Dividends and the S&P 500
Posted by Eddy Elfenbein on November 8th, 2005 at 6:46 am

Standard & Poor’s reports that cash dividends in the S&P 500 will set another record in 2005. For the year, dividend payments have increased by 12.4%. The indicated dividend is now $22.70. Currently, 386 of the 500 stocks pay dividends, and 256 stocks have increased their dividend this year. What’s interesting is that 63 of those stocks are financial stocks. Through November 7, dividend-paying stocks have gained 5.29% while non-dividend-payers are up 3.81%.

Slow and Steady Wins the Race
Posted by Eddy Elfenbein on November 7th, 2005 at 6:42 pm

If you invested $600 in the S&P 500 every month for the past 25 years and reinvested the dividends, today you’d have $1,011,700.47.
Pretty cool, huh?

The Market Today
Posted by Eddy Elfenbein on November 7th, 2005 at 5:40 pm

Today was another teeny rally. The S&P 500 gained 0.22%, which is about eleven times what it did on Friday. I still don’t feel much richer, but our Buy List was up 0.20%. Except for Frontier Airlines (FRNT), the Buy List had a pretty decent day. The little airliner dropped $0.34 a share, or 3.53%.
Way back when, the original reason why Johnson & Johnson (JNJ) wanted to buy Guidant (GDT) was to get its foot in the lucrative defibrillator market. But now that Guidant has been knocked down, two of our Buy List stocks, St. Jude Medical (STJ) and Medtronic (MDT), are gobbling up its market share. Stephen D. Simpson at the Motley Fool has some interesting comparisons:

(Guidant’s) sales dropped 14% in the quarter, led by a 26% drop in defibrillator sales to $331 million. By way of comparison, St. Jude recently posted sales of $277 million, with growth of 68%. Medtronic is a more difficult comparison because it reports an out-of-sync quarter, but sales of ICD products for the last reported quarter were up 30% to about $718 million.

Those are two excellent stocks.
Here’s something not a lot of folks are talking about: The Dow Jones Transportation Average (^DJT) closed at an all-time high today at 3,979.44. Not bad, especially when you consider that the Industrials are still about 1,000 points off their high. The DJT index includes Expeditors (yay!) and Southwest Airlines (boo!). The index has shot up only in the past two weeks. Also, the Dow Jones Energy Index (^DJUSEN) got hit again today. It finished down -1.62%. The government reported that gas prices fell for the fifth straight week.

Another Hedge Fund Cop
Posted by Eddy Elfenbein on November 7th, 2005 at 3:58 pm

If hedge funds were blues singers, Connecticut would be Mississippi, and Greenwich would be the Delta. Now that more regulations are coming from the Feds, Connecticut’s Attorney General, Richard Blumenthal, wants even more. It’s not just Eliot Spitzer that Wall Street has to worry about.

Mr. Blumenthal is putting together a task force of regulators and hedge-fund executives to jump-start changes. He says he will move to impose his recommendations on any hedge fund with operations in Connecticut or pursue necessary legislation to allow him to put the new rules in place.
Among the changes he says he could pursue: forcing funds to disclose much more about who audits their holdings and whether they have conflicts of interest with the fund’s management; changing current civil and criminal penalties for hedge-fund fraud; and requiring funds to tell prospective investors whether other investors received preferential terms. He also would like to force funds to disclose any fees paid by brokers or other parties.
But Mr. Blumenthal concedes that he doesn’t wield the same power as Mr. Spitzer, potentially undercutting his efforts. For one thing, under Connecticut law, he can bring only civil charges, unlike New York, where Mr. Spitzer’s arsenal includes the authority to bring criminal charges.

Energy Stocks Continue to Fall
Posted by Eddy Elfenbein on November 7th, 2005 at 1:19 pm

The market and the Buy List are basically flat today. Frontier Airlines (FRNT) is off 30 cents which is weighing us down. I’m not sure why it’s down so much today. Independence Air filed for bankruptcy, but I wouldn’t think that would hurt Frontier.
Continuing my theme from last week, the energy sector continues to fall. The Dow Energy Index (^DJUSEN) is off about 2% today. One energy analyst said that prices at the pump could be at $2.15 in another month. Ironically, the CEO’s of oil companies are going to testify before Congress on Wednesday. It might make for bad economics, but it will be good television.
To show you how dramatic the decline has been, here’s a chart of prices at the pump from GasBuddy.com.

Mixed Market
Posted by Eddy Elfenbein on November 7th, 2005 at 12:34 pm

The AP at 11:22:

Stocks Move Lower As Oil Slides Below $60

The AP at 12:22:

Stocks Climb As Oil Slides Below $59

Are Low-Priced Stocks Better?
Posted by Eddy Elfenbein on November 7th, 2005 at 11:59 am

I’m often asked why the Buy List doesn’t have more lower-priced stocks. I’ve never understood this. It seems that investors would much rather buy a lot of shares in a low-quality, low-priced stock that a small amount of shares in a high-quality, high-priced stock.
My advice it to completely ignore the price range of a stock (though, don’t ignore its value). I’d much rather buy a small number of shares in a high-quality $80 stock, than many shares of poor $10 stock. With the advent of discount brokers, commission costs are pretty reasonable.
IBD has more to say:

Cheap stocks often end up at fire-sale prices for a reason. They may keep missing profit or sales views. They might be the target of a lawsuit or probe. Or they could hail from an ailing industry.
Another risk with penny stocks: lower trading volume. Mutual funds and other big investors are less likely to buy cheap stocks, since they can’t take big stakes without drastically moving the stock price.
Light volume also makes such stocks more prone to wild price swings, since only a few cents up or down can result in a big gain or loss.
Instead of seeking low-priced stocks, look for stocks priced at $10 a share or higher. They should sport strong earnings, sales, profit margins and return on equity.

