Just One Man's Opinion - 15 July 2005

by JMac

ALERT - ALERT - ALERT :

Oil prices are trending down. If oil settles below $55 there are some QUALITY stocks that are poised to move up QUICKLY. Be ready to pull the trigger on : Dupont, Eastman Chemical, Dow Chemical, Southwest Airlines (NICE quarter guys !), Alcoa, the railroads, Yellow Frieght, Disney (finally! the war is over), Cendant and PACCAR.

With oil @ $55, fair value on the S & P - 1245.

STOCK UPGRADES -

Coke - expanding its juice business, buying back stock, its now a BUY.

Southwest Airlines - Who says an airline cannot make money with oil at $61? (They hedged their fuel purchases). They just moved into the Orlando market, which they WILL dominate (bye! bye! Delta). PERSONAL NOTE: I fly SWA twice a year to Vegas. In the last ten trips they have been on time twice and EARLY on the remainder. On occassion my luggage beat me to the carousel ! It is now a BUY.

GOOGLE WATCH - I now think there is a 50/50 chance Google will reach Jim Cramer's $350 prediction. However at this p/e ratio it does not meet my screen. Look for Microsoft to somehow get involved here.

STOCK DOWNGRADES -

Apple - nice quarter, but ipod sales levelling off, now a HOLD
Chevron/Texaco - fairly valued at $57, now a HOLD.

COMING SOON - "QUALITY STOCKS THAT ARE SELLING BELOW FAIR MARKET VALUE"

Just One Man's Opinion - 13 July 2005

by JMac

UPDATE - UPDATE - UPDATE - WENDY'S INTERNATIONAL

On July 1, I stated that IF you thought Wendy's was going to spin off Tim Horton's restaurants, you might consider it a "buy".

Today my local paper reports that an investment firm with a major position in the stock is urging management to franchise some company owned stores and spin off Horton's. The investor thinks Horton's would bring $36 a share and Wendy's would go to $29. (Wendy's closed @ $46.61 on Tuesday).

STOCK TIP OF THE DAY - screen Manpower, Inc., with employment on the rise this is best of breed.

BONDS vs. DIVIDENDS -

Albert Einstein said the greatest invention of all time was compound interest. That was before the tax rate on dividends was reduced to 15%. Consistent dividends are a measure of a company's soundness (they can fake a balance sheet, but not a dividend check). Now, with the lowest tax rate at 15%, they must be considered by all investors. These are the current top dividend payers in the Dow ( I omitted GM @ 5.3% as I do not believe their dividend is safe):

1. Altria 4.4%
2. Bank of America 4.1%
3. SBC 4.0%
4. Verizon 4.0%
5. Coke 3.8%
6.Citigroup 3.5%

If you own a bond, or a bond fund, that is paying 4.5% you are doing okay, right? NO! In the top tax bracket you are paying twice the taxes you would pay if you owned a similiarly paying common stock. Since the rate reduction, investors have saved one hundred million dollars that they would have otherwise sent to the government. Were you one of them ?

Just One Man's Opinion - 11 July 2005

by JMac

STOCK TIP - Screen DeVry - a growing private university.

MUSINGS - With Congress about to begin hearings on the proposed sale of UNOCAL to the Chinese oil company CNOOC, will the hedgies go short on the rival bidder Chevron/Texaco and long on UNOCAL? And, if they do, will it drive up UNOCAL'S price and cause Chevron to pull out? And, if they do, will the Justice Dept. allow Exxon, or T. Boone Pickens to scoop UNOCAL up to keep it out of the hands of the Chinese? Today, refining capacity is more important than proven reserves.

POLITICS AND THE MARKET - In the next 6-10 months President Bush will be able to affect the financial markets in a way not seen since the New Deal. He will nominate one, and possbly three, new Supreme Court justices and a Chief Justice (hopefuly pro-business, libertarian Anton Scalia). In addition, he will appoint the second most powerful man on the planet- a new Fed chairman.

