Monday, October 8, 2012

GE/Bought Back 100 MSFT at $29.81/Jack Welch and the Jobs Report/ Bought 40 BRKS at $7.23-LT Category/MTOR, TDIV/

Jack Welch claims that the Obama administration is manipulating the jobs report. No proof is offered to support his opinion, nor is any needed for ideologues. The report is prepared by career civil service employees at the Labor Department, as noted by Doug Holtz-Eakin (formerly a member of  Bush's Council of Economic Advisors, which would make it both extremely difficult and risky for any President to manipulate the data.

True Believers do not want or need facts to support their opinions.

Neutron Jack probably knows a great deal about cooking the books however. The SEC filed a detailed 36 page Complaint against GE accusing that company of book cooking during Jack's tenure as CEO. GE spent $200 million defending against the suit before settling for $50M. Floyd Norris wrote an article in the NYT titled "High and Low Finance - Inside G.E., a Little Bit of Enron"

Another way that Welch manipulated earnings was to massively under-reserve for losses at its reinsurance unit, a problem that his successor had to rectify. SmartMoney (December 2005).

It was Jack who built up GE Capital into the monster that caused the company so much trouble during the Near Depression. And, it is important to remember that Welch became CEO in 1981 and had the wind at his back during a long term secular bull market.

Welch is and may always be the most over-rated executive in the history of American capitalism.

I own over 500 shares of GE:

GE As of 10/5/12 Average Cost Per Share =$20.01
I managed to dispose of my GE position in 2007:

2007 GE $786.19
And, as I was prone to do, I re-entered a position during the Dark Period for a quick trade:

2008 GE 105 Shares +272.20
I then tried that trade again and I got caught holding shares bought in the low 30s, as GE started to sink to $6.66 on 3/5/09. GE Historical Prices Eventually, I intend to sell my highest cost shares bought in 2008 before Lehman's failure which will dramatically lower my $20.01 current average cost per share. I can sell those shares profitably at $29.85. If I am able to do that, then I will be left with the following, plus any additional shares acquired through dividend reinvestment which I will cease doing shortly since I would be acquiring more shares at above my current average cost and I do not want anymore either:

GE Adds with Cash Flow Post Lehman Bankruptcy

The Labor Department reported last Friday that the jobless rate declined to 7.8% which is based on the household survey. In that survey, total employment rose by 873,000. However, of that 873,000, about two-thirds were "involuntary" part-time jobs. The establishment survey data showed a payroll increase of 146,000.  Average hourly earnings rose by 7 cents, with the average hourly workweek rising .1 hour to 34.5 hours. Job growth for the previous two months was revised higher by 86,000. Employment Situation Summary The U-6 number remained at 14.7%. Table A-15. Alternative measures of labor underutilization


An article published in Investopedia highlights the dividend growth in technology stocks and favorably mentions the NASDAQ Technology Dividend Index Fund (TDIV) as a way to play that trend. Since HP's disastrous meeting with investors, many big cap technology stocks have been under selling pressure.

S & P revised Meritor's CreditWatch outlook to stable from positive. TEXT-S&P After taking profits on one bond, I still own a senior unsecured 8.125% maturing in 2015 at 93.5, with over a $100 unrealized gain on that one bond at the current price. Bought 1 ArvinMeritor 8.125% Senior Bond Maturing 9/15/2015 at 93.5 My unrealized and realized bond gains are entirely negated, and then some, by an unrealized loss in the common shares. Added 50 MTOR at $6.55Bought 50 MTOR at $7.62 I still view the common shares as undervalued based on its Key Statistics (P/E, P/B, P/S, PEG)

CBL announced after the close on Friday that it was redeeming all of CBLPRC cumulative preferred stock at par value ($25) plus an accrued dividend of $.19375. The redemption date will be 11/5/12. CBL sold $172.5 million of a 6.625% Series E cumulative preferred stock and is using part of the proceeds to redeem CBLPRC. REIT CUMULATIVE PREFERRED LINKS IN ONE POST/Advantages & disadvantages {last Friday's close: CBL-PC: 25.15 +0.06 (+0.24%)} During the Near Depression I was able to buy CBLPRC for as low as $10 per share. Buy CBLPRC (October 2008 Post)


The Obama Administration has done more than prior administrations to crack down on Medicare fraud. Last week, the Justice Department announced indictments against 91 people, including doctors and nurses, over alleged fraudulent Medicare billing totaling $429.2 million.

