To finish my post from last night, has anyone asked themselves why the investment banks, other than Goldman Sachs, are competent to handle their money when they have proven so inept at managing their own?
Hartford Financial finally answered a question that stumped it during its recent analyst call by projecting that it would have $2 billion more in capital than needed to maintain its rating of AA, assuming the S & P remained over 900. WSJ.com (Fitch downgraded Hartford's debt to A last Friday, Fitch Downgrades Hartford Financial's IDR to 'A'; Outlook Negative)While I do not pretend to have more than a cursory understanding of the arcane and opaque principles underlying the accounting of life insurance companies, it appeared to me that a steadying of the bond and stock markets would ease people's concerns about them. Part of this problem has to do with the Deferred Acquisition Cost (DAC) rule. I have no desire to summarize this issue but will simply refer any reader to these articles. Investopedia Advisor Deferred Acquisition Costs - Wikipedia, the free encyclopediaAnother problem is guaranteed benefit riders for variable annuities. For a fee, the insurance company would guarantee a minimum amount of principal. The companies would attempt to hedge themselves from swings but the effectiveness of those hedges has probably been put to the test the past few weeks. The companies have also suffered losses in their bond holdings with the bankruptcies of Lehman and others, the near collapse of AIG, and the general amount of stress in the corporate bond and mortgage backed securities (MBS) market.
In a post over the weekendLate Friday Buys: LNC and GXP, I did not discuss all of my research undertaken prior to purchasing a starter position in Lincoln National. I read the recent report from Barclay's discussing the last earnings report from LNC. Barclay's lowered its target to 60 from 65 but maintained its overweight rating. Morningstar has suspended its rating while it evaluates whether the firm needs to raise capital to fulfill its variable annuity guarantee obligations. A few days prior to that suspension this firm had lowered its fair value estimate to 45 from 51 to account for the possibility of earning's dilution from such a new stock issuance. For the money, I find the Morningstar service to be well worth it for me and I have a two year subscription. Value Line, a more expensive service than Morningstar and overall less helpful to me, has a 4 timeliness rank but sees wide appreciation potential for the long term based on the current price.
Citigroup upgraded the chip sector. Yahoo! Finance
I was interested in the report from Goodyear Tire, which I viewed as positive in the current circumstances, since I own some of their senior debt. Yahoo! Finance Fitch rates the debt B+ which is a "junk" classification.
Sysco (SYY), the food distributor, is a stock that I sold in the low 30s and will take another look at it today, now trading at around 25. It is being hurt by the economy as many folks have cut back on eating out and soaring gas prices did not help considering the extra costs driving those big food trucks around town. Earnings fell a tad short this morning.Yahoo! FinanceSysco Reports First Quarter Diluted EPS of $0.46: Financial News - Yahoo! Finance One positive way to look at it is that Sysco is still increasing its earnings and the dividend yield is approaching 4%. Looking at a long term chart, there was a steady appreciation from 1987 at a split adjusted price of about $1.5 to 2004 where it hit 39 and change. The price has meandered in a range since then with the current price being close to a floor, as shown in the chart for 11/2001, 7/2002 and 3/2003. Unlike a lot of the stocks that I have been buying recently Sysco is nowhere near its 1995 level which was around 7 adjusted for splits. So I am going to take a good look at it again today.
After publishing this post, I decided to add the ISM manufacturing report for October that confirms to me that the economy is already in a recession. This index plunged to a reading of 38.9, its lowest reading since 1982. MarketWatch I will be interested in reviewing the earnings report of Emerson Electric (EMR) that is scheduled to be released tomorrow I think.