The Closing Bell

The Closing Bell

2/9/08

Statistical Summary

Current Economic Forecast

2007

Real Growth in Gross Domestic Product: 2.0- 2.5%

Inflation: 2 - 2.5 %

Growth in Corporate Profits: 6-8%

2008 (revised)

Real Growth in Gross Domestic Product (GDP): 2.0-2.5%

Inflation: 1.75-2%

Growth in Corporate Profits: 3-5%

Current Market Forecast

Dow Jones Industrial Average

2007

Current Trend:

Medium Term Trading Range 11600-14203

Medium Term Up Trend (?) 12516-16584

Long Term Trading Range 7100-14203

Year End Fair Value: 13250

2008 Year End Fair Value: 14050

Standard & Poor’s 500

2007

Current Trend:

Medium Term Uptrend 1269-1722

Medium Term Trading Range 1062-1527

Long Term Trading Range 750-1527

Year End Fair Value (revised): 1525

2008 Year End Fair Value (revised): 1615

Percentage Cash in Our Portfolios

Dividend Growth Portfolio 23%

High Yield Portfolio 24%

Aggressive Growth Portfolio 25%

Economics

The economy may be a positive for Your Money. The economic data this week once again contained good news and bad news. The positives were an encouraging employment report, continued strength in factory orders and a great productivity number; the negatives included feeble housing and consumer spending data, a surprisingly puny report on service sector activity and the pathetic attempt (the stimulus package) by our political class to help the economy. At the risk of being labeled as too Pollyannaish, I still think that the data point to a slowing economy not a recession; further, as I noted earlier in the week, even if we are entering a recession, the employment numbers, industrial sector indicators and the corporate profit picture (as of the close of business Friday, the year over year fourth quarter profits of S&P companies, ex the financials, were up about 20%) argue that, if there is a down turn, it will be a mild one.

(1) two secondary stats on the housing market showed a mixed picture: [a] December pending home sales dropped 1.5% versus expectations of a 1% fall and [b] weekly mortgage applications rose 3%, the fourth increase in a row; inside that number, the volume of re-financings dropped while applications for new home sales were up,

(2) data on consumer spending remain weak while employment rebounded: [a] the International Council of Shopping Centers reported weekly sales of major retailers rose 1.7% {reversing last week’s big 1.2% decline} and increased 1.6% on a year over year basis; Redbook Research reported month to date retail chain store sales fell .4% versus the comparable period in December but rose .5% versus the similar timeframe in 2007, [b] in addition, the reports by retailers on their January sales were generally disappointing, [c] finally, weekly jobless claims fell 22,000 versus expectations of a decrease of 28,000,

(3) industry indicators were also mixed: [a] December US factory orders were reported up 2.3% versus expectations of up 2.6% and 1.5% recorded in November, [b] the Institute for Supply Management’s January non-manufacturing index dropped dramatically to 41.9 versus forecasts of 52.5 and December’s reading of 53.9 {a reading under 50.0 signifies economic contraction}-- it should be noted that the formula for computing this index was changed for January’s calculation, [c] fourth quarter productivity was reported up an impressive 1.8% versus expectations of up .7%, [d] while fourth quarter unit labor costs increased 2.1% versus estimates of a rise of 3.6%, and [e] lastly, December wholesale inventories were up .8% versus expectations of up .3%; unfortunately, wholesale sales fell .7%; as disappointing as this appears, it is at least partially an offset to November numbers: wholesale inventories up .8%, wholesale sales up 1.9%.

One side comment on inflation: this week’s productivity and unit labor cost numbers are very positive signs that inflationary pressures are not building. Further, commodity prices notwithstanding, the prices of homes and stocks are both down big and that is not inflationary (I ask a subscriber the other day which environment he thought most inflationary: [a] the price of his home down 10% and the price of gasoline up 20% or [b] visa versa). On the other hand, the price of gold as well as the TIPS spread are flashing inflationary signals, the latter being very bothersome from my point of view. All said, I remain convinced that inflation will not be a problem.

