Archive for December, 2005
Ukraine to Gazprom: Drop Dead
Eddy Elfenbein, December 31st, 2005 at 6:10 pm
The fight betweem Gazprom and Ukraine is getting worse. It looks like the state-controlled Russian company is going to shut off all supplies to Ukraine starting tomorrow:
Ukrainian President Viktor Yushchenko rejected Russian President Vladimir Putin’s proposal to delay a fivefold increase in natural gas prices for three months, likely leading OAO Gazprom to stop supplying the fuel to the former Soviet republic on New Year’s Day.
“We can’t accept a price of $230” per thousand cubic meters, Ukrainian government spokesman Valentyn Mondrievsky said in a telephone interview from Kiev less than two hours after Putin’s offer was broadcast on Moscow-based Gazprom’s NTV television network.
“We support Russia’s proposal to switch gas prices to the market, but the price shouldn’t look like economic pressure,” Yushchenko said in an e-mailed statement.
State-run Gazprom, which supplies about one quarter of Ukraine’s gas and uses the country’s pipelines to supply a quarter of western Europe’s, plans to shut off supplies to Ukraine at 10 a.m. tomorrow if the nation doesn’t agree to pay $230 per thousand cubic meters, up from $50 now. The dispute pits Putin against Yushchenko, who is trying to orient Ukraine more toward western Europe in defiance of the Kremlin.
Update: Russia halts gas sales to Ukraine.
Eddy Elfenbein, December 31st, 2005 at 5:07 pm
Reuters looks at the final numbers:
The Dow declined 0.61 percent in 2005, breaking its streak of back-to-back gains for 2003 and 2004.
Meanwhile, the S&P 500 rose for a third consecutive year, advancing 3 percent — just one-third of its 9 percent gain last year — and its smallest annual gain since 1987.
The tech-laced Nasdaq also climbed for a third straight year, rising 1.37 percent, helped by multi-digit gains in bellwethers including Google Inc., up about 117 percent for the year, and Apple Computer Inc., up about 122 percent for 2005, on a split-adjusted basis.
In Friday’s trading, though, Google ended the regular session down 1.3 percent, or $5.29, at $414.86, while Apple rose 0.6 percent, or 44 cents, to $71.89.
In the broad S&P 500 index, the best-performing sector in 2005 was energy, with a 29.1 percent gain, buoyed by crude oil’s jump to a record price of $70.85 a barrel in the aftermath of Hurricane Katrina in August. The worst-performing S&P 500 sectors were communications, with a 9 percent drop, and consumer discretionary, with a 7.3 percent slide.
“This was not a year for macro-sector bets — whoever bet on sectors, or indexes other than energy, got extremely frustrated,” said James Paulsen, chief investment strategist at Wells Capital Management in Minneapolis, with $155 billion in assets under management. “This was the year of individual stocks.”
I think Mr. Paulsen has it exactly right. My suspicion is that 2006 will not be a good year for the energy sector. I think certain individual stocks will stand out, but I’m not so certain about sector plays.
The New Buy List
Eddy Elfenbein, December 31st, 2005 at 12:15 am
For 2006, I going to track the new Buy List based on Friday’s closing prices. All 20 stocks will be equally weighted. I’m going to assume a portfolio of $1 million, $50,000 for each position. Just in case anyone in the middle of August questions where I get my track numbers from, here are the 20 stocks, with the starting prices and number of shares:
Bed Bath & Beyond (BBBY)……..$36.15……….1,383.1259
Brown & Brown (BRO)……………$30.54……….1,637.1971
Expeditors International (EXPD)..$67.51……….740.6310
FactSet Research Systems (FDS)..$41.16……1,214.7716
Fair Isaac (FIC)…………………….$44.17……….1,131.9900
Golden West Financial (GDW)…$66.00………….757.5758
Home Depot (HD)………………….$40.48……….1,235.1799
SEI Investments (SEIC)…………$37.00……….1,351.3514
UnitedHealth Group (UNH)……..$62.14………….804.6347
Varian Medical Systems (VAR)..$50.34………….993.2459
The 20 stocks have a combined market value of $458 billion. The average dividend yield is about 0.5%. Twelve of the stocks are in the S&P 500, six are in the S&P 400 Mid-Cap Index and two are in the S&P 600 Small-Cap Index. Home Depot (HD) is our only Dow stock.
