Monday, March 9, 2009

Buys of CPB LQD SYY XKK/Regressive Taxation-Cap & Trade/

When I was a youngster, I had an aversion to vegetables. This had to genuine because I would spit them out when I was just a tot. My mother had a bright idea to feed me a liquid to squelch the taste of the vegetable and I spat that out too. As I have said, I can be contrary.

Recently, I was explaining to Janice how I resolved my vegetable problem after about fifty or so years. I will take my vegetables in a convenient to swallow pill. The pill was called Veggies4Life . According to the label, it contained all the veggies that I would never want to even look at, let alone eat, including cabbage, spinach, and broccoli.

As you would expect, she just looked at me like I was off my rocker, a typical male resolution, and then she asked whether I could drink V-8 juice. I would never drink tomato juice so I replied that I would rather eat spinach than drink tomato juice.  I was then informed that V-8 had some new drinks, at least new to me, that disguised vegetables with pleasant tasting fruit flavors like banana/strawberry. So I gave it a try and liked it. This led me to Campbell Soup which owns the V-8 line of drinks.  

Campbell Soup has fallen to the mid 20s during the latest sell off and hit a new 52 week low today.

My buy was at $25.8.

I concur with CPB's management that people will turn to soup in an economic downturn, so I suspect that Campbell will meet or beat estimates this year as claimed by management. Given the cost and overall quality, I doubt that brand substitution is much of a problem. CPB controls about 80% of the U.S. condensed soup business.

In addition to V-8 and soup, the company owns Pepperidge Farm, Prego pasta sources and Pace Mexican Salsa. While earnings beat estimates for the last quarter, sales fell 4% hurt by the strong dollar which has negatively impacted every American multinational recently. CPB generates around 30% of its sales outside the U.S. Fiscal 2009 earnings are estimated at around $2.13 which gives CPB a forward P/E of around 11. CPB: Key Statistics The current fiscal year ends in July 2009. CPB: Analyst Estimates The dividend yield is a dollar a year and this brings the yield close to 4% at a 25 and change price. I reviewed the Morningstar report which was favorable. Today, I bought some shares at $25.8 in the manner that I am doing now, slicing my regular order into three or four separate orders likely to be spaced and placed over long time intervals.  CPB closed about 15 cents under my purchase. 

Campbell's stock has spent the last nine years moving in a trading range of 20 to 40. There was a good run from the early 1980s to 1998 when it topped out at around 55. Somewhere back there in time, I remember reading a story in the WSJ about how growth in CPB's revenues were falling way behind growth in earnings. In other words, there is only so long a company can find ways to grow earnings with stagnant or close to stagnant revenue growth. I  shocked myself this morning by my ability to even remember that story from a decade ago.  It must have had an impact on me for beyond influencing my opinion of CPB. That argument made sense to me then so I exited my position and I do not believe that I have owned it since the late 1990s until doing a nibble today.  

The investment grade bond ETF continues to slide back to where I bought the shares just sold at over 99.  LQD: 

I like this ETF for exposure to intermediate higher quality corporates, but I also see a need to trade it. I went ahead and re-initiated a position late today after it slid another 3% by buying some shares at $90.67. The security closed at below my purchase price. Apparently it also fell below its current NAV at the close which is listed at 91.53 at this site for 3/9/2009: iShares Investment Grade Corporate Bond Fund (LQD). This ETF has just become irrationally volatile. I just sold out of my position a few days ago at over 99 and this last purchase was near where I previously bought the shares which were just sold.  It is not inflation or inflation expectations that is causing this ETF to  jump around like this but fears about credit risk even with the higher quality investment grade bonds.  

I placed a limit order to buy 100 of XKK at $3.80 in a regular retirement account and the order was filled during a downdraft. The price blew through my order on the way down to $3.53. This is a TC with a senior Goodyear Tire bond maturing in 2028 with a $10 par and an 8% coupon, which is greater than the underlying bond at 7%. I described this TC in prior posts.


At this price, my yield is about 21% and the next ex date is this week, the 11th. I did successfully trade this TC in the same IRA to capture the last semi annual interest payment. Goodyear Tire TC  As stated in the last linked post, I was looking for a re-entry point below $4.5 which I revised to $4 after the last earnings report which was a loss as I had predicted. XKK closed at $3.9. If it goes down I will include it in my next Roth conversion. I am running out of funds in the regular IRA so I am going to have to start investing my annual maximum cash contribution just placed in the Roth. One more purchase can be made in the regular IRA. I identified what it will be, a TP from another bank.