The Economic Risks:

(1) the economy is weaker than expected.

(2) Fed policy (reading the data correctly).

(3) a disruption in global oil supplies (It is not the price of oil but its availability that will cause severe economic dislocation.).

(4) protectionism (Free trade is a major positive for world and US economic growth.).

(5) 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.).

(6) a rising tax and regulatory burden (Government has never proven that it could solve economic problems efficiently or satisfactorily.)

Politics

Both the domestic and international political environments are a negative for Your Money. Rhetoric aside, the legislative records of the most likely winners of Presidential nominating process of both parties (Clinton, Obama, McCain) on economic issues (taxes, free trade, energy policy, regulatory policy) is depressing.

http://www.usnews.com/blogs/capital-commerce/2008/2/6/wall-street-is-unprepared-for-a-dem-sweep.html

The vote on the fiscal stimulus package: Clinton--for; Obama--for; McCain--abstain, true fiscal conservative he.

The Market

Technical

The DJIA (12182) is in a short term trading range defined by 11622 /11900 and 14203--having been unable to hold the boundaries of the 1982-present trend (circa 12500-16500) for a second time. There remains an outside chance that the DJIA could regain the necessary momentum to propel it back into the 1982-present up trend--but it needs to do so quickly and with force. At the moment the 11622/11900 to 14203 trading range is the operative trend. With the S&P (1331) I am watching the boundaries of the up trend off the 1982 low (circa 1269-1722) and the 750-1527 2002-present trading range.

Fundamental

The DJIA (12182) finished this week about 9% below Fair Value (13383) while the S&P closed (1331) around 13.6% undervalued (1540).

This was a pretty lousy week for stocks; so I am not going to try to put too much lipstick on this pig---but I was encouraged by (1) the lack of negative investor response to the poor housing and retail data; now if we can just get more clarity on the sub prime problem, in particular the shoring up of the monoline insurers finances, we could have the worst of the stock price decline behind us and (2) the price action of our holdings; by and large, stocks either in our Portfolio or on our Buy Lists remain well above or hung tough around the lower end of their Buy Value Range. Hopefully that is a sign that good quality companies have found their bottom whatever happens to the rest of the Market.

That said, as I stated in Friday’s Morning Call, that doesn’t mean that we run out and spend all of our cash reserves. While I do believe that the Market has bottomed, I also believe that the Market will test that bottom and I believe that the prior two statements have no better than a 60/40 chance of being correct. Nevertheless that estimate is above what it was last week, so I will continue to put money to work as Market declines. Our investment strategy is to:

(a) use any price declines to buy positions in great quality companies whose stocks have either remained within their Valuation Range or have briefly traded below it but quickly rebounded,

(b) insure that my research on the Valuation Model especially for those stocks that have broken below or are near their Stop Loss Price is up to date and the Values generated by the Model reflect the current economic reality,

(c) build our Buy Lists, drawing largely from stocks on our Watch Lists as we review their financials and gain confidence in their Value Range [see (a) and (b) above],

(d) use positive days in the Market to Sell stocks 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,

(e) be mindful that the Market may very well not have bottomed; so our Stop Loss Discipline and a large cash position [see Percentage Cash in Our Portfolios above] remain critical,

(e) on a longer term basis, recognize that there are both technical and fundamental factors that argue for caution and therefore to proceed carefully with our Buying, keeping a larger than normal cash position in anticipation of valuation and strategy changes that could result from a potentially new domestic economic agenda.

DJIA S&P

Current 2008 Year End Fair Value 14050 1615

Fair Value as of 2/29/08 13383 1540

Close this week 12182 1331

Over Valuation vs. 2/29 Close

5% overvalued 13981 1608

10% overvalued 14647 1685

Under Valuation vs. 2/29 Close

5% undervalued 12650 1455

10%undervalued 11984 1378

15%undervalued 11375 1309

The Portfolios and Buy Lists are up to date.