Eddy Elfenbein, December 30th, 2005 at 11:26 pm
Well, it’s all over. The year 2005 ended on a bit of a sour note. The Dow finished the year in the negative. Today, the Dow dropped 67 points, and S&P 500 fell 6.13 points to finish at 1248.29. For the day, the S&P 500 lost 0.49% and the Buy List lost 0.90%. For December, the S&P 500 lost 0.1% and the Buy List fell 0.04%. For the fourth quarter, the S&P 500 gained 1.67% and our Buy List gained 4.68%. All in all, this has been a good time for us.
Earlier I mentioned how the market likes to find certain numbers on the last day. At today’s close, the S&P 500 rose by 3.001% for the year (not including dividends). Also, Bill Miller’s Legg Mason Value Trust beat the market for the 15th straight year, although it was close. The fund returned 6.02% beating the S&P 500 with dividends by just 0.59%. Manu Daftary of the Quaker Strategic Growth Fund kept his eight-year streak alive.
The broadest stock index, the Wilshire 5000, was up 4.56% for the year.
Here’s the big change of the last 12 months. At the end of 2004, the 10-year Treasury bond yielded 4.22%, today it yields 4.39%. But the two-year Treasury jumped from 3.07% a year ago to 4.41% today. It pays you slightly more than the 10-year yield.
An Hour to Go….
Eddy Elfenbein, December 30th, 2005 at 2:44 pm
It’s a pretty lousy day on Wall Street so far. Every stock on the Buy List is lower except for Frontier Airlines (FRNT). Unless things change very quickly, it looks like 2005 will be a negative year for the Dow. Today will mark the 298th straight day that the Dow will close between 10000 and 11000.
The S&P 500 has been a better performer this year. Last month, the index was able to break out to new highs. As recently as two weeks ago, the S&P 500 got to 1272, a level it hadn’t seen since June 2001. But the index is still about 18% below its all-time high set in 2000.
Today, the S&P 500 is in a nasty fight with 1,250. The indexes like to flirt with these year-end numbers. In 2003, the Nasdaq closed out the year at 2003.37. If the S&P ends at 1250, it will represent about a 5% gain for the year, including dividends. That’s about half the long-term average. Value has a narrow lead over growth this year, and mid-caps have beaten both small- and large-cap stocks.
I’m still amazed that interest rates are so low. The 10-year bond is also stuck in a trading range. Right now, an investor can lock-in a yield of roughly 4.4% for the next ten years. In my opinion, that’s absurdly low. Several of our stocks on the Buy List (and the new Buy List) will probably grow their earnings more over the next three years than that bond will do over the next decade.
I’m not so sure that stocks are a great value but they look a whole lot better than bonds. Plus, you can get about the same yield by buying a two-year bond.
Footnote of the Year
Eddy Elfenbein, December 30th, 2005 at 1:01 pm
An annual stipend provided to facilitate involvement in community activities accounted for 96% of Mr. Corbett’s Other Annual Compensation in 2004.
Oh dear lord. The CEO of Kerr-McGee got an effing stipend from the company to give to charity! What part of charity does he not get? (Well, I guess that would be ALL of it.)
In other news, a pack of angry Chihuahuas attacked a police officer.
Eddy Elfenbein, December 30th, 2005 at 12:21 pm
I have to confess that I’ve always felt that Motorola (MOT) was a bit overrated. Maybe I’ve been a bit too harsh. Yeah it’s a good stock, but is it really that good? Nevertheless, I’m very happy to see the company have success this year. Thanks to the little Razr phone, the company has been humming along.