C'mon George, forget about the Ten Commandments and flag burning..."the business of America is business" - Calvin Coolidge

READERS - IF YOU HAVE A STOCK, OR STOCKS YOU WOULD LIKE US TO SCREEN, COMMENT IN ANY OF MY THREADS

Just One Man's Opinion - 10 July 2005

by JMac

GOOGLEMANIA !!!!!!! - I recently came across an analyst's blog site wherein he extrapolates Googles numbers and predicts it eventually will have a market cap of ONE TRILLION DOLLARS !!!!! He says this will make the stock worth $3,5000 !!!!!
As I said on July 1, don't ask me, I haven't a freaking clue....

Fed Watch - My sense is the Fed raises to 4% on Fed Funds rate and stops.The Fed seldom raises rate during an election cycle (except when the Prez is a peanut farmer) and let's face it, Greenspan wants the Republicans to keep the House. That ties in with this:

Recently I recommended SBC for an income (4% dividend) but no growth portfolio. Now, I recommend you switch out for Bank of America. It has income ( 4% div.) AND growth. My sense is they are looking to make more acquisitions than just announced last week. There is some low hanging fruit in the regionals in the South and Southwest, which couldl be accredtive to their earnings in late 06 and 07. Wall Street hated the FleetBoston deal and it was WRONG. This makes this a growth AND income play.

ANNUITIES - A PERSONAL STORY -

In 1997 I enjoyed a small, unexpected windfall. I read a very small article in a respected financial magazine which asserted " In recorded history no one had ever lost a dollar in annuities". I spent the next week reading everything I could find regarding annuities and finally invested a portion of my windfall (50K) in a variable rate annuity. It doubled in eight years, which is an annualized return of 9%, net of costs, tax deferred. At the time I was in the 39.6% bracket, today 28%. I annuitized it on June 30 of this year and I, or my wife, will receive a monthly check for $600.00 for the next 20 years, or $144,000, paying tax only on the portion that represents my gains. Big deal ! right ? Well, I just refied my house for twenty years and that is my current house payment.

There are a plethora of companies that offer annuities. I picked one that had been around a while and had the lowest expenses. (If you want to know what I chose, send an inquiry by commenting to this thread) but you can find them as easily as me.

Annuities give you great freedom of choice. The big ones offer a guaranteed fixed return in, e.g. MMA's, bonds, gov't and corp. (don't buy tax free's the income is already deferred) as well as a market basket of stock portfolios and index portfolios. Typical portfolios are :Balanced, Capital Growth, International, Index ( Russell, S&P, Mid-Cap, Large-Cap. etc.) They offer you any style, or combination of styles, you want and you can spread your dollars throughout and switch, mix and match, at NO COST, at anytime.

For instance, I put 10% in International, 10% Balanced and Capital Growth, 20% Large Cap, 20% Mid Cap, 20% Small Cap,
and 10% Growth & Income. ( I did tweak it a couple of times).

After a period of time (usually one year ) you can: cash out or, take income for a set period of years, or for your life, or the life of the last survivor, if you designate a co-annuitant(s). If you die at any time after you put in your first dollar, your beneficiary can take the cash, or step in your shoes and do whatever he/she likes. Give your insurance agent a call.

Just One Man's Opinion - 09 July 2005

by JMac

IF you think the U.S.economy is on the upswing screen these stocks :

Cendant, Starwoods, Harrah's (they also own Caesar's, The Flamingo and Treasure Island), Carnival Cruise Lines, Disney, Tiffanys, Nordstroms, Dardens Resturants, Nike, Fortune Brands (Titleist Golf), IGT, Coach, NY Times, and IF oil trends down to $55, Yellow Freight, Dupont, Dow Chemical and Eastman Chemical, Union Pacific and Burlington Northern RR's.

QUESTION OF THE WEEK : With litigation winding down, both here and in Europe, hordes of free flowing cash, NO, I say NO !!!, long term debt, I value Microsoft @ $34, or above, yet it is stuck in the mid 20's; WHY ? Steve WHY ?

p.s. I own a lot of Softee in my fund portfolios.

