11/6/07

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.). An analysis of the ‘logic’ behind earmarks:

http://article.nationalreview.com/?q=N2ZhYTJjZmQ3NTAzMTZlMWJhMDkxZGJhMzlhYWExMWY=

Politics

Domestic

International War Against Radical Islam

The Market

Technical

Fundamental

Idea of the Day

One of the themes that I have focused on this year is that of globalization and its positive impact on corporate earnings. Today the stock of one of the premiere global companies is selling within its Buy Value Range.

The 3M Company (formerly Minnesota Mining and Manufacturing) is a broadly diversified manufacturer of great brands in industrial, health care, graphic and display, office, communications, transportation, and safety and security products. In recent years, the company has enjoyed a resurgence of growth in sales and profits as it transformed its business strategy. The pillars of its new business plan are:

(1) transform its manufacturing footprint from US oriented to international based and improve its productivity,

(2) invest in strengthening and streamlining its supply chain,

(3) increase its brand building marketing focus on high growth overseas markets, using local or regional brands where it makes sense,

(4) raise its investment in R&D to advance the 3M brands,

(5) improve its brand mix by developing new higher margin ‘franchises’ such as its optical film business and divest slower growth, lower margin units

The company has an amazing 30% return of equity with a debt to equity ratio of only 15%. Earnings have grown at a 9-10% annual rate over the past 10 years. While dividends have not kept pace as the company reinvested cash flow in new businesses, we expect the dividend pay out ratio to increase in the next several years.

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

Buy Value Range: $78-85, Stop Loss: $66, Sell Half: $131

Home Depot is being Removed from the Dividend Growth Buy List. Its stock price fell below the lower boundary of its Buy Value Range. The Dividend Growth Portfolio never bought this stock, so no additional action will be needed.

The Dividend Growth Buy List

Company Close 11/5 Buy Value Range

JNJ $64.49 $60-69

ABT 54.00 51-59

ITW 55.52 53-61

MDU 27.18 25-29 (has not yet been purchased)

CAJ 50.37 47-54

MMM 85.00 78-85

News on Stocks in Our Portfolios

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