11/13/07

T

Economics

Politics

Domestic

International War Against Radical Islam

Comments on progress from Iraq the Model:

http://www.iraqthemodel.blogspot.com/

The Market

Technical

Stocks closed down yesterday increasing the time and distance from the uptrend off the July/August lows. That likely means that the probability of a test of those lows (DJIA: 12500--12800; S&P: 1372--1407) is going up. A couple of points:

1. Given my sanguine view of the economy, my inclination is to assume that any test of the July/August lows will be successful; meaning that our Portfolios will be Buying in the midst of any emotional flush.

2. All stocks never bottom at the same time. This time around financial stocks were clearly leading the way down and they may have already bottomed. Price action in this group both last Friday and yesterday was positive while investors continued to whack the industrial, materials and technology stocks. If the financials have bottomed that would support the above stated view that the Market is in the process of making a double bottom. However, calling a low in the financial stocks is a bit more dicey than might ordinarily be case simply because the bad news that is being discounted [in this case, a company’s exposure to the sub prime market] is less quantifiable than if the sole bad news with which we were faced was a recession, i.e. in the case of a recession, an investor can assume a worse case scenario--let’s say a GDP decline of 3% over a 12 month period--and based on historical relationships [how sensitive a company’s product line is to economic contraction, how the company managed its way through the last recession, etc] can get a handle on what kind of earnings downside a company would have in that environment [and then discount that decline in the stock price]. With this sub prime mess, as I have stated repeatedly, we simply don’t know what we don’t know. That doesn’t mean that the Market hasn’t discounted the worst case whatever it turns out to be, it just means that this time it is a more risky bet than normal. The point here is that I have already been too early once, so caution will be needed in establishing any new positions is financial stocks.

3. As always, I will alert you as action is taken (see below)

Fundamental

The Dividend Growth Buy List

Company Close 11/12 Buy Value Range

JNJ $66.34 $60-69

ABT 54.67 51-59

ITW 54.78 53-61

MDU 26.66 25-29 (has not yet been purchased)

CAJ 48.91 47-54

MMM 78.12 78-85

Subscriber Alert

The stock price of Maxim Integrated Products (MXIM-$23) has fallen below its Stop Loss Price. Accordingly, the Aggressive Growth Portfolio is Selling its position in MXIM at the Market open this morning.

EPS: 2006 $1.37, 2007 $1.30, 2008 $1.50; DVD: $.62 YLD 2.6%

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

In addition, the Dividend Growth Portfolio is Selling another 20% of its gold position in US Global Investors Gold Shares (USERX-$20) at the Market open this morning (that leaves a 50% position). I mentioned in Saturday’s The Closing Bell that I thought that the price of gold had gotten ahead of itself and USERX has risen to the high end of its Valuation Range. So taking some money off the table seems the right thing to do at this moment.

News on Stocks in Our Portfolios

WalMart (Dividend Growth Portfolio) reported third quarter earnings per share of $.70 versus expectations of $.67 and $.63 recorded in the comparable 2006 quarter

http://www.seekingalpha.com/article/54014-wal-mart-beats-street-heavy-discounting-succeeds

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

More Cash in Investors’ Hands