JT’s DAILY BLOG for Month Of June 2012
Note: All previous month's posts are available in the archives, as noted above.
All postings for the month are available here, sorted in descending order - i.e. most recent at the top.
All times are Eastern Time - same as the NYSE
1st Posting Friday 06/29/2012 9:15 AM
The major market catalyst yesterday was the long-awaited ruling from the Supreme Court on Obamacare. The surprising results caused a market swoon that endured until about 3:30 PM, after which stocks regained most of the lost ground in the final 30 minutes. Go figure. I think it was just too many enticing bargains available for buyers to resist. An encouraging outcome from the European summit, with aid planned for Spain and Italy, has contributed to the mood, and a relief rally looks to be in store for today. Asian and European markets are universally higher, by significant margins. The morning release of Personal Income and Spending figures for May were in-line with expectations, and while weak, yielded no surprises to upset the positive vibes.
Upgrades/downgrades of note this morning were:
Buckeye Partners LP (BPL) was downgraded from OutPerform to Perform at Oppenheimer, citing the low distribution coverage ratio and lack of near-term growth prospects.
Triangle Capital (TCAP) was initiated at Hold at Stifel Nicolaus.
Vodafone (VOD) was downgraded from Buy to Hold at Jeffries, citing competitive concerns and reliance upon Verizon Wireless.
Greif Inc (GEF, GEF.B) was upgraded from Market Perform to OutPerform at Wells Fargo, citing stabilizing demand and improving cash flow.
I am working on an article about a single stock, Proctor and Gamble (PG), and how the recent news, including Cramer’s placement of the CEO on his Mad Money “Wall of Shame”, represents a rare buy opportunity for this bluest of blue chips. I am now worried that the thesis of the article will be over with by the time I can get it through the publishing process, as the buy opportunity evaporates. My advice to any dividend investors out there that don’t own it, buy soon, before it recovers back into the mid-sixties and beyond.
1st Posting Thursday 06/28/2012 9:15 AM
Stocks managed to pull off a positive day yesterday, with all of the major averages posting gains. The Pending Home Sales number released at 10:00 AM seemed to be the catalyst for the move up. Today, however, it looks like the mood has changed. Asian markets finished mixed, with Japan posing a healthy gain, India and Australia posting tepid gains, and Shanghai and Hong Kong posting solid declines. European markets are mostly down, with Spain hanging on to a small gain as the only exception. U.S. futures are indicating a negative start is in store for the start of trade here. The major economic releases of the day have come out, with the Unemployment Claims numbers in line with the dismal estimates, and ditto for the third estimate of Q1 GDP. The weekly claims total is again approaching the 400K figure, a psychological level, and the GDP estimate of 1.9% is similarly viewed as indicating bleak conditions. The anticipated European standoff between Germany and all of the rest of the EU regarding what to do about the Euro crisis is weighing on the markets as well.
No upgrades/downgrades so far today on stocks I track. Yesterday, after the close, Paychex (PAYX) reported FQ4 EPS of $.34, inline with estimates. Revenue was $551.5M, up 6% Y/Y, still about $5M below estimates. This is one of my long-term holdings, and I consider these results as pretty darn good, considering the conditions. The shares are trading down slightly in the pre-market.
In a similar vein, General Mills (GIS) declined modestly yesterday after posting a decent quarter, as investors are concerned about the subdued guidance released by management along with the numbers. Since GIS was already in buy territory, I took the opportunity to add to my position at a cost of $37.45 per share. With over 100 years of steady dividends, I’m not too concerned about the ability of GIS to navigate the shoals ahead.
1st Posting Wednesday 06/27/2012 9:15 AM
Stocks managed to end the day Tuesday holding on to modest gains. Elsewhere, Asian markets mostly finished higher, with the exception of Shanghai, which ended with a small loss. European markets, in what must be a triumph of hope over experience, are all trading in the green at this moment. U.S. futures are modestly positive. The main economic release of the day has already come out, as Durable Orders came in at +1.1% vs. 0.5% expected, and Durable Orders, Ex-Transportation, came in at 0.4% vs. 0.7% expected. The prior month headline number was revised down slightly. It was a mixed reading, at best, but not a disaster by any standard.
I am keeping my powder dry and my radar on, but at this point I have to see some extreme bargain prices on the screen to be tempted to buy. I have several quality stocks with a minimal holding thus far, and I would like to add more, but only at an extreme bargain price. Top candidates:
Walgreen (WAG), under $29, ideally even lower.
Eaton (ETN), under $37.
Emerson Electric (EMR), under $44.
Greif Class B (GEF.B), under $40.
General Mills (GIS), under $38. GIS reports today, a bad report could send it down. In fact, it has already come out. GIS posted FQ4 EPS of $.60, beating by a penny. Revenue of $4.1B, up 11.9% Y/Y, still missed by $.01B. The firm forecast sales growth in the mid single digits, with projected earnings to be hurt by increased pension costs and expected higher taxes. The company had to rely on pricing power to achieve the current results, with U.S. volumes down 7%. The company also reported that input-cost inflation was severe, with gross margin slipping from 37.5% to 36.8%. Hard to say what the stock will do today after this report, but I will be watching.