Just One Man's Opinion - 09 July 2005

by JMac

Normally, I do not like sector picks, but prefer to be stock specific, however here are some sectors which I have screened for fundamentals and found there to be not one stock to make the grade:

AIRLINES- With the exception of Southwest and JetBlue, management sucks. Twenty-five years after deregulation these guys still have no clue. The hub and spoke system does not work fellas! There is not an overcapacity of seats, there are too many airlines flying the same routes. As a result there is no brand loyalty and seats are now a simply a commodity. We only need four national carriers and until the weakest finally die, or are merged, it will only get worse, no matter the price of oil. If you want to make money in the airlines, go to law school and upon graduation join a firm that specializes in bankruptcy.

DOMESTIC AUTOMAKERS- Management has no clue about the U.S. consumer and hasn't for twenty years. They are FINALLY catching up in quality, but it is too late. Now, they think they can compete by giving away cars, and the UAW has a death wish. During the salad days management gave away the store, now they are paying the price. The consumer has shown over and over it will pay a premium price for a car, but want a premium car in return and Japan, South Korea and soon China will provide that. Why can we design and build the world's finest airliners and combat aircraft, but we can not build a safe, reliable and attractive automobile ? Are all the great design engineers in Seattle ? Within this decade the "Big Three" may be : Toyota/GM, Daimler/Chrysler and Honda of America. The city of Detroit will go the way of Akron (former tire capital of the WORLD) and Youngstown, Ohio. LOOKOUT taxpayers, you will soon be picking up GM's pension benefit plan, and it is a doozy !

LONG DISTANCE CARRIERS- Three years ago I was paying $.12p/m, last year $.09 and today $.06. This has become just another commodity also. Within this decade long distance will be free.

Side lights- Do not like The John Deere Classic, but like John Deere the stock. Farm income in 2005 will be up.

China is growing at 8% and buying huge amounts of coal, iron ore and other basic commodities from Australia (one of the most stable economies and government in the Pacific Rim). Screen some Aussie mining companies for fundamentals.

With more deregulation, nice dividends (at 15% tax rate) and a growing economy, electric utilities are in a sweet spot, e.g. Duke Power, FPL and just about anything in the SW U.S., HOWEVER: be on alert, AEP was recently hit with major litigation by the feds and the states over pollution control, past and present.

Just One Man' Opinion - 07 July 2005

by JMac

International Stocks -

The "Global Marketplace" has become a hackneyed expression. However, every investor should have 10-15% of his/her investment dollars in companies in that market.

There are three ways to play the world. You can buy stocks in foriegn countries through something know as ADR's ( American Depository Receipts), buy mutual funds or indices, or buy American companies that get a major portion of their profits from overseas

I personally do not like the first option for a variety of reasons: first, the lack of transparency and the unknown accounting rules. The US has a reasonably aggressive accounting and regulatory sysytem and yet Enron, Adelphia, WorldCom and a host of others were not discovered until it was too late for the common shareholders. Just think what it must be like in, say, Jeezsakistan, or where ever ( I made that up so as not to insult anyone reading this ). And, if Arthur Andersen and thier colleagues can not be trusted to add 2 plus 2, what about the accountants in Jeezakistan City? or worse Lagos, Nigeria.

My preference today is a broadly diversified international index fund (diversified by country, not necessarily by stocks). There are a multitude of good, well run funds out there with expense ratios below 1% and with no loads. I would look at China and India, obviously. Within two decades China's total GDP will exceed our's, and India will be even bigger ( three billion consumers!!!). Europe is down and parts of it will stay down for some time. Until Germany and France discover capitalism they will drag down the EU's economy. However, some very interesting things are happening in Central and Eastern Europe. The former Soviet Union's satillites are embracing the free enterprise system with gusto. Look at funds with exposure in the Czech Republic, Slovenia, Poland and Hungary. There is a reason why they are not clamoring to get into the EU and it is because they do not want to be dragged down by its overly bureaucratic, overly regulated sysytem, its high labor costs, low productivity, and the currency. The one country in the EU that I like is Great Britain, but if it ever converts to the Euro (and I do not think they will) then I would be careful there also.

The real safe bet is right here in the USA. Companies like Coke, Altria, Caterpillar, Avon, Boeing (Airbus has made this a better company), P&G, J&J, eBay, Starbucks, GE, Citigroup, Pepsi, Honeywell and, believe it or not, GM (those Chinese love those Cadillacs) all are growing their revenue overseas. As a result, when you buy their stock, you are buying into the "Global Marketplace".