Company Highlight:

Manulife Insurance provides life insurance, pension products, annuities and mutual funds to individuals and groups in the Canada, the US and Asia. The company has earned a 13-15% return on equity and grown dividends and earnings in excess of 20% over the last five years. Fueling future growth is the expansion of its variable annuity and life insurance products into Japan and China, an increase in the funds under management in its mutual fund business, introduction of its variable annuity products via the Edward Jones broker system and an aggressive share buyback. The company is rated A+ by Value Line, it has a debt/equity ratio of 11% and its stock yields 2.5%.

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

Steve Cook received his education in investments from Harvard, where he earned an MBA, New York University, where he did post graduate work in economics and financial analysis and the CFA Institute, where he earned the Chartered Financial Analysts designation in 1973. His 38 years of investment experience includes institutional portfolio management at Scudder. Stevens and Clark and Bear Stearns, managing a risk arbitrage hedge fund and an investment banking boutique specializing in funding second stage private companies. Through his involvement with Strategic Stock Investments, Steve hopes that his experience can help other investors build their wealth while avoiding tough lessons that he learned the hard way.

2/8/08

Economics

Some perspective on the ISM nonmanufacturing index report which (supposedly) led to Tuesday’s Market sell off:

http://blogs.forbes.com/digitalrules/2008/02/low-chance-of-r.html

Politics

Domestic

Hillary and Obama on taxes:

http://www.townhall.com/columnists/DonaldLambro/2008/02/07/tax-and-spend_democrats_just_dont_get_it?page=full&comments=true

International War Against Radical Islam

The Market

Technical

Fundamental

Yesterday started with multiple reports of poor January same store sales by retail chain stores followed by another lousy housing number--this one being December pending homes sales which were off 1.5% versus expectations of a decline of 1.0%. Pop quiz: If at 8:00AM CST yesterday, I had told you these numbers were coming, would you have guessed that the Market would close the day up or down? Most people would probably put me in the optimistic camp because, as you know, I think that the Market has bottomed. Yet even I would have bet that under those circumstances the Market would close on the downside--shows you what I know.

The point here is that when two of the major reasons (a poor housing market and a lethargic consumer) that investors have been pointing to as the rationale for selling stocks are not longer prompting them to sell, something has changed; and usually what has changed is not the fact pattern (yesterday’s pending home sales data and the January’s retail sales numbers were indeed crumby), it is the interpretation of the fact pattern or as we commonly say--the bad news is already in the stocks.

Clearly the above interpretation of yesterday’s stock price action is a positive one; however even if you are a bear, you can’t think that it is unreasonable to suggest that we may just have one more bit of evidence that a bottom has been made. That does not mean that I think that the probability that a bottom has been made has gone from 55/45 to 90/10, but it does mean that when we get the down days (like Tuesday) I will be buying stocks with more confidence.

That said, (1) two of my favorite technicians are calling for much lower lows and betting money against them gives me the willies, (2) we still need some clarity on how the marketplace is going to handle the financial problems of the monoline insurers before I will really stop worrying about a major downturn, (3) even if I am correct [that a bottom has been made], there remains a decent chance that the DJIA lows [11600] could be tested [which will not likely be a fun experience] and (3) one can never rule out the possibility that some negative exogenous event could wreak havoc [e.g. war with Iran, another attack in the US, some inane political move to ‘save the economy’ on the lines of Smoot Hawley]. So our investment strategy hasn’t changed to ‘investing cash reserves as quickly as possible’; but the longer we go without clear evidence that our economy is in trouble and the more obvious it becomes that investors have incorporated ‘the worse case’ into stock valuations, the more cash reserves I will put to work.

One last thought: what happens if we get a positive exogenous event?