1st Posting Tuesday 06/26/2012 9:00 AM
Monday was a down day for U.S. stocks, with all of the major averages posting sizeable losses. Asian markets followed up with losses in Japan, Shanghai, and Australia, but countered with gains in Hong Kong and India. European markets are showing losses at this writing, except for Britain, which is hanging on to a small gain. U.S. futures are indicating a slight positive bias at the moment. Economic news on tap is light, with the Case Shiller 20 City Housing Index for April due out, and the latest read on Consumer Confidence also due.
After scanning for a report, I have determined E*Trade indicated an erroneous date for 2nd Quarter earnings from E.N.I. (E), the Italian oil major, which I had reported yesterday as being expected 06/25/2012. The company’s financial calendar on their web site says the release will be on 06/30/2012, along with an announcement regarding the first semi-annual dividend for 2012.
Upgrades/downgrades that have come out on my stocks since yesterday morning’s posting are:
Darden Restaurants (DRI) was downgraded from Neutral to UnderPerform at Buckingham.
Greif Inc (GEF, GEF.B) was downgraded from OverWeight to Neutral at JP Morgan, citing reduced volumes in Europe. Of course, you idiots, that’s why the price is down 20% since early April. Greif is world-wide, and not overly dependent on Europe, although as a cyclical, a world-wide economic downturn will affect Greif, no doubt.
Raytheon (RTN) had coverage resumed at Stifel Nicolaus with a Buy rating.
Northrop Grumman (NOC) had coverage resumed at Stifel Nicolaus with a Hold rating.
Lockheed Martin (LMT) has been dropped from my lists, but just for the record, note that LMT also had coverage resumed at Stifel Nicolaus with a Hold rating.
Public Service Enterprise Group (PEG) was downgraded from Buy to Hold at Jeffries.
Regarding the three defense stocks that had coverage resumed by Stifel Nicolaus, I had reviewed all three in my final Seeking Alpha article in the “Yield, Value, Safety” series, and had eliminated LMT because of excessive debt, retained NOC without much enthusiasm, and pointed to RTN as the best of the three. So I suppose the latest from Stifel Nicolaus is vindication of my evaluation methods, to some extent. Of course, all three are under a cloud with the U.S. Federal budget crisis pending. It is not a crisis, you say? Don’t worry, it soon will be.
Time to get ready for the day. At this point I’m in a wait and see mode, to see if a summer swoon will open up some great buying opportunities, like the last two summers. If a stock isn’t a terrific buy, I’m not interested, at this point.
1st Posting Monday 06/25/2012 9:15 AM
Stocks managed to eke out gains on all the major averages Friday, recovering maybe 20% of the ground given up the day before. It was not enough to avoid a loss for the week, however. As the new week begins, it appears the bears are back in control. Asian markets all ended the first session of the week with losses, and thus far, European markets are performing similarly. U.S. futures are indicating that the U.S. markets will open with losses as well. The gloom is the outlook for a solution to the European debt crisis, as yet another summit of European leaders is set to occur Thursday. The recent economic data here has contributed to the negative vibes, and the monthly New Home Sales numbers due out today at 10:00 AM probably will not do much to improve the mood.
One of my stocks actually reported last week, as ConAgra Foods (CAG) reported Thursday that FQ4 EPS was $.51, beating estimates by a penny. Revenue of $3.4B, up 6.1 % Y/Y, beat estimates by $30M. I had been watching CAG, planning to buy more as it approached $24, which it was doing before the report. CAG shares actually gained on the big down day last Thursday, and the stock finished the week at $25.35. So, I missed a buy, but I can’t say I’m not happy that one of my holdings reported good numbers in a down economy.
Another earnings report I missed was Darden Restaurants (DRI), which reported Friday Q1 EPS of $1.15, in-line. Revenue of $2.07B, up 3.8% Y/Y, was below estimates by $40M. That, along with issuing FY13 same-store sales estimates below earlier numbers expected, saw the shares trade down over 2% Friday. The present economy is a tough one for restaurants, no doubt, and the U.S. especially has too many of them, in my opinion. I don’t own DRI. As you can tell, I’m not optimistic about the restaurant sector, although DRI is a standout in a weak lineup.
Stocks on my lists going ex-dividend this week, all on 06/27/2012, are:
National Health Investors (NHI), yield 5.18%.
Nucor (NUE), yield 3.95%.
Tate & Lyle PLC (TATYY), yield 3.86%. This is a semi-annual dividend.
Prospect Capital (PSEC), yield 10.74%. This is a monthly dividend.
Windstream (WIN), yield 10.33%.
A couple of earnings reports expected this week are:
ENI S P A (E), 6/25/2012.
General Mills (GIS), 6/27/2012.
Paychex (PAYX), 6/27/2012.
Time to see what the day brings.
1st Posting Friday 06/22/2012 9:30 AM
Yesterday stocks dropped at the open and continued dropping all day long, with the result being that the market experienced its biggest one day decline of the year. While none of the economic data was inspiring, the Philly Fed number that came out at a negative 16.6 vs. only a negative 0.2 expected seemed to be the catalyst for the sell off. Asian stocks followed the U.S. lead, with all of the major markets there finishing the most recent session with losses. European markets are trading mixed, with Britain, France, and Germany down, Italy and Spain up. Maybe because the presumed money flow is going to be from Germany and France to Spain and Italy, as the Eurozone rescue continues ad nauseum.
