Monday, June 30, 2008
Sunday, June 29, 2008
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Posted by David Templeton, CFA at Sunday, June 29, 2008
Saturday, June 28, 2008
(click on chart for larger image)
- relatively easy money
- liquidity that had fueled the bubbles disappeared
- monetary conditions tightened
- economies deteriorated
Charles Schwab & Co., Inc.
By: Brad Sorensen, CFA
June 24, 2008
Thursday, June 26, 2008
...he was concerned by the "woe is me and ain't it awful" rhetoric adopted by Hillary Clinton and Mr Obama during their fierce battle for the Democrat nomination.
He stated, "In my business we don't need excessive negativism," said Mr Lafley. "You know we are in a business where psychology matters - even in the staples business - and in the economy psychology matters. It could go negative on the economy, that could be a problem . . . We will talk ourselves into a worse recession."
P&G chief urges US presidential candidates to end gloom rhetoric
By: Elizabeth Rigby and Jonathan Birchall
June 26, 2008
Tuesday, June 24, 2008
BBT increased its quarterly dividend to 47 cents per share versus 46 cents per share in the same quarter last year. This represents a year over year increase of 2.17%. The estimated dividend payout increases to 64% based on 2008 estimated earnings of $2.95. The 5-year historical payout ratio is approximately 54%. BBT carries an S&P Quality Ranking of A-
DUK increased its quarterly dividend to 23 cents per share versus 22 cents per share in the same quarter last year. The year over year dividend increase is 4.55%. The estimated dividend payout is approximately 72% based on 2008 estimated earnings of $1.28. DUK carries an S&P Quality Ranking of B.
Monday, June 23, 2008
Data Source: Standard & Poor's (Excel file)
Sunday, June 22, 2008
Saturday, June 21, 2008
Thursday, June 19, 2008
Wednesday, June 18, 2008
One critical aspect of a dividend growth investment discipline is to look at the change in the dividend growth rate of a particular company. For those knowledgeable in calculus, it is the second derivative that is important. Although the growth rate may be positive, the rate may be lower than the prior period. This means the rate of change (second derivative) is negative. If the dividend growth rate is slowing, is this a precursor to slowing earnings growth? A number of factors other than the dividend growth rate are important criteria to review, e.g., payout ratio, dividend yield, etc, but the slowing rate of dividend growth is certainly a yellow flag.
Getting back to the S&P 500 Index buyback and dividend detail for the first quarter of 2008, although difficult to tell, the YOY dividend growth rate is slowing, i. e., the second derivative is negative. Additionally, the below chart notes the sequential dividend and buyback total for the first quarter is lower than in the 4th quarter of 2007.
S&P 500 Stock Buybacks Retreat in Q1 But Remain Strong (pdf)
Standard & Poor's
By: David Guarino & Howard Silverblatt
Tuesday, June 17, 2008
It should be noted that Dow Jones removed Altria (MO) and Honeywell (HON) on February 19, 2008. The two replacements were Bank America (BAC) and Chevron (CVX).
Monday, June 16, 2008
The S&P 500 Financials index is close to the bottom reached in March 2003, coincidentally about the same time that the broader S&P 500 hit its own bear market low. This time, however, the S&P 500 is less than 15% from its 2007 peak while the Financials are down by nearly 40%. Probably more revealing is that the Financials index now trades for just 1.2-times reported book value, the lowest level since the last major credit crisis in the early 1990’s. At these levels, we’d be ready to sound the ‘all-clear’ signal if not for the fact that we believe that analysts as a group are still too optimistic about bank earnings over the next few quarters. Our 2008 estimates are below the consensus for many of the banks that we follow. We expect a busy second-quarter pre-announcement period for the banks over the next few weeks which may start to finally dampen expectations for 2008.
Financials: Where’s the Bottom? ($)
Argus Research Company
June 16, 2008
Sunday, June 15, 2008
Two recent changes to the S&P 500 Index involve the removal of Brunswick (BC) and OfficeMax (OMX). These two companies are being replaced by Cabot Oil & Gas (COG) and Massey Energy (MEE) at the close of trading on June 20, 2008.
In a recent market commentary, New Paradigm Ahead?, by Liz Ann Sounders, Schwab's (SCHW) Chief Investment Strategist, Liz Ann makes a case for higher U.S. equity prices. She details sixteen events that may occur that may lead up to a better U.S. equity market:
- U.S. economy slows dramatically (check)
- U.S. Fed cuts interest rates dramatically (check)
- Dollar sinks further (check)
- Commodity prices go parabolic (check)
- Speculative hoarding of commodities ensues (check)
- Regulators and Congress rev up the anti-speculation rhetoric (check)
- Commodity-hungry emerging economies suffer (check)
- Global growth suffers, including noticeably in China (check)
- Investors shift funds from international stocks to commodities (check)
- Non-U.S. central banks consider rate cuts to fight growth slowdown (pending?)
- U.S. Fed enters pause mode (could be there already)
- Rate differentials support dollar rally (fledgling rally so far)
- Commodity prices begin to correct (fledgling correction so far)
- Commodities move from U.S. economic headwind to tailwind (pending?)
- Lower commodities/inflation supports U.S. valuation expansion (pending?)
- Investors shift from international stocks/commodities to U.S. stocks (pending?)
I am always skeptical of the "it is different this time" belief; however, could the above events lead to higher equity prices?
