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 Joe Spinella's Blog
Click Here to read Joe's 8/31/07 prediction of the current Stock Market Crash
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Index of Companies

Aegon
Americredit
AIG
Altera
Applebee's
Aqua America
Atmel
Avid
Biomet
Bombardier Inc
Boston Scientific
Bristol Myers Sq.
Calpine
Career Education
Celera Genomics
Chiron
CIT
Colgate-Palmolive
Commerce Bank
Corinthian Colleges
CP Ships
Denny's
Discover FS
El Paso
Fannie Mae
Force Protection
Foster Wheeler
Freddie Mac
Fresenius
Genentech
General Electric
Genworth Financial
GlobalSantaFe
Google
Halliburton
Heart Rate Theory
H&R Block
Input/Output
Int. Game Tech
Irwin Financial
ITT Ed. Services
Jackson Hewitt
Lockheed Martin
LSI Logic
Lucent
Marsh & McLennan
Merck
Met Life
Nabors
Nortel
Nvida
Pearson
Pfizer
Popular
Prudential
Q Logic
QLTI
Raytheon
Renal Care Group
Repsol
Research in Motion
Rhodia
Royal Group
Sanyo
Scientific-Atlanta
Sea Containers
Service Corp.
Sirf
Spartan Motors
Sprint
Sumitomo
Taser
Tenet
Thermo Electron
Thornburg Mortgage
Titan
Unilever
Univision
USEC
Valero Energy
Veritas
Videsh Sanchar N.
Vimpel
World Acceptance
Xilinx

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Hello, I’m Joe Spinella; I hope you find the following thoughts insightful:

Because of my time constraints I’m only updating my blog intermittingly. The content, however, is being kept because of its historical significance. The Chestnut and Cedar Stock Report was one of the few reputable resources that timed the market correctly and predicted the 2008 stock market crash and accurately identified which stocks to short.  This blog gives a real time investor perspective into one of the most turbulent financial periods since the 1929 stock market collapse; moreover, it’s a great case study for investors.  – Enjoy and profit by it. – Joe Spinella

1/19/09 I'm still mostly in cash, hoping the economy doesn't spiral downward out of control. Some of the big name financials, however, look inexpensive and may be worth dipping your toes in.  General Electric (GE - $13.00) or Bank of America (BAC - $7.00) seem attractive. GE is under 9 times projected 12/09 earnings while BAC is selling at a fraction of book value, nonetheless, both companies needed government subsidies - which is scary. GE's stock price is down 69% from it's 2007 high of $42.2 and BAC is off 87% from it's 2007 high of $54.2.  Be very careful, both companies are highly leveraged and timing is everything. Look, on 9/15/08 I thought  AIG was an acceptable speculative investment at $124.60 (adj.) and was dead wrong. I never imagined the government nationalizing the company. The rules are still changing so be conservative with your money.  

10/21/08 The party continues as the Federal Reserve provides up to $540 billion to boost money market mutual funds and the commercial paper markets. Many investment professionals, moreover, are talking that the bottom is now.  I, however, still see high stock prices, IBM for instance is at $90.--; Lockheed Martin at $85.--; and Colgate-Palmolive is at $63.-- just to name a few. These are not steels.  I also don't see panic among the newscasters, I just see, mostly, giddy kids. Dipping your toes into some of the depressed high quality blue chips, selling at PE multiples under 10 maybe ok. But don't jump in; I understand another stimulus package is being considered; so evidently all is not well.

10/13/08 The administration is throwing one hell of a party today. The world is celebrating giving the banks $250 billion; the Dow is up 11% or 936 points. What ever happened to the concept of being fiscally responsible, and leaving something to our kids other than debt. I just don't think pumping up stock prices and pandering to Wall Street, is the way to go. Don't fool yourself, stock prices should be down as the world economies are slowing and unemployment raising.  

10/8/08 Yes, I correctly predicted, on 8/31/07, the current stock market crash; now, however, I'm a little scarred. Not because of daily declining US stock prices or the 9.38% drop in the Nikkei last night or even the reportedly $2 trillion drop in pension plan assets, but because a small portion of my cash, held at TD Ameritrade, was frozen. I wonder how many investors realize their cash balances may not be secure?  This is a scary and potentially explosive situation! Because cash (treasury funds) are now risky, and the whole financial system is shaky; stock prices, therefore, deserve to be lower and may continue to fall. 

