• Boring but Profitable
    Posted by on October 12th, 2010 at 9:59 am

    Here’s another example of my favorite kind of stock—totally boring, mostly unheard of and very, very good. I give you… Bemis (BMS)!

    Here’s a description:

    Bemis Company is a major supplier of flexible packaging and pressure sensitive materials used by leading food, consumer products, healthcare, and other companies worldwide. Founded in 1858, the Company is included in the S&P 500 index of stocks and reported pro forma 2009 net sales, giving effect to the Food Americas acquisition, of $4.8 billion. The Company’s flexible packaging business has a strong technical base in polymer chemistry, film extrusion, coating and laminating, printing, and converting. Headquartered in Neenah, Wisconsin, Bemis employs over 20,000 individuals worldwide.

    Dear Lord, that’s dull. I nearly fell asleep while reading that. But don’t let that fool you; this company makes a lot of money.

    In July, Bemis gave an outlook for Q3 of 55 to 60 cents per share. They raised their full-year EPS range from $2.00 to $2.15 to $2.12 to $2.20. That’s not bad for a stock going for around $33.

    Check out a 30-year chart compared with the S&P 500:

    Bemis has also increased its dividend every year since 1983. The current dividend yields 2.7%

  • Pfizer Buys the King
    Posted by on October 12th, 2010 at 9:39 am

    Here’s your basic equation for Merger Mania: lots of cash plus low stock prices equals mega-deals. It doesn’t get much more complicated than that. These deals continue to be a theme in the healthcare sector. The latest is that Pfizer (PFE) will buy King Pharmaceuticals (KG) for $3.6 billion.

    Pfizer is offering $14.25 for King which is a 40% premium to yesterday’s closing price. This is a big move for Pfizer. With the deal, Pfizer picks up muscle relaxant Skelaxin. Pfizer had to make some deals soon because next year its blockbuster Lipitor will face competition from generics. Pfizer said the deal will add about two cents per share to its profit in 2011 and 2012, and three to four cents per share in each of the next three years.

    I don’t have much to say about today’s market. Here are some quick unconnected thoughts:

    Intel (INTC) reports after the bell. Wall Street’s consensus is for 50 cents per share. I expect 50 or 51 cents, maybe 52 cents. The other big news today will come at 2 pm when the Federal Reserve releases the minutes of its last meeting.

    This stat caught my eye: Bloomberg reports that first-half operating expenses at the six biggest U.S. financial firms—Bank of America, JPMorgan, Citi, Wells Fargo, Goldman and Morgan Stanley— grew by $7.92 billion, or 5.9%. Revenue fell by $5.6 billion, or 2.2%.

    Finally, on Friday Kulicke and Soffa (KLIC) plunged 10%. No need to worry. Jefferies has just downgraded them to a Hold. Thanks, guys.

  • Morning News: October 12, 2010
    Posted by on October 12th, 2010 at 7:29 am

    Zacks Earnings Trends

    Bona Fide Fans Chase Rib-Free Rib Sandwich

    Asia Stiffens Resolve to Resist Capital Inflows

    OPEC Indicates Production Quotas Set to Be Unchanged as Economies Falter

    Marc Faber Says World Heading for ‘Major Inflection Point’

    Google and Marubeni in U.S. Submarine Power Cable JV

    Pandit Recruits Citigroup Army as Costs Erode U.S. Bank Margins

    DeNA to Buy iPhone Game Developer

    WSJ: Green Acres is the Place to Be

    Crazy Baby Otters

  • Roubini’s Real Track Record
    Posted by on October 11th, 2010 at 4:13 pm

    I’m glad to see Charles Gasparino’s column on Nouriel Roubini’s overhyped reputation:

    A closer inspection of Roubini’s record shows that while he was predicting doom and gloom for the US in 2004, his initial call had nothing to do with a runaway housing bubble.

    Rather he argued that the Bush Administration was racking up massive deficits to foreign investors, namely the Chinese, and that the Chinese would scale back on their purchases of US debt, causing interest rates to spike and the dollar to decline in value, resulting in “financial trainwrecks for the US economy in a matter of a couple of years.”

    Sounds good, but the problem with the theory is that it didn’t happen.

    While I’m as worried as anyone else about the Chinese financing US domestic spending, it should be noted that there’s little sign that they’re about to stop, even with the Obama administration making President Bush look like a deficit hawk.

    Based on my research, it wasn’t until about August 2006 that Roubini began talking about a housing crisis, and he was hardly alone. Several economists and investors, from John Paulson to Stan Druckenmiller and around this time Goldman Sachs, were also predicting the housing decline.

    Roubini, for his part, wasn’t available for comment, but a spokesman said in a statement that he has “built a strong and rapidly growing business,” and has more than “1,000 institutional clients.”

    Maybe so, but how do they feel about his call on the price of gold? Last year he predicted that the rising price of gold was in fact a bubble, just like the housing one a few years earlier, and like housing, it would burst as well. But as we all know gold prices remain strong.

    For the record, I think Roubini is a very smart guy and well worth listening to. But I don’t believe he predicted the financial crisis.

    There are currently 837,000 Google matches for the search “predicted the financial crisis.” The top one, as it turns out, was written by me.

    If so many people saw it coming, it’s a wonder how it happened.

