• The Profits No One Wanted
    Posted by on December 9th, 2005 at 2:00 pm

    In 1970, John Amos visited the World’s Fair in Osaka, Japan. When he got there, he was astounded by the number of people who walked around the crowded cities wearing surgical masks. Amos instantly recognized a golden business opportunity. Amos, along with his two brothers, ran a small insurance company based in Columbus, George called the American Family Life Assurance Co. He figured that if people in surgical masks won’t buy insurance, no one will.
    For many years, American Family had been a pioneer in the insurance industry. They were the first company to offer cancer insurance. The company also decided to focus on insurance in the workplace. Almost all of its policies came from payroll deductions.
    In 1974, the Japanese government awarded American Family a monopoly on Japanese cancer insurance, which is very rare for a gaijin. The only reason they got it was become no Japanese firms were interested. Today, 95% of all the listed companies in Japan offer American Family’s products.
    I’m going to let you in on a little secret Wall Street doesn’t want you to know about. Although it may appear to be boring, insurance is insanely profitable. Most investors have no idea of the goldmines they ignore just because insurance is dull as dirt. Warren Buffett built his investment empire on insurance. Just look at the long-term charts of stocks like Progressive (PGR).
    American Family is no exception. For the past few decades, the stock has been a huge winner. Over the last 25 years, the stock is up 250-fold (not including dividends). Not bad for a boring business, but the company still had a major problem. Despite all their success, no one had heard of them. The company’s name recognition was at 2%. How do you get the public interested is something as dull as supplemental life insurance? The company’s advertising firm noticed that American Family’s nickname sounded almost like a…duck. Six years later, AFLAC’s (AFL) name recognition is over 90%. (Here’s more on how the duck was born, er, hatched.)
    Last month, the company celebrated its 50th anniversary. The current CEO is Dan Amos, John Amos’ nephew. How’s this for an earnings guidance? He recently said that operating earnings will be up 15% this year, 15% next year and 13% to 16% in 2007. This is the kind of company you can set your watch to. Here are the sales and earnings for the past few years (figures for 2005 and 2006 are projections):
    Year……….Sales………..EPS
    1996……..$7,100……..$0.69
    1997……..$7,251……..$1.04
    1998……..$7,104……..$0.88
    1999……..$8,640……..$1.04
    2000……..$9,720……..$1.26
    2001……..$9,598……..$1.28
    2002……..$10,257……$1.55
    2003……..$11,447……$1.52
    2004……..$13,281……$2.52
    2005……..$14,210……$2.59
    2006……..$14,880……$2.92
    In October, AFLAC said that earnings for the third quarter surged by 55%. The insurance industry prefers to focus on operating earnings. AFLAC’s operating profits came in at 66 cents a share, two cents more than Wall Street was expecting.
    Ask most investors which stock has done better over the last quarter century, AFLAC or Intel. They may not believe you when you tell them, but here’s the proof:
    AFL.bmp

  • Coca-Cola to Fill American Caffeine Shortage
    Posted by on December 9th, 2005 at 11:41 am

    In an effort to address America’s dangerously under-caffeinated population, Coca-Cola (KO) has announced the introduction of Blak, a new drink that combines coffee and Coca-Cola. Now Americans will be able to enjoy the relaxing benefits of caffeine throughout their entire day.
    The drink will initially be tested on the French before a larger rollout to the United States. The French, however, seem unimpressed by the new mass-marketed consumer product from a giant American corporation:

    Adeline Dulic, taking a mid-morning break, said: “I don’t think it’s a good idea. We are artisans in France, we are used to things like good coffee and fine wines, not things like this.”

    Although shares of Coke have historically creamed the market, the past few years have been hard for investors.
    December 8, 2005: $41.88
    December 8, 1995: $39.25
    December 9, 1985: $3.53
    December 8, 1975: $1.72
    Coke has spruced up its lineup recently with the additions of Vanilla Coke, Coke Zero and C2. (Personally, I always liked Coke Mandatory.)
    But Coke still has a lot of work to do. The company has fallen behind consumers’ attitudes. Drinks like Red Bull have become very popular. Also, the top-performing stock of this decade has been Hansen Natural (HANS), whose sales have surged thanks to its Monster Energy drink.

  • Natural Gas Prices Soar to Record
    Posted by on December 9th, 2005 at 10:17 am

    Thanks to a forecast for colder-than-normal weather, the price of natural gas soared to an all-time record high today. Natural gas for January delivery got up to $15.52 for 1,000 cubic feet. The price of oil is close to $61 a barrel. OPEC will be meeting next week, but production should remain high. As I see it, there’s no reason to stop now.
    In Russia, the lower house of parliament voted to allow foreign ownership in Gazprom, the country’s natural gas monopoly, and the largest natural gas company in the world.