My forward strategy is simple; I'm looking for quality companies, with inexpensive stock prices, where I could pick up a lot of shares. I'm not interested in "Fair Value" I'm looking for deep discounted prices. The number of share matters and is a critical factor for one's success, as it determines your upside potential in future years. Do the math yourself, most companies have limited upside, therefore, the number of shares determine your potential profit. (As a reminder, quality companies are those that sell necessary products, to recurring customers, at attractive profit margins; they should also have little debt, and healthy cash flows.) Don't forget to diversify and only invest with funds you don't need until the next election cycle in four years. - Good Luck!

9/15/08 American International Group (AIG -$124.60 - Adjusted for a 20 to 1 reverse split in 8/09) The stock is low because of bankruptcy concerns main due to the lack of transparency with its numbers. Nonetheless I believe this is a great company and it should be able to withstand, further mortgage related losses, a credit downgrade and a low stock price. I just don't know if capital is needed, but it has valuable assets that can be sold to raise cash. For those with Atlantic City money this is a buy. - Good Luck!

7/13/08 United States Enrichment Corporation (USU - $ 4.57)  Here is a company especially suited for the rare long-term aggressive investor looking for an inexpensive energy play. The overall investment theme is centered on continued high energy prices, combined with global warming concerns, that will cause the US (and the rest of the world) to slowly revitalize its nuclear industry. USU provides the fuel to our nuclear reactors. As of 12/07, it is a $1.9 billion company with a net income of $97 million and a market capitalization of $500 million. USU is building a new, cost efficient, enrichment plant in Piketon, Ohio. The plant should be operating, in a test mode, by 2009, reaching its initial targeted capacity by late 2012. Construction financing along with choppy earnings are a concern that has caused its share price to drop from $25 to $4 this year.

Leaping forward to URENCO, Europe’s version of USU. URENCO has a 23% global market share with plants in UK, Germany, and the Netherlands, plus subsidiaries in France & New Mexico.  URENCO has a net profit margins of 23%.  By applying URENCO’s margins to USU, then factor in some growth and increased cost of funds on $3.5 billion to build the new plant; you get a very profitable government-granted monopoly. USU is a complicated company, start reading up on its contracts with Russia & its loan funding concerns.  It takes a while to acquire a taste for USU, moreover, the real payout will be over a decade away.


1/20/08 Ok, the world markets have started to decline. Now, we are in an envyable position, having predicted this situation four months ago. How do we play it? Look for the companies you know, that have dropped substantial, have recurring customers, and have the financial wherewithal to survive. Companies like Sprint Nextel (S - $8.49). It has 53 million customers and is down from its 2007 high of $23 (a classic Fibonacci retracement). The goal is to pick up a lot of shares at low prices. This could get bad, and could drag out for years. We want only quality companies, that hiccupped, and whose shares have substantially dropped.  

9/14/07 I happen to notice that GE (GE - $40.41) is over $40 per share. There is no question that GE is a reasonably priced, great company, with excellent prospects. Nevertheless, its a big user of commercial paper and asset-backed securities.  Why pay top dollar when every few days there's another casualty in the financial markets? Wait until clarity returns to the debt markets. On a side note, I personally do not see why anyone would want to buy any of the $350billion of junk bonds that the banks are pushing; there could be a ripple effect through-out the markets if the upcoming M&A deals are not funded. Be careful.

9/9/07 It's no secret the specialty finance companies are structurally and financially hurting. While their stock prices are significantly off their highs, prices may drop further. There are a few jewels, however, that remain among the carnage. These firms are solid, well managed institutions, with good prospects. They deserve to be on a (buy) watch list. For now I'm lining up potential steals;  I'm looking for a 60%+ drop from their current values.  Below are a list of the players to watch: (Remember you are looking for steals.)
Company Symbol Price
The CIT Group CIT $35.65
Genworth Financial GNW $28.74
Discover Financial Services DFS $21.11
Thornburg Mortgage TMA $12.78
H&R Block HRB $19.81

P.S. The above firms should consider merging, combined they would make one hell of a company!

10/1/07 Sorry for being out of date order. I'm tracking a few more finance companies and just wanted to keep the list in one place, in case there's a melt down.
Company Symbol Price
Popular BPOP $12.28
Irwin Financial IFC $11.01
Americredit ACF $17.58
World Acceptance WRLD $33.08
Jackson Hewitt JTX $27.96


9/7/07 Evidently the SEC is probing into the big credit rating firms, "looking for conflicts of interest, both in how they are paid and in their standards for ratings." No comments for now, just keep up to date on the topic. I would, however, hold off on investing in these firms until clarity returns. Click here for an overview of the rating agencies.

