Barron’s Predictions and other weekend notes September 8 2012

Favorable recaps of FDX, TSO, INTC, Housing Stocks (in three different articles), PFE, WYNN.  Tesoro has had such a run from the mid teens to over 40 that I feel for such a cyclical stock the gains may already have been had — Barron’s said another 40% gain could be on tap.  PFE & INTC got the usual treatment of being appealing for p/es around 10 and dividend yields near 4%.

Here Come Super Options by Steven Sears was the only noteworthy article, describing the attempts of the CBOE to get approval for 10-15 year exchange traded options to match specialized markets made for insurance companies.   The article did not note SPX “super options” of up to 5 years are already available, notably with European exercise rules so as to not be manipulable to large dividends.  Volume and open interest look very light however.

SunTrust STI has been covered numerous places (Forbes) about selling the remaining stake in Coca Cola (KO, $38) after a 2,000,000% return from 1919.  This historical anomaly was something that first fascinated me when I started looking at stocks in the mid 90s.  STI looks a touch ahead of itself but could be a beneficiary of the ongoing housing revival.  I think there are probably better buys out there.

Chart forSunTrust Banks, Inc. (STI)

Hogs Wallow Near Two Year Low in the WSJ was also of note for future commodities plays;

Slaughter-ready hogs have been streaming into meatpacking plants since July. Their shipments have included thousands of sows, or mature females, that farmers normally would keep for breeding litters of piglets. The move eventually will tighten pork supplies. Meanwhile, many farmers are only willing to feed expensive food rations to their most-productive sows.

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Notable Barron’s Predictions September 1

The market strategist survey was as usual effectively worthless with most of the analysts predicting a market very close to where we are today, Treasury bills at 1.75 give or take, and without decisive opinions about whether the “fiscal cliff” will be avoided.  Only Goldman Sachs stood out with an end of year S&P prediction of 1250.

Steven Auth of Federated recommended CAT at 84.47, QCOM at 61.20 and Daimler DDAIF at 48.85 (“luxury goods”).  Robert Doll of Blackrock recommended Chevron CVX @ 110.93, ConocoPhillips COP at 56.11, and UnitedHealth UNH at 54.69, Adam Parker of Morgan Stanley concurred on Chevron, Bristol Myers BMY at 32.8, AmerisourceBergen ABC at 38.1

I like the CAT call — 8 p/e also favorably ranked at Valueline — and this is on my watchlist after any market drop but low priced enough perhaps just to jump in.  Continue reading

The SPX topping out?

Doug Kass at theStreet.com put up two contrasting files showing specific points where lows in the VIX signaled forthcoming drops in the SPX, five times in the last two years.  He was on CNBC with the same message two weeks ago — the market effectively unchanged since then.

Bespoke Investment Group has a compelling chart that the gains of late in large caps have been mostly low volume gains which is technically ominous.

Some “Triple Top” talk evidence seems specious to me — Business Insider cites this as a possible “Triple Top”:

chart of the day, s&p 500 three spikes, august 2012

But had been warning about the same thing in September 2011

s&p futures head and shoulders

In short the S&P does appear posed to this rube technician at a decisive moment which possibly suggests a downward bias, that is also seasonal and will fluctuate with the election.  It is notionally cheap but facing huge European headwinds putting the smaller cap Russells in the unusual position of being a slightly better equity safe haven.  Few ports would be safe in that storm however.

Apple (AAPL) is 5% of the S&P and 13% of the NASDAQ 100 Capitalization-weighted indexes and so a meaningful short term up move (likely) in this one name could pull the entire index higher.

Triple Threat for Total Return in Forbes September 10 2012

“Triple Threat for Total Return” by John Buckingham in Forbes reviewed long term performance data from 1926 to present (this data set will be the good subject of post one day) to conclude small caps, dividend payers, and value stocks outperform.  Therefore, quod erat demonstrandum, investors should look for all three today.  Give me a good large growth non dividend payer anytime but I’m an investing child of the nineties.

He recommends three stocks that would fit this screen (not, necessarily three stocks from a screen – an important difference but his method is not specifically expressed in the article):

Lexmark LXK @ 18 (in article, 21.62 at close today)

Nash Finch NAFC @19

Navios Maritime Holdings NM @3.58

I would not touch any Greek Shipping short of a reincarnated Themistocles.

Bust of Temistocles

Buckingham says they are at 35% of book value.  Perhaps but we can find safer values elsewhere and there is little to gain from deep research here that would benefit other stocks.  Dry bulk shipping is in a sour mood; there are other ways to play that rebound.   If you’re really into shipping of another sort, perhaps one of those ways is Nash Finch but that is too low growth low margin for my tastes.

Lexmark maybe a Kodak or Xerox in the making but with an ever-so-slightly safer chart (where “safe” means I at least know where I’d get out — a return under say 18) with very solid revenue and cash on hand, I think is a more interesting play.

Chart for Lexmark International Inc. (LXK)

The gap between 18 and 21.xx may be attributed to the announcement of a $100m buyback and that they’ll dump the inkjet business.  They acquired Perceptive Software in 2010 and claim it too will be profitable next year.  They have a 6% dividend yield.  Should have gotten my Forbes in the mail sooner.

“Hunger Games” in Forbes September 10 2012

In the Forbes print article “Hunger Games” by Steve Schaefer five stocks were recommended playing on the theme of drought:

Agrium (AGU) @ 100.37

CF Industries (CF) @ 216.09

Market Vectors Agribusiness ETF (MOO) $50.79

Tractor Supply (TSCO) @ 92.28

Tyson Foods (TSN) @ 15.26

Aside from a dire quote from perennial bear Jeremy Grantham about a “chronic global food crisis unlikely to fade for many decades” there isn’t much support for the described trend.  If it holds, the picks themselves may be good.  Tyson is probably questionable since feed costs will rise — one source of their current laggardry.  The fertilizer stocks go in and out of vogue and have had quite a run this year and this summer.  Chart for Agrium Inc. (AGU)

Chyanne Fickes of the Stone Agribusiness Fund is quoted these stock remain “extremely cheap” which strikes me as suspect: Agrium is up 10x since 2003 and had not moved much from 1995-2003.   This fund the article notes has $10 million under management — which one might have prefaced by saying puny.   Their results at least as expressed in (Canadian) dollars per share is not remarkable (were there large dividend distributions?):

Chart forSTONE AGRIBUSINESS FUND (HAY-UN.TO)

Guess one could have just bought Agrium.

AltaCorp Capital analyst John Chu says farmers are planting more corn than say soybeans which requires seven times more fertilizer which is a compelling point that can be matched against actual acreage planted.  In this earlier estimate on Seeking Alpha, Corn was indeed at “a 75 year high” but only a 4% acreage gain over last year in the US versus a 1% drop in Soybeans to 73.9m acres.  Does that move the needle?  The grain complex moves together; all else being equal one might suggest more Soybeans next year if there are lower fertilizer crops.

Deere (DE – 73.81) and Caterpillar (CAT – 86.01) were notable absences from the list of recommendations which if anything earns points for freshness.  In crops that’s paramount but will put their quotes here for comparative measure.

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