1/22/08

Economics

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.). Are Republicans finally getting the picture?:

http://www.weeklystandard.com/weblogs/TWSFP/2008/01/do_house_republicans_get_it.asp

Fiscal gimmicks won’t work:

http://www.ibdeditorials.com/IBDArticles.aspx?id=285465204477358

Politics

McCain on healthcare:

http://jewishworldreview.com/cols/will011808.php3

McCain and the Gang of 14:

http://article.nationalreview.com/?q=OTI2NzVjYzY5MGZkMDMzOWVkMjMyNzhlZjQ2Njg0Y2Y=

Huckabee on free speech:

http://www.clubforgrowth.org/2008/01/huckabee_and_the_1st_amendment.php

Domestic

International War Against Radical Islam

Signs of progress in Iraq:

http://www.powerlineblog.com/archives2/2008/01/019573.php

The Market

Technical

Futures are off big following two terrible days in the world markets; this despite a 75 basis point cut in the Fed Funds rate this morning. Indications at this time suggest that the DJIA 11900 and S&P 1261 support levels will be meaningless. Levels to watch now are DJIA 9707 and S&P 1052 which are the 2004 lows.

Fundamental

I have suggested several times that this decline is likely to end in a flush and it appears that it is upon us. Two things to remember: (1) there are no percentages in being a hero; buying into the teeth of this decline makes no sense. I remember the two or three days before the final October 1987 500 point down day stock prices were off a couple of hundred points each. When a panic drop like what it looks like we are going to experience happens, the end will be discernable. So wait till its over before acting. In the meantime, the only sensible strategy is to grit your teeth and bear the pain. (2) the world is not coming to an end. As bad as any recession is likely to be, as discouraging as I find the current domestic political scene, panic is creating value for those of us with lots of cash.

Options

This morning the Dividend Growth Portfolio will try to Sell C.R. Bard February 100 calls at $2.25 against one third of its position; I have my doubts.

Watch Lists

Dividend Growth Watch List: Avery Dennison, Bank of Nova Scotia, Brown Forman, Chevron, Clorox, Emerson Electric, Fortune Brands, Genuine Parts, General Electric, Illinois Tool Works, Johnson Controls, Johnson and Johnson, Manulife Financial, McGraw Hill, MDU Resources, Proctor and Gamble, Sysco, T Rowe Price, UPS,

High Yield Watch List: A.J Gallagher, Alliance Resources, Buckeye Pipeline, LCA-Vision, Plains All American, Quaker Chemical, Reynolds American, Rayonier, US Bancorp.

Aggressive Growth Buy List: Accenture, American Vanguard, Amphenol, Best Buy, Bucyrus Int’l, CME Group, Donaldson, Eaton Vance, Expeditors Int’l, Factset Research, Fastenal, Franklin Resources, Landstar, Luxoticca, Mastercard, Quest Diagnostic, Rockwell Collins, Rocky Mountain Chocolate Factory, Ross Stores, SAP, Schwab, Staples,; and of course I want to re-build the holdings on the 10 Bagger List: US Global Shares-Gold, Medivation, H2 Diesel, ParkerVision

Company Highlights

Staying with the theme of recession resistant stocks, today I am highlighting Johnson and Johnson, a core holding in the Dividend Growth Portfolio.

Johnson and Johnson is one of the world’s largest manufacturers and marketers of healthcare products. It serves three market segments: pharmaceuticals, medical devices and over the counter consumer products. The company earns an impressive 25%+ return on equity, has virtually no debt and has grown earnings and dividends at a 14-15% annual pace over the last 10 years. JNJ should continue to grow as a result of:

(1) a strong drug portfolio with leading products in arthritis, migraine control, epilepsy, anemia, schizophrenia, hyperactivity disorder, hepatitis C virus, multiple myeloma, anti-virals, HIV/AIDS, antibiotics and pipeline that is expected to sustain revenue growth,

(2) a rapidly growing medical device business with numerous new products in joint reconstruction, computer assisted surgery, artificial disk, insulin infusion pumps and drug eluding stents,

(3) a diverse, sizeable portfolio of consumer products capable of above average growth. The recent acquisition of Pfizer’s consumer product division offers the opportunity to leverage related products, such as Pfizer’s Listerine with JNJ’s toothbrushes and Pfizer’s Visine with JNJ’s Acuvue, into higher total sales,

(4) management’s search for new business segments like the recently added Surgical Care division,

(5) an ongoing cost cutting effort [work force was down 3-4% in 2007].

JNJ is rated A++ by Value Line, its dividend provides a 2.5% yield and when if combined with even a more modest 8-10% growth rate provides a great total return.

Buy Value Range $60-69 Stop Loss Price $53 Sell Half Range $90-95

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

News on Stocks in Our Portfolios

UnitedHealth Group (Aggressive Growth Portfolio) reported fourth quarter earnings per share of $.92 in line with expectations and versus $.84 recorded in the comparable period in 2006.

More Cash in Investors’ Hands