Stocks to Watch
Posted by Eddy Elfenbein on February 9th, 2011 at 2:38 pm

Here are some stocks that I like to keep an eye on. All of these are very strong companies and all are former members of the Buy List. The only thing I have against them is that they’re not cheaper.

I’ve listed each stock’s name, symbol, price as of earlier today, earnings estimate for 2011 and 2012, the 5-year projected earnings growth rate and the P/E Ratio based on 2012’s earnings. For VAR, DCI and FDS, I extrapolated what earnings would be for the calendar year to make the numbers consistent.

Coke Earns 72 Cents Per Share
Posted by Eddy Elfenbein on February 9th, 2011 at 11:59 am

Coca-Cola (KO) reported Q4 earnings today of 72 cents per share which matched expectations. I like Coke a lot and the stock has had a very nice run since last summer. Still, I think the shares are a bit rich.

The P/E Ratio went from being 37% less than the market in mid-2009 to more than 25% over the market today. I’m staying away from shares of KO.

Updated CWS Buy List Earnings Calendar
Posted by Eddy Elfenbein on February 9th, 2011 at 11:06 am

Bernanke To Tell Congress Budget Needs Balancing
Posted by Eddy Elfenbein on February 9th, 2011 at 10:52 am

Today will be a day for sound bites. Ben Bernanke will be testifying before Congress on the budget. This will be the first time he goes before the new GOP-led Congress and he’s not terribly popular among many Republicans.

Of course, I don’t know exactly what Bernanke has to tell Congress about the budget that a simple calculator couldn’t tell. We’re spending a great deal more than what we take in. When we do that, the debt goes up. When we stop doing that, the debt also stops growing. Magic!

There’s been a lot of media coverage of the lawsuit brought by the Madoff trustees against JPMorgan Chase (JPM) for being complicit in the Ponzi scheme. I haven’t commented on it yet for two reasons. One is that the media coverage has been all one-way, focusing on the trustees’ complaint. The second is that this strongly sounds like a case of shifting the blame.

Trustees are people whom you trust. With Madoff, they failed miserably. I don’t see how that’s JPM’s fault. I’m not a lawyer so I don’t know exactly what fiduciary responsibilities a bank has, but Madoff’s aim was to mislead people. I don’t see how it’s JPM’s duty to sleuth him out.

The second-largest U.S. bank said court-appointed trustee Irving Picard is exceeding his power by suing in bankruptcy court, where a judge rather than a jury would decide the case.

“The trustee’s massive damages action against JPMorgan bears no resemblance to a typical lawsuit commenced by a bankruptcy trustee,” JPMorgan’s lawyers said in a court filing late Tuesday.

“In substance,” the bank said, “the trustee is trying to pursue an enormous back-door class action.”

A spokesman for Picard did not immediately respond to a request for a comment.

JPMorgan asked U.S. Bankruptcy Judge Burton Lifland, who oversees the Madoff proceedings, to move Picard’s lawsuit to federal district court, where it can demand a jury trial.

In court papers unsealed on February 3, Picard accused JPMorgan of having significant doubts about Madoff but silently acquiescing in his fraud, hoping to preserve its own investments and a more than 20-year business relationship.

JPMorgan has said it did not know about or assist in the estimated $65 billion Ponzi scheme.

The yield on the 10-year bond has risen in six of the last seven trading sessions. During that time, the yield has climbed from 3.33% on January 28 to 3.72% yesterday. Mirroring that move, the S&P 500 has rallied for six of the last seven days. The only decline was a slight one on February 2nd.

The trend continues to be out of bonds and into stocks.

Morning News: February 9, 2011
Posted by Eddy Elfenbein on February 9th, 2011 at 7:30 am

London Stock Exchange Ties Transatlantic Knot With Canada’s TMX Group

China Yuan Trades Near 17-Year High After PBOC Rate Increase

German Uber-Hawk Axel Weber Won’t Replace Trichet As ECB Chief

AOC, Bridgestone, NEC, Nissan, Pioneer: Japan Equity Preview

Emerging Stocks, U.S. Index Futures Decline as Wheat Advances

An Early End to QE2?

Fannie, Freddie Could Be Phased Out Under Treasury Housing Plan

Precious Metals: Platinum, Palladium Hit Records; Gold Ebbs

UBS Posts First Annual Profit Since Crisis

Disney Parks Help Drive Gain in Profit

Norwegian Oil Giant Statoil Falls 3% After 4Q Results Disappoint

SAC, Citigroup, Galleon, Airgas, UBS in Court News

Broker Wars

Joshua Brown: Research or Insider Trading? A Guide (Reprise)

The CNBC Effect
Posted by Eddy Elfenbein on February 8th, 2011 at 3:26 pm

An academic paper looks at what happens to a stock after the CEO appears on CNBC. Basically, the stock pops then gradually gives it back.

This paper investigates whether media attention systematically affects stock prices by analyzing price and volume reactions to 6,937 CEO interviews that were broadcast on CNBC between 1997 and 2006. We document a significant positive abnormal return of 162 basis points accompanied by abnormally high trading volume over the [-2, 0] trading day window. After the interviews, prices exhibit strong reversion; over the following ten trading days, the cumulative abnormal return is negative 108 basis points. The pattern is robust even after controlling for the announcements of major corporate events and surrounding news articles, and is larger in magnitude if the interview is accompanied by larger viewership. Furthermore, we find evidence that enthusiastic individual investors are more likely to trade based on CNBC interviews that are neither confounded by any events nor by other news articles. Lastly, we find that more attention drawing interviews are associated with higher short-selling volume, which suggests that rational utility maximizing investors take advantage of the regular pricing pattern related to the media attention.

John Paulson Made $5 Billion Last Year
Posted by Eddy Elfenbein on February 8th, 2011 at 1:11 pm

How’d you do last year? John Paulson made a cool $5 billion in 2010. Gregory Zuckerman explains how he did it:

So John Paulson made $5 billion –- for himself -– during 2010. A number of Journal readers have contacted us, wanting more specifics on how he pulled off such huge gains. Still more readers want to know: Will this golden touch continue?

First, a fuller explanation of the $5 billion personal gains. About $1 billion came from the 20% performance fee that Paulson & Co. reaped from the approximately $5 billion the hedge-fund firm generated for clients in 2010, as well as from management fees charged to clients of his $36 billion firm.

What about Paulson’s remaining $4 billion? Keep in mind that Paulson began 2010 with about $10 billion of personal investments in his hedge funds, his investors say. Those holdings rose about 40%, or $4 billion, his investors say.

Read the whole thing.

U.S. Takes Out Debt-Consolidation Loan
Posted by Eddy Elfenbein on February 8th, 2011 at 11:18 am

The Long-Term Power of Dividends
Posted by Eddy Elfenbein on February 8th, 2011 at 11:07 am

The Federal Reserve Bank of St. Louis is a great resource for economic data. They just added some indexes for the Wilshire 5000 which is the broadest stock market index of all.

I took the Wilshire 5000 Total Return index date, which includes dividends, and divided it by the normal Wilshire 5000. What’s left is the return generated solely by dividends. The chart is below. (To make it clearer, I set the starting number to 100.)

I think too many investors ignore how important dividends are to total returns. After a while, those dividend checks really add up.

Since the beginning of 1980, the Wilshire 5000 has gained more than 1,150%, but the total return index has gained over 2,750%.

The return generated by dividends is 126.02%. That’s a tiny amount each day but it’s one you should never ignore.

James Altucher on Yahoo’s Tech Ticker
Posted by Eddy Elfenbein on February 8th, 2011 at 10:34 am