Market Notes 3-30-08——->

 Friday, April 25: CPX has taken out the 52 week high intraday, but to confirm a new high it has to close up above $27.75, the old high. Last night I read the entire transcript from the conference call. Conference calls occur shortly after earnings and allows analysts to ask questions of management. The outlook was good, I’d say steady, and I believe the Raymond James upward earning revision from $2.20 to $2.40 per share was appropriate. While CPX Q1 earnings of $.60 were a nickel lower than during the same quarter last year, they beat the estimates by $.09 which is a good positive surprise. Still, the CEO expressed continue concerns about excess capacity in Canada and the fuel and labor costs, so using Q1 x 4 for the estimates is a solid decision.

Prior to the earnings report the stock sold for 12.5x earnings. Within the IBD group the multiples ranged from around there to 27, but CPX was the only one in the top 5 so far that reported lower year over year earnings. The new price target established by Raymond James  is around 35 and that would be a multiple of almost 15, or a broad market multiple.

Because this is a cyclical stock and I did not see anything in the conference call that we’d call compelling forward guidance, I’m going to take a more conservative outlook and give it a multiple of 13. That would price the stock at just over $31, or 12% above the old high. If CPX takes out the old high at close today that’s a good sign it could get there, but the intraday chart show a lot of selling around that old high which we call overhead, people that want to get out even or with a slight profit from a buy months ago. The volume is still strong so we will see. I have my stop (automatic sale) set at the exact buy point so my only loss would be the $20 commissions. If the stock exceeds the old high by 5% or breaks through 29, I will look at selling for a nice profit of about 8.3% unless the trading volume remains over 125% of the normal on an upward trend; then I will hold until around 31 at which point I think CPX will be fully valued, or to whenever the volume dries up, whichever first occurs.

Thursday, April 24: Took some Complete Production Services (CPX) @ $26.78 on strong momentum and after a very positive quarterly report and forward look from management. CPX is in the oil services group in IBD, ranked #17 and advancing. Oil is off today, and with positive momentum from CPX I am betting that it will break through the previous 52 week high of $27.75 and further extend. As this is a cyclical, not a long term investment, this is strictly a trade deal to capture some quick gains. If it fails I will not hold below 5% of my purchase price and take the loss. CPX has many characteristics of a winner; fairly low P/E, earnings growth higher than sales growth, and it’s not widely owned yet by the funds but under acquisition. The negatives are that it does have some debt and the oil sectors have been in momentum play for an extended period of time.

Monday, April 21: Bank of America (BAC) reported today and missed estimates, but kept their dividend which is now 6.8%. I added another quarter position to my existing quarter position at 8% less than I paid the first time. I am looking to complete my Bank of America position over the next few weeks at prices no greater than my first buy. Why buy Wachovia which has probably less upside and a smaller dividend when you can buy the king on sale?

Friday April 18: The Google earnings took a lot of short sellers by surprise and the stock is up almost 19% over yesterday as the shorts must buy the stock to cover their losses. A few others reported good earnings and as such the market was up 180 before the open. This is a good sign, but I believe more of a function of covering bad bets so it’s a good day to sell some dogs and not a good day for buyers. I may boot XHB if given the chance.

The Google options which I considered yesterday but didn’t buy at $18.40 are selling as I write for $43.50. An investment (OK dice roll) of $1,840 would have yielded an overnight profit of $2,510, or a 136% profit. Don’t let anyone tell you that options cannot be profitable, but it is gambling.

You have to love the analysts. They hated Google at $450 but love it here at $535. Of course the buy ratings have been issued by all the major brokers at nearly $100 over where it’s been for weeks. Their target is $600. When Google was selling for 20x earnings that was too much for the experts to recommend, but now 30x earnings is a good deal?

This is why we have to do our homework. We need to study these companies in depth rather than wait until the juice has been squeezed out by the mutual fund companies at which point the BUY ratings are published. Google is probably high here, but it won’t drop much below $480 with the new earnings reports. If I didn’t have it much lower, I’d be a buyer at anything below $500 which is about 25x forward earnings; a multiple this stock easily deserves.