We are back into a period when fear is driving even the better quality corporate bonds down and a junk bond like this Goodyear issue will fare even worse in this climate. An interesting example of fear driving a junk bond price is the fall in DKR, a TC containing a senior Hertz bond maturing in 2012. I sold 1/2 of my position at 14.75 in mid January 2009. SOLD 1/2 POSITION DKR The closing price on Monday was $4.41. I will think about buying my shares back, but the market is saying that there is a high probability that Hertz will not make it which makes this one very risky. The potential reward is $25 per share in 2012 if Hertz survives without a bankruptcy filing plus a current yield of around 40%. It is tempting but I am going to think about it some more. I simply have no feel for how much this senior bond would be worth in bankruptcy given the amount of Hertz's secured debt. Obviously and this goes without question, a 181% return per year contingent only on a companies survival with no bankruptcy means that it is almost 100% certain to go bankrupt in the market's judgment. So I have to decide whether the odds are a little better that Hertz will survive to even buy back the 50 shares of DKR that I just sold. DKR is entirely a credit risk.   

I also added shares of Sysco  (SYY) at 19.46 near the close after the stock broke to a 52 week low. I had previously sold out of my position at over 30. Notable News 11 3 2008 At my price today, the yield is around 5%. SYY Stock Quote

This company is a food distributor primarily to restaurants. Last year, its business was hurt some by gas prices. This year will be hurt by lower demand from their customers. I view this one as a worthy long term hold and my position is just what I call a starter position now. The last quarter was disappointing and explains some of the stock's recent weakness.

This last linked article suggested that Sysco had long term technical support in the 19 to 20 area. Yahoo has the earnings estimate at $1.78 for the fiscal year ending June 2009 and $1.88 for the year ending in June 2010.  So the current price is close to 10 times earnings and I do not remember it ever being at that P/E.  Morningstar has it rated five stars and VL has a 2 for timeliness.  

I am searching for companies that at least have a decent chance to keep paying dividends. CPB and SYY fall into that category. I have zero confidence  in any bank paying a common dividend. If I am going to take a chance on any of the banks, it will be only in the debt cumulative preferred issues and I will avoid Citigroup altogether. 

I would agree with Buffett that Obama's cap and trade is a regressive tax. NYT I would vote against it since I view it as just idiotic. I have no problem with the money appropriated in the stimulus bill to spur development of alternative energy sources or to improve energy efficiency.  

I am a bit stumped by the rapid decline in utility shares over the past two weeks. At first, I attributed the fall to Obama's cap and trade plan but then I noticed that utilities that would benefit from his idiotic plan were also falling.  It may be a case of throwing the baby out with the bath water or it may have to do with an expected fall in earnings coming from lower demand and customers reneging on paying their bills. Piedmont Natural Gas ( PNY) had a negative surprise on the earnings front today and it is not impacted by the proposed cap and trade. Reuters

I am still off the reservation, buying common stocks when my own trading model says sit tight. For whatever reason deep in my psyche, the animal spirits have returned, to hell with those stinking models.  

  I am not a financial advisor but an individual investor trying to navigate my way through a difficult market. I have never worked for a financial institution and never will.  In these posts, I am acting as an unpaid financial journalist and an occasional political commentator.   I am also aggregating financial news stories that I view as important and providing any reader of these posts, assuming there are more than a couple, with links to those articles, sort of a filtered, somewhat intelligent, free search engine.  Any discussion made by me of particular securities  is not a recommendation to buy or to sell.  Trade at your own risk.  Consult with your financial advisor prior to making any purchase or sale. I will try to identify my sales too but it may take a few minutes after I implement them to create a post explaining my reasons.  The sale may before or after the post.  Before buying or selling any stock, even one recommended by a trusted financial advisor,  please research it and make up your own mind which is what I always try to do.  Research would include reading reports, reviewing financial records, earnings estimates, sec filings and prior earnings releases and news.  In this post, and all others by me, I am merely describing my reasons for purchasing  or selling securities, and the potential pitfalls that I identified prior to purchase or the reasons for a sale.  The securities mentioned in this and all posts written by me may not be suitable for others based on their unique financial position and risk profile.  By way of example, it is unlikely that I will ever need the funds contained in my retirement accounts. Always read the prospectus before buying a Trust Certificate, bond, preferred stock or other bond or bond like investments.  Information contained in my posts has been obtained from sources believed to be reliable but cannot be guaranteed.  These posts by me do not constitute investment advice, nor shall they be construed as a guarantee of future results, or as an offer of any transaction in securities.   All content in these posts is provided for informational and entertainment purposes only, and it is a form of entertainment for me.