CME Group

I spent much of yesterday on CME Group and have two comments:

(1) I am told that the CFTC wrote the Justice Department yesterday with the basic message that the regulatory oversight of the futures exchanges in their responsibility not the DOJ--so back off.

(2) guys I talked to on the floor of the Chicago Exchange make the point that there is complete transparency in the futures clearing operations while there are untold cases of fraud and malfeasance in the securitization sector of the financial markets. Neither the Treasury nor the DOJ have the time or manpower to be messing with the futures exchanges in the face of reforms that need to be made in this area.

Another opinion:

http://www.thestreet.com/s/cme-rebounds-after-analyst-upgrade/newsanalysis/financial-services/10402584.html?puc=_htmlbooyah

At the moment, I see this as just another example of bureaucratic over step that will get corrected; so the Aggressive Growth Portfolio will continue to Hold CME.

Subscriber Alert

The stock price of Clorox (CLX-$57) has declined below the upper boundary of its Buy Value Range. Accordingly, CLX has been Added to the Dividend Growth Buy List. Since the Dividend Growth Portfolio already owns this stock, no further shares will be purchased.

At the Market open this morning, the Dividend Growth Portfolio will Buy additional shares in Accenture (ACN-$33).

At the Market open this morning, the High Yield Portfolio will Buy additional shares in LCA-Vision (LCAV-$17).

The stock price of Luxottica (LUX-$25) has fallen below the lower boundary of its Buy Value Range. Therefore, it is being Removed from the Aggressive Growth Buy List. LUX’s stock price remains well above its Stop Loss Price, so the Aggressive Growth Portfolio will continue to Hold this position.

The stock prices of Avon Products (AVP-$39) and Alcon (ACL-$154) have risen above the upper boundary of their Buy Value Range. Accordingly, they are being Removed from the Aggressive Growth Buy List. The Aggressive Growth Portfolio will continue to Hold these stocks.

The stock price of Amphenol (APH-$38) has fallen below the upper boundary of its Buy Value Range. Therefore, it is being Added to the Aggressive Growth Buy List. Since the Aggressive Growth Portfolio already owns this stock, no additional shares will be bought.

At the Market open this morning, the Aggressive Growth Portfolio will Buy additional shares in Microsoft (MSFT-$28).

News on Stocks in Our Portfolios

Reynolds American (High Yield Portfolio) reported fourth quarter earnings per share of $1.01 versus $.61 recorded in the comparable 2006 quarter.

Avon Products (Aggressive Growth Portfolio) raised its quarterly dividend per share from $.185 to $.20.

Good news for the oil companies:

http://www.bloggingstocks.com/2008/02/08/exxon-xom-wins-on-in-venezuela/

More Cash in Investors’ Hands

2/7/08

Economics

protectionism (Free trade is a major positive for world and US economic growth.) The candidates and free trade:

http://online.wsj.com/article/SB120226001164146025.html?mod=opinion_main_commentaries

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.). Earmark update:

http://republicanleader.house.gov/News/DocumentSingle.aspx?DocumentID=83280

And observations on W’s budget:

http://www.nypost.com/seven/02062008/postopinion/editorials/bushs_bungled_budget_489241.htm

The real scandal in the housing mess:

http://mjperry.blogspot.com/2008/02/real-scandal-how-feds-invited-mortgage.html

Politics

Domestic

McCain on the economic stimulus plan:

http://www.breitbart.com/article.php?id=D8UL614O0&show_article=1&catnum=0

International War Against Radical Islam

This is a bit long, but provides some good perspective on the state of the Iraqi government:

http://www.longwarjournal.org/archives/2008/02/inside_iraqi_politic.php

Iran in Nicaragua; this doesn’t look good:

http://www.nysun.com/article/70934?page_no=1

The Market

Technical

Fundamental

Another buy candidate (Aggressive Growth Buy List in the line of recession resistant companies:

