Tuesday, November 18, 2008


Most of the modest earnings miss by Medtronic had to do with the strengthening of the U.S. dollar, which will impact all companies with significant sales in foreign markets.  Medtronic has about 38% of its sales  outside the U.S.Yahoo! Finance Forbes.com The guidance for fiscal 2009 was lowered from $2.94 to $3.02 to $2.9 to $2.98,  revenues were adjusted down.  One analyst was disappointed by the meager 2% rise in pacemaker sales and the 26% increase in the spinal implant business.   Another was concerned about the 13% increase in implantable cardioverter defibrillators  which indicated a 1 to 2% loss in market share as well as the decline in sales of Medtronic's endeavor stent(Abbott Laboratories (ABT), Boston Scientific Corp. (BSX), Medtronic Inc. (MDT), St. Jude Medical Inc. (STJ), (US002824), (US101137), (US585055), (US790849)) at SmartMoney.com  Overall, I believe that the market is way overreacting to this earnings report by taking the stock down over 12% to a new 9 year low.  However, you have to respect the power of the institutional investor to act irrationally, selling in a raw state of panic, transforming in an incoherent fashion a 26% or a 13% revenue increase into a matter of grave concern, and otherwise acting in a manner which can not be justified, at least to me, with the overall consequence being the price of MDT stock changing hands now at about 11 times earnings.  I am therefore modifying my plan to buy Medtronic shares by splitting my remaining buys into two parts rather than just one, buying 30 shares first and then rounding the total to 100 by buying 40 shares at 26 to 28.  My first purchase at much higher levels was for 30 shares.  

I am familiar with the problems of the life insurance companies.  It is hardly reassuring that several of them are acquiring small savings and loans, transforming themselves into S & L holding companies to be able to apply for TARP funds.  This smells too much like desperation. Hartford (HIG) and Lincoln (LNC) have recently done this legerdemain.    MarketWatch  I may just go ahead and buy 30 shares of Lincoln notwithstanding all of problems.  I was surprised to just see MET LIFE trade down to 17.44, down over 16% today even at the current price of 18.6.  This breaks the long term chart to pieces. The stock did fall to close to 20 during the last bear market.   I do not own the common but I do have a small position in Met's floating rate preferred stock, METPRA.

One of the best suggestions that I have heard about the automakers' bailout is just let them fail, go ahead and declare bankruptcy, and then for the government to guarantee some new lending while in bankruptcy so that they do not end up in Chapter 7 liquidation.  This would keep them operating but allow the Trustee in bankruptcy to reorganize the companies, including the labor contracts, requiring elimination of the job banks for example that require the auto companies to pay wages for up to a year once a worker is laid off and to close some of the more inefficient plants as well as to eliminate some of the less profitable or most unprofitable brands. 

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