Author Archive

• S&P 500’s P/E Ratio Hits Lowest Level in 19 Months
  Eddy Elfenbein, June 29th, 2010 at 11:19 pm

  Here’s a look at the S&P 500 (black line, left scale) along with its operating earnings (yellow line, right scale).
  
  The two lines are scaled at a ratio of 16 to 1 so when the lines cross, the S&P’s price/earnings ratio is exactly 16. The future earnings is the consensus from analysts.
  The current P/E Ratio is 14.49 which is the lowest level for the index since November 2008. To be fair, the market’s real P/E Ratio was a lot lower then since the earnings line was devastated by losses at AIG.
  Here’s the S&P’s P/E Ratio going back to the 1980s.
  
  We’re not too far from hitting 20-year lows.

• The Yield on the Dow
  Eddy Elfenbein, June 29th, 2010 at 10:41 pm

  According to the Wall Street Journal, here are the indicated dividends for the 30 Dow stocks:

  AT&T Corp.	$1.68
  Verizon	$1.90
  Pfizer	$0.72
  DuPont	$1.64
  Merck	$1.52
  Kraft Foods	$1.16
  Chevron Corp	$2.88
  Johnson & Johnson	$2.16
  Coca-Cola	$1.76
  McDonald’s	$2.20
  Procter & Gamble	$1.93
  Home Depot	$0.95
  Intel	$0.63
  Exxon-Mobil	$1.76
  Travelers Cos.	$1.44
  Caterpillar	$1.76
  3M	$2.10
  General Electric	$0.40
  Boeing	$1.68
  United Tech	$1.70
  Wal-Mart Stores	$1.21
  IBM	$2.60
  Microsoft	$0.52
  American Express	$0.72
  Alcoa	$0.12
  Walt Disney	$0.35
  Hewlett-Packard	$0.32
  J.P. Morgan Chase	$0.20
  Bank of America	$0.04
  Cisco Systems	$0.00

  Using some complicated math, I added all the dividends together and got $38.05. The current divisor on the Dow is 0.132319125, so dividing by the divisor comes to 287.56.
  The Dow closed today at 9,870.30, so the indicated dividend yield is 287.56 divided by 9,870.30 or 2.91%. The closing yield on the 10-year Treasury (^TNX) is 2.97%.
  Of course the Dow’s dividends can be cut, but you’re really not getting much for the “safety” of Treasuries.

• Cognizant Tech CEO
  Eddy Elfenbein, June 29th, 2010 at 5:25 pm

  One of my favorite tech stocks is Cognizant Technology Solutions (CTSH). This was a gigantic winner for our Buy List last year (up over 150%).
  I got rid of it for this year’s Buy List, although CTSH is up another 11.5% this year. Here’s the CEO on CNBC:
  

• The Ten-Year Treasury Drops Below 3%
  Eddy Elfenbein, June 29th, 2010 at 10:07 am

  There’s not much to add that this chart doesn’t already say:
  
  The yield on the ten-year Treasury (^TNX) has fallen below 3% which it hasn’t done since the height of the financial crisis (roughly, November of 2008 to April 2009).
  The Dow is at 9900. I ran the numbers and found that the Dow currently yields 2.9%. Assuming the overall dividend number isn’t cut, the Dow needs to gain, on average, 10 points a year for the next 10 years to match what the 10-year is offering.
  Either stocks are very cheap or Treasuries are way too expensive (or possibly both). As I’ve said before, the 10-year Treasury has a major impact on stock prices.

• QOTD
  Eddy Elfenbein, June 29th, 2010 at 9:39 am

  From Ambrose Evans-Pritchard:

  As for the Fed, I venture to say that a common jury of 12 American men and women placed on the Federal Open Market Committee would have done a better job of setting monetary policy over the last 20 years than Doctors Bernanke and Greenspan.