Alcon is a global medical specialty company that develops, manufactures and markets pharmaceuticals, surgical equipment and devices and consumer eye care products to treat diseases and disorders of the eye. The company earns 30%+ return on equity and has grown earnings and cash flow at an 18% annual rate. We believe that this performance will continue as the company:

(1) expands internationally; it is currently moving into France, Germany and Japan,

(2) builds its product line; recently added offerings include a once daily ocular allergy product, an intraocular lens for post-cataract surgery and a preservative free synthetic corticosteroid for ocular inflammatory conditions unresponsive to topical corticosteroids,

(3) adds complementary add on products through either acquisition [in 2007, it bought WaveLight AG which manufacturers innovative refractive laser and diagnostic systems] or joint venture--ACL recently entered into agreements with [a] Amgen for the joint research, development and commercialization of new ophthalmological products and [b] Eli Lilly for the co-promotion of a LLY drug for severe nonproliferative diabetic retinopathy,

(4) benefits from the recall of two competitive contact lens disinfectants.

Alcon is rated A by Value Line, has virtually no debt and its stock yields about 1.5%.

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

Subscriber Alert

Yesterday, we got clocked with our first really big problem (CME Group) in a long time. The WSJ reported (which I initially missed) that the Justice Department has submitted a letter to the US Treasury Department (which is reviewing financial regulatory policies) stating that futures’ exchanges (CME Group among them) ownership of their ‘clearing’ (trade processing) operations serves as an impediment to new entrants into the market--this after it (the Justice Department) approved without conditions the merger of the Chicago Mercantile Exchange and the Chicago Board of Trade last year.

The stocks of the exchanges dropped big time because the clearing operations are a major source of revenues and earnings and have been for over 100 years. So clearly the Justice Department’s allegations strike at the core of the exchanges’ business model. Consequently, one can only assume that they will muster every asset available to fight these allegations. Of course, that doesn’t mean that they will win. The point here is that from a fundamental standpoint that leaves us in a no man’s land. If CME fights the proposed Justice Department action and wins, its Valuation Model remains unchanged; if it loses, the Model is dramatically altered to the negative.

As you know, CME is a long time (profitable) holding of the Aggressive Growth Portfolio, so yesterday’s damage is painful enough. But because at the close of the Market on Monday, CME’s stock price had declined into its Buy Value Range, we re-Added it to the Aggressive Growth Buy List that evening. To say unfortunate timing would be a clear understatement.

My pride aside, the question, of course, is what to do now? At the moment, even with whackage experienced yesterday, we still have a profit in this holding. Further, while the price decline drove the stock below the lower boundary of its Buy Value Range, it remains above its Stop Loss Price. So my bottom line is that (1) I will be working very hard to get a handle on the merits of the Justice Department’s complaint [the company had a conference call yesterday afternoon in which management pooh, poohed the DOJ case; but that is to be expected], (2) in the meantime, [a] CME is being Removed from the Aggressive Growth Buy List and [b] if CME’s stock price remains above its Stop Loss Price, I will continue to Hold until I can get a handle on whether or not its business model [and therefore its Valuation Model] has changed, [c] however, if the stock trades below its Stop Loss Price, I will Sell it.

In other action, some of the stocks I mentioned yesterday as having traded fractionally below the lower boundary of their Buy Value Range did in fact trade even lower today. Accordingly, the following steps are being taken:

Manulife Insurance (MFC-$36) and Chevron (CVX-$75) are being Removed from the Dividend Growth Buy List. The Dividend Growth Portfolio will continue to Hold MFC. It never Bought CVX, so no further action is needed with respect to this stock.

Kimco Realty (KIM-$35) and Realty Income Trust (O-$23) are being Removed from the High Yield Buy List. The High Yield Portfolio will continue to Hold KIM. It does not own O, so no further action is needed.