The Fact Checkers did not have to look very hard for false statements made by both Romney and Obama during the last debate. FactCheck.orgFactchecking-The Washington PostFact Checking- ABC News Politicians find truth telling inexpedient.

1. Bought 40 BRKS at $7.23 Last Thursday-LT Category (Lottery Ticket Basket Strategy)(see Disclaimer): I previously sold out of BRKS at $10.2 (May 2010) and have not been back until the 40 share purchase last Thursday.  I had three small lot purchases and sales during 2010 that netted a grand total of $65.5:

2010 BRKS 3 Small Lots +$65.5
Under the LT risk rules, I could add that $65.5 to the $300 limit and consequently spend up to $365.5 buying shares now. I elected to stay under $300 given the risks.

With the usual caveat about my ignorance, I view Brooks Automation to be a better company now than in 2010, due solely to management's decision to move into a life science business which will reduce its dependence on the semiconductor industry. The new life science business was acquired through three acquisitions and provides automated sample management systems. Those acquisitions were RTS Life Sciences in April 2011; Nexus Biosystems in July 2011; and Celigo Cell Cytometer in January 2012. For the Q/E 6/30/12, the life science business produced revenues of $11.2M, page 22 10-Q. This segment reported an operating loss of $2.061M for the second quarter.

Brooks' semiconductor segment provides products and services to OEM manufacturers worldwide including vacuum pumps and processes (chemical vapor deposition, dry etching and dry stripping, ion implantation)

BRKS Profile page at Reuters

Brooks Automation Key Developments Page at Reuters

Link to Transcript of Brooks' Recent Investor's Presentation at the UBS 2012 Global Life Sciences Conference The CEO's discussion about potential growth in Brook's new life science business was material to my investment decision.

As of 6/30/12, the company had cash, cash equivalents and marketable securities aggregating $203.7 million (page 25) and no long term debt.

The company reported net income of $8.028M in the second quarter of 12 cents per share, down from $1.03 in the second of 2011. Excluding special charges, the 2012 second quarter E.P.S. was $.14. Press Release

The company is currently paying a 8 cent per share quarterly dividend. Assuming a continuation of that rate, the dividend yield at a total cost of $7.23 would be about 4.43%.

Most Lottery Ticket selections are based on statistical criteria, an already smashed share price, a low P/E and/or P.E.G., and something which at least suggests some potential for a turnaround. I only insist on a smashed share price and at least two other criteria (p/s; p/b; peg; p/e; high cash per share/low or no debt)

For Brooks, the share price has declined from a high of $12.38 earlier this year, BRKS Interactive Chart. The purchase price of $7.23 is 41.6% lower than the February 2012 high.

A potential cyclical upturn in the semiconductor business, plus the potential of the life science business, are potential catalysts for a higher share price.

The Key Statistical Criteria include the dividend yield support and the following:

Cash Per Share: $2.35
Price to Book Value: .88
Price to Sales: .87
Five Year Expected P.E.G.=.98

BRKS Key Statistics

Friday's Close: BRKS: 7.20 -0.01 (-0.14%)

2. Bought 100 MSFT at $29.81 Last Friday (Large Cap Valuation Strategy and Common Stock Dividend Growth Strategy)(see Disclaimer): For at least a decade prior to 2009, I did not own Microsoft and had no interest in buying it.

