• The Buy List Continues to Rally
    Posted by on March 17th, 2010 at 9:26 am

    The Buy List is up to another new high this year. As of 10 am, we’re up 7.6% for 2010 which is about double the S&P 500.
    AFLAC (AFL) is up to another new high today. The shares are now up over 17% for the year. It’s hard to believe this stock was around $10 a share one year ago. I’m also pleased to see SEI Investments (SEIC) break out to a new 52-week high. The stock was upgraded a few days ago and it seems to be responding well. Currently, four of our Buy List stocks are up over 15% this year.
    The best news yesterday came from Intel (INTC). Actually, it wasn’t news but a rumor that Intel will pre-announce strong earnings. The company hasn’t said anything and I doubt they will. The next earnings report isn’t due until April 13.
    Still, the company is doing well. In January, Intel said that Q1 margins and revenues will above Wall Street’s expectations. The Street currently has Intel’s first-quarter’s earnings pegged at 37 cents a share. That seems about right.

  • Why the Bears Are Wrong
    Posted by on March 17th, 2010 at 9:00 am

    Yesterday, James Altucher had a good article in the WSJ detailing the bearish arguments against stocks along with his responses. Here’s a sample:

    • Many homes are still in foreclosure or under water:
    • Although forececlosures last month were still 6% higher than the year ago period, they were 2% less than last month. The 6% is the lowest year-to-year increase since January 2006. The rate of foreclosures are decreasing and the fact that we had a month-to-month decrease in foreclosures suggests that the 50-month stretch of year-to-year increases could be coming to a close.
    • The Case-Shiller Housing index has been up for the past six months, suggesting prices are stabilizing
    • When a foreclosure happens, people have more money to spend (they are no longer spending on mortgage.
    • The housing declines began in 2006. The market top didn’t happen until November, 2007 and the collapse didn’t happen until Lehman collapsed in September, 2008. The market collapse was more a function of the financial collapse and then the “Great Liquidation” (see below) than the housing collapse.

  • Happy St. Patrick’s Day
    Posted by on March 17th, 2010 at 8:48 am

  • Today’s FOMC Statement
    Posted by on March 16th, 2010 at 1:16 pm

    This statement is pretty much the same as the last one. Once again, Hoenig is the lone dissenter:

    Information received since the Federal Open Market Committee met in January suggests that economic activity has continued to strengthen and that the labor market is stabilizing. Household spending is expanding at a moderate rate but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software has risen significantly. However, investment in nonresidential structures is declining, housing starts have been flat at a depressed level, and employers remain reluctant to add to payrolls. While bank lending continues to contract, financial market conditions remain supportive of economic growth. Although the pace of economic recovery is likely to be moderate for a time, the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability.
    With substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to be subdued for some time.
    The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period. To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve has been purchasing $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt; those purchases are nearing completion, and the remaining transactions will be executed by the end of this month. The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to promote economic recovery and price stability.
    In light of improved functioning of financial markets, the Federal Reserve has been closing the special liquidity facilities that it created to support markets during the crisis. The only remaining such program, the Term Asset-Backed Securities Loan Facility, is scheduled to close on June 30 for loans backed by new-issue commercial mortgage-backed securities and on March 31 for loans backed by all other types of collateral.
    Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Elizabeth A. Duke; Donald L. Kohn; Sandra Pianalto; Eric S. Rosengren; Daniel K. Tarullo; and Kevin M. Warsh. Voting against the policy action was Thomas M. Hoenig, who believed that continuing to express the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted because it could lead to the buildup of financial imbalances and increase risks to longer-run macroeconomic and financial stability.

  • Seneca Foods
    Posted by on March 11th, 2010 at 1:02 pm

    If you like finding really off-the-radar stocks, you might want to check out little Seneca Foods (SENEA). This is a small food company based in upstate New York. The company was started in 1959 by Arthur Wolcott who still serves as Chairman of the Board.
    I haven’t drilled down on the numbers but it looks like Seneca is going for about seven times earnings. Best of all, this is one of those stocks that’s almost completely ignored by Wall Street.
    If you have the time, you can listen to a 42-minute presentation Seneca gave to Merrill Lynch’s Consumer Conference yesterday.