New Paradigm Ahead?
Charles Schwab & Company
By Liz Ann Sounders, Chief Investment Strategist
May 16, 2008
Saturday, June 14, 2008
- P/E = Price Per Share/Earnings Per Share
- PEG Ratio = (P/E)/Earnings Per Share Growth Rate
As noted in my earlier post on using Enterprise Value As A Starting Point For Finding Bargain Stocks, no one single metric should be used when determining the appropriateness of a specific investment. Nonetheless, the PEG ratio is another variable an investor can use when screen ing for stocks.
In conclusion, it is useful to use several variables in one's stock screening exercise. I have found Microsoft's (MSFT) Money site contains a fairly advanced stock screen tool. The screening tool works best in Internet Explorer.
Yesterday, in the first 30 minutes of market trading, the stock market action in financials was nothing short amazing. Near the end of the trading day there was speculation that the trading was driven by several rumors (which I will not repeat) which fueled the selling/shorting of the financial sector.
As the below charts depict, the daily market action for a large number of financial stocks and financial focused indexes looks exactly the same: a sharp sell off in early trading and a slow recovery by the end of the day.
The take away for investors in all of this is to remember to focus on company fundamentals when making investment decisions. Do not get caught up in the herd mentality that often infects the market.
Friday, June 13, 2008
The percentage of NYSE stocks trading above their 50 day and 200 day moving averages have declined from their highs in mid May; however, the percentages do not appear to have reached oversold levels.
Thursday, June 12, 2008
...The enterprise value is calculated by adding market capitalization, preferred stock, and total debt and reducing this total by the amount of cash held by the firm. Debt and preferred stock is added because the acquirer must shoulder the cost of assuming the obligations of the firm. Cash is subtracted because once you acquire the firm, it becomes yours. The enterprise value to EBITDA ratio relates a firm’s takeover cost to its earnings potential. The lower the ratio, the more attractive the firm...
Using Enterprise Value to Locate Bargains ($)
By: John Bajkowski, AAII Vice President, Sr. Financial Analyst
Tuesday, June 10, 2008
When the stock market trades at a ‘discount’ to its replacement cost, the market is inexpensive, or cheaper to buy than build. This discount possesses ‘q’ ratios that are less than 1.0. When “q” exceeds 1.0, the market trades at a premium. The run-up from 1996-2000 had ‘q’ approaching the unthinkable value of 2.0. Encouragingly, the most recent (1Q08) level of 0.68 implies a reasonable valuation of market conditions. The long-term average for Tobin’s ‘q’ is 0.75.
A Tobin's Q of more than one means that the market value of assets (as reflected in share prices) is greater than their replacement cost. This means it is likely that capex will create wealth for shareholders. This means companies should increase capex, raising more money to do so if necessary, but should not make acquisitions. This should reduce share prices and increase asset prices, pushing Q towards one.
A Tobin's Q of less than one suggests that the market value of the assets is less than replacement cost, making acquisitions cheaper than capex; buying cheaper than setting up from scratch. This should increase share prices and reduce asset prices, again pushing Q towards one.
Tobin's q at .68 in Q1 ($)
June 10, 2008
Sunday, June 08, 2008
A recent chart by Chart of the Day details the performance of the Dow Jones Industrial Average in election years.
With the 2008 presidential campaign now in full swing, today's chart illustrates how the stock market has performed during the average election year. Whether the average election year is measured from 1980 or 1900, the market has tended to struggle during the first five months of an election year. That initial subpar performance was then followed with a rally (on average) right up to the November election. One theory to support this election year stock market behavior is that the first five months of choppiness is due in part to the uncertainty of the outcome of the presidential election (the market abhors uncertainty) with the market beginning to rally as the outcome of the election becomes increasingly evident.
Saturday, June 07, 2008
With respect to dividend increases and decreases, Standard & Poor's notes (pdf):
- Year-to-date, there have been 17 Financials reductions in dividend rates compared to 12 for 2002 through 2007.
- For the month, 27 issues increased, 0 initiated, 2 decreased and 0 suspended, versus 25 increases, 1 initiation, 0 decreases, 0 suspensions for the same period in 2007.
- Year-to-date increases are down 144 versus 155 issues in 2007, with decreases up 19 versus.
daily investment results, before fees and expenses, that correspond to twice (200%) the inverse (opposite) of the daily performance of the Dow Jones U.S. Oil & Gas IndexSM.
The lesson in this example is one should be aware of the underlying components in these types of indexes. The four largest positions in the Dow Jones Oil & Gas Index (DJUSEN) are:
In conclusion, if an investor is looking to hedge any position or sector within their overall account, understanding the components of the hedging product is vitally important.
(Disclosure: I hold a position in the Dow Jones Oil & Gas Proshare)
Wednesday, June 04, 2008
Standard & Poor's announced Ambac Financial (ABK) will be removed from the S&P 500 Index after the close of trading on June 10th. Ambac will be replaced by Lorillard. According to S&P:
Lorillard is being distributed to the public via a two-tier process involving 1) the retirement of the tracking stock Carolina Group (NYSE:CG), in exchange for which approximately 62% of Lorillard’s common stock will be issued, and 2) an offer in which shares of S&P 500 constituent Loews Corp. (NYSE:LTR) can be exchanged for the remaining shares of Lorillard. As of today’s close of trading Ambac’s market capitalization was roughly $860 million, ranking 500th in the index.