1/30/08

Economics

These are not signs of a recession:

http://mjperry.blogspot.com/2008/01/durable-goods-strength-suggests-no.html

http://mjperry.blogspot.com/2008/01/due-to-falling-unemployment-claims-in.html

Politics

Domestic

International War Against Radical Islam

On the renewal of FISA:

http://article.nationalreview.com/?q=NWQ1ZmMyZDc4OTEzNGJmMmFhMTI2YWZlNjFjNWE2MWY=

The Market

Technical

The DJIA ascending 1982-present trend line is now at the circa 12524 level with the Dow closing yesterday at 12480; so this Average is still struggling to re-establish itself in a positive trend. While the flow of news both on the economy and on the sub prime mess (Lehman Brothers, a potential big victim of the credit crisis, raised its dividend last night) has me feeling a little more comfortable that we may have seen a Market bottom, the best we can say right now is that stocks are in a trading range.

A technical look at the Market by sector:

http://bespokeinvest.typepad.com/bespoke/2008/01/bespokes-sect-1.html

Fundamental

With another positive day, I concentrated last night on the stocks that we own that “have traded into that ‘no man’s land’ between the lower boundary of their Buy Value Range and the Stop Loss Price but have been unable to recover into their Buy Value Range,” I am focused on this group because it seems to me that these are the stocks about which the Valuation Model is most likely to be wrong (i.e. all stocks got whacked, many traded outside their Valuation Range, some of those recovered to trade back into that Range, what is left is where I am probably wrong.); and if that is so, then there is more downside risk and less upside potential in each.

Accordingly, at the Market open this morning, the Dividend Growth Portfolio is Selling the remainder of its position in Paychex (PAYX-$34) and the High Yield Portfolio is Selling the remainder of its position in Verizon (VZ-$38).

Company Highlight

McGraw Hill was one of those stocks that we Bought as Market was getting pounded last August by the first round of fears over the sub prime crisis; by the time I had checked my research and adjusted its Valuation Range, the stock had through its Stop Loss and we Sold it. During the ‘flush’ last week, it traded to the low of its new Buy Value Range, and then recovered and that’s when we Bought back a partial position. We will be Adding to this holding as the Market backs and fills.

McGraw Hill Co. is a global information provider serving the financial, education and business markets via Standard & Poor’s, McGraw Hill Education, Business Week, Aviation Week and Platts. MHP earns an amazing 25-35% return on equity, with virtually no debt and has grown profits and dividends 8-14% annually over the last 10 years. The company should continue to grow as a result of:

(1) as the leading performer in the textbook publishing, MHP is benefiting from the current strong textbook adoption cycle, helped by the $1 billion Reading First initiative of No Child Left Behind,

(2) increasing demand for independent equity research which is a major positive for S&P,

(3) management’s significant efforts to streamline operations and lower costs [the company reduced its workforce by 3% in 2007],

(4) its strong cash flow which funds acquisitions, an aggressive stock buyback program and a rapidly growing dividend.

McGraw Hill has virtually no debt, is rated A+ by Value Line and its stock yields approximately 1.7%
http://finance.yahoo.com/q?s=MHP

News on Stocks in Our Portfolios

3M (Dividend Growth Portfolio) reported fourth quarter and full year operating earnings per share of $1.19 and $4.98 respectively versus $1.04 and $4.49 recorded in the comparable 2006 periods.

A positive write up on Accenture (Aggressive Growth Portfolio):

http://www.zacks.com/rank/zcommentary/?id=6840

Smith Int’l (Aggressive Growth Portfolio) reported fourth quarter earnings per share of $.71 versus expectations of $.88. the short fall was due to slower development of US offshore fields and weather delays in starting new projects.

UGI (Dividend Growth Portfolio) reported its first fiscal quarter earnings pre share of $.74 versus $.58 recorded in the comparable 2007 fiscal quarter.

More Cash in Investors’ Hands