9/5/07 I have received a lot of feedback from my 8/31/07 comments, I realize my position is a little radical. The markets, however, are ignoring the implications of "risks being re-priced";  yesterday stock prices actually increased, with The Dow up 90 points. When risks increase, assets are "re-priced" downward. In other words, the accounting balance sheet values become overstated and will eventually be written down. Companies will report losses and book values will be reduced. It seems the market is looking past these future losses. My bet is that investors will connect the dots and adjust stock prices very quickly. Thus I like ST treasury funds for the near term. - Good Luck, Joe

I think over the next few months a stock market crash is imminent.

8/31/07 The writings by John Crudele regarding The President's Working Group on Financial Markets ("Plunge Protection Team") are disconcerting. If true, I hope it's legal and the players know what they are doing.  Moreover, we are in the middle of a perfect storm. High oil and commodity prices, large deficits, a cash draining war, a weak dollar, a liquidity freeze, a housing crisis, topped by high stock prices. Credit ratings, on debt instruments, are a major worldwide concern. Yes, the economy is strong, It was also strong in 1929.  US Treasuries, and FDIC insured accounts, may be the best way to protect your capital. There are few bargains. Playing the momentum game at the very top of the market, by buying on dips and hoping government announcements will prop up the market, will last only so long. Investing at top stock market prices, while our banking system is in crisis and a recession looming is ignoring the basic risk/reward rules. The liquidity freeze is real and serious, more important, however, the fire walls that were put in place in the depression have been torn down and are no longer their to protect the banking system. The lessons learned by the 1929 crash have been forgotten.  Now is the time to read up on the Presidential Election Year Cycle Theory and remember Cash is King.  For now, I'm taking my basketball and going home. I think a crash is imminent. Good Luck - Joe

7/11/07 Subprime mortgages are scaring investors. It's more than the projected losses, however, there is a growing loss of confidence in the certified balance sheet values reported by financial institution. The held-to-maturity accounting rules may have been followed, nevertheless, these securities are reselling at a lower price than reported. The objective principal and transparency rules somehow got lost, rendering financial statements useless. Therefore, owning stocks of financial institution should be avoided until this issue is sorted out.

6/4/07 Force Protection (FRPT - $24.11) and Spartan Motors (SPAR - $22.71) are small armored vehicle manufactures that may be of interest to momentum investors. Force is more of a pure play, while, Spartan is more diversified. Zacks is estimating 2007 EPS at $0.77 and $1.27, respectively. As contract awards are announced, share prices may be volatile.  On an unrelated topic;  I'm still very concerned with the Chinese's markets. Be careful.

6/2/07 Regarding the concept of "trusting management" or a particular high profile CEO. I realize certain CEO's are better than others, nonetheless, when dealing with stocks, it's not about trust, it's about money. Investing is serious, and its not a game. Money is made when hard earned cash, comes out of someone's pocket and into someone else's pocket. Look, most investors don't know, and will never know, the managers who are running their investments. Do you really know, for example "guys" like Steve Jobs, Michael Dell or Eddie Lampert? Most people don't. When investing learn to leave trust at the door, in its place, Learn to Question Everything and Think Critically.  

6/1/07 Ok, the Chinese market did not collapse over night. Nevertheless, liquating your crappy investments and hold them in cash (treasuries money market funds) was a good move. GDP at .6% in the first quarter, could turn negative by September, and we could be in a recession by October 1st. Housing is bad, prices are somewhat keeping up, but there are few, if any, buyers. High oil prices combined with the cost of the war makes for an environment that is not conducive to stocks. Red flags are up and there is not a clear path for profits. I realize jobs are plentiful and everyone is feeling good. This is the time to pay off your debts and be very selective with your investments.

5/30/07 Ok, Shanghai is down 6.5%. The market is up and the Feds are not concerned. Nonetheless, I'm worried, lets run for the hills. All speculative and aggressive money should be in cash tonight. You don't want to wake up to any unforeseen surprises from China. Not when trading cost are inexpensive.

5/25/07 I was there 34 years ago, when the oil service stocks rose everyday for the longest time. They sold at a premium to the market. Today the big three are growing 18% -20% per year, have PE ratios less than their growth rates, and are selling at a discount to the market. Here's where the value is:
 

 
Halliburton
Baker Hughes 
Schlumberger
Price 36.22 82.10 79.49
2007 (P) EPS             
2.35

4.96

3.99
PE Ratio 15.51x 16.55x 19.92x

However, forget all the analysis, eventually human nature takes over, every time you fill up your gas tank, the thought comes up: I must get into oil stocks!                                 