  • Looking at the TIPS Yield Curve
    Posted by on March 11th, 2010 at 10:52 am

    Here’s the current yield curve of Treasury Inflation Protected Securities, which means you get the yield plus the CPI.
    image916.png
    Looking at this, I can’t help but think it’s the Treasury equivalent of the Internet bubble from 10 years ago.
    I’m not a bond investor but I won’t even think of investing in any bond that had a real return of less than 2%. According to the bend of the current curve, the TIPS yields won’t reach 2% for another four years. They won’t even turn positive for another two years.

  • The Buy List Hits an All-Time High
    Posted by on March 10th, 2010 at 5:10 pm

    Huzzah! The Bear Market is over for us! After more than two years, the Crossing Wall Street Buy List made a new all-time high today.
    The combined record of the Buy Lists going back to 2006 has made a capital gain of 17.65% which takes out our previous high of 17.46% set on December 24, 2007.
    Over that same time, the S&P 500 has lost -8.23%.
    At our low point, exactly one year and one day ago, the Buy List had lost 50.36% of its value. Since then, we’re up 101.76%.
    That’s just capital gains. If you include dividends, our Buy List is up 22.14% compared with a gain of just 0.39% for the S&P 500.
    image915.png

  • An Eight Stock Index Fund
    Posted by on March 10th, 2010 at 4:26 pm

    Looking to build a quick-and-easy index fund? Of all the stocks in the Dow, United Technologies (UTX) has had the strongest daily correlation with the S&P 500 going back to the beginning of 2005. Each day’s UTX gain or loss has a 69.7% correlation with the S&P 500.

    If we add in Dupont (DD), the correlation jumps to 80.5%. (Note this is average daily change, so it assumes you invest equal amounts each day.)

    If you add in Disney (DIS), the correlation rises to 85.4%.

    Now the extra correlation really is hard to come by. If you add ExxonMobil (XOM), the correlation rises to 88.9%.

    Still more?

    If we add American Express (AXP) the daily correlations rises to 90.6%.
    Verizon (VZ) brings it up to 92.6%.

    If you want to go for seven stocks, IBM (IBM) will bring you up to 94%.

    Now we’re almost out of room. Wal-Mart (WMT) will bring our eight stock index fund up to a 95% daily correlation with the S&P 500. This is, of course, an equally weighted fund.

    If you want the extra 5% so you can be perfectly correlated with the index, just add 492 stocks and value weight them.

  • Don’t Give Me the Facts, Give Me Something I Can Understand
    Posted by on March 10th, 2010 at 10:15 am

    Here’s the opening of a fascinating article on cognitive fluency from the Boston Globe:

    Imagine that your stockbroker – or the friend who’s always giving you stock tips – called and told you he had come up with a new investment strategy. Price-to-earnings ratios, debt levels, management, competition, what the company makes, and how well it makes it, all those considerations go out the window. The new strategy is this: Invest in companies with names that are very easy to pronounce.
    This would probably not strike you as a great idea. But, if recent research is to be believed, it might just be brilliant.

    (HT: Timmay Sykes)

  • Projections for Nicholas Financial
    Posted by on March 9th, 2010 at 12:51 pm

    This chart below is perhaps the clearest reason why I find Nicholas Financial (NICK) such a compelling buy right now.
    This shows the company’s pre-tax profit (in millions) along with the provision for credit losses. What you see is just how damaging the credit loss provisions have been.
    image914.png
    I think it’s interesting that when you combine the two, you can see that NICK’s business appears to be fairly stable. You can also see that the credit loss provisions are declining rapidly. If they get back to the level of 2006 then NICK will be much more profitable.
    If the credit loss provisions were to run at the same rate today as they did in 2006, that would be an extra $2 million a quarter in pre-tax profits. Roughly speaking, that’s about 10 cents a share after taxes.
    On top of that, there’s an acceleration effect. The better NICK’s business is now, the better it will be in the future. That’s because the more money going to the bottom line means that NICK will have more money to grow its portfolio.
    A lot depends on how well the economy improves. If things keep going as they are now, then NICK should earn at $1 a share this year, with the ability to earn as much as $1.20 a share. That’s not bad for a stock going for $7.50 a share.