No economic releases are scheduled for today. Only one upgrade/downgrade has come out so far on stocks I follow, as Kimberly Clark (KMB) was upgraded from Hold to Buy at Argus.
I initiated a new position in Eaton (ETN) yesterday, buying early before the extent of the day’s damage was apparent. It dipped below my buy level of $39, so I put in a limit order at $38.85, in case the down move extended. When it was filled about two minutes later, I had an inkling of what kind of a day it was going to be. ETN continued down, over a dollar further. Obviously, I bought too soon. As the markets are only minutes away from the open, U.S. futures indicate a mild snap-back may occur early, but after that, who knows?
1st Posting Thursday 06/21/2012 8:45 AM
Yesterday, after an initial swoon following the statement and comments from Fed Chairman Bernanke, the market recovered most of the lost ground, to end with only modest losses. Overnight, Asian stocks finished mixed, with Japan and India posting gains, while Hong Kong, Shanghai, and Australia posted sizeable losses, following the release of data by China indicating a manufacturing slowdown. European markets are trading to the upside at this moment, with the exception of Britain, which is showing a small loss. U.S. futures are modestly positive as we await the weekly numbers for Unemployment Claims, due out at 8:30 AM. Other economic data due out today are Existing Home Sales, the FHFA Housing Index, the Philadelphia Fed Business Index, and the Leading Indicators, all due out at 10:00 AM. No upgrades/downgrades have come out so far today on stocks I follow.
I have a new article out on Seeking Alpha, focused on a single company, Greif, Inc. (GEF.B). In the article I made a case for investing in Greif, a company in which I did indeed invest in last week. See the SA Articles selection from the Home Page for a link. Just for the record, I took advantage recently of news-driven declines in two other stocks this week to buy shares at what I hope proves to be “bargain” prices; Proctor and Gamble (PG) and Walgreen (WAG). I already owned PG, but couldn’t pass up a chance to buy more at just barely over $60. I’m pretty comfortable with this move. I’m less comfortable with my pick-up of WAG shares just under $30. The stock went down further after I bought, as the market continued to punish the stock for a recent acquisition and failure to resolve a business dispute with Express Scripts. Bargains don’t come along in the market very often, and when they do, they are usually due to some controversy or unfavorable development.
The Unemployment Claims data came in essentially flat, with the futures turning into the red, as investors express disappointment with the lack of progress.
1st Posting Wednesday 06/20/2012 9:15 AM
I just now noticed I had the wrong day specified on yesterday’s post. Since corrected. Anyway, I got the year right. 2012, correct? Regardless of what day it was, yesterday was a good day for the bulls, with all of the major averages posting solid gains. Today, all attention will be focused on the Fed, which will release the results of their just-concluded meeting at 12:30 PM. Meanwhile, Asian markets managed to close mostly higher, with Shanghai being the lone exception, ending with a small loss. European markets are mostly trading up, with France the lone exception, currently presenting a small loss. Don’t the people over there read the papers? Does anybody still read newspapers, for that matter? But I digress. Back to the markets. U.S. futures are very modestly positive at this moment, with less than an hour to go before the start of trade.
Upgrades/Downgrades of note on stocks I follow are:
Southern Company (SO) downgraded from Long-Term Buy to Neutral at Hilliard Lyons. (This actually came out during the day yesterday.)
Southern Company (SO) downgraded from Buy to Neutral at BofA/Merrill.
ConocoPhillips (COP) downgraded from Neutral to Sell at Goldman.
PennantPark Investments (PNNT) Upgraded from Market Perform to OutPerform at FBR Capital.
Plains All-American Pipeline (PAA) intiated at Buy at Janney Capital.
BreitBurn Energy Partners (BBEP) initiated at Buy at Janney Capital.
Not much else to note this morning. All I can say is, the Thunder better start rumbling soon, or it will be all over. (ie. The Oklahoma City Thunder, now at risk of elimination in the NBA Finals by the Miami Heat.)
1st Posting Tuesday 06/19/2012 9:15 AM
Monday finished in mixed fashion, with the Dow30 and the New York Composite averages up slightly, while the other major averages were down slightly, all on low volume. Overnight, Asian markets mostly fell, with India being an exception, posting a nearly 1% gain. European markets are all trading into positive territory, with Italy and Spain up over 1%. U.S. futures are modestly positive at this moment.
The economic data for the day has already been released, with Housing Starts slightly below expectations, coming in at 708K, and Building Permits above expectations, coming in at 780K.
A couple or three upgrades/downgrades that came out yesterday after the morning posting were:
AT&T (T) was initiated at Buy at Janco.
ConocoPhillips (COP) was downgraded from Market Perform to UnderPerform at Raymond James.
Chevron (CVX) was downgraded from Strong Buy to OutPerform at Raymond James.
As for today, no new analysts’ ratings have come out so far today on the stocks I follow.
I failed once again, this time by forgetting to put out the promised Monday list of stocks on my lists going ex-dividend this week. Better late than never.
Greif, Inc. Class B (GEF.B), 06/18/2012, yield 5.82%.
Gladstone Investment Corp (GAIN), 06/18/2012, yield 8.24%. This is a monthly dividend.
