3/11/08

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.). Congress’s new budget:

http://article.nationalreview.com/?q=YzZjOWU1Mjc5OGJkODhmMTkyZTEwZDJlNzQxNTVhZjM=&w=MA==

But there may be some good news:

http://ap.google.com/article/ALeqM5goOfAhUcl4B7Muf5clVilvIrhewgD8VAR96G3

Politics

Domestic

International War Against Radical Islam

The Market

Technical

Tough day, yesterday. The DJIA (11740) is now well below the January low close (circa 11900) and is only 140 points over the January intra day close (circa 11600). Meanwhile, the S&P (1273) busted through the 1982-present up trend line (circa 1282) and hovers just over its January intra day low (1269). If this had all happened in the midst of an emotional sell off, I would probably have bought some stock, as I mentioned in last week’s Closing Bell. Alas, it was not to be--and indeed the lack of an anxiety ridden flush is really bothersome primarily because (1) the DJIA and the S&P blew through the aforementioned support levels (DJIA--11900; S&P--1282) like a hot knife through butter on such mediocre volume--no indication of capitulation here, (2) so it likely means that there is still more to come and (3) in a technical sense, there is not enough ‘flush’ room left on the downside. In other words, another day like yesterday, stocks could end below all major support levels with no sign of capitulation in sight and the next major support levels a scary distance away (DJIA-9644, S&P 1062).

As you know, I tend to give support (resistance) levels a little leeway in terms of time and distance. And to be sure, today stock prices could reset above these old support levels and I wouldn’t view yesterday’s technical damage as particularly worrisome. But the current decline on low volume is my worst case scenario, i.e. it makes the strongest case that I am wrong, that stocks didn’t make a bottom in January and therefore this isn’t a test and that stock prices have further downside. My discipline is to make the Market prove me wrong, that is, to hang tough till the DJIA busts 11600 and the S&P breaks 1269, before altering my investment strategy. The really good news is that stock prices are a fraction of a percentage away from that test.

Let’s see how today goes.

Subscriber Alert

The stock price of United Technologies (UTX-$66) has fallen below the lower boundary of its Buy Value Range. Therefore, it is being Removed from the Dividend Growth Buy List. For the moment, the Dividend Growth Portfolio will continue to Hold UTX.

The stock price of Unitedhealth (UNH-$41) suffered yesterday along with the stocks of other managed healthcare companies when Wellpoint lowered its earnings outlook. UNH stock traded below its Stop Loss Price after hours. Accordingly, the Aggressive Growth Portfolio will wait till the Market opens this morning and in the absence of any rebound; it will Sell one half of its position in UNH.

At the Market open this morning, the Aggressive Growth Portfolio will Sell the remaining one half of its position in American Eagle Outfitters (AEO-$17).

Fundamental

This is a pretty good article on spotting the end of the credit crisis but his conclusion is a bit weak:

http://www.thestreet.com/p/_htmlrmd/rmoney/bonds/10407038.html

Oil, gold and the S&P:

http://bespokeinvest.typepad.com/bespoke/2008/03/oil-and-gold-cr.html

Fourth quarter S&P earnings are in:

http://bespokeinvest.typepad.com/bespoke/2008/03/a-final-look-at.html

The Dividend Growth Buy List

Company Close 3/10 Buy Value Range

Canadian Nat’l RR $50.33 $45-52

Clorox 56.57 56-64

Johnson & Johnson 61.33 60-69

Praxair 77.74 74-85

Proctor & Gamble 66.97 66-75

UPS 71.92 67-77

VF Corp 72.21 72-83

Company Highlight

Canadian National Railway operates Canada’s largest railroad system spanning the East/West width of the country plus a North/South axis that runs through the US mid West to the Gulf of Mexico. The railroad has grown its profits and dividends at a 20% pace over the past 10 years earning a 15%+ return on equity. Earnings should continue to increase at an above average pace as result of:

(1) volume growth resulting from [a] the opening of the Prince Rupert Intermodal Terminal, a new container terminal that provides the fastest and most cost effective route between Asia and the interior of North America, and [b] increased resource demand particularly in coal,

(2) its newly established division providing nonrail capabilities such as warehousing and distribution, customs services, truck brokerage and supply chain tools,

(3) aggressive productivity improvement and cost control measures.

In addition to growing its dividend at an above average pace, CNI also has been consistently buy back its shares. The company is rated B++ by Value Line, has a debt/equity ratio of approximately 35% and its stock yields 1.7%.

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

News on Stocks in Our Portfolios

A positive article of Schwab (Aggressive Growth Portfolio):

http://www.bloggingstocks.com/2008/03/10/charles-schwab-corporation-not-bothered-by-subprime-mess/

More Cash in Investors’ Hands