Side note: If you think voice over the internet is the next great leap, look at Cisco (see this week's Business Week).

Just One Man's Opinion - 07 July 2005

by JMac

First, a correction concerning my recommedation last week on ExxonMobil: I mistakenly said Exxon had "20 million bbls in proven reserves" actually they have over 20 BILLION bbls in proven reserve. Sorry! only off by a factor of 1000.

For the first time in a longtime, I am reading little snippets from financial writers using the "R" word. A few of them think corporate profits for this, and the next quarter, "may" disappoint and think the steady climb in oil prices "may" lead us into recession in "06.

Personally, I have no idea when the next downturn will occur. I only know that it will occur....sometime. The business cycle is a natural event and is sometimes triggered by external as well as non-economic events, e.g. terrorism, war, etc.

In the period of "malaise" (78-80) we had the Iranian hostage crisis, skyrocketing oil prices and a Fed that raised interest rates at every meeting, sound familiar?

IF you think a recession is just around the corner and the market may pull back, what do you do,if you are a fundamental investor?

The usual safe plays are: Campbell Soup, Sara Lee, Krogers, General Mills, Kelloggs, P & G, Clorox and the like. Consumers will cut back on some things like going to the movies, Disneyland, gambling and buying a new home, but they got to eat and bathe.

However, why play the breakeven game? For a true investor (not a trader) a pull back is Nirvana. Would you put off buying from your favorite store because it was offering everything at a 5 or 10% discount? Further, remember in 1982? Thanks partially to the Reagan tax cuts, the market began the greatest bull run in its history. Generally recessions last only12-15 months.

Here is your chance to pick up that stock, which you have screened for the fundamentals, as I have defined them, but which you have been unwilling to buy because everytime you look at it it is at, or near its one year high.

For instance, I really like e-Bay. I think they are aggresive yet disciplined and they are a great China play. However, I am not ready to buy it at these prices.

When, not if, the recession hits, you should already know the stock, or stocks YOU always wanted to own, but couldn't afford and then move QUICKLY !!!!

Just One Man's Opinion - 02 July 2005

by JMac

I am constantly amazed at my peer group's (professionals) lack of basic investing tools. I have been investing since college (1966) have made money have lost money, but managed to put four people (including myself ) through college AND law school by following some SIMPLE rules that, when I discuss with my peers, seems to surprise them. Warren Buffet I am not, but I am an existentalist investor and facts are my best friend, what is.... is.

A long those lines I recommend the following UNoriginal rules to investing, also believing in KISS (keep it simple stupid)

Questions:

Are you a day trader? if so STOP here

Do you know your investment goals? if not STOP here

Do you have 1yr in living expenses in a liquid money market ? if not STOP here

Can you afford to invest 25K and wait 3-5 years? if not STOP ( if you have less than 25k to invest see mutual fund section below) if not STOP here

Do you want to get rich quick? if so STOP here

Do you have life insurance or annuity equal to 3 years of your current income? if not STOP here

Will you spend 1-2 hours a week reading IBD, Barrons and the WSJ? they are free on-line and at your local library

If you are still with me then here we go:

The trend is NOT your friend- do not be a momentum player

Forget "technicals analysis "like" double tops, inverted W's", etc., it is all mumbo jumbo. Market technicians know as much as you do as to what the market's next move will be. They rank up there with pyschic detectives and FBI profilers.

Do your own trading on-line, it is cheap and why pay for brokers' advice when you have access to the same info they do AND a lot of them are simply market makers? ( several years ago I had a small account at A.G. Edwards, one day a broker called me and spent 15 mins. on the phone touting Continental Illinois, "great loan potfolio, great yield" yada yada. The next Sat I went to library and read a small blurb in IBD that the Comptroller was putting their loan portfolio "under review" shortly after that: POOF!! they cratered and I closed my account, fortunetly I had not followed my broker's advice).