  • Goldman Sachs Downgrades Frontier
    Posted by on December 9th, 2005 at 9:54 am

    Frontier Airlines (FRNT) was downgraded to in-line from outperform this morning by Goldman Sachs. The stock is down sharply and back below $8 a share. Also, two Playboy playmates were arrested for public intoxication onboard a Frontier flight from Denver to San Antonio. I’m not sure if these two stories are related, but you never know.
    Follow the link for the video of your judgmental local news broadcast.

  • Merck Deleted Data
    Posted by on December 9th, 2005 at 9:44 am

    Can the Merck (MRK) story get any worse? Apparently it can. Just as another Vioxx trial is going to the jury, the New England Journal of Medicine has accused the company of withholding key data is its research. As far as medical research goes, I don’t think it’s a good idea to get into a fight with the New England Journal of Medicine.
    The prestigious journal said that Merck deleted data regarding three heart attacks that made “certain calculations and conclusions in the article incorrect.” That doesn’t sound good.
    In the first two Vioxx trials, a key to Merck’s defense was that the company had always been upfront about its research. Right now, there are over 6,000 pending lawsuits on Vioxx. According to the Chicago Tribune: “Some analysts have estimated that Merck could be on the hook for up to $50 billion in potential liability stemming from Vioxx.”

  • Frontier Airline’s Customer Service
    Posted by on December 8th, 2005 at 9:03 pm

    Frontier’s customer service is noticed:

    Mr. Cottrell recently discovered that he had mistakenly selected the wrong date for travel when purchasing a Frontier Airlines ticket through a third-party Web site. He tried to correct the error through the company that sold the ticket, but was denied. “In a bit of a panic, I called Frontier and spoke with a customer-service rep. Not only did she change the date of travel for no charge, she offered to confirm me in a more-favorable seat. It surprised me to find such helpful customer service at an airline,” he said. “I have to hand it to Frontier — they have a customer for life.”

  • The Market Today
    Posted by on December 8th, 2005 at 6:12 pm

    Down, then up, then down, then a little bit up…the market was a bit indecisive today. Unfortunately, our Buy List was not in a happy place. The S&P 500 lost 0.12%, and our Buy List dropped 0.67%. Laggards included Biomet (BMET), Stryker (SYK) and CACI (CAI). Medtronic (MDT) reported that its implantable obesity device didn’t meet its goal.
    Oil cracked $60 a barrel again. I’m inclined to think this is a classic bear market rally. Although I have to admit that energy stocks have been surprisingly strong lately. The Dow Energy Index is up nearly 13% since mid-July. I’d be curious to see if it will hit a new high. Right now, I doubt it will.

  • Oops
    Posted by on December 8th, 2005 at 2:30 pm

    Today in Japan, Mizuho Securities wanted to place an order to sell one share of J-Com Inc for 610,000 yen. Unfortunately, a “typing error” caused the trade to go off as selling 610,000 shares for one yen.
    Oops.
    To put it in perspective, that trade was for over 40 times the number of J-Com shares outstanding. So a lot of folks got a super deal on J-Com. Also, everyone’s seriously pissed at Mizuho. The company said that it lost 27 billion yen, which sounds like a lot but it’s really only $224 million.

  • Buy What You Hate
    Posted by on December 8th, 2005 at 10:54 am

    Peter Lynch used to say, “buy what you know.” Daniel Gross says to buy what you hate:

    For the best-loved companies don’t always make good investments. Look at the companies topping the reputation chart. The top 10 are Johnson & Johnson, Coca-Cola, Google, UPS, 3M, Sony, Microsoft, General Mills, FedEx, and Intel. Of those, only Google, Federal Express, and Intel have outperformed the S&P 500 over the past three years. In the past year, only Google, Intel, and Johnson & Johnson have outperformed the S&P 500. Now look at the bottom of the reputation list. Of the six publicly traded companies in the last 11—Altria, Martha Stewart, Exxon Mobil, Royal Dutch/Shell, Tyco, and Halliburton—five have outperformed the S&P 500 over the past three years, and four have outperformed the index over the past year.

  • Bill Miller Goes for 15 in a Row
    Posted by on December 8th, 2005 at 10:51 am

    It looks like Bill Miller, the manager of the Legg Mason Value Trust mutual fund (LMVTX), will beat the S&P 500 for the 15th straight year. This is one of the legendary streaks on Wall Street, although Miller is cutting it very close this year (see the chart below).
    Miller likes to make very concentrated bets. Nearly half of his fund is in its top 10 positions. Even though the fund has value in its name, Miller has no fear of owning aggressive growth stocks. His largest holdings are Nextel, UnitedHealth, Tyco, AES, IAC/Interactive, Amazon, JPMorgan Chase, Google, Aetna and Sears.
    lmvtx.bmp