Thursday April 17: It’s notable that earnings disappointments (Merrill) don’t seem to shake up the market as we’d expect. That might indicate that much negative sentiment is priced in to the stocks which can be a sign of bumping along a bottom.

Google will report in less than 2 hours. The sentiment is that they’ll miss estimates again, and Google has not provided any guidance recently. I am sorely tempted to buy some out of the money calls against this sentiment but I don’t like the pricing and that’s outright gambling. In a couple of hours we’ll know if buying January calls for 600 at $18.40 would have been a good idea or not. I’m not willing to gamble the minimum investment today of $1,840 so it’s all talk.

NOV and HELE are working well with respectable single digit paper gains for each. Still a loser on the Homebuilders (XHB), Wachovia (WB) and Bank of America (BAC).

1:23 PM ARRGGHH!!!! Total earning blowout!! DANG, shoulda coulda

Monday, April 14: Well, I got everything right about Wachovia Bank (WB) except starting a 1/4 position at 11% above where the stock is trading now. They cut the dividend by 44%, missed earning by what might be a record (-$.14 versus estimates of +$.40 a share), issued a boatload of common stock at $24 a share, and gave a fairly negative forward look due to non-performing loans. I don’t think the stock is buyable until a solid base is formed, and I’d look for that to be in the $22-$23 range but we won’t know for a few weeks.

Bank of America (BAC) dropped 2.6% in apparent sector sympathy, and I don’t think AC is buyable yet either. I’m down 11% on that name as well.

I started a 1/4 position in Helen of Troy (HELE), a health and beauty products name most people don’t know but their brands you do. Among the brands are OXO, Dr. Scholls, Revlon, Vidal Sassoon, Brut, and Health-O-Meter.

I’ve traded HELE profitably for 10 years, and have never lost. They are extremely well managed, always seek productivity increases and cost reductions, and have great brands. The stock is down to about $16 from about $28 in mid 2007, and is now trading at 8.8 times 2009 earnings estimates with a PEG < 1. Management has expressed concern about some equipment names but continues to do well in staple cosmetics. The brands reflect consumer spending patterns, and I have no doubt that this fine company will recover within one year. I am projecting the price to be above $20 by this time next year, and feel strongly that anytime the price dips below $16 it’s a buy.

Consequently, I am buying a 1/4 position at $15.98 for my personal portfolio and making my first EGO Investment Club paper buy at the same price. I do not want any long term growth stock to exceed 5% of my $100,000 EGO portfolio, so I am buying a 1/3 position of HELE, a total of 100 shares, for $1,598 plus $20 in trading costs for both the buy and sell.

Thursday, April 10: The unemployment numbers came in lower than expected, discount retailers got upgraded, but spending is still down. The market moved up but the names moving make no sense to me. They’re selling basic materials and buying Phillip Morris domestic and selling Phillip Morris overseas and buying internationals and selling BAC and buying WB. I think the Peter Principle needs to kick in today for me, no trades ’cause I can’t see any direction!

Wednesday April 9: Yuk. Sideways action with a negative spin makes for a confusing and difficult trading environment. Both stocks I sold yesterday are up, but they could be down in an hour. Or not! I am liking cash now as I can’t read the market, but did initiatate a 1/3rd position in National Oilwell Varco (NOV). NOV is an oil infrastructure play, and the industry group on IBD is finally moving up but not toppy yet. NOV has been my best gain ever, close to a 1000% return over 4 years. I sold it earlier in the year and am buying it back at a slightly lower price. Varco is a bit maker for the oil drillers, and is one of the best managed industrial companies in that complex. I expect a double over time as the rig business expands.

Tuesday, April 8: Yesterday I was out of town, but expected to come back to some nice up volume in WB and BAC after the WaMu money injection news. Didn’t happen. While the oils and steels continue to add pricing, two of my related stocks, RJI (Jim Rogers Commodity Fund) and CHK (Chesapeake Energy) aren’t following that trend. Both buys were made too late in the cycle, and both bounce between a slight gain and a slight loss. The chart shows both well above the 50 day moving average which is fine if there’s lots of strong buying volume, but there is not. I was trying to decide whether to hold or fold, but then Warren Buffett tapped me on the shoulder and reminded me of the two cardinal rules in stock trading. #1 don’t lose money, and #2, see #1. I sold both with small gains, about 4.2% after trading costs, thinking I can buy them back lower later.

