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Chasing Value: No Double-Dip Recession

The most common question I get from friends, family, business associates and, well, everyone is -- Do you expect a double-dip recession? My answer is an unequivocal "No!"

This does not mean that I think we are going to experience a dramatic improvement in the economy. We are not. Many of my colleagues seem to oppose my view, so it is not without some trepidation that I take this stand. However, I see the glass half full. My view is that others are overly influenced by "group-think" and the calls of doom.

I do think that we are currently adrift in uncharted waters and we may have a faulty rudder, too. The biggest fear I have is that everyone jabbering about another deep recession may actually cause one.

The following supports why I feel, from what we know, that we are not destined for a double-dip recession:

Continue reading Chasing Value: No Double-Dip Recession

Chasing Value™: 2009 Results Crushed the S&P 500

Intuitive Surgical (ISRG) logoI have always felt that for all the blabbing we do -- or blogging, in my case -- we should try as best we can to be accountable for our good and bad calls. This report is long overdue, but I will post it anyway since all of my past year's picks and results have been made public.

The market was very harsh in the early part of 2009, filling investors fear and trepidation, and sinking to a March 9, 2009 bottom. Perhaps some of the bleeding has stopped, but the economy has not healed as bears and bulls seem to carry the day, or every other day.

Continue reading Chasing Value™: 2009 Results Crushed the S&P 500

Chasing Value™: Tale of Two Tech Stocks (ISRG and SCON)

You win some you lose some. This story is about one of my less successful investments, which I acquired and sold many years ago. Over the past four years, I have written many times about Intuitive Surgical (ISRG), by far my best stock investment, up 4,500%, give or take, over a ten-year period. I bought in at the bottom and held on for the ride, until last year when the market tanked and took Intuitive Surgical with it.

The other company was Superconductor Technologies (SCON), the makers of high-temperature devices that improve communications transmission quality.

Continue reading Chasing Value™: Tale of Two Tech Stocks (ISRG and SCON)

Chasing Value: Wells Fargo Beats the Street Offering Positive View

This morning Wells Fargo Bank (WFC) spread some sunshine reporting earnings of 55 cents per share (2 cents lower than the same period last year) versus the analysts average estimates of 49 cents. They have been closing branches, raising fees and seeing a reduction in loan losses with anticipated continued improvement looking forward.

The stock is up in morning trading and analysts are raising estimates as fast as they can backpedal out of their current positions.

How should investors view Wells Fargo's potential now? Is it time to take profits into the bullishness, jump into the fray before the opportunity escapes or hold tight patiently until the excitement of the day dissipates?

Continue reading Chasing Value: Wells Fargo Beats the Street Offering Positive View

Wells Fargo to Cut 3,800 Jobs in Restructuring

wfc layoffsWells Fargo (WFC) announced Wednesday that it will lay off 3,800 employees during the next year as the bank attempts to restructure its consumer finance unit. Wells Fargo Financial will be integrated into the company's community banking network -- closing 638 independent consumer finance offices in the process. The firm added that it is no longer going to deal with non-prime mortgage loans.

Reportedly, roughly 27% of the financial firm's Wells Fargo Financial employees will be laid off. In the next two months, 2,800 employees will be sent packing, while 1,000 more will be jettisoned in the next year. According to WFC, these changes will not affect WFC and Wachovia banks across the United States.

Continue reading Wells Fargo to Cut 3,800 Jobs in Restructuring

Serious Money: Buffett Looking Beyond Our Borders

Stories are starting to appear that "my pal Warren" is gearing up for a major foreign acquisition. One of my dear friends Randy S. is taking a post graduate business class at UCLA where this issue is a part of the course. He is supposed to figure out what non US companies Berkshire Hathaway (BRK.A/BRK.B), led by Warren Buffett, might be considering for investment.

Ahh yes, the prediction business, quite tricky indeed. Starting with some basics, in most cases I would stick to the time tested philosophy that past performance is not an indicator of future success. That said, I think in the case of Buffett, it does. There are many clues along the trail based on his past performance.

Here are some basic consistencies from the existing portfolio that I would expect to hold true going forward.

Continue reading Serious Money: Buffett Looking Beyond Our Borders

Financial Reform Has No Credit Default Swap

Voltaire said, "Common sense is not so common" and George Bernard Shaw commented that having " ...enough of it was genius."

This reminds me of Warren Buffet, CEO of Berkshire Hathaway (BRK.A) or Steve Jobs, CEO of Apple Inc. (AAPL) that have both displayed plenty of the former and arrived at the latter in their business pursuits.

Derivatives like Collateral Debt Obligations, or CDO's, and Credit Default Swaps, get their value from something else entirely: total hype in an environment of smoke and mirrors.

It turns out that if you build layer upon layer of derivatives until you have no idea what the original underlying value truly is, it becomes so convoluted that a genius can't comprehend it at all. It is self evident that nobody could even determine all the counter-party risk.

Continue reading Financial Reform Has No Credit Default Swap

Analyst Calls: AGP, BCSI, CL, DECK, PG, MON, RHT, RY, TTWO, WFC ...