Abercrombie & Fitch (ANF-$75), Expeditors Int’l (EXPD-$44) and FactSet Research (FDS-$52) are being Removed from the Aggressive Growth Buy List. The Aggressive Growth Portfolio will continue to Hold EXPD and FDS. It never owned ANF, so no further action is needed with respect to this stock.

Finally, the stock price of Microsoft (MSFT-$29) has fallen below the upper boundary of its Buy Value Range. Therefore, it is being Added to the Aggressive Growth Buy List. The Aggressive Growth Portfolio already owns this stock so no further shares will be purchased.

News on Stocks in Our Portfolios

Parkervision (10Bagger) received a second patent on its technology:

http://www.marketwatch.com/News/Story/Story.aspx?guid={A1DAF65C-508F-43F5-94CC-20D5F484F18C}&siteid=nbs

BP Plc (Dividend Growth Portfolio) raised its quarterly dividend per share 25% to $.812 from $.6495

Alcon Inc (Aggressive Growth Portfolio) reported fourth quarter and full year operating earnings per share of $1.31 and $5.25 respectively versus $1.16 and $4.37 recorded in the comparable 2006 periods.

More Cash in Investors’ Hands

2/6/08

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.). Pelosi fails to respond:

http://blog.heritage.org/2008/02/04/pelosi-ignores-gops-request-for-earmark-moratorium/

And this one last swipe at W’s last budget and his fiscal legacy:

http://www.washingtonpost.com/wp-dyn/content/article/2008/02/04/AR2008020402429.html

And a look at the defense budget:

http://www.slate.com/id/2183592

Another look at income distribution:

http://mjperry.blogspot.com/2008/02/rich-getting-richer-and-poor-are.html

Politics

Domestic

International War Against Radical Islam

The Market

Technical

The DJIA (12265) once again busted through its 1982-present uptrend (circa 12536 at yesterday’s close). Clearly for the DJIA the late January intraday low (circa 11634) is now the level to watch. The S&P (1336) remains well above its 1982-present trend line (circa 1275 at yesterday’s close). The comparable late January intraday low is circa 1263.

We knew that there was likely to be a test after stock prices dramatic bounce; and that’s what we are getting. Others will argue that the recent recovery was simply a rally in a bear market and yesterday was a resumption of that down trend. We will know soon enough.

This chart is a little scary:

http://bespokeinvest.typepad.com/bespoke/2008/02/1-moves-more-co.html

Fundamental

The talking heads attributed yesterday’s sell off to the lower than expected ISM non-manufacturing index which was viewed as a sure sign of recession. That seems somewhat improbable to me. Even if my economic forecast is wrong and there is going to be a recession, it is not like its prospects haven’t been talked about and talked about for the last six months--so a recession, if it occurs, is not going to be a surprise. Witness the fact that the Market (DJIA) is 1900+ points (13.5%) off its high and at least by my our Valuation Model is 8.4% undervalued--meaning that the recession, if it occurs, has to some extent already been discounted.

Rather, yesterday’s action just feels more like the normal investor emotional ebb and flow that occurs around turning points--indeed it is inconceivable to me that stocks wouldn’t sell off after a 1200 point Titan III shot off the DJIA 11600 intraday bottom. What surprised me was how little damage was done to our stocks. To be sure, there were names on our Buy Lists that traded slightly below the lower boundary of their Buy Value Range. However, given the current volatility in stock prices, I am for the moment not going to Remove these names---again simply because they traded only fractionally below their Buy Value Range. (Nevertheless, I have included a list of those names below.) Of course, if today is another day like yesterday, those fractions will undoubtedly grow.

Clearly, it would be stupid not to hold open the probability that another down leg is in the making. Indeed, I said at the outset of this upswing that my confidence that the Market had bottomed would be only slightly better than 50/50 until a test occurred. That seems to be happening now; and as I said above, we will know the outcome soon enough.