5/24/07 Sirf (SIRF - 21.84) I always liked this little GPS company, nevertheless, don't fight the tape. At $21 the price looks inexpensive, but the stock is weak and a market correction, could cut the price in half. Trading in the (low price) energy names, like Input/Output (IO - $15) may make more sense. - Good Luck.

5/9/07 So Warren Buffett is buying, nonetheless, I'm still bearish. The economy is slowing, housing is still declining. Energy prices are high. Consumers are feeling the pinch. Moreover, the banks have allowed the subprime lending philosophy to expend into business lending. M&A is out of control. The world markets are in overdrive.

In the U.S. there is a divergence between trends in stock prices and the direction of the economy. Now, how do we play this? Get out of the emerging markets, their prices are just to high. Have some sort of cash position. Stay with the defensive names. Look for companies with recurring customers and products that don't need to be reinvented regularly. (I like Apple, but not, in this market and at these prices.) Company Financials should show solid cash flows with little debt. Look for "best of breed" with low P/E ratios. I like Halliburton (Hal - $32) and Medtronic (MDT - $53). Everyone is trading, so be careful. Focus on companies, that if a negative situation occurs, they could be held, for a long, long time, with the hope that  time can cure your losses.

4/23/07 While I'm still bearish, some of the value stocks that are being pushed like Halliburton or Medtronic do look attractive. I realize the world markets are up, nevertheless, the economy is slowing, housing continues to decline, and oil prices are controlling the stock market. I noticed that Citigroup is laying off 17,000 employees. I hope this is a one off situation.  It's time to be careful. Take some of your profits and pay down the mortgage and payoff the credit cards. Try not to lose any money.

4/9/07 I believe the "Veteran Financiers" are spending their money to early. Their timing is wrong. Maybe that's to harsh of a word. It's just not the time to buy WCI or Burlington Northern Santa Fe Corp. You may be able to pick these (or similar companies) up cheaper, if you wait. When you're worth billions, the game is different. You could buy on the low side and wait until the market turns and do very well. As long as your purchases are on the low side you should do ok; furthermore,  you could be a hero to the press and big money managers. For the stock picker, worth between zero and a few million dollars, however, the game is different, buying low is ok (mediocre) but "dirt cheap" is the goal. This market, moreover, has been up for a year, dirt cheap is hard to come by.  Be care and don't follow the leaders. Look and wait for steals.

4/5/07 The market looks strong. It has been up for the past few days. Political tensions appeared to have eased. Oil, defense, technology and medical are up. As for me, I'm taking profits.

Hope everyone has a nice holiday.  - Joe

P.S. The interesting thing is that I like "King Hal" yet I just sold it . (Sanyo is different, it's not a trading stock, its a long-term turnaround situation - Hold on to it. "The jury is still out.")
 

3/13/07 Wait, don't jump, try to get a steal.

3/5/07 Investors around the world have the right to be jittery. Prices are overvalued. There are very few "steels" out there. I'm still very bearish and believe treasuries are the place to be. Save haven stocks are not the way to go. Why risk it if the upside is limited at best. For those who are pushing the technology sector, go back and see for yourself what happened to the Nifty Fifty tech stars 35 years ago. They got killed when the market dropped, some never came back. Technology does not hold up in a slow down. Newscasters, nonetheless, are doing a good job in pushing prices up and keeping individuals buying. Who, however, is doing the selling?  By the way, if you believe the 5 best executives in the world are running the NYC investment banking houses you deserve to lose money.

2/27/07  Today the market dropped 415 points. The newscaster are really optimistic, and are using all the key words: "Buy on the dips;  corrections are just part of the game;  this is just a small blip;  there were much bigger drops in the past and the market always bounced back;  in ten years the market is going to be way up". It all sounds good if it's not your money. This could be serious. Remember we took big hits in 2000 and much of it was not made back. Stock prices for many of the big companies have been flat for seven years. Housing values are still high, they have dropped, and buyers are few and far between, but most home owners are still ahead. If real estate, however, drops further the consumer may take another hit. With a recession anticipated by year-end, and the war being financed by debt there is a real concern. Consumers may not be able to afford a third or fourth hit.  The young adults, out of school a few years, are doing fine; however, they really have little at risk. It's the 45 to 75 year old group that has the most to lose. The flight to quality (the big blue chips) may not be the best approach to protect your capital. With short-term upside limited, why take the risk. In a declining market everything drops. For $10 go straight to treasuries, until the market is sorted out.

