10/31/07

Economics

The Case-Shiller Housing Price Index (released yesterday) for 20 cities:

http://bigpicture.typepad.com/comments/2007/10/a-tale-of-20-ci.html

More info:

http://bigpicture.typepad.com/comments/2007/10/loan-performanc.html

Politics

Domestic

I try to avoid pure political discussions, but the debate over the confirmation of Judge Mulkasey as Attorney General is dominating the headlines and I thought this point of view from a legal scholar who attempts to separate law and politics was enlightening.

http://author.nationalreview.com/latest/?q=MjE5MQ==

International War Against Radical Islam

The Market

Technical

Fundamental

News on Stocks in Our Portfolios

Proctor and Gamble’s stock got clocked yesterday over investor concern about the impact of a potential weakening in consumer spending and rising commodity prices on the company’s margins (both of which incidentally I would have thought investors already knew unless they are blind, deaf and dumb), despite it (1) reporting better than expected earnings, (2) raising its full year earnings estimate and (3) having an exceptional record managing its costs. While I am not suggesting PG stock as a Buy (Buy Value Range $59-67), the company has all the characteristics that I want to own long term in the Dividend Growth Portfolio and short term in an uncertain economic environment.

Proctor and Gamble is a major household products and cosmetics company with three divisions:

(1) Beauty and Health products: Cover Girl, Max Factor, Olay, Old Spice, Clariol Nice ‘n Easy, Pantene, Head and Shoulders, Wella, Pert, Ivory, Safeguard, Zest, Secret, Right Guard, Always, Whisper, Tampax, Actonel, Prilosec OTC, Vicks, Scope, Pepto-Bismol, Therm-Care, Metamucil, NyQuil and Oral B,

(2) Household Care: Tide, Gain, Dash, Ariel, Downy, Frebreze, Dial, Joy, Cascade, Swiffer, Mr. Clean, Crest, Iams, Eukanuba, Papmers, Luvs, Charmin, Bounty, Puffs, Pringles, Folgers, and Sunny Delight,

(3) Gillette: Gillette, Mach 3, Venus, Braun, Duracell.

Management’s objective is to consistently grow its sales and earnings through both the internal development and by acquisition of its portfolio of brand names. Its strategy to accomplish this is to:

(1) aggressively develop product innovations

(2) finance a strong marketing effort,

(3) expand rapidly into faster growing developing countries,

(4) emphasize a faster growing, higher margin product mix and divest lower margin/non core operations,

(5) leverage core strengths through acquisitions.

The company should be successful in its objectives because it generates strong cash flow to not only finance the strategy described above but to also conduct a huge stock buy back program as well as raise its dividend every year. Earnings and dividends have grown 10-11% for the last 10 years on a 15%+ return on equity and a reasonable debt/equity ratio around 26%.

EPS: 2006 $2.64, 2007 $3.04, 2008 $3.45; DVD: $1.28, YLD 2.0%

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

Verizon (High Yield Portfolio) is in talks with Google to market phones on Verizon’s network that contain Google’s operating system software and applications.

EPS: 2006 $2.54, 2007 $2.35, 2008 $2.65; DVD: $1.62 YLD 4.0%

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

A positive write up on Donaldson (Aggressive Growth Portfolio):

http://www.bloggingstocks.com/2007/10/30/donaldson-dci-glamorous-no-profitable-yes/

Rockwell Collins (Aggressive growth Portfolio) reported its 2007 fiscal year earnings per share of $3.45 versus $2.73 in FY 2006. Management attributed these above average results to 13% internal growth plus accretive acquisitions. During the year the company also bought back 16 million shares and raised its dividend 14%.

EPS: 2006 $273, 2007 $3.45, 2008 $3.85; DVD: $.72 YLD 1.1%

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

UnitedHealth Group (Aggressive Growth Buy List) is buying back 210 million shares of stock.

EPS: 2006 $2.65, 2007 $3.05, 2008 $3.45; DVD: $.32 YLD 0.6%

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

Clorox (Dividend Growth Portfolio) reported its first fiscal quarter earnings per share of $.76 versus $.73 recorded in the comparable 2007 fiscal quarter. Management guided FY2008 estimates to $3.33-3.50. The company also announced the purchase of Burt’s Bees, a personal care products company, for $925 million.

EPS: 2006 $2.89, 2007 3.23, 2008 $3.40; DVD: $1.31 YLD 2.7%

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

UPS (Dividend Growth Portfolio) announced (1) a $2 billion stock buy back and (2) the launch of a co-branded store in China with Staples (Aggressive Growth Portfolio) which will combine office supplies and document processing with packaging and shipping.

EPS: 2006 $3.86, 2007 $4.15, 2008 $4.50; DVD: $1.68 YLD 2.2%

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

EPS: 2006 $1.29, 2007 $1.45, 2008 $1.68; DVD: $.29 YLD 1.7%

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

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