Main Street Capital (MAIN), 06/19/2012, yield 7.10%. This is also a monthly dividend.
American Capital Agency (AGNC), 06/19/2012, yield 15.45%.
Heinz H J (HNZ), 06/20/2012, yield 3.75%.
General Electric (GE), 06/21/2012, yield 3.44%.
None of my stocks are scheduled to report earnings this week.
Today is looking like it will be a slow day at this point, but of course that could change.
1st Posting Monday 06/18/2012 9:15 AM
Friday was another positive day for the market, which was a bit of a surprise, following lackluster readings on Industrial Production, Capacity Utilization, and Sentiment, the latter as per the latest University of Michigan survey, which occurs every month. A stock I have been considering, Greif Inc. Class B (GEF.B), did not participate in the rally, dropping below $45 during the day, a six month low. The stock features a 5% yield, and Monday is the ex-dividend date for the July payment. Greif is a worldwide shipping container firm, and as such is a cyclical stock, vulnerable to an economic slowdown. I believe the sell-off is overdone, and based on the record, I believe Greif will hold up fine, so I put my money where my opinion is, and initiated a position at the end of the day, paying up a little to get in at $44.45.
Today, however, it is a different story, as U.S. futures are indicating a negative start to the week. Asian markets closed mostly with gains, except for India, which posted a loss. European markets are trading lower except for Germany, which has a miniscule gain. Italy and Spain are down over 2%. A rise in Spanish bond yields is indicating renewed concern over Spain’s fiscal situation. The Greek election outcome was benign, with a pro-Euro government being likely, based on the results.
The only economic release scheduled for today is the NAHB Housing Index, due out at 10:00 AM. Only one upgrade/downgrade has come out so far today on stocks I track, as BreitBurn (BBEP) was downgraded from OutPerform to Market Perform at Raymond James.
I had a June call expire Friday on Pfizer (PFE), at a strike of $22. I could have repurchased the option late in the day and still eked out enough profit on the option trade to buy a pizza, but instead I elected to let the shares go at $22. As per my Seeking Alpha article on Big Pharma a few weeks ago, I’m not too keen on PFE, and I decided to take the profit and look for a better opportunity for the funds thus freed up.
Time to see what the day brings.
1st Posting Friday 06/15/2012 9:30 AM
Stocks managed to stage a substantial rally yesterday. Today, the world-wide up tick continues, with Asian markets all closing in the green, and European markets all posting strong gains in the trading day thus far, which is about half-way along. The word is that the European authorities are prepared if the Greek election results should lead to turmoil.
The Empire Manufacturing survey released at 8:30 AM was below expectations, and likewise for the Industrial Production data that came out at 9:15 AM. U.S. futures are just barely positive, down from stronger levels earlier, with only seconds to go to the start of trade.
Two upgrades/downgrades of note that came out this morning are:
Kinder Morgan (KMI) was initiated at Buy by Goldman.
Exelon (EXC) was downgraded from OverWeight to Neutral at Atlantic Equities.
The market has indeed started, opening up more strongly than expected, in the first few minutes, at least. Today is June options expiration, and I have two covered calls expiring today; a $21 strike on Cisco Systems (CSCO) and a $22 strike on Pfizer (PFE). The CSCO option is a clear winner, as the stock has dropped precipitously since I sold the call. Pfizer is in the money by more than $.70 at this moment, and I will have a decision to make today on this trade; either buy back, with the result being only a marginal gain, maybe even a loss, on the option trade, or let the shares go. Unless the stock rockets up today by a substantial amount, I will probable buy back and then sell a new option. On the other hand, I’m not that enamored of PFE, I may just say goodbye and good riddance.
Time to take up stations, stocks are under way.
1st Posting Thursday 06/14/2012 9:15 AM
Stocks ended the day yesterday with moderate losses, after an up and down session. The news flow just did not give investors any reason to buy. Today, it looks like the news flow will be even worse. Spanish bond yields are rising, exacerbating the Euro crisis. Stockton, California seems to be headed for municipal bankruptcy. And the beat (down) goes on. A brief deluge of economic data out at 8:30 AM was universally a little worse than expected. Unemployment claims went up, prices were down per the CPI, but up per the Core CPI. Asian markets all ended with losses. European markets are likewise nearly all trading in the red, with the exception of – Spain? Go figure. It is not due to an improvement in Spain’s outlook, but due to the expectation of more largesse from the rest of the Eurozone because of Spain’s poor situation. U.S. futures are indicating a rocky start is in store for stocks today.
MarketWatch has an interesting read available from The Trading Deck. It is an article by a finance professor, Aswathe Damodaran, on Ben Graham’s stock screening parameters, and how well stocks thus selected would have done historically. The article is pointed out by Mick Weinstein, a MarketWatch regular. A very interesting read, more in-depth than the usual blather.
None of my stocks had any upgrades/downgrades so far today.
One action I have taken is I sold my position in Otelco (OTT), and I am dropping the stock from my Tier3 list. It is just too risky, even for Tier3. Buying it for less than $6 made sense as a speculation, but now that it has moved up above $7, I decided to take the dividend and the capital gain and run.
A new day awaits.