• The Supremes Help Tobacco Stocks
  Eddy Elfenbein, June 28th, 2010 at 2:26 pm

  The market is doing very well for us today. AFLAC (AFL) spiked as high as $46.20 before pulling back below $45. It’s still holding on to a nice gain.
  Reynolds American (RAI) is getting a nice boost thanks to the Supreme Court’s decision in favor of the tobacco companies. All the major tobacco stocks are doing well today. RAI got as high as $54 a share earlier today.
  This is a very split market today. The consumer stocks are doing well while the economically sensitive stocks are down. The Morgan Stanley Consumer Index (^CMR) is up 0.52% while the Morgan Stanley Cyclical Index (^CYC) is down -0.65%.

• First in Business Worldwide
  Eddy Elfenbein, June 28th, 2010 at 10:35 am

  Jump ahead to the 7 minute mark:
  
  (Via: ZeroHedge)

• Stock Buyback Fail
  Eddy Elfenbein, June 28th, 2010 at 9:59 am

  I loathe stock buybacks, but this one really takes the cake.
  Guess what oil company spent $37 billion in buying back its own stock between 2005 and 2008, only to see that investment drop to $15 billion today?
  I’ll give you a hint: BP (BP).
  That’s about $12 per share that went out the window.
  A few weeks ago, several emailers asked if BP was a good buy. I said that a falling stock isn’t a cheap stock. It’s only cheaper compared to where it was. At the time, BP was at $38 a share. On Friday, the stock made a new 52-week low below $27.

• The Duck Ducks Greece
  Eddy Elfenbein, June 28th, 2010 at 9:41 am

  I haven’t made much of a secret that I think AFLAC’s (AFL) stock is absurdly low. I think the market is very nervous over what’s in AFLAC’s portfolio, especially in Europe, and that’ understandable. The most unnerving aspect of a financial crisis is that you never know who is exposed to what, until too late. The company, however, has made it clear that its portfolio is doing fine.
  Today the company reports that it has dumped all of its Greek sovereign bonds. AFLAC got $270 million for the bonds, which is a loss of $67 million, or around 14 cents a share. That’s barely a dent.
  AFLAC has also reduced its exposure to perpetual securities (also known as “hybrids”) through two separate transactions. This is how they describe the sales:

  The company also exchanged a perpetual, Upper Tier II security of a European issuer for a higher-rated, fixed maturity, senior debt instrument. In addition, the company further reduced its perpetual Upper Tier II holdings through a privately negotiated transaction with another European issuer.

  Hmmm. A bit murky, no? The important news is that those sales will bring in $80 million in profit to their Q2 GAAP earnings, or about 17 cents per share.
  This is very good news and it shows investors how well AFLAC manager risk. Kriss Cloninger III, the president and CFO said:

  Although these transactions resulted in losses on a statutory accounting basis, we estimate they will add approximately 20 points to our risk-based capital ratio by reducing investment concentrations and reinvesting into higher-rated debt securities. As we have repeatedly discussed, our primary focus is to maintain a strong capital position. That is especially true today, given uncertainty in the global economic environment and the volatility of capital markets. As such, we will continue to assess the creditworthiness of issuers in our portfolio and manage our investments in a way that reflects our risk tolerance and the objectives we’ve set for earnings growth. In that regard, we continue to believe our objectives of increasing operating earnings per diluted share 9% to 12% in 2010 and 8% to 12% in 2011, before the impact of currency translation, are achievable.

  Last year, AFL made $4.85 per share. For this year, they said they expect to earn somewhere between $5.24 to $5.56 per share.
  

• Lowest Mortgage Rates in 50 Years
  Eddy Elfenbein, June 26th, 2010 at 11:11 am

  Not that anyone has any money:

  Mortgages are cheaper today than they’ve been in a half-century. If only most people had the job security, the credit score and the cash to qualify.
  The average rate for a 30-year fixed loan sank to 4.69 percent this week, beating the low set in December and down from 4.75 percent last week, Freddie Mac said Thursday. Rates for 15-year and five-year mortgages also hit lows.
  Rates are at their lowest since the mortgage company began keeping records in 1971. The last time they were any cheaper was the 1950s, when most long-term home loans lasted just 20 or 25 years.