Analyst Upgrades

  • Thomas Weisel upgraded Deckers Outdoor (DECK) to overweight from market weight following channel checks. The firm also raised its target for shares to $170 from $162.
  • Deutsche Bank upgraded Amerigroup (AGP) to buy from hold as it believes the company is well positioned to benefit from health care reform. The firm upped its target for shares to $42 from $38.
  • Cowen upgraded Cubist Pharmaceuticals (CBST) to outperform from neutral, citing increased conviction in Cubicin's patent exclusivity.
  • OmniVision (OVTI) was upgraded to strong buy from buy at Needham.
  • Take-Two (TTWO) was upgraded to buy from hold at ThinkEquity.
  • Wells Fargo (WFC) was upgraded to buy from neutral at Sterne Agee.

Continue reading Analyst Calls: AGP, BCSI, CL, DECK, PG, MON, RHT, RY, TTWO, WFC ...

Serious Money: Buying the Super Caps, Part 5 -- ROE, ROIC

The market continues to be very volatile and trending down. When the seas are this turbulent you want to be on the biggest ships and thus I continue my review of the super cap stocks. This time, I'm going to examine return-on-equity (ROE) and return on-invested-capital (ROIC).

I started with the 12 highest valued companies but remained with 10 after running them through several screens. Among those 10 super, caps the company that is producing the highest returns is Microsoft (MSFT).

Continue reading Serious Money: Buying the Super Caps, Part 5 -- ROE, ROIC

Serious Money: Buying the Super Caps, Part 4 -- the Dividend

China Mobil CHL logoIt's a cliché but it rings so true: just show me the money! In the case of stocks that's profits and distributions, or dividends.

The super cap review, in which I examine large cap stocks through different valuation methods, started with the 12 stocks with the highest capitalization and through several stock screens has been trimmed to just 10 stocks.

It has been widely reported that dividends contribute as much as 40% of the market stock appreciation on long term holdings. All things being equal, a diversified basket of dividend paying stocks should outperform a similarly diversified portfolio that does not.

Continue reading Serious Money: Buying the Super Caps, Part 4 -- the Dividend

Serious Money: Buying the Super Caps, Part 2

In my search for value investments among the top twelve stocks by capitalization -- the "super caps" -- I began by reviewing the price-to-earnings and price-to-sales ratios. Today we will move on to examine price-to-book (P/B) and price-to-cash flow (P/CF).

If you are one of the lucky ones that benefited from the market's long rise from the depths of Hades and are now looking to rotate into less volatile positions, or you still remain apprehensive and want to stake out a new position, some of these super caps may be just for you.

Continue reading Serious Money: Buying the Super Caps, Part 2

Serious Money: Buying the Super Caps

Walmart WMT logoSince early last fall, the majority of pundits have been saying that there would be a rotation from small cap stocks to the safety of large cap stocks in the new year. So far, the small cap stocks have maintained the lead, but a shift is taking place and the longer the bull runs and the worse global news becomes, the more this is likely to continue.

I have decided to examine the largest of the large cap stocks; lets call them the "super" caps; the top twelve as of May 13, 2010. Over the course of this series, the order will change and the bottom few may fade in and out as the market activity dictates. I may update the order, but for simplicity's sake will not change the stocks from the current list.

Continue reading Serious Money: Buying the Super Caps

Serious Money: Optimistic Economic View

The negativity in the market place has been palpable for several years and is only thawing out now, in some people's view, while others rant about a "double-dip" or "W-shaped" recovery. In contrast to those who shun the market, I have been buying stocks at bargain basement prices over the past year with a return on investment that is "staggering," to quote a Wells Fargo Financial Consultant familiar with my account.

I am well aware that the record deficit spending in the United States is even more staggering. Everyone knows about the high unemployment rate, foreclosure rate, bank failure rate, and tepid consumer confidence. So why am I so optimistic about the economic recovery? Here's why, as simply as I can state the case:

Continue reading Serious Money: Optimistic Economic View

A Value Shopper's List of Graham and Dodd Stocks

"Berkshire Hathaway's Warren Buffet is a disciple of the teachings of Benjamin Graham and David Dodd, who made their fortunes by buying businesses that were selling for less than the value of their working capital (current assets minus current liabilities," notes Vita Nelson.

The editor of The Moneypaper explains, "The pair developed a Net Current Asset Value (NCAV) model to determine if a company was worth its market price. Their formula subtracts all liabilities, including short-term debt and preferred stock, from a company's current asset balance"

Continue reading A Value Shopper's List of Graham and Dodd Stocks

Chasing Value: Berkshire Eating Up Apple -- Can It Continue?

Yes it can. Berkshire Hathaway Inc. (BRK.B) can outperform Apple Inc. (AAPL) in 2010. That was my thesis in December (see Buffett's Berkshire vs Jobs' Apple for 2010?) and I still believe all the Apple hype in the world will still succumb to a solid value proposition in the long run.

While Apple was reaching new all time highs Berkshire was treading water through 2009. However, after a monster run-up Apple is taking a breather.

Continue reading Chasing Value: Berkshire Eating Up Apple -- Can It Continue?

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