Friday, May 28, 2010

Heinz (HNZ)/Cramer MAD Trading Recommendation/JNJ-In Need of a Spanking/

1. Heinz (owned-Dividend Growth Strategy): Heinz raised its dividend for its fiscal 2011 year by 12 cents to $1.8 per share, a 7% increase. This stock was purchased in early March 2009 at 31.67. The best time to implement a dividend growth strategy is during a catastrophic phase of a long term bear market. All of the consumer staple stocks purchased in March 2009 maintained their dividends during the Near Depression period and continued to increase them. After the stock price plummeted, the starting dividend yield on those Heinz shares was about 5.4% at my purchase cost. My cost remains constant. With this recent raise in the dividend, my yield is now 5.68%. With another 7% raise in the dividend during calender 2011, my yield would cross 6%. As the dividend is increased, my yield will increase based on my constant cost basis. This is the essence of the dividend growth strategy. Item # 6 Common Stock Dividend Growth vs. Long Term Investment Grade Bonds

Heinz reported earnings for its 4th fiscal quarter of 60 cents on a 8.3% increase in sales. The consensus estimate was for 59 cents. Global ketchup sales rose 7.7%. Heinz estimates that its fiscal 2011 revenues will be in the 10.8 to 10.9 billion range, with an E.P.S. range of $3.06 to $3.16.

2. Cramer Says Investors Needed to Sell Into Rally Yesterday- I thought that this advice at the start of the Mad Money show yesterday was unusually bad. He was saying that investors should have bought on one of the recent down days, one of his accidental high yielders, and then sell some into the rally yesterday.

As a practical matter, few individuals could have such impeccable timing. I would have had to buy on one of the recent down days, almost at an intraday bottom, and then sell near the close yesterday. I would have had to buy in bulk to make it worth the effort. This is a link to the recent closing numbers for the ^DJI . The DJIA was almost 200 point higher than the close yesterday, after the 285 point spurt, on May 19th. It is just ridiculous, even reckless, to tell individual investors to try and time market moves in such a hyper manner. Now, if the market falls 300 points early next week, do I buy those shares back? And if it falls another 300 points in the ensuing days, then when do I sell, on another 285 point pop? Just asinine.

Yesterday, I added to my position in Medtronic for reasons that had nothing to do with what was happening in the market. ADDED TO MDT at 38.99 It was based solely on the price of MDT, which had actually declined some intraday at the time of my purchase. The price of MDT shares had declined by about 6 dollars since mid April or about 13%. This decline made the shares attractive again to me on a valuation basis. I am not going to sell my position on a two dollar rise in price, but instead have targeted a $50 price, regardless of what the market is doing. I would consider at least paring the position at that target price (shares have been bought in the $26 to $39 range). A $50 price would still be less than 15 times forward earnings and I would not regard MDT as expensive at $50.

It would make sense to pare positions some as the market rose over 70% from its March 2009 low. Those kind of moves have historically started to fail after such a rise. Why press your luck and refuse to take some precautions? If you believe that the market is still in a long term bear market, it is always important to pare positions after a strong cyclical move, and then start to add them back or to establish new ones after a significant decline. This is not the kind of timing recommended by Cramer. But no one can time the markets gyrations with the precision that Cramer recommended in his show last night. It is just not feasible or practical, and ultimately it would be foolish to even try.

3. Greece Default Inevitable: I mentioned yesterday that the market still expects Greece to default. The country is basically bankrupt and would have already defaulted but for the recent bailout, which is ultimately only a short term solution. An article in the WSJ points out that Greek government debt totaled €273.4 billion at the end of 2009, representing 115% of the country's GDP. By 2012, it is estimated that the debt will total 150% of GDP, rendering it all but certain that Greece will default.

4. Bank Funding Problems Starting To Crop Up Again: I read a story in the WSJ that Spain's Banco Bilbao Vizcaya Argentaria, or BBVA, was not able to rollover 1 billion in the U.S. commercial paper market this month. I have noticed that the 3 month LIBOR rate has started to creep up, and that rate rose to .54% yesterday. WSJ This rate has hovered at around .25% until recently. I would view the recent rise to be credit risk related.

5. Dividends and Interest: I noted the following dividend and interest payments in last night's The TC containing an Aon junior bond, KTN, goes ex interest for its semi-annual payment on 6/28. KTN add at below $14 TRUST CERTIFICATE AON BOND KTN ORDER FILLED at $13.1 Another TC with the same bond, KVW, also goes ex interest on June 28th. DKK, another Trust Certificate with the same junior bond as KTN mentioned above, goes ex interest on 6/14, a couple of weeks earlier than KTN and KVW. I intend to keep KTN and KVW since the yield at my cost is viewed as more desirable than harvesting a good one time capital gain on the shares. The remaining shares of KVW were bought at $16.08 on 9/30/08, shortly before starting this blog. I was then in a trading mode for the AON TCs, attempting to take advantage of wildly disparate pricing discrepancies among 4 of them. DKK, a more recent acquisition with a much higher cost basis, will occasionally be bought and sold. Bought 50 DKK AT 24.5 Added 50 of the TC DKK Bought 50 DKK at 24.78

GFW, a bond issue from AAG Holding, goes ex interest for its quarterly payment on 6/11. Bought 50 GFW at 22.76 Bought 50 GFW at 22.63 The TP for Associated Bank, ABWPRA, goes ex interest on 6/11. I recently sold 100 of my 150 shares after reviewing this bank's last earnings report. Sold 100 of the 150 ABWPRA at 22.2 I have kept the 50 shares bought at $19.42 in the taxable account. JWF, one of my best TP buys, goes ex interest for its quarterly payment on 6/14. JWF is a Wells Fargo TP bought at less than $10. The recently purchased TP, CPP, goes ex interest on 6/10 for its semi-annual interest payment: Bought 50 of the TC CPP at $24.2/ PFBI, part of the regional bank strategy, goes ex dividend on 6/11. The current yield is over 5%. BACPRW, another BAC TP, goes ex on 6/10. BAC Capital Trust I, BACPRW

6. JNJ (owned): I am not surprised to hear that the FDA is weighing whether to seek criminal penalties against JNJ as described in this WSJ article. The latest fiasco for JNJ's McNeil Consumer Healthcare Unit is the recall of more than 136 million bottles of children's over-the-counter medicines. Earlier in the year, there was a massive recall of Tylenol. The FDA commissioner testified yesterday that McNeil has a pattern of noncompliance with good manufacturing practices. Possibly, the only way to wake JNJ up is with criminal sanctions. I am curious why Colleen Goggins still has her job. The kind of problems experienced at McNeil just in the past year or so would justify the guillotining of the entire top layer of its management, figuratively speaking of course.

7. Article on Five Bank Stock Bargains: Of the five mentioned in this article, I own Flushing Financial (FFIC) and Northwest Bancshares (NWBI) in the regional bank basket strategy: Regional Bank Stocks. This basket has 36 stocks in it. I do not own common stock in Oriental Financial (OFG), another one mentioned, but I did buy one of its equity preferred stocks: Bought 50 OFGPRA at 19.55. I have Bank Mutual (BKMU) on a monitor list for a possible addition. And, I had never heard of Westfield Financial (WFD). I will look at it today to determine whether it would be a worthwhile addition to the monitor list. That is the first step in the process of selecting names for this basket strategy.

No comments:

Post a Comment