Commodities and cyclicals are not growth stocks. The only way to make any money here is good market timing and if your timing is off, you lose. I have one larger commodity fund from PIMCO I’ve held for about 5 years that’s in great shape and I’ll keep that and RJA (Jim Rogers Ag Commodities Index) for a hedge. My already reduced commodity exposure has now been cut by another third, all profitable trades. So far, every sale I’ve made since January has been right. The stocks are all lower now and I’m watching National Oilwell (NOV) for a good re-entry point.

Friday, April 4: 3 more hours until close, and with a disappointing jobs report the market is up! We can make a number of inferences, but the consensus seems to be that investors may have largely discounted the event of recession into the market.

Two of the three buys I made this week were probably wrong. While XHB (Homebuilders Index) is working, both WB (Wachovia Bank) and BAC (Bank of America) got some stiff downgrades today from JPMorgan, a name that matters. WB’s 2008 earnings call dropped to $3.12 from $4.30, a 27% drop. WB is down 1.48% on low volume today. BAC 2008 earnings were cut to $3.25 from $4.40, a 26% decrease, and BAC is trading down 1.09%, also on low volume.

While on the surface this lackluster reaction could be viewed as positive, I think the outlook today is too positive and if we get another negative report or two next week, I think this overbought market will drop again and allow a much better buy point than today. Referring back to our basic formula of P= E*M where P=price, E=earnings, and M- multiple, something has to give. Either the multiple goes up which makes an income stock less attractive, or the multiple holds and the price drops on lower earnings. One of the two must happen. As financials are still in the tank, my bet is that the multiple holds and the price drops and that’s what we want to see for the next buy.

This is why I like building positions in quarters rather than making the full buy in one trade. It cuts the risk. If your stock escalates well above your basis you can’t buy more but your pick is working for you. If you name pulls back on a general or sector downturn, NOT FUNDAMENTALS, then you have the chance to add more and lower your basis. I want to see BAC and WB taken down at least 5% each before I add, and I expect to have that opportunity soon. If not, then I have a 25% position of stock that’s working. I would never buy on such a severe downgrade before giving the market a day or two anyway to digest them.

The S&P went up a full 4.8% this week as of 2 PM Eastern, erasing a good chunk of the year’s loss. Whether it holds is of course the question. Joe Gross from PIMCO, a premiere bond investor, said on CNBC that Treasuries, the default safety haven, are the most overvauled asset in the world, given pending inflation. The bond market continues to sell off as the money is being redeployed into equities.

3PM Eastern–WB is finally reacting to the downgrade, and is down 3.28%. I think it goes deeper, and am looking for support around $26 which could be a good buy point. If it drops below $26 it will likely go into a freefall and isnt buyable until it finds some price support. BAC is holding for now.

Thursday, April 3: Once again the market shows some strength with decent action in face of disappointing job numbers. Tomorrow the unemployment data is released, and my bet is that it too will be disappointing. I want to add to the financials but pay less than what I did yesterday to lower the basis. I think that’s going to be a choice tomorrow as my bet the market will sell off pretty good with the pending report, and in addition traders don’t like to hold over the weekend so there might be some good entry points sometime Friday.

Sectors that are doing well today are ag, energy, and internationals. The first two are negative indicators based on inflationary pricing, but the third indicates that traders still believe in international growth. The commodity action in part reflects this too. I am able to add a little international (I use the EEM index for emerging countries and FXI for China- specfic growth) but they are both way up today and I want to buy them lower. I think everyone should be holding at least 20% in internationals. If you don’t have enough, there are a number of ETFs to look at. Stay away from Western Europe, and concentrate on Asia, Latin America, and Mexico. You can also put some pin money in Russian and Eastern Europe ETFs; just know that these countries are generally corrupt and your action may not be fully reflective of real growth.

Wednesday April 2: Dow, Nasdaq, an S&P ended down, but the Russell 2000 (the small caps) ended up. This may be significant in that the Russell 2k is usually the first major index to react well during the first part of a recovery.