I think people see a low-priced stock and think, “gosh, it’s so cheap–it just can’t go any lower.” Well, it can. I remember my finance professor said that “zero is a long way down.” A $100 stock can drop 99% and it’s still at $1. It can drop another 99% and it’s still at a penny. It can keep dropping 99% many more times and still not be at zero. Zero is a long, long, long way. That’s how low it can go.

Morning Market Report
Posted by Eddy Elfenbein on November 7th, 2005 at 9:48 am

The earnings season is just about over. We still have a few more earnings reports to go. On Thursday, we’ll get Dell’s (DELL) earnings report. The company’s quarter ended on October 31, so they’re actually pretty quick to report. Dell recently warned Wall Street that its earnings won’t be as strong as previously thought. Dell was already the subject of a negative article in Barron’s this weekend, plus one in Business Week this morning.
Apple Computer (AAPL) had another downgrade this morning. This is the second downgrade recently due to valuation. I also see that Google (GOOG) is poised to open higher, and it will probably make a run on $400 a share. The stock went public last August at $85.
The Wall Street Journal quoted Michael Panzner, head of sales trading at Rabo Securities USA, as saying, “It’s almost like things haven’t cratered, so let’s be optimistic.” As odd as that sounds, I think he’s got it. Oil looks to fall again today, and we’re headed to a higher open.
U.S. News & World Report has an article on Frontier Airlines (FRNT). If you’re not familiar with the airline, the article does a nice job of explaining what Frontier is about. Here’s a sample:

Frontier and similar airlines have benefited from the overall growth in travel and customers’ increasing frugality. One of Frontier’s assets is geography, says Denver-based Mike Shonstrom, a senior vice president of research with Emerging Growth Equities of King of Prussia, Pa. Denver is the nation’s fifth-busiest airport, and Shonstrom says the city’s location near the country’s midsection means most flights reach 1,000 miles, which creates efficiencies not found in short hops. With ski season boosting winter flights, and vacation jaunts to Mexico and Florida padding spring and fall, the year-round business is solid. “We still hear a lot of people getting on the planes say, ‘What a great airline. We’ve never heard of you before,'” Potter says. Then he adds: “They’re finding us.”
Potter promotes a go-slow business philosophy. He downplays the idea of Frontier’s becoming a major national airline. It has no first class, and that holds true for its single-story corporate headquarters, a few miles down the road from the airport runways. The CEO’s modest office looks out across the parking lot at a Courtyard by Marriott. Potter recalls his first day on the job, as a vice president of marketing, in 1995. A local newspaper story had said Frontier might go out of business. Now sitting in the CEO chair, Potter earned just over $275,000 in salary and an additional $11,000 plus in stock and 401(k) matching funds for the 2005 fiscal year.

Frontier also has its sights set on Canada.
The least-surprising story this morning is that Guidant (GDT) is suing Johnson & Johnson (JNJ) to complete their $25.4 billion merger. Guidant also reported today that its earnings plunged by 60%, which of course will be Exhibit A in J&J’s defense.

Barron’s on Dell
Posted by Eddy Elfenbein on November 6th, 2005 at 11:56 am

Jay Palmer looks at Dell (DELL).

The problem for Dell is that, in the U.S. market, Dell’s not the problem. Corporate PC sales, which account for maybe 85% of demand, continue to grow, at an unexciting pace. On the consumer side, Dell’s unit sales continue to grow at a slightly faster clip than the market as a whole, which according to both IDC and Gartner is rising at around 11% a year. But for over a year now, the biggest and fastest growing sector has been basic PCs that list at $300 to $400. Though Dell’s super-efficient direct-sales business model allows it to make money where many others can’t, at ever-decreasing prices, revenue growth is slow and the profit can be measured in pennies. In short, while Dell may be selling more, it is earning less revenue and less profit from each one.
Unit and revenue growth overseas is better, about 17% in terms of units worldwide, according to industry watchers, but here Dell isn’t faring well. In the hottest markets, China and India, buyers prefer to play with a machine before buying. Few are used to buying over the phone or Internet, leaving Dell at a competitive disadvantage to rivals like HP and Lenovo, which mostly sell through retail chains.
“The PC business is no longer a growth market, for Dell or for anyone else, and it never again will be,” says John Enck of the Gartner Group. “There is no conceivable way that Dell can significantly outgrow the market as a whole and there is no way that the company can ever return its growth to the high levels of yesteryear.”
Dell would dispute that, but clearly market trends are seriously inhibiting its ability to boost growth. One much-touted solution, of course, was the company’s big push into servers and consumer products, like printers, flat-screen TVs and MP3 music players. All play to company strengths and, if you talk to Dell Chief Executive Kevin Rollins, you’ll get an earful on the big potential. Even so, given signs HP is making a comeback in servers and the ongoing low margins in big-ticket consumer electronics, the jury is still out.
At the stock’s current price, there are still more than a few die-hard fans. They argue that if there was ever a company capable of masterminding a return to growth, it’s Dell. That’s probably true, but it’s no longer enough. If Dell’s revenue fails to grow faster, and certainly if the company continues to miss earnings targets, it will be time to admit that Dell is past its best.

Sorry Charlie
Posted by Eddy Elfenbein on November 6th, 2005 at 8:31 am

Greenspan puts Cong on notice: Curb huge deficits