Friday, April 3, 2009

Added to LINE/March Unemployment at 8.5%/ Sold Adobe/Allscripts/ USO and Contango/CXW DIS BMY/

The Bureau of Labor Statistics reported 663,000 job losses in March and an unemployment rate rising from 8.1% to 8.5%, the highest since 1983. Since the recession started 5.1 million jobs have been lost. Employment Situation Summary

This BLS chart shows the statistics by metropolitan area as of February. Table 1. Civilian labor force and unemployment by state and metropolitan area

January statistics were revised down to show a job loss of 741,000, the worst since 1949. MarketWatch

Allscripts-Misys, a small position-BUY of 50 MDRX, reported earnings of 9 cents a share on 68 million more shares than the year ago period due to the merger with Misys.  Revenue rose 65% to 97.1 million. Excluding acquisition related costs, earnings were 15 cents versus expectations of 13 cents. I would expect some delay before the stimulus bill incentives for converting to digital records start to have a significant impact.

Cramer put the ETF for oil, USO, in his sell block yesterday. To understand why, it is important to understand the terms contango and backwardation in the oil future's market. Contango  The oil ETFs do not actually own physical oil but buy future contracts and USO rolls the contracts forward every month. When the futures are in contango, as has been the case recently-Bloomberg, the fund will end up paying more for the new contract than the spot existing spot price, the spot price is lower than the futures price. As a result, while oil is up 45% since hitting a low in 2008, USO is down 4.3%. ETF Trends This also will happen to the oil ETF that I owned in the past, OIL, which I did profitably trade. This would seem to require only short term holding periods for these two ETFs when the future's contract is in contango. When the contract is in backwardation, where the amount of money for future delivery is lower than for immediate delivery, this could juice the returns. Since the contango has continued since August, I have stayed away from both of these ETFs, Oil and USO. If I ventured into one of them, it would not be for more than a few days or a couple of weeks. Bloomberg 

Corrections Corporation, another recently added position, was up yesterday on news that the Federal Bureau of Prisons awarded CXW a contract to house up to 2567 inmates at its correctional facility in Mississippi.  

Disney was downgraded to neutral from overweight by J P Morgan. The firm also lowered the price target from $23 to $21 and its 2009 earnings by 9 cents to $1.68. MarketWatch

Disney has a a great move since my purchase on 3/6/09 at 15.49 Buys of JWF KSA DIS and NYX/SOLD Entire Position in TFI/ Just a Day of Ignoring My Own Rules

Analysts think about the short term, where is the stock likely to go over the next few months or year, and what the company is likely to report in earnings this quarter or during a recession for the entire year. For a trader, other than a day trader, this may be the appropriate myopic view. I do engage in trading, not day trading, but short term trading particularly when I receive a large percentage gain very fast as with Disney. However, valuing a company the way J P Morgan just did with Disney is not now, nor has it ever been the way anyone in business values a company. The focus would be on the long term future earnings picture, over several up and down cycles in the economy, to arrive at a normalized earnings' pattern over a decade or more. Then, you would decide what the stock is worth now. The analyst from Pali downgraded Disney at about the same time that I bought it at $15.49 which was below Disney's book value.

In the above linked post, I mentioned that I would considering selling Disney on a quick 20% pop. As of the close yesterday, the stock qualifies for a sell using that criteria admittedlybased on short term thinking, similar to that expressed by virtually all analysts at brokerage firms and endemic to institutional investors. The analysts currently estimate that Disney will earn $1.95 in the fiscal year ending September 2010 or about 10 times those near forecasted earnings at the current price. And these analysts want me to sell today at 10 times forecasted earnings, which are being impacted by a recession. The alternative is to wait a few years, who knows how long, and wait for a return to over 30 where the stock traded in mid 2007. If the stock popped another buck or two over the next couple of weeks, maybe the trader in me would triumph and sell the position. Otherwise, for now at least, I am going to sit tight.

After spending at least ten minutes fooling with my two K-1s from Linn Energy (LINE), I decided that I needed more shares just to make the effort worthwhile when I prepare my 2009 tax return, so I added more yesterday at $15.21. This is a publicly traded partnership. LINE: Summary for Linn Energy

The dividend yield is currently almost 17%.

Barclays has an overweight on LINE with a $23 target.

Office vacancies continue to rise with the vacancy rate hitting 15.2% last quarter. Effective rents fell 2%.

While the current rally is nothing to sneer at, it is hard to get excited when one remembers that the DJIA was 1000 points higher after the first trading day of 2009.

The NYSE Euronext (NYX) paid Duncan Neiderauer 9.2 million in cash and stock in 2008 plus a 4 million dollar performance bonus.

The stock closed 2008 at 27.38 after starting the year at 87.77. Would his "performance" bonus be 8 million if the stock fell to $10 at the end of 2008. GE's CEO had to turn down a "performance" bonus for 2008. Apparently, performance has a different meaning to me than to compensation "experts" who are paid rich sums to bless these schemes. The NYX performance bonus is just one of thousands of examples of how compensation schemes have become divorced from reality. Another example is the compensation paid to Kraft's CEO discussed in this recent article. Seeking Alpha Another story today revealed that the bankrupt Fannie and Freddie, prop up with billions of taxpayer dollars, will pay 210 million in "retention" bonuses to 7600 employees. This compensation system is just not only bankrupt but also just plain repulsive. The compensation paid to the Masters of Disaster to engineer a worldwide economic meltdown is just the most egregious form. There is no other way to describe it other than disgusting and repulsive.

An FDA panel recommended for approval an oral diabetes drug, Onglyza or saxagliptin, from Bristol Myers and AstraZeneca Bernstein downgraded Bristol from outperform to market perform. I have a small position in BMY. StreetInsider The big pharma stocks have been dogs for years, due to a large number of drugs coming off patent and the many failures to bring new blockbusters to market. Eli Lilly fell nearly 4% this morning to below $33. At that level, the stock yields almost 6% and is trading at 1996 levels. Pfizer is trading at $13 and change which is also a 1996 price. Merck is at $26 and change this morning which is a 1995 price.

I did feel like that I needed to find something to sell this morning so I unloaded my Adobe at 23.68 which was bought at $19.45 in February. GE: A Value Trap or A Bargain?/Add of Adobe It is my least favorite of the big cap tech names that I added last quarter and this year. It does not pay a dividend which is important to me. I also failed to add more when the price fell down to below 16 in early March, in order to reach a full position. Since I will not build a full position at the current price, I elected to dump it for a small profit. Even though the stock increased by over $4 in a short period of time since my purchase, I view it as a failed trade since I did not take advantage of the opportunity to build a full position when the stock was at $16 just one months ago. If I had built the full position at $16 in early March, I would have had the choice this morning to sell only my highest cost shares and to keep the lower cost ones, using the trading technique that I call the lost opportunity risk trade in a secular bear market for lack of a better description for it.

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.

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