FOMC Chairman Bernanke testified that a Recession is possible. Capital “R” yet, and the Dow gave up only 48 points. That small loss on his comment, which also included some profit taking from yesterday, could indicate that money is once again flowing out of cash and bonds back in to equities. Could we be bouncing on/near the bottom?

I made 3 buys today.

Added to XHB (Homebuilder ETF Index) at a slightly higher price than my last buy to reach a 50% position. That the XHB could withstand Ben’s dour comments was too much to pass up, and the chart looks like it could break out soon.

Initiated BAC ( Bank of America) which has a 6.5% dividend with 25% of a position. It seems pretty clear given the Bear Stearns bailout and the bill moving through Congress now that the Fed will not let a moneycenter or large bank fail.

Initiated WB (Wachovia Bank) which pays a 9.5% dividend, also 25% of a full position. Full credit to John Bovee and indirectly Dr. Differ and Ryan Jamison for doing the research work on this name. Wachovia is a risky play as the dividend could be cut by the company or the Fed if they need to become involved, but my bet is that the downside will be offset by the long term upside.

Bernenke is calling for little to no growth in 2008. The S&P growth might be 0% - 4% but BAC pays out 6.5% and WB 9.5% and today we don’t care if they EVER go up so long as that dividend stays in place. The other feature is that those dividends are taxed at 15%, so at an effective 38% tax bracket with AltMin, that 6.5% yield is worth about 11% and the WB div about 16% after taxes. That is HUGE!

Tuesday April 1: Dow up a mighty 391 points and the screen flashes green. All my watch stocks went way above my buy point, and it’s days like this when you’re tempted to follow the mo and jump in before you miss it completely. I didn’t do it, as I’ve learned that even if you have to wait 18 months like I did for Google, they always come home, and if you miss US Steel then you look at Schnitzer. If you don’t like CX here, then you look at EXP, and so on until you find the right deal in your sector.

Google is amazing, and a classic case of Wall Street loving it at 700 but hating it at 450. GOOG put on 24 points and 5.4% today but with only 79% of the normal volume so there’s nothing conclusive in this name yet. It’s still cheap at < 25x earnings IMO, and using Google from the enterprise side tells me they will continue to rule and that Yahoo is still irrelevant.

Here’s why. I set a budget for our executive suite advertising at a price of $1.00 per click and a budget of $200 for the month of March.

Google tells me one of the two things I need to know–my actual cost was not $200, but $23.60. The OTHER part of the metric that only I know is how it worked. Three leases signed this month, directly from that ad! HOW does McClatchy, Pennysaver, the Citizen, or a broker compete against that ROI??

Google goes back to $500 and 25x earnings about the same time McClatchy stops paying the dividend they can’t afford is my take. I’m fully vested in GOOG as I finished up the plan I started in 2006 when it was way down there earlier this year, but those option calls are looking pretty sexy to me.

Sold Kraft Foods for $.82 more than it was on Friday. Those that read my weekend email may correctly infer than I made more over the weekend on this laggard than I made the last 12 months. Still lags the S&P and that money can be used for better names.

I tried to get The Pirate to help with some direction on XHB, the homebuilder index I just bought that’s been red boy until today, but she was too busy slapping herself upside the head for not buying her own picks. We are in that space WAY too much when we play trader! Still long XHB and have no idea whether it was right or not, as I’m betting this runup today doesn’t mean as much as we wish it did.

Monday

It looks like the Altria split into Altria (MO) and Phillip Morris International (PM) was a success, as the two combined put on 5% so far today. With dividends at nearly 5% MO investors come out way ahead of the market on this deal. The two remain my largest holding and favorite stock(s), although others have given better gains. MO is the second longest term stock I have, and I doubt that I will ever sell either.

Put both these names on your Watch List if you can handle owning big tobacco. It’s hard to go wrong for long, in my experience, especially with the nice dividend. I am overweight on them or I’d buy more, and still may later.