  • The Federal Reserve’s Educational Links
    Posted by on October 11th, 2010 at 3:55 pm

    The Federal Reserve has a number of education resources, often in the form of online games. Here’s a quick rundown:

    The Federal Reserve’s Kid’s Page

    Great Economists Treasure Hunt

    Welcome to FedVille

    Escape from Barter Islands

    Fed Card Currency Trivia Game

    Fed Chairman Game

    Peanuts & Crackerjacks, the Federal Reserve Bank of Boston’s interactive baseball game

    Finally, are you looking for a Fed membership form? I got ya right here.

  • Scary Jobs Chart
    Posted by on October 11th, 2010 at 1:55 pm

    The number of Americans who have been unemployed 27 weeks or longer:

  • No Empirical Support for the 200-DMA?
    Posted by on October 11th, 2010 at 1:13 pm

    This is from the Q&A section of the Fama/French Forum:

    Some researchers argue that a market timing strategy based on buy/sell signals generated by a 50- or 200-day moving average offers a more appealing combination of risk and return than a buy-and-hold approach. What is your view?

    EFF/KRF: An ancient tale with no empirical support.

    That’s simply not true. This is what I wrote about the 200-DMA last year:

    One of the quick-and-dirty tools used by technical analysts is to see where a stock or index is compared with its average price over the past 200 days. This is an easy way to get a read of a stock’s momentum.

    Yesterday was a big day for the 200DMA world. The S&P 500 closed above its 200DMA for the first time since December 26, 2007. That closed out the index’s longest run below its 200DMA according to my records which go back to 1932.

    That streak, however, is still well short of the longest run above the 200DMA which ran from November 1953 all the way to May 1956. Since the index has gone up over time, the “above” streaks tend to be longer than the “below” streaks.

    On November 20, 2008, the S&P was a stunning 39.6% below its 200DMA. That’s the biggest discount on my records. The only thing that comes close is the reading from this past March.

    So does the 200DMA work? The evidence suggests that it’s a pretty good indicator of future price performance. When the S&P 500 has been below the 200DMA, it’s dropped a total of about 20% over the equivalent of 27 years. In other words, the S&P 500 has been below its 200DMA about one-third of the time.

    Historically, the best time to invest has been when the S&P is less than 1.7% below the 200DMA.

    When the index is above the 200DMA, well, then everything looks much brighter. All of the market’s gains and then some have happened when we’re above the 200DMA which occurs about two-thirds of the time.

    The market seems to like nearly every point of being above the 200DMA. Danger only clicks in when the S&P 500 is over 17.5% above the 200DMA which is a very high reading.

    This issue isn’t whether the 200-DMA works or not. It’s a dumb rule, but it reveals an important truth about investing: the market likes trends. If the market is going in one direction, it has a much better than average chance of staying in that direction.

  • Happy Columbus Day
    Posted by on October 11th, 2010 at 11:31 am

    Columbus Day is unusual for Wall Street because the bond market is closed yet the stock market is open. I have absolutely no idea why. I believe the Columbus was financed by the original Sovereign Wealth Fund, with actual sovereigns!

    Three months ago, I said Intel (INTC) would beat its earnings report and I was right. Then last month, I said Bed Bath & Beyond (BBBY) could earn as much as 70 cents per share. That was a gutsy call since it was well above Wall Street’s expectations. Nevertheless, I was right again.

    Now Intel is due to report earnings again tomorrow. The Street’s current estimate is for 50 cents per share, and this time I’m not expecting much of an earnings beat, if any at all. Fifty cents per share sounds about right.

    The stock that I think is a good candidate for an earnings beat is JPMorgan Chase (JPM). I hope to post more of my thoughts on that this week. The bank will report earnings on Wednesday. Except for Intel, the earnings reports for the rest of our Buy List won’t start coming in until next week.

  • Morning News: October 11, 2010
    Posted by on October 11th, 2010 at 7:26 am

    Treasury 2-, 5-Year Yields Decline to Record Lows on Outlook for Fed Buys

    Is Sysco the Perfect Stock?

    Richard Bernstein to Manage Stock Mutual Fund for Eaton Vance

    Dow 11,000…Again

    Everyone into the Pool: How to Invest in Twitter

    Happy Fifth Blogiversary to Abnormal Returns

    European Stocks Edge Higher Amid QE Hopes

    Wage China Currency War With Light Armor, Investors Say

    Foreclosure Freeze May Sideline U.S. Homebuyers as Legal Worry Cuts Sales

    Why is Norm Van Brocklin still a record holder?

  • What’s the Future for Gold?
    Posted by on October 10th, 2010 at 10:44 pm

    I took the current TIPs yield curve and plugged it into my Gold Model to see what the future may hold for gold:

    Now let me add several major caveats.

    This is not in any way my forecast for where gold will go. The model I made is just that, a model. Or more specifically, it’s a model of how a better model might look.

    As to the specific constants I used (eight for leverage and 2% for equilibrium), those are just working estimates. If those numbers are changed even slightly, the chart above looks very different.

    Of course, the numbers can also lead to an entirely different conclusion: that TIPs are far too high. (A real return of 0% for six years? No thank you!)

    We should also bear in mind that estimates for the future based on what we know today are notoriously poor. In 1999, the TIP that was maturing in 2002 was showing a real yield of 3.5% to 4%.

    The real takeaway is that the market thinks real rates will remained subdued for a long time. It won’t be another 10 years until real rates get back to normal.