I decided in 2009 to buy 50 shares of MSFT at $17.79.  Bought 50 MSFT (January 2009).  I sold those shares later in 2009 at $28.11 (11/5/09 Post). So the shares are basically back to late 2009 price, even though the dividend and earnings have increased since that time. E.P.S. was $1.62 in F/Y 2009; $2.1 in F/Y 2010; and $2.69 in F/Y 2011. Form 10-K at page 23. The F/Y 2012 results were impacted by a goodwill impairment charge for MSFT's Online Services Division of $6.2B or $.73 per share. Without that charge and another item, the F/Y 2012, ending 6/30/12, would have been $2.78. Press Release

I netted $527.43 from two 50 share lots in 2009:

2009 MSFT Two 50 Share Lots= +$527.53
In both 2010 or 2011, I sold 100 shares for smaller gains:

2010 MSFT 100 Shares +$96.46

2011 MSFT 100 Shares +$65.15

In 2012, I sold four 142 MSFT shares, purchased in four small share lots. Admittedly, I would have been better off keeping the shares sold at $27.91 and at $28.4 last January:

2012 MSFT  142+ Shares +$405.4
The LB sold those shares and its reputation for trading and lack of foresight is well known by readers of this blog.  (Discussion of purchases: Bought 50 MSFT at $25.81 (March 2011); Added 30 MSFT at $24.15 (May 2011); Added 30 MSFT at 24.92 (August 2011); Added 30 MSFT at $25.02 (November 2011)

Total Trading Profit 2009 to Date= $1,092.54

At least I have never lost money on MSFT shares and did buy them during the Nasdaq bubble years, when the share price went over $58 on an adjusted basis. MSFT Interactive Chart

The Trading Desk here at HQ is now controlled by "shoot for the moon" RB, occasionally assisted by the Old Geezer (OG), whenever he feels like it, which is not very often.

I have no technical qualifications to assess Microsoft's prospects, as noted many times. OG's's Qualifications and Lack of Qualifications I am looking at the company based on the usual statistical criteria and possible catalysts for a near term upside.

The current consensus is for an E.P.S. of $3.01 for the F/Y ending in June 2013 and $3.3 for F/Y 2014.  MSFT Analyst Estimates If the number for 2014 is even close, the stock is now selling well under 10 times forward earnings. This would qualify the stock under the Large Cap Valuation Strategy.

Notwithstanding constant criticisms about this company, it is still a cash printing machine. As of 6/30/12, total cash was $62.04 billion or $7.4 per share. Net of debt, cash stood at $45.06B. MSFT is able to borrow money long term at low rates which would be even lower now based on the pricing of these long term bonds: 2039 5.2% (2009); 2040 4.5% (2010); 2041 5.3% (2011).

The stock has a five star rating by S & P with a $37 twelve month price target. Credit Suisse, whose reports are available to Charles Schwab's customers, has a $38 price target. I would most likely be a seller at $35.

Microsoft recently increased its quarterly dividend to 23 cents per share from 20 cents. Microsoft Announces Increase in Quarterly Dividend At the current rate, the dividend yield would be about 3.08% The minimum starting level for the Common Stock Dividend Growth Strategy is 3%. The payout will also be under 50% of net income. Another criteria is a series of annual dividend increases with no decrease within the past 20 years. Since instituting a quarterly dividend in 2004 at 8 cents per share, MSFT has increased it, in addition to paying a special $3 per share dividend in 2004. Microsoft Investor Relations - Dividends and Stock History

A drag on the stock price is the decelerating growth of PCs and the tablet invasion. Investors appear to be underwhelmed by the upcoming releases of Windows 8, Office 2013, and Office 365. A better then expected uptake could drive the stock higher. Windows 8 and Windows Phone 8 are scheduled to be launched later this month.

Microsoft's Azure platform for cloud applications may develop into another large business for the company.

In short, the market appears to have low expectations for these new applications which sets the stage for an upside surprise in the coming quarters that could propel this elephant to the mid-30s or higher.

Friday's Close: MSFT: 29.85 -0.18 (-0.60%)   

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