Do not chase the new hot IPO

Do not chase the new "cancer cure"

Be diversified, but in doing so you WILL have dogs, when they lose their fundamentals cut your losses

Understand BROAD fundamentals, e.g. for months now Larry Kudlow of CNBC (who I like personally) has been pooh poohing the affects of high oil prices on the market, stating that energy is now a much smaller percentage of GDP than in the 70's... well that may be true, but this market, at least certain stocks in this market, are psychologicaly and fundamentaly sensitive to oil at certain breakpoints. You can fight the tape, but not fundamentals. This market now looks to the price of oil almost more than it does interest rates, and next year it will look to congressional elections.


Forget your brother-in-law's "tips". A few years back a very good friend and tennis partner had taken a new job in Houston with an energy conglomorate which he said was going to be the "Standard Oil of the 21st century". He moved to Texas, put all his 401k and his grandmother's money in the stock...well, I guess by now you know the "rest of the story". His grandma no longer speaks to him, he is living with his parents in Miami............. (Ohio) and selling meat door to door. (He got"LAYed").

If you do not understand a company or its business, forget it.

Avoid bonds, in the long run the market will outperform the bond market and if you are diversified you will too, BUT there are a few junk bond funds out ther with consistent returns that you should consider. Remember: a junk bond (high yield) in a company is safer than the common stock as bond holders get paid first (unless issued by Donald Trump maybe)


Do not be a pig...take a profit once in a while. When in college I bought a stock at $9, sold it nine months later at $15.50 to buy somthing I really didn't need. Well, it eventully went to $28, boo! hoo!.....so what? I got over it.

MUTUAL FUNDS

In my current personal situation, with the exception of a few shares of common stock I inherited, all my funds are in mutual funds including my IRA' s and my wife's 401k. It is the lazy man's investment vehicle, although I still spend 1-2 hrs reading IBD, Barron's and WSJ and somtimes ValueLine.

For full disclosure we own Vanaguard S&P 500, Vanguard Total Market Index, Dodge & Cox Stock, and a variable rate annuity with international and small cap indexes.

Hard and fast rules: Do not buy a fund with a load ! Avoid funds with an expense ratio of more than 1%

Read John Bogle's books (at least two) on mutual funds. This guy will never lie to you, and he knows where the bodies are buried.

Look for funds with consistent 10 year growth in total return and a manager with 5 or more years with the fund

If you are happy with your selections : set it and forget it! Review every 6 mos, but do not watch its daily quotes

Make sure you have at least 10% of you total holdings in DIVERSIFIED international funds

Look for funds with Morningstar Ratings of 4 stars or more for at least the last 5 years

Just One Man's Opinion - 02 July 2005

by JMac

What ARE "Fundamentals ?" (for the average Joe & Jane)

I must confess that in almost 40 years of on again off again investing ( I was totally out of the market through much of the 70's) I have read fewer than a dozen company annual reports. I am skeptical by nature and find them boring and full of "puffery".

If I become interested in a stock I use the S& P Report, Moody's and ValueLine.

I look for the following in no particular order:

Do I understand the product or service? (this has made me miss many biotech and tech plays)

Is it a market leader? e.g. Anheuser, Altria, WeightWatchers

I like brand recogniton , e.g.Coke, P&G, Marlboro (Altria) , J & J, McDonalds

Do the cooks eat their own broth? How much do insiders own ? This is very important for start ups.

What is its P/E relative to its sector?

Dividends- this is not just an income question. If a company consistently pays dividends it is probably healthy, e.g. J & J has paid dividends for 87 years, (but I do love the 15% tax rate too)

Book value ?

Five year profit margin on sales ?

Who are its competitors?

Management- e.g. I like Viacom, but who succeeds Redstone ? Disney- boys, boys, play nice !

Extrinsic factors- war, peace, elections, oil prices, Fed policy, litigation, labor problems, e.g. GM & airlines.

I used all these factors to buy a small positon in Roper Industries a few years back, apparently Maytag agreed with my assessment and bought them (and me) out at a nice little premium in just six months. I DID NOT buy on a takeover bet, I have never liked that play, it was pure luck that someone else saw what I saw, or was it ?

ALL this info is out there and it is FREE!!!!!!!!!!