10/10/07

Economics

Politics

Domestic

International War Against Radical Islam

The Market

Technical

Fundamental

Equities rallied yesterday following the release of the minutes of the Fed’s September 18th meeting. I am not going to parse the words but the bottom line is that investors were encouraged by the unanimity of FOMC Board’s vote to ease money supply--thereby suggesting that should credit markets conditions continue to hamper normal business financing transactions, the Fed would take additional steps to insure liquidity problems don’t push the economy into recessions. Two points:

(1) I am encouraged by this and believe it to be a positive for the economy; however, I think it important to point out that the above quoted unanimity of concern was about a liquidity issue not a macro-economic one; in other words, I am again cautioning that further monetary easing [another drop in the Fed Funds rate] is likely only if credit markets are unable to clear normal business transactions but not because the economic data being reported is a bit erratic.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aq4TUMZuFDgw&refer=home

(2) The DJIA [14164] is approaching a 7% overvalued level though the S&P continues to lag. My focus is on stocks near their Sell Half Price or stocks that simply can’t rally in a strong Market.

News on Stocks in Our Portfolios

Thoughts on the valuation of oil stocks:

http://www.seekingalpha.com/article/49455-exxon-mobil-stock-up-big-but-underperforming-crude

More Cash in Investors’ Hands

10/9/07

Economics

Politics

Domestic

International War Against Radical Islam

The Market

Technical

Fundamental

I wanted to point out another quality financial institution whose stock performance has lagged the Market.

U.S. Bancorp (USB) is a bank holding company with 2,400 offices and 4,000 ATMs in 24 states with approximately 32% of its loans to commercial enterprises, 21% to commercial real estate and 47% to individuals. The bank has a return on equity of over 20% and has grown earnings per share and dividends at a 12%+ pace over the last 10 years. USB should be able to maintain this admirable record as it grows its more stable fee oriented income, focuses on tight control over expenses and continues a significant share buy back program. This company would qualify for the Dividend Growth Portfolio were it not for its relatively high debt to equity ratio (62%). Its stock yields 5.2%.

EPS: 2006 $2.61, 2007 $2.60, 2008 $2.80; DVD: $1.62, YLD 5.2%

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

Here is a generally positive write up on Abbott Labs another stock on the Dividend Growth Buy list.

http://www.seekingalpha.com/article/49291-abbott-laboratories-in-vitro-sale-may-prove-difficult

News on Stocks in Our Portfolios

More Cash in Investors’ Hands

Textron is acquiring United Industrial for $800 million in cash.

10/8/07

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.)

http://www.townhall.com/columnists/PaulWeyrich/2007/10/04/earmarks_and_congressional_corruption

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

http://www.nypost.com/php/pfriendly/print.php?url=http://www.nypost.com/seven/10052007/postopinion/opedcolumnists/free_trade_follies.htm

Politics

Domestic

International War Against Radical Islam

The Market

Technical

Fundamental

I focused most of my attention last week on Citigroup as the poster child for financial institutions that has ‘come clean’ on their exposure to the sub prime problem; but Merrill Lynch deserved as much attention. And like Citigroup, its stock price has lagged the recovery of others in its industry. MER is on the Dividend Growth Buy List.

Merrill Lynch is a leading financial services firm providing underwriting, investment advisory, securities brokerage and trading and investment management. The company has grown profits and dividends 18-20% over the last five years, earning a return on equity in the 14-15% range. Recent results have benefited from increasing stock prices, rising IPO’s and healthy merger/acquisition activity. While the credit problems may curtail some parts of MER’s business, the likelihood of a ‘soft’ economic landing in the US, the global economic strength and the current reasonable valuation of US equities should insure that any shortfall will be modest and short lived; and the recent decline in Merrill’s stock more than reflects any near term slow down in earnings growth. Furthermore, the company’s $6 billion stock back program provides evidence of management’s confidence in the future growth.
EPS: 2006 $6.64, 2007 $8.75, 2008 $8.70; DVD: $1.40 YLD 1.9%
http://finance.yahoo.com/q?s=MER

News on Stocks in Our Portfolios

More Cash in Investors’ Hands