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The Market
Yesterday the DJIA closed at 12958 which is only about 100 points above the August low close (about 400 points over the intraday low), while the S&P 500 closed at 1433 about 20 points over the August low close (60 or so points over the intraday low). I have no clue whether equity buyers will step in and support prices at any of the above levels. I do believe that there are some differences between the fact pattern investors faced in August and what they see today. In August, (1) they had no idea about the magnitude of the depth and breadth of the sub prime problem nor (2) did they know how the Fed would handle the problem. Today, (1) there are estimates ranging up to $400 billion [the largest I have seen] of potential losses from the sub prime difficulties. To put that in perspective that is one quarter’s [3 months] worth of earnings from the financial sector. And (2) we know the Fed is going to pump money into the credit system if it freezes up again because that is what they did in August.
I also know that, at least based on our Valuation Model, the DJIA closed yesterday 2% undervalued and the S&P 6% undervalued. Finally, I know that historically when the Portfolio Buy Lists expand to the number of names which they now contain, it either is or is getting close to time to Buy. I emphasize this point because virtually none of the names currently on our Buy Lists (only four out of the thirty two) are from the three sectors that have been crushed in the last six months (housing, financials and retail).
So while I have no special insight as to whether stocks have another 2% or another 10% downside, our Price Disciplines push our Portfolios to continue to average into the stocks of great companies. One final note, I don’t think that we have seen the bottom to this sell off; and that is the reason that our purchases have been in small lots. We want enough buying power to average into new holdings through the entire bottoming process.
This morning on the Market open, Dividend Growth Portfolio will purchase one quarter positions in Marathon Oil (MRO-$56) and Sysco Corp (SYY-$33) and buy an additional 10% holding in Paychex (PAYX-$39). All three stocks have previously been Added to the Dividend Growth Buy List.
In addition, the stock price of Canadian National RR (CNI-$47) has fallen below the lower boundary of its
The stock price of Penn Virginia Resource Ptrs (PVR-$25) has fallen below the upper boundary of its
The stock price of Oshkosh Truck (OSK-$46) has fallen below the lower boundary of its
The stock prices of American Vanguard (AVD-$14) and Rockwell Collins (
The Aggressive Growth Portfolio will purchase a one third position in Accenture (ACN-$35) at the Market open this morning. ACN had been previously Added to the Aggressive Growth Buy List.
The High Yield Buy List
Company Close 11/19
USB $30.96 $29-33
KMP 50.11 51-58
DRE 27.00 28-35
RAI 64.50 58-66
PAA 50.99 51-58
PVR 24.99 23-26
A closer look at third quarter profits:
http://bigpicture.typepad.com/comments/2007/11/sp-500-profit-f.html
News on Stocks in Our Portfolios
Medtronic (Aggressive Growth Portfolio) reported second fiscal quarter earnings per share of $.58 versus expectations of $.56 and $.59 recorded in the comparable 2006 quarter.
EPS: 2006 $2.41, 2007 $2.70, 2008 $3.05; DVD: $.47 YLD 0.9%
http://finance.yahoo.com/q?s=MDT
Nordstrom (Aggressive Growth Portfolio) reported third quarter earnings per share of $.68 versus expectations of $.52 and $.52 recorded in the comparable 2006 quarter. The company also announced a $1 billion stock buy back.
EPS: 2006 $2.55, 2007 $2.76, 2008 $3.15; DVD: $.54 YLD 1.4%
http://finance.yahoo.com/q?s=JWN
More Cash in Investors’ Hands
Hewlett Packard announced an $8 billion stock buy back.