Bottom line, given that I think that we are in a test of the bottom, it seems reasonable to put a small amount of money to work (see below). However, for the preponderance of cash reserves, I think we stay patient, watch and let our Price Disciplines do their work. If this is a test, we will put more money to work on the next bounce. If we are going much lower, our 25% cash position and our Stop Loss Discipline will keep our principal in tact.

Stocks that Closed Near the Lower Boundary of their Buy Value Range

Dividend Growth Buy List: GE, T Rowe Price, Manulife Life Insurance

High Yield Buy List: Kimco Realty Trust, Realty Income Trust, Martin Midstream Partners

Aggressive Growth Buy List: Schwab, Abercrombie & Fitch, American Eagle Outfitters, Sun Hydraulics, Expeditors Int’l, SAP

Subscriber Alert

The stock price of CME Group (CME-$588) has declined below the upper boundary of its Buy Value Range. Accordingly, CME is being Added to the Aggressive Growth Buy List. The Aggressive Growth Portfolio already owns CME, so no additional shares will be bought.

At the Market open this morning:

The Dividend Growth Portfolio will Buy additional shares (1/5 to ¼ positions) in Johnson Controls (JCI-$34) and Northern Trust (NTRS-$69),

The High Yield Portfolio will Buy additional shares (1/5 position) in LCA-Vision (LCAV-$16),

The Aggressive Growth Portfolio will Buy additional shares (1/5 position) in Luxottica (LUX-$27)

News on Stocks in Our Portfolios

CME Group (Aggressive Growth Portfolio) reported fourth quarter earnings per share off $3.75 versus expectations of $3.62 and $2.91 recorded in the comparable 2006 quarter.

A positive write up on Praxair (Dividend Growth Portfolio):

http://www.zacks.com/rank/zcommentary/?id=6891

More Cash in Investors’ Hands

2/5/08

Economics

The latest figures on commercial loan growth (what recession?):

http://mjperry.blogspot.com/2008/02/commercial-lending-growth-shows-ongoing.html

Politics

Domestic

McCain on defense and the war against radical Islam:

http://article.nationalreview.com/?q=YjE5MDE4ZDA2OTIyYzA2NzJiNDkyNGQxNjA2YzNhYWI=

International War Against Radical Islam

Another look at W’s failed policy on North Korean nuclear disarmament:

http://www.slate.com/id/2183541

The Market

Technical

Fundamental

Stocks undervalued or earning estimates too high?

http://bigpicture.typepad.com/comments/2008/02/the-flawed-fed.html

Update on fourth quarter earnings reports:

http://bespokeinvest.typepad.com/bespoke/2008/02/sector-earnings.html

One of my focuses continues to be on consumer staple companies that should be able to navigate any economic difficulties with fewer problems than other sectors:

Reynolds American is the second largest producer of cigarettes in the US; its brands including Winston, Camel, Salem, Pall Mall, Kool, Vantage and Doral. The company has earned a 16-18% return on equity over the last five years on a capital structure with 38% debt. It has also grown profits and dividends in the 8-10% range which when coupled with a 5%+ yield on its stock provides an attractive total return. RAI should be able to continue to grow its earnings and dividends as a result of:

(1) a major restructuring plan that is forecast to reduce the company’s work force by 40%, eliminate expensive marketing programs and trim overhead,

(2) the merger with Brown & Williamson which not only raised market share [revenues] but also provided a major opportunity for continuing incremental cost savings [$500 million over the next 5 years],

(3) the merger with Conwood [Kodiak and Grizzly moist snuff] which provides an entry into smokeless tobacco, the fastest growing segment of the tobacco market,

(4) a more aggressive brand building strategy,

(5) resolution of two government lawsuits which reduces both litigation expenses and risks.

RAI is rated by B+ by Value Line, its stock yields 5%+, and management has been conscientious in distributing the benefits of the company’s improving cash flow to shareholders via a rising dividend.