1st Posting Wednesday 06/13/2012 9:30 AM
Yesterday saw stocks rebound from the day before, taking the averages to about where they were before the week began. Today, it looks like the good vibes have not lasted, as the U.S. futures indicate stocks will slip at the open. Asian markets mostly posted gains, with only Australia closing in the red, and then only by a small increment. European markets are mostly trading down, with only Spain trading in positive territory. Lackluster results posted by a couple of economic releases that came out at 8:30 AM have added to the gloomy outlook. Retail Sales were worse than expected last month, and the Producer Price Indices indicated prices were down, which shows that producers have little pricing power, indicative of a weak economy. Of course, declining gasoline prices accounted for much of the pricing weakness, which is not bad news for most people.
Two of my stocks received upgrades today:
Magellan Midstream Partners (MMP) was upgraded from Neutral to Buy at Ladenburg.
Johnson & Johnson (JNJ) received three upgrades, from Market Perform to OutPerform at Raymond James, from Hold to Buy at Jeffries, and from Neutral to OverWeight at JP Morgan.
Time to see how the day will go.
1st Posting Tuesday 06/12/2012 9:15 AM
Yesterday stocks had a nice pop at the open, and it looked like a nice gain for the day was in store. But it was all downhill after that, as the decline began almost immediately, never let up, and accelerated into the close. The result was that all of the major averages ended the day with significant losses. One reason given was the initial euphoria over the Spain bank deal was quickly seen as not really solving much, and the mood shifted early to the negative view.
So, here we are this morning seeing positive U.S. futures on the screen, very similar to yesterday. As for foreign markets, Asian stocks were down in Japan, Hong Kong, and China, up slightly in Australia, and up over 1% in India. European markets are all trading in the green except for Italy, which is down at the moment.
The major economic release of the day is out already, as the Commerce Department reports Import and Export Prices are down, below economists’ expectations. The latest dismal reading on the Treasury Budget will be coming out at 2:00 PM.
Only one upgrade/downgrade to report this morning, as Dr Pepper Snapple (DPS) was upgraded from Market Perform to OutPerform at Wells Fargo.
I have a new article out on Seeking Alpha today, my final installment on my “Yield, Value, Safety” series, this time focusing on Industrials and Materials stocks, plus a couple of Insurance stocks. See the SA Articles selection on the home page for a link.
Time to see if today can turn out better than yesterday. It wouldn’t require much in the way of a performance.
1st Posting Monday 06/11/2012 8:45 AM
Asian markets closed mixed, with Japan and China up, India and Australia down. European stocks are trading higher, with Italy being the lone exception, on news of a deal to bail out Spanish banks. U.S. futures are positive, but have pulled back from earlier highs. There are no economic releases scheduled for today. Only two upgrades/downgrades of note have come out this morning:
Southern Company (SO) was downgraded from OutPerform to Neutral by Credit Suisse.
Nestle (NSRGY) was downgraded from Buy to Hold by Societe Generale.
I have completed my review of all stocks on my lists, and the lists as presently construed are the stocks I recommend for dividend investors. Most of these stocks have been addressed in my Seeking Alpha “Yield, Value, Safety” article series, or in earlier articles. I have updated all data as of this past weekend, with new buy prices.
I will now list the changes to each group.
Tier1 – These are the safest stocks. There are presently 39 stocks on this list. Recent deletions are:
Abbott Labs (ABT) – I don’t care for the break-up plan, and the stock has been bid up to where the yield is only an anemic 3.3%. It seems to me that management is about to foul up what has been a stellar performer.
Boeing (BA) – This was an accidental high-yielder caused by the financial crisis. With the stock price up and the yield down below 3%, I see no reason to keep it on the list.
Genuine Parts (GPC) – Granted this is a “steady-eddie” stock with a decent yield a little over 3%, but I’m probably never going to buy it, so why follow it?
HCP Inc (HCP) – This medical REIT is pricey, and depends too much on one tenant, although not as bad as Senior Housing (SNH). Plus, I am wary of everything related to the medical sector. When the train wreck that is our medical system really crashes, who knows what will do OK and what will be crushed? Anything in the vicinity could get smashed.
Illinois Tool Works (ITW) – Like GPC, a quality company, but with a yield under 3%, I see no reason to have ITW on the list.
Intel (INTC) – Another accidental high-yielder. Barring another meltdown, the yield is not going to get above 3%, so there is no reason to keep watching and waiting on INTC.
Coca Cola (KO) – With a price run-up to the stratosphere, and a yield under 3%, I give up on KO. Plus, I believe the junk food, soda, and fast food companies are where tobacco was before everyone finally admitted their products were a health hazard. A day of reckoning is coming, and the profits will be at risk.
McDonalds (MCD) – Priced into the higher reaches of the stratosphere, in the same boat as KO, I don’t want to be there for the ride back down to reality.
Note to readers: I will admit to a bias against soda, junk food, and fast food companies. They may continue to be huge winners, but just on the outside chance that they get what they deserve, I don’t want to own them.
Medtronic (MDT) – A quality company, but only a sub 3% yield. Enough said.
Norfolk Southern (NSC) – I love trains. I have three vintage electric trains, including a 1948 Lionel. I’m glad to see the railroads doing better. But with a sub 3% yield, I will have to look elsewhere for my retirement income.
United Parcel Service (UPS) – A wide-moat blue chip if there ever was one, but the yield is under 3%, and the price is high. Pass.
