12/11/07

Economics

Larry Kudlow assesses the latest economic data:

http://article.nationalreview.com/?q=YTZjMDc4N2E3YmUyZTdlNTJiZDA5YWQ1NDc0MDc4Y2M=

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.) The pork barrel politics of the omnibus spending bill:

http://www.realclearpolitics.com/articles/2007/12/gops_pork_option.html

Politics

Domestic

International War Against Radical Islam

This is not very comforting--a suicide attack on a Pakistani nuclear weapons facility:

http://www.longwarjournal.org/archives/2007/12/suicide_attack_at_pa.php

The Market

Technical

Fundamental

The High Yield Buy List

Company Close 12/10 Buy Value Range

US Bancorp $33.58 $29-34

Kinder Morgan Ptrs 52.65 51-58

Plains All American 51.45 51-58

Buckeye Pipeline 48.67 47-52

Subscriber Alert

The stock price of Penn Virginia Resource Ptrs (PVR-$27) has risen above the upper boundary of its Buy Value Range. Accordingly, PVR is being Removed from the High Yield Buy List. The High Yield Portfolio will continue to Hold this security.

The High Yield Portfolio will Buy the second half of its position in LCA-Vision (LCAV-$19) at the Market open this morning.

The bad news in the financials just keeps on coming--yesterday UBS announced a $10 billion write off and Washington Mutual cut its dividend--yet their stocks continue to rally. That suggests that most of the bad news is in the stocks; so the Dividend Growth Portfolio will Buy the second half of its Wells Fargo (WFC--$33) at the Market open this morning.

Company Highlight

Kinder Morgan Energy Partners is the largest owner and operator of petroleum product pipelines in the US. It owns 27,000 miles of pipelines and 145 terminals used in transporting gasoline, jet fuel, diesel fuel, natural gas liquids, coal and carbon dioxide. This Master Limited Partnership has grown profits, cash flow (the basis for dividend payments) and dividends at a 10-15% rate over the past 10 years earning approximately 20% return on partnership capital. While the rate of dividend increases may slow in coming years, it should remain between 5-10% annually; and when combined with a 6%+ dividend yield, the stock offers an attractive total return. Growth will come from:

(1) pricing leverage derived from KMP’s strategically located assets that connect growing supply sources with areas of increasing demand,

(2) increased capacity utilization--the partnership’s pipelines currently operate at only 70-80% of capacity,

(3) its carbon dioxide business which has substantial upside potential,

(4) KMP’s continued aggressive investment in new projects which currently include a 1663 mile pipeline to the rapidly growing but under served Rocky Mountain area, additions to current pipeline projects in Louisiana and the Midwest and a terminal in Texas,

(5) an active acquisition program which this year incorporated Trans Mountain Pipeline, the TransColorado Gas Transmission Company, other smaller bulk terminals and pipelines

EPS: 2006 $1.98, 2007 $1.55, 2008 $2.21; DVD: $3.52 YLD 6.5%

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

News on Stocks in Our Portfolios

American Eagle Outfitters is on the Aggressive Growth Buy List, though the Portfolio has not yet bought it. Here is a positive write up on the company:

http://www.seekingalpha.com/article/56933-american-eagle-outfitters-is-cheap-relative-to-its-peers

More Cash in Investors’ Hands

ATT has begun a 400 million share buy back.

Adams Respiratory received a $2.3 billion all cash offer from Reckitt Benckiser.

MGI Pharma is being bought by Eisai for $3.9 billion in cash.