1. HEINZ (owned-dividend growth strategy): Barrons has a favorable article on Heinz in the Weekday Trader column. I highlighted the importance of dividend growth, as it impacts my yield in Heinz, in a recent post.Heinz (HNZ) The author of the Barrons' article points out that Heinz has been increasing its dividend at a 7 1/2 percent rate for the past seven years. At that rate, it takes about 9.58 years to double the dividend. Since I started off at a 5.4% yield, I can reach a 10+% yield based on my constant cost basis by 2018-2019 assuming a continuation of this trend.
2. ISM Services: The ISM survey of the service sector showed continued expansion in May, marking the fifth consecutive month of readings above 50. ISM reported its service index at 55.4 in May. The employment component crossed the 50 demarcation line with a reading of 50.4. This was the first reading over 50 in 28 months. New orders grew for the ninth consecutive month.
3. BOUGHT of 30 Roche Holdings at 35.48 (See Disclaimer): The Old Geezer's mind wonders, and it should come as no surprise that he is unable to stick to any plan for more than a few seconds. As LB has said, it is embarrassing for the Stock Stud to even be associated with the OG, even though it is clearly beyond the LB's control, sort of like one of those forced marriages that occur in certain middle eastern lands. The OG placed an order for 100 shares of Roche at the limit of $35.48, which is about all the details his rattled and addled brain could handle, and failed to place an All or None restriction on it, which is how shall the LB say, one bridge too far for the Old Goat.
Before entering the order, the OG requested the LB to investigate what the OG refers to as the pricing issue.
The ADR symbol for Roche Holdings, the large Swiss pharmaceutical company, is RHHBY. One ADR share equals .25 ordinary shares. At a $35.5 price for RHHBY, I would have to buy 4 shares to equal 1 ordinary share for a total cost without commission of $142. The primary exchange for Roche is in Switzerland and the stock is priced in Swiss Francs (CHF). SIX Swiss Exchange - Roche Holding AG Hopefully this is the link to Roche's five year chart based on ordinary shares priced in Swiss Francs. ROCHE HLDG DR Share Price Chart | ROG.VX (link to Reuters.com for ROG.VX) Yesterday morning the shares closed at 164.7 CHF. I performed a currency conversion yesterday afternoon and found that 164.7 CHF converted into 142.42 USD (Currency Converter), which was about where RHHBY was trading for a 4 share buy. So, this told me that the U.S. ADR price was close to roughly equivalent to the ordinary shares closing price on the Swiss stock exchange.
I then wanted to determine how much of the recent decline in Roche was due to the Swiss Franc, which I view as a strong currency, but has nonetheless declined recently against the USD. I used as a proxy for the Swiss Franc the currency ETF FXF. That ETF had declined from a high of 100 on 11/25/2009, which incidentally was the day the EURO peaked against the USD, and FXF has fallen to close to $86 now, so a 14% decline. This is a link to the chart for the CHF/USD: CHF/USD Currency Conversion Chart The Swiss Franc has been gaining in value against the Euro: CHF/EUR The Swiss government debt as a percent of GDP is around 51% and growing slowly: GDC
I took a different time period for my analysis which started on 1/19/2010, the day the Roche ordinary shares peaked at 185.5 CHF. Since that time, the ADR shares, RHHBY, have declined from $45.15 to 35.5 USD or roughly 21.3%. Using the FXF chart as a proxy, the CHF has declined about 10.8% since 1/19/2010, accounting for almost 1/2 of the decline in the Roche ADR shares. The remainder is due to the decline in the value of the ordinary Roche shares price on the Swiss stock market, a decline of around 20.7 CHF from the 185.5 CHF high.
The LB reported back to the OG who concluded that Roche had already corrected a significant amount in USD terms so presto, the order was entered without giving the LB the opportunity to weigh the 1 billion or so variables relevant to the rational and deliberate decision making process. Fortunately for Headkocker, the OG was already familiar with the company.
There are not many analyst reports available to me for Roche. Morningstar has it rated five stars. Some of its major products include Avastin, Rituxan, and Herceptin, part of Genentech's portfolio of drugs. Roche acquired all of the shares in Genentech that it did not already own, around 44%, in 2009. Roche received a boost in Tamiflu sales after the most recent flu scare that is not likely to be repeated in 2010. Roche experienced about 10% revenue growth in 2009 excluding the impact of currency exchange.
This is the link to Roche's 2009 Annual Report in the pdf format. Operating profit before exceptional items grew 14% in 2009 (8% in Swiss Francs) Core E.P.S. at constant exchange rates rose 20% above the 2008 level. Roche does pay a decent dividend, but it is paid annually. The 2010 calender year dividend has already been paid.
4. Rosenberg: David Rosenberg is predicting a "meat grinder" stock market for another 6 to 8 years according to his latest missive summarized in this CNBC article.