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

News on Stocks in Our Portfolios

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

http://www.zacks.com/rank/zcommentary/?id=6871

Avon Products (Aggressive Growth Portfolio) reported fourth quarter and full year operating earnings per share of $.64 and $1.21 respectively versus $.54 and $1.06 in the comparable periods on 2006.

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

More Cash in Investors’ Hands

2/4/08

Economics

Another main stream media prediction of doom:

http://bespokeinvest.typepad.com/bespoke/2008/02/magazine-cover.html

A scorecard for the current earnings report season:

http://bespokeinvest.typepad.com/bespoke/2008/02/fourth-quarter.html

ExxonMobil’s tax bill, in perspective:

http://mjperry.blogspot.com/2008/02/putting-exxons-tax-bill-in-perspective.html

Politics

Domestic

Earmarks: Hillary versus McCain:

http://www.examiner.com/a-1194444%7ETimothy_Carney__McCain_vs__Hillary_on_earmarks__Good_government_vs__pay_to_play.html

Romney on abortion:

http://article.nationalreview.com/?q=ZGYyZWE4OGI5YzNlZTc1M2M2OTRiYmMzMjEzMDlkNzA=

Hillary, in her own words:

http://online.wsj.com/article/SB120209390867639897.html?mod=opinion_main_commentaries

International War Against Radical Islam

Good news:

http://www.csmonitor.com/2008/0201/p25s04-wosc.html

And bad news:

http://article.nationalreview.com/?q=N2UzN2ViOGViYTFkYTAwMjRkZDc5MWYwZDYwMWEwNDY=

And more bad news:

http://abumuqawama.blogspot.com/2008/02/afghan-study-group-wheels-done-come-off.html

The war in Pakistan:

http://www.longwarjournal.org/archives/2008/02/swat_fighting_more_d.php

The Market

Technical

Charts on commodities:

http://bespokeinvest.typepad.com/bespoke/2008/02/bespokes-commod.html

Fundamental

Subscriber Alert

The stock price of Realty Income Trust (O-$25) has risen back into its Buy Value Range; so it is being re-Added to the High Yield Buy List. The High Yield Portfolio will not Buy any shares in O at this time.

At the Market open this morning, the Aggressive Growth Portfolio will Buy a one third position in Avon Products (AVP-$34)

Watch Lists**

Dividend Growth Watch List: Avery Dennison, Bank of Nova Scotia, Brown Forman, Canadian Nat’l RR, Chevron, Clorox, Emerson Electric, Genuine Parts, General Electric, Illinois Tool Works, Ingersoll Rand, Johnson and Johnson, 3M, Manulife Financial, McGraw Hill, MDU Resources, Proctor and Gamble, Sysco, T Rowe Price, UPS, United Technologies, VF Corp.,

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

Aggressive Growth Buy List: Abercrombie & Fitch, Accenture, American Eagle Outfitters, American Vanguard, Amphenol, Avon Products, Bucyrus Int’l, Donaldson, Eaton Vance, Expeditors Int’l, Factset Research, Fastenal, Franklin Resources, Luxoticca, Quest Diagnostic, Rockwell Collins, SAP, Schwab, Simpson Manufacturing, Staples,; and of course I want to re-build the holding: US Global Shares-Gold

**For the benefit of new subscribers, I started using Watch Lists during severe Market declines. These lists include stocks on our Buy Lists but also equities whose prices has fallen below both their Buy Value Range and their Stop Loss Price but whose Valuation Model (following additional homework on my part) didn’t change appreciably. Historically, the stocks in this latter group will generally trade back into their Valuation Range, sometimes quickly; and I want to be sure I catch that latter group when they do so

News on Stocks in Our Portfolios

The FDA approved Medtronics’ (Aggressive Growth Portfolio) drug coated stent.

Clorox (Dividend Growth Portfolio) reported second fiscal quarter earnings per share of $.65 versus $.62 recorded in the comparable 2007 fiscal quarter.

More Cash in Investors’ Hands