Lockheed Martin (LMT) – The P-38 Lightening was the first U. S. fighter placed in service that could hold its own against the vaunted Zero. That snippet is just to let you know how bummed out I am that LMT has to be off the list – the debt is just ridiculously high.
Wal-Mart (WMT) – Successful beyond what anyone could have imagined 20 years ago, but with a yield under 2.5% and falling, it just isn’t a dividend stock anymore.
The recurrent theme in most cases recalls the old Dick & Dee Dee classic from the 60’s, the “mountain’s too high” ie, the stock price, and the “valley’s too low“, ie, the yield, to justify keeping many of these stocks on the list.
Tier2 – These are pretty safe stocks, but for one reason or another, I do not view them as being as safe as the Tier1 stocks. For example, all MLPs are on Tier2, not Tier1. I think MLPs are great investments, but there are some risks presented that regular corporations don’t have. There are presently 37 stocks on this list. Recent deletions are:
Diageo P L C ADR (DEO) – A fine company, but yield is only 2.6%.
Senior Housing (SNH) – A great payment record, but the REIT is too exposed to a single tenant.
Olin Corp (OLN) – Seems to be a well-run chemical company, but with no dividend growth in more than five years, I’m moving on.
Cincinnatti Financial (CINF) – With a PE over 30 and a dividend payout ratio over 100%, no point in keeping CINF around.
CenturyLink Inc (CTL) – Moved to Tier3. The rural telecoms have all been hit lately, and while CTL is head and shoulders above the pack, the decline in land lines seems to be accelerating. I just believe CTL has become riskier, and I don’t feel comfortable with CTL on the Tier2 list any longer.
Du Pont E I De Nemours (DD) – Too much debt for a no-moat cyclical, in my opinion. The yield is not high enough to justify the risk.
Consolidated Edison (ED) – This is an OK utility, with a history going all the way back to Thomas Edison. But a utility with a sub 4% yield is not a viable investment in my world, so ED goes off the list.
Valley National Bancorp (VLY) – With a yield approaching 6%, how can I drop VLY? The main reason is I have not evaluated it thoroughly. Like MLPs and REITs, banks have to be evaluated using a different approach than what one uses for a regular corporation. Because there are so few banks with decent yields, I have not undertaken a study of how to evaluate banks. Plus, I do believe that it will be a long time, if ever, before banks become the big dividend payers they were before 2008. I am dropping VLY because I have decided I cannot justify recommending a stock I haven’t evaluated thoroughly. In the case of banks generally, I cannot justify the effort required to get up to speed in evaluating banks when there aren’t enough banks with yields high enough to make it worth the effort. So, while VLY may be perfectly fine, I am dropping it from the list.
Tier3 - These are high yield stocks, with high risk. I have dropped two stocks, which just do not seem to offer a risk-reward ratio sufficient to keep them on the list.
PDL Biopharma (PDLI) – I bought it, collected a couple of the 9% dividends, and then bailed when I had the chance to exit without a loss. Since then, PDLI has stayed in a fairly tight range, and the dividends are continuing. I just felt like the niche this firm occupies could slam shut very easily, and I decided to exit with a win and move on.
Old Republic (ORI) – This was a temporary situation where ORI was available under $8, and with a near double-digit yield at that price, a worthy speculation. I bought under $8, collected a couple of dividends, and then cashed out for a decent short-term gain. Since the price has recovered above $10, I just don’t see it as the speculative opportunity it was at less than $8, so I’m dropping it from the list.
Now, considering only the stocks on my revised lists, I will begin anew my practice of listing, on the first posting of a new week, all stocks on my lists going ex-dividend during the upcoming week, and also any of the stocks that are slated to report earnings during the week.
Stocks going ex-dividend this week:
Triangle Capital (TCAP) 6/11/2012.
Medical Properties Trust (MPW) 6/12/2012.
Mercury General (MCY) 6/12/2012.
Merck & Co (MRK) 6/13/2012.
Digital Realty Trust (DLR) 6/13/2012.
Total S A (TOT) 6/13/2012.
Ares Capital (ARCC) 6/13/2012.
Fifth Street Finance (FSC) 6/13/2012. This is a monthly dividend.
TICC Capital (TICC) 6/13/2012.
Otelco Income Deposit Securities (OTT) 6/13/2012. The bond portion of this so-called “hybrid” security will continue to be paid, even though the stock portion of the dividend has been suspended.
Dr Pepper Snapple Group (DPS) 6/14/2012.
BlackRock Kelso Capital (BKCC) 6/15/012.
Solar Capital Ltd (SLRC) 6/15/2012.
None of my stocks are scheduled to report earnings this week.
That’s about enough for a Monday morning. Time to start the week.
1st Posting Friday 06/08/2012 9:00 AM
TGIF! King James certainly lived up to his nickname in game 6 of Heat vs. Celtics. What has that got to do with stocks, you might be saying? Absolutely nothing, but I thought it was noteworthy. Maybe the analogy is the rebound of the Miami Heat in the playoff series compares to the rebound of the markets since last Friday. Unfortunately, the analogy breaks down if you look closely at yesterday’s action, as a day-long positive margin evaporated in the last couple of hours, and the major averages ended up flat on the day.