Motorola beat earnings every quarter this year and Wall Street has been revising its estimates higher. Right now, the Street expects MOT to earn $1.29 a share. So the stock is going for about 17.5 times next year’s earnings.
Investors Business Daily has more the Razr:
In his third-quarter earnings conference call, Motorola Chief Executive Ed Zander said the Razr was the most popular flip-open phone this year.
Analysts say sales only accelerated this quarter. Piper Jaffray expects 11 million Razr phones will be sold worldwide in the fourth quarter.
Cell phone retailers say the Razr was hot during the holidays. While many service providers give away cheaper phones for free to attract subscribers, the Razr has become a relatively low-cost option.
A $350 phone a year ago, Cingular today offers a Razr phone for $99 with a two-year service plan.
“It’s our top-selling device,” said Cingular spokesman Ritch Blasi.
Now that it’s the end of the year, I can look back on all my mistakes from 2005. I should have been paying more attention to Motorola when the stock was at $15 earlier this year. All the signs were there.
The Final Day of 2005
Eddy Elfenbein, December 30th, 2005 at 10:11 am
We’re coming down the wire, and the Dow is inches away from where it was one year ago. The Dow closed out 2004 at 10783.01. Yesterday, the index finished 10784.82. So in one full year, we’ve moved less than two points. The S&P 500, however, is up about 3.2% for the year, not including dividends. Small- and mid-cap stocks have done better than the large stocks.
Yesterday, the S&P 500 dropped 0.30% and our Buy List gave back 0.31%. The market is down this morning.
The New York Times has an interesting article on Intel (INTC). The company is planning a major shift in strategy by focusing on the consumer. Business Week has more.
The International Harry Schultz Letter
Eddy Elfenbein, December 29th, 2005 at 2:50 pm
The investment newsletter industry is known for having some unusual characters. The Libertarian Party has nominated an investment newsletter editor for president not once, but twice.
As MarketWatch, Peter Brimelow looks at the always-contrarian Harry Schultz (sorry, Sir Harry Schultz):
In person, Harry Schultz is small, polite and diffident. But his letter — one of the oldest in the industry, in business since the 1960s — is famously self-promoting, not to say megalomaniacal.
For quite a long time, for example, Shultz insisted on being called “Sir Harry” because, he said, he’d been knighted by an obscure authority that no one had heard of. (He’s described on the letter’s masthead as “Chevalier Harry D. Schultz, KHC, KM, KCPR, KCSA, KCSS.”) Similarly, Schultz has cultivated a portentous mystery about why he never returns to the U.S.
Over the years, this has certainly irritated a lot of financial journalists. But Schultz also has an undeniably active and creative mind, expressed in the myriad investment recommendations, sometimes inconsistent, that he makes (for this reason, HFD follows only the recommendations listed in Schultz’s “Model Portfolio) and in the offbeat causes that he espouses.
Thus, his most recent monthly letter mourns the death of Chalmers Goodlin, whose Burnelli Lifting Plane design Shultz championed over decades — claiming, typically, that political and business interests were conspiring to suppress it.
Schultz also has a gift for the big picture. Consider:
While I’ve watched him, he was an embattled gold bug in the 1970s (vindicated) as well as during the early 1980s both a much-denounced gold quitter (also vindicated) and a bond bull (catching the 20-year bond bull market, one of the greatest in history).
Currently, he’s pessimistic on the long-term outlook for the stock market and bullish on gold, essentially because he thinks the U.S. economy finds itself back in the same trap as in the latter 1960s.
But for the short term, he expects stock strength and gold weakness. It’s a stimulating combination.
What Do These Have in Common?
Eddy Elfenbein, December 29th, 2005 at 12:45 pm
1. a radio station in South Dakota
2. a perfume shop in the Virgin Islands
3. a dog boutique in Utah
Answer: They all got 9/11 recovery loans from Small Business Administration.
The Washington Post has the details.
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