Ensco (ESV) is a profitable oil driller and is up 3% today. I’d take some here, but I’m afraid it might be a short squeeze (short holders covering by buying, ramping the stock up quickly). The Industry Group on IBD is in a slight downtrend, and if were not for that I’d be buying here. It’s still 8% off it’s recent highs.

National Oilwell Varco (NOV) has been my biggest gainer ever, close to 1000% in just a few years. I have owned Varco on and off for 15 years, and always made money. Varco became National Oilwell Varco a couple of years ago. They manufacture equipment for the oil and gas drilling industry. I sold them at a near 52 week high in January, and am looking for a good buy point. NOV is up 1.67% today on decent volume, but again the IBD group is at 119 out of 197 with a slight downtrend. I want to own NOV when we get some confirmation that the group is advancing; I am guessing the tick up today is just market noise. Very difficult market to read, and I’m liking cash right now.

Also Watching: LNN–sprinkler manufacturer for ag industry. The ag group has been the hot hand for several months and its selling off. I think longer term ag is a great play, and that can be in the form of commodities (several index funds available) fertilizer (POT-Potash), or equipment and supplies like LNN or John Deere (DE). I am long an ETN which tracks Jim Rogers Ag Index, symbol RJA, and it’s selling off so I’d not make any buys yet. For those not in ag now, you might be a little late to the party, so let’s wait and see what the sector brings us over the next few weeks.

X–US Steel. X CEO was on Cramer last week and claims they are now the global low cost producer. That’s certainly unique and great news for the US, especially given that they’re are fully unionized and their new contract “allows productivity to play in to wages” was his comment. Steel is integral to all construction, and not surprisingly building new smelters (taking iron ore to steel) is not real popular with the neighbors so good luck in seeing any oversupply soon. X has it’s own US deposits so imports are minor; the low USD helps there. The only thing not to like about X is the price, and I’m waiting for a good take down to start a position.

Sunday March 30-Is it possible that the USD may reverse it’s decline and slowly gain some strength?

Hey, I’m watching one of my mindless prison shows on MSNBC and I just saw a FOREX commercial! Currency trading on MSNBC? That could be a classic contrarian indicator. The classic is the taxi driver trading internet stocks. When we saw that in 1999 we should have sold everything. When the EU strength against the USD is broadly known by people who normally don’t care, that’s a very positive sign that a capitulation may be in the works.
Tuesday: Dow up a mighty 391 points and the screen flashes green. All my watch stocks went way above my buy point, and it’s days like this when you’re tempted to follow the mo and jump in before you miss it completely. I didn’t do it, as I’ve learned that even if you have to wait 18 months like I did for Google, they always come home, and if you miss US Steel then you look at Schnitzer. If you don’t like CX here, then you look at EXP, and so on until you find the right deal in your sector.

Google is amazing, and a classic case of Wall Street loving it at 700 but hating it at 450. GOOG put on 24 points and 5.4% today but with only 79% of the normal volume so there’s nothing conclusive in this name yet. It’s still cheap at < 25x earnings IMO, and using Google from the enterprise side tells me they will continue to rule and that Yahoo is still irrelevant.

Here’s why. I set a budget for our executive suite advertising at a price of $1.00 per click and a budget of $200 for the month of March.

Google tells me one of the two things I need to know–my actual cost was not $200, but $23.60. The OTHER part of the metric that only I know is how it worked. Three leases signed this month, directly from that ad! HOW does McClatchy, Pennysaver, the Citizen, or a broker compete against that ROI??

Google goes back to $500 and 25x earnings about the same time McClatchy stops paying the dividend they can’t afford is my take. I’m fully vested in GOOG as I finished up the plan I started in 2006 when it was way down there earlier this year, but those option calls are looking pretty sexy to me.

Sold Kraft Foods for $.82 more than it was on Friday. Those that read my weekend email may correctly infer than I made more over the weekend on this laggard than I made the last 12 months. Still lags the S&P and that money can be used for better names.

I tried to get The Pirate to help with some direction on XHB, the homebuilder index I just bought that’s been red boy until today, but she was too busy slapping herself upside the head for not buying her own picks. We are in that space WAY too much when we play trader! Still long XHB and have no idea whether it was right or not, as I’m betting this runup today doesn’t mean as much as we wish it did.

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