5. Bought 100 PEPCO Holdings (POM) at $15.96 (see Disclaimer): I sold my entire position of 141 shares in POM earlier this year at 17.62. POM was never a core electric utility holding, and I had not been satisfied with a single earnings report since initiating a position in 2008. The primary cause of the earnings disappointments was Pepco's Conectiv operation. I sold my shares in April and had not been paying any attention to POM since that time until yesterday. I noticed a news story that POM had agreed to sell its Conectiv Energy power generation assets to Calpine for 1.65 billion plus the value of fuel inventory estimated to be around 50 million at closing: Conectiv Energy POM SEC Filed News Release This transaction has to be approved by the FERC, and the parties expect to finalize this transaction by the end of this month. This turns POM back into a plain vanilla regulated electric utility for the most part and will hopefully eliminate the wild up and down swings caused by the merchant power business. This is shown in this SEC filed analyst presentation at page 3: ex-99.htm At page 11 of that presentation, POM says it is committed to the current dividend. For the OG, all of the foregoing makes POM more attractive than when shares were sold back in April.
The dividend yield at a total cost of $15.96 is above average at approximately 6.83%. This is a low expectation buy. The long term chart show a lot of weakness in the stock price starting in December 2007, when shares were trading near $30. PEPCO Holdings Inc Common Stock Share Price Chart | POM I am certainly not going to hold the shares hoping for a return to that 2007 price. Instead, I would be content with POM maintaining its dividend and selling the shares in the $18 to $22 range after collecting a few quarterly dividends.
PEPCO has around 1.9 million customers in the mid-Atlantic region which includes the District of Columbia southern Maryland, Delaware and southern New Jersey. A map of its service territory can be found at Investor Relations Home - Pepco Holdings, Inc.. The current analyst estimates are for $.95 in 2010 and $1.21 in 2011: POM: Analyst Estimates for PEPCO Holdings
Price to sales is around .39, with price to book at .85 currently: POM: Key Statistics for PEPCO Holdings Inc This is the link to the 10-Q for the 1st quarter: Form 10-Q
6. Bought 50 BMY at 22.95 (see Disclaimer): Headknocker brought back the Old Geezer as Head Trader here at HQ to implement the simple large cap valuation strategy. Needless to say, the OG has not followed his instructions, paying no attention to rules or structure, and has been wandering here and there and all over in his typical scatter brain fashion. LB is sure that HK sees this lack of discipline and will restore the Stock Stud to its rightful place as HT.
The OG did not give a coherent reason for buying Bristol-Myers near the close, something about a catalyst this weekend, a rich dividend and a low valuation. The potential catalyst happens this weekend when BMY presents results of its trial for its melanoma drug ipilimumab. Forbes.com This drug does not directly attack the cancer. Instead, it spurs the immune system to attack the cancer cells. Over the years, I have invested in a few biotechs that had promising drugs for the treatment of metastatic melanoma, and ultimately they all failed at some point in the trials. In any event, it did not appear to the OG that investors were pricing in favorable results from this trial at the current stock price. BMY will also be presenting results at this American Society of Clinical Oncology meeting on Sprycel, its drug for leukemia.
As to the dividend, the current yield is around 5.58% at the $22.95 price. Bristol-Myers Squibb Co, BMY Stock Quote - (NASDAQ) BMY The stock price has retreated since 4/1 from close to $27 to less than $23, which is about where the shares traded five years ago: BMY Stock Charts
Excluding the impact of currency exchange, BMY's revenues for its first quarter increased 8% compared to the 2009 first quarter, and earnings per share accelerated 33%. Form 10-Q One main negative is that its top drug, Plavix, is coming off patent in 2011 and represents almost 1/3 of current sales. Another new drug, Baraclude, is in double digit growth. A potential blockbuster is the diabetes drug Orencia.
The balance sheet shows a lot of cash. As of 3/31/2010, the cash and cash equivalent number was 5.135 billion, with another 1.641 billion in marketable securities. Personally, I would have preferred that BMY keep Mead Johnson, which was split off to shareholders in 2009 in an exchange (170 Mead Johnson shares for 269 million BMY shares, which reduces the dividends payable by 344 million from the retirement of the BMY shares)
This purchase was made in a satellite brokerage account where the primary focus is an online savings account. Since I am earning around 1% on that savings now, I am investing some funds, currently around 20 grand, in high dividend paying stocks, mostly regional banks and electric utilities. The dividend yield of this grouping is close to 5% and I have realized some decent gains so far trading in this brokerage account. One percent on 20 thousand is just $200 taxed at my highest marginal rate. So my bogey is pretty low. If I can capture one or more dividends from the stocks in this satellite account, and make some money on the shares before rates move back up to say 4%, I will be pleased. Eventually, most of the stocks will be sold and the money returned to the savings account.
I have started to delve into the cash stash in the main account by buying income generating securities. Uncle Ben has finally worn me down with his two year Jihad against savers and responsible Americans. The OG was heard the other day saying that he would rather lose money than continue earning nothing in a money market account. Such a thought has never entered the LB for a nano second.
If the jobs report this morning is not pleasing to the market, LB thinks the Old Goat will take another sabbatical to study some Zen and meditate about the meaning of it all, leaving yet another mess in his wake for the Great LB to clean up.
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