major financial participants in this market ‘coming clean’ about their exposure to sub prime loans and the likely impact of that exposure on their balance sheets and income statements, and (2) the Fed providing the necessary liquidity to insure that the non sub prime credit transactions could be priced and cleared.
Citigroup’s write offs clearly addressed item (1) above. Investors reacted positively to not only C stock and financial stocks, in particular, but also to the Market in general--basically confirming that as the extent of the unknowns (the magnitude and dispersion of potential sub prime losses) become known, a lid on equity prices gets removed. The big question is, have enough major financial institutions disclosed their potential losses so that the true magnitude and dispersion of potential sub prime losses is sufficiently known that it not longer poses a Market risk. It would appear as though it has and our Portfolios reflect that to the extent that their financial holdings have increased; though I would caution against assuming it is a sure thing.
EPS: 2006 $4.25, 2007 $4.55, 2008 $4.95; DVD: $2.18, YLD 4.7%
http://finance.yahoo.com/q?s=C
Walgreen (Aggressive Growth Portfolio) reported its first fiscal quarter earnings per share of $.40 versus expectations of $.47 and $.41 recorded in the comparable 2007 quarter. Investors really took the stock apart (down 15% on the day) as a consequence-- which brings up the question should we be taking any action? The Aggressive Growth Portfolio did not--WAG’s current Stop Loss Price is $36.50, so there is nothing in our Price Disciplines that would prompt it. (By the way, just a reminder, the Stop Loss Price is tied to a stock’s
Nevertheless, (1) the problems that the company cited in its press release as causes for the earnings shortfall should have been known and (2) the fact that management hadn’t alerted analysts that there was a problem will do nothing but engender tremendous ill will on the Street [analysts hate to look stupid]. The company said that it had identified the specifics of the causes and is taking action to solve the problem. Ordinarily, I tend to be forgiving when good quality companies that fit all our Quality Disciplines occasionally run into problems that can impact the stock price short term but not the company’s long term earnings/dividend paying potential. In this case, I am torn because management’s ignorance or lack of forthrightness may have done too much damage to the stock. The only reason the Aggressive Growth Portfolio didn’t Sell WAG yesterday is the company’s exceptional financial history. However, I will be doing more work on the company as well as monitoring the stock and may very well decide a
EPS: 2006 $1.72, 2007 $2.05, 2008 $2.40; DVD: $.31, YLD .8%
http://finance.yahoo.com/q?s=WAG
A positive write up on FactSet Research (Aggressive Growth Portfolio):
http://www.zacks.com/rank/zcommentary/?id=6017
A neutral article on gold:
More Cash in Investors’ Hands
Nokia is buying Navteq for $8.1 billion in cash
From Cramer:
http://www.thestreet.com/_htmlbooyah/funds/tv-recap/10382184.html
TD Financial is acquiring Commerce Bank for $8.5 billion, 25% of which is in cash.
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