The Market Today

General Motors (GM) fell to an 18-year low today. Poor Kirk Kerkorian. He might be down to his last $1 billion. A few months ago he bought a 10% stake in GM at $30 a share. The stock is now down to $21.29. For reasons I’ll never understand, the company has clung to its 50-cent quarterly dividend. At today’s closing price, that works out to a yield of 9.4%. We’ll see how much longer that lasts.
Not all is bad in the housing sector. D.R. Horton (DHI) reported very strong earnings today. A few days ago, the entire sector was hurt by Toll Brothers’ (TOL) weak outlook. Horton is more focused on first-time homebuyers, while Toll Brothers is geared toward the high-end. Still, I’m concerned that the housing market is beginning to come undone.
But today was all about commodities. The Dow Platinum & Precious Metals Index (^DJUSPT) was up over 10% today. The odd thing is that the inflation report was pretty good, plus bonds and the dollar rallied. The 10-year bond (^TNX) dipped below 4.5%. Maybe gold doesn’t matter anymore. Honestly, I will never understand the gold market. There’s an old joke that there are only two people in the world who understand the price of gold. They both work for the Bank of England, and they disagree.
The Buy List has another poor day today. All told, we were down 0.33% today and the S&P 500 was up 0.18%. Only Expeditors (EXPD) showed any real strength. Frontier Airlines (FRNT) briefly fell below $9 a share. Despite yesterday and today’s pain, the Buy List is up 4.2% for the month and the S&P 500 is up 2.0%.
Medtronic (MDT) reported earnings after the close today. For the quarter, the company earned 54 cents a share; I saw estimates for 54 cents and for 55 cents. I never know which consensus to believe, which is another reason why I don’t pay too much attention to them. But Medtronic did something I do pay a lot of attention to: The company gave an earnings estimate for this year, next year and the year after that. If you’re scoring at home, three estimates is three more than Google (GOOG).
For this fiscal year, which ends in April, Medtronic is looking to earn between $2.18 and $2.23 a share. The year after that, the company forecasts earnings of $2.45 to $2.55; and for the year after that, $2.78 to $2.98. For comparison, Medtronic earned $1.86 a share last year. That’s pretty amazing. The company has publicly said that they’re going to grow by about 15% a year for the next three years. That’s very good. What else can I say but this is a great stock hidden in plain sight.
The longer I’ve been at this game, the more I’m convinced that superior investing isn’t about seizing the next Big Thing—it’s about not taking unnecessary risks. I don’t try to predict the future. My starting point is that I can’t predict the future. I can’t say for sure if Medtronic’s forecast is accurate, but I do know that they’ve had strong growth for a long time, and they’re putting their reputation on the line by saying that it will last at least three more years. Even if they deliver the growth, the earnings multiple could plummet and the stock could go nowhere. Maybe this could happen, maybe that could happen.
My strategy is to whittle out the junk from my portfolio and concentrate on quality. That way I bend risk in my favor. As long as you’re patient and diversified, the profits will follow.

Posted by on November 16th, 2005 at 9:08 pm


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