Today, Asian stocks closed down, with India being an exception, closing with a modest gain. European stocks are mostly trading down as well, with Spain being an exception, unbelievably. U.S. futures are indicating an opening to the downside will be how we start the trading day.
The only analyst call of note this morning was an upgrade of Chevron (CVX), from Hold to Buy at Societe Generale.
Economic releases coming out today are the Trade Balance and Wholesale Inventories, neither of which is likely to have much effect on stocks. Want to make a wager on whether we have a positive or a negative trade balance? I don’t think it has been positive this century, so today will most likely be negative, by $49 Billion, it is estimated.
Time to get ready for the last day of trading for the week.
1st Posting Thursday 06/07/2012 9:00 AM
What a difference a day or two can make in the stock market. We went from Dow 11000 is next, bad news and gloomy prognostications from every direction, to a nearly 300 point Dow rally yesterday; all on the rumor that the Fed might take action if things get really bad. Notwithstanding, the Fed has already tried about everything in their playbook, with not much achieved in the way of lasting results.
Today, Asian markets closed mostly in the green, with Shanghai being the lone exception, with a small loss being posted. European markets are all sporting healthy gains at the moment. Is the Euro crisis over already, one has to wonder? U.S. futures are indicating a positive start is in store for today’s trade.
During the day yesterday, Statoil (STO) was upgraded from Hold to Accumulate at Tudor Pickering. A couple of new ratings out today of interest are MFA Financial (MFA), initiated at Market Perform at Wells Fargo, and Medtronic (MDT), upgraded from Neutral to OutPerform at Credit Suisse.
The economic data release of significance today is the weekly numbers on unemployment claims, which just came out at 8:30 AM. New claims came in at 377K, better than last week, but still slightly above economists’ consensus estimates. The four-week average came in at 3777K, also slightly above estimates. The futures did not react much, and are still positive.
My new article on Seeking Alpha on REITs is available for viewing. Go to the SA Articles selection from the main menu for a link.
Time to get ready, we will see if stocks can hold on to yesterday’s gains. In a few hours we will know, one way or the other, for one day at least.
1st Posting Wednesday 06/06/2012 9:45 AM
Running a bit behind schedule this morning. I’ll have to take a longer nap today than usual to compensate.
Stocks eked out a modest gain yesterday. The ISM Services reading came in slightly better than expectations, which seemed to improve the tone. Today, we have already received the major release, of 1st Quarter Productivity and Unit Labor Costs. The former came in slightly worse than expected and the latter more than slightly better than expected, unless you are a worker, as labor costs showed only a tepid increase. U.S. futures are indicating a strong open to the upside will occur. Asian markets mostly closed in the green, and European markets are all trading to the upside as well.
MarketWatch stalwarts Mark Hulbert and Jon Markman have new articles out this morning which, their titles suggest, raise the question on everone’s collective mind – is the correction over? Hulbert’s article is “Market Significantly Undervalued”, while Markman’s is very much to the point, “Is The Bear Around The Corner? Time will tell.
No upgrades/downgrades to report this morning, as far as my stocks are concerned. I’m looking at my buy list, sadly noting my buy prices, as the market moves up and away from them. I’m not a hunter, but it must be akin to sitting in a blind for a long while, as the quarry comes ever nearer, and then, just as the moment for action is at hand, the quarry flies (or runs) away.
The market has indeed opened to the upside. It looks like I won’t be picking up any stocks at a bargain price today. My COP put with a strike of $50 is looking good. At this point it appears I won’t be adding COP to my portfolio, but like a “mini corporate raider”, I got paid $365 to just “go away”. Of course, the option has a long time to go to expiration, so any gloating at this point is very premature. The market may teach me yet another lesson in humility if I’m not careful.
Time to publish.
1st Posting Tuesday 06/05/2012 9:00 AM
As I’m sure regular viewers have noticed, I have remained at only one posting per day, a policy that I instituted during recent travels, to occur in the AM, before markets open. I will begin each post with comments on the prior day’s activity, then move into the usual prognostications regarding the upcoming session. If events warrant, I may at any time put out a later posting on a given day, but my ‘new normal’ (seems like I’ve heard that phrase before) will now be one posting per day, in the AM.
Speaking of the prior day, it ended up a lot better than it looked like it was going to most of the way, as a couple of afternoon surges brought stocks essentially back to even. Of course, “even” in this case retains the effects of the sell-off of the last three weeks or so.
Moving on to today, Asian stocks all finished in the green, supposedly on hopes that a “Group of 7” meeting today of finance ministers and central bank governors will bring coordinated action in Europe. European markets are mixed at the moment, with Britain and Germany sporting losses, and the others trading in the green. U.S. futures are essentially flat. The only economic release on tap for today is the ISM Services Index, due out at 10:00 AM.
Several “doom and gloom” articles have shown up on the various financial news sites lately, as usually happens when stocks sell off, but today, MarketWatch columnist Mark Hulbert opines that the “Correction [is] Close To Being Over”. The basis of this view, as he explains, is that a newsletter sentiment indicator he defines and tracks is at extreme bearish levels, and when these levels have been reached in the past, it has usually meant that things are likely to improve from here. This is a perfect illustration of the upside down logic of Wall Street, where down means up and left means right, and so on. It will be interesting to see if a near-term bottom is in, as he (per the indicator) predicts.
