Tuesday, February 10, 2009

Heinz/ KR, PG, Pru/No Quick Fix To This Financial Quagmire/

ING also declared its regular preferred stocks dividends.  I own shares in both INZ and IND.  Recently, the market has been pricing ING preferred issues to generate a higher yield than the Aegon preferred issues.   Both firms are under stress. 

Credit Suisse lowered its target for Heinz (HNZ) to $37 from $47 and its rating to neutral from outperform. Finance    Barrons.com
Some of the factors, like currency exchange and increased pension costs, that adversely impacted the recent earnings of Kraft is anticipated by this analyst to adversely impact Heinz's forecast.  CS says wait for an entry point in the lows 30s.   The UBS analyst cuts his price target to $39 from $42 citing the same reasons.  Yahoo! Finance
The consumer staples are rolling over based on concerns about the currencies, demand, private label substitution, and pension cost increases due to the market crash.  A favorable recent article on Heinz written by Andrew Bary appeared recently in Barron's.  Barrons.com
I noted in a prior post that I am favorably disposed to buying Heinz but I would wait at least two weeks before considering an add due to my refusal to buy a pop caused by a discussion in one of the rags. Pakistan As a Haven for the Taliban/No on NCV/Heinz/More on Ariad
I will wait some more now after seeing Kraft's report and taking into consideration that Kraft's problems are probably equally applicable to what Heinz may say soon.  I do like the HNZ dividend even at the current levels.  

Perhaps, the decline today is based on a recognition that there is no magic bullet to resolve the financial crisis.  No one is going to wave a magic wand and then give investors three wishes. Mama is not going to kiss the gaping wound and make it better. The best case scenario may be a prolonged work-out lasting at least a year.  Another problem is that Geithner provided few details about the financial part of the rescue plan.  WSJ.com
And many do not have much confidence in the new treasury secretary or Larry Summers. There is also a difference in tone compared to the Bush administration.  The new treasury secretary emphasized that the intent was to protect the customers of the banks and not their shareholders.   Then, that thought keeps creeping into my consciousness, which I expressed in an earlier post.  This may just be a slower moving train wreck than the world experienced in the 30s, slowed down but not prevented by the extraordinary and unprecedented actions undertaken since September 2008, when the world's financial system was on the verge of total collapse.  I just mention that as an outlier possibility.   There are those like Jim Rogers who say do nothing and it will eventually sort itself out.  Yahoo! Finance
I do know that the carnage done to individual investor's portfolios will turn many of them against stocks for a very long time, maybe for the rest of their lives.  It is certainly difficult to think long term after suffering a 50% hit and having 10 years of gains vaporized over a few months.
If I was not operating under self imposed buying restrictions, created by a model that has kept me out of lot of trouble since 2007, I would be buying more stock now including shares in Proctor & Gamble.  But, I am going to stick with what has been working which is my VIX model at least until it ceases to work and has to be modified in some fashion.  This model keeps most of my existing cash allocation, excluding cash flow,  out of stocks until the VIX returns to below 20 and stays there for 3 months.  I will stop investing cash flow if the S & P 500 index closes below 815 until there is a monthly close above 815.    I would make the observation that anyone who is capable of buying with strong hands, meaning no need for the cash for many years at a minimum, reduces their risk by being able to wait patiently for a much better price to sale whatever is purchased now.  I look at strong hands as in effect a form of risk reduction provided the purchase is made during the depths of a deep bear market, like we have already experienced since November 2007.   With the financial capability of looking at everything now long term, the important consideration is not so much whether the stock will decline further in the next year, which no one really knows, to afford a better entry point, but simply the odds of making a good return based on a purchase at the current price looking out to an exit point anywhere in a 3 to 5 year time range.  The dividend yield, along with confidence that it would be maintained, would certainly help the total return potential.      

Citigroup reduced Kroger to a hold from a buy, citing the possibility of a price war.  Kroger is on my large cap monitor list.  I do not have a position but have owned it in the past. MarketWatch
The price target was reduced to $23 from $32.  The consensus estimate is for earnings of $2.09 for the fiscal year ending in January 2010 up from $1.91 for fiscal 2009 which ended in January.  KR: Analyst Estimates for KROGER CO - Yahoo! Finance

The Senate approved the stimulus bill with the same republicans voting in favor that voted for cloture. NYTimes.com

Moody's placed Prudential's debt on credit watch for a potential downgrade.  MarketWatch

 S & P lowered Alcoa's debt to BBB-  with a negative outlook.   

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