None of the stocks I track had any upgrades/downgrades issued today, so far, at least. I am currently working to get a new article on REITs published on Seeking Alpha. I am also starting work on what will be my final article in my “Yield, Value, Safety….” series, which will be focused on a roundup of stocks not covered by the previous articles in the series, mostly miscellaneous industrials. Coincident with the completion of the series, I will be updating my Tier1, 2, & 3 stock lists to be in sync with the articles. In addition to getting everything in sync, I will eliminate a number of stocks that, while great companies, are so jacked up in price, with yields so low, that I am giving up on them ever being buyable. I have concluded that I am trying to track too many stocks, so I am eliminating these as a waste of time to continue keeping up with, so I can focus on stocks I might actually consider buying. A perfect example of a stock I am eliminating for this reason is Boeing (BA). I owned it briefly during the financial crisis, as it fell down to a level where it became an “accidental” high yield stock, as did many others. I sold (too soon, of course) as it recovered, and with another buy opportunity unlikely to appear, barring another crisis, it isn’t worth trying to keep up with further.
While I will try to remain flexible, and I will allow an occasional borderline exception, I am unlikely to continue following any stock yielding less than 3% after I make these changes.
Time to see what today brings.
1st Posting Monday 06/04/2012 8:15 AM
Well, Friday was indeed a down day. After the disappointing Employment data, the release at 10:00 AM of lackluster numbers relating to manufacturing activity, per the ISM Index, and Construction Spending, kept the negative mood going strong, such that all of the averages closed with significant losses of more than 2%. I made three trades: I started a new position in General Mills (GIS), as the price moved to my buy price of $38; I added to a position in Amerigas Partners (APU) at an even lower price than what I paid for my existing position; and I sold a put on ConocoPhillips (COP). The put was the November 2012 at a strike of $50, sold for $3.65. This is a win-win as I see it, since if the position moves against the trade, I will be content to buy COP at an effective price of $46.65, and if the trade moves in favor of the trade, it is $365 of free money. The only price I have to pay is $5000 is locked up for the duration while I await the results.
Moving on to today, Asian markets are mostly trading down with significant losses of 2% or more, with the exception of India, which somehow has managed to eke out a small gain. European stocks are trading mixed, with Britain and Germany showing losses, France with a small gain, and Italy and Spain posting significant gains, amazingly. The only economic release planned for today is Factory Orders at 10:00, not usually a market-moving data release.
The only stock on my lists receiving any new analyst calls so far today is Boeing (BA), which was upgraded from Hold to Buy at Stifel Nicolaus. Boeing and several others in similar straits are candidates for being dropped from my lists because of low yield and excessive, semi-permanent over-valuation, but for now, since it is still on the list, I will dutifully report on it.
U.S. futures are flat to slightly positive, which suggest, at this point at least, that Friday’s swoon will not continue today, at least not from the starting gun.
1st Posting Friday 06/01/2012 9:15 AM
Like everyone else involved with the markets, I am anxiously awaiting the Payroll numbers due out at 8:30 AM. In fact, there is a deluge of economic data coming out today; in addition to the Payroll Data/Unemployment Rate, we have the ISM Index reading for May, Construction Spending for April, Personal Income and Spending for April with the PCE (Personal Consumption Index) indicator for inflation, and the automakers report May sales figures. Good or bad, we will know more about how the economy is doing after today’s data.
While waiting, I see that Asian stocks closed with losses except for Shanghai, which managed a miniscule gain. European stocks are all trading to the downside, with France and Germany leading the retreat, with losses exceeding 2%. U.S. futures are decidedly negative as we await the data release, indicating that there is not much hope for a positive surprise.
Well, the data is out. All of the usual prognosticators are chewing furiously on the data banquet to digest the meaning as quickly as possible, but to state it very simply: NOT GOOD! The headline numbers are the Unemployment Rate, rising to 8.2%, the Total New Jobs for May, a tepid 69K, and Total Non-Government New Jobs for May, a tepid 82K. The last two figures indicate that Governments in the aggregate (Federal, State, Local) lost jobs. Rubbing salt in the wound, the previously reported New Jobs numbers for March and April were both revised downward. Expect to be reading about this anemic result incessantly for the next few days. Personal Income and Spending were both up slightly, .2% and .3% respectively, coming in as expected, but with the disappointing jobs data, no one will pay much attention to these statistics. European stocks accelerated their declines after the data release, and U.S. futures are indicating a significant drop is in store for U.S. stocks. The S&P 500 futures indicate a 27 point decline is in store, the Dow30 is indicating a 200 point drop, and the NASDAQ is looking at a 50 point decline. I haven’t seen an outlook this grim while awaiting the open since the exciting days of 2008.
None of the stocks I track had any new analysts’ ratings out today. A couple of stocks I have been following as possible buys on a decline are Vodafone (VOD), which I want to buy under $26, and General Mills (GIS), which I want to buy under $38. Today might be the day I have been waiting for. With crude oil now dropping daily, it seems, there may be some new buys in the energy patch as well, perhaps Royal Dutch Shell (RDS.B) below $62, ConocoPhillips (COP) below $50, or Chevron (CVX) below $95.
I can hardly wait for the start of trading.