2/27/07 Remember "Cash is King". The China situation is scary (their market crashed). If they have another bad day tomorrow, the world equity markets have a problem. World leadership is needed, and yet talking is limited. Someone has to step-up and provided, just in case, liquidity to China. Calls need to be made to all the big pension and investment funds, worldwide, asking them not to flinch. I wonder who's doing all of this? Especially, since the fed chairman is meeting with congress tomorrow. With the equity market relatively high, the $10 trading fee is worth protecting your assets.  The potential short-term upside is not worth the risk. There is no longer a clear path to profit if China is unstable. Preservation of capital is a very prudent strategy.

2/23/07 Sanyo The risk were high and now it's notched up a level. Nonetheless, here we are. It goes without saying that more information is needed and it's going to take a while for investigations to be completed and made public. This cloud will depress the shares until more information is released. So far, it doesn't sound that bad; while shifting historical expenses from period to period is not good. Japan has been notorious for using hidden reserves.  If the issue is all related to prior years and has little effect on future cash flows the company's stock price may bounce back somewhat quickly. I'm not sure if its a fraud or an attempt to dislodge management. At these prices do we sell or buy more? These types of situations can present opportunities, nonetheless, I would take a wait and see attitude. It's day-to-day until we can get a handle on all the issues and see where the price settles. 

2/15/07  Baker Hughes (BHI - $65.75) They just had a horrible conference call. A bad conference call, weak oil prices, a warn northeast winter, and little 2007 guidance, sounds like a buying opportunity. They are entering their seasonal slow period; nonetheless, they are a solid world class oil service organization that may benefit longer term energy investors. Yes, their presentation was awful, however, they know the energy business and how to run a company. This is where the value is today. Regarding disclosures, I have an indirect ownership interest in BHI.

1/26/07  I'm still bearish.  I do, however, like Sanyo. They seem to be moving forward on introducing new products. I realize everyone wants to buy Apple; and "Sanyo is the poor cousin to Sony," nonetheless, Sanyo is transitioning from a turnaround play into a value play.
(i.e. value stocks earn money; turnaround stocks may not.).

1/10/07 The Wall Street Journal is still one of the best places to get investment ideas. Today, section B1 has a article on how GE is transitioning its business out of plastics and into the following areas:

  • Oil and gas equipment

  • Water treatment

  • Security technologies

  • Computerized medical records.

GE employs some of the most, dedicated, talented and brightest minds in the world. (this is not paid advertisement) The point is, when they show a portion of their hand, you should at least take notice. Because of there size, they may not be a suitable investment for everyone, nonetheless, they may be showing you a clear path to long-term profits if you follow some of their investment themes.  

1/7/07 I realize I haven't posted in a month. Sorry. I have, however, been pushing ahead to improve the site. I'm going to improve the flow and content of the educational sections. The revisions read very well, and look excellent. It's going to take a few months before it's all completed and the new content gets published. My e-book contest expired. The publisher informed my that not one person purchased my latest e-book and entered the contest. Yes, not one person! I even advertised on "My Space" and had a real goofy cartoon. Well lets move on. Now for stocks:

The Sanyo theme still looks good. Remember, the stock is down from $50 per share, a few years ago, to $6.- today.  The ADR volume is very light. If the turnaround works, it's going to be very easy to promote the company and push the price up to a more reasonable level. My biggest concern is that the stock price stays flat for years (like what happened to Lucent). I don't think that will happen, because Goldman Sacks is a big investor. I'm still, however, bearish on the overall market. Prices just seem to high. Over Christmas, I spent time thinking as to why I'm so bearish. My inner being, tells me you just can't run a major war effort without raises taxes. I realize some very smart people are saying we could. Nonetheless the accountant in me thinks it could only end badly for our financial markets. Sanyo may also protect us from a weak dollar.  Energy stocks came down last week. Stocks like Baker Hughes (BHI - $67) and Anadarko Petroleum (APC - 41) are looking up.  I still, however, would hold off and wait for a steel.

12/01/06 Sanyo Electric Co. (SANYY - $6.95) This is a very interesting, but risky, turnaround situation.  Sanyo does approximately $19.7 billion in business and expects to lose about $430 million this year (ending 3/07). They manufacture, among many things, rechargeable batteries, solar panels & cells, heating and air conditioning systems, and personal mobile devices (cell phones, GPS, and video cameras). The majority of their business is done in Japan and Asia; about 14% is done in North America. In January (06) they strengthen their capital structure by issuing $2.6 billion in preferred stock; they are, however, still very leveraged. I read their footnote #20, but I still don't fully understand exactly how many diluted shares they have outstanding. I believe they have, excluding their preferred shares, approximately 371 million (evaluate) ADR's outstanding. Recently, they failed to meet some of their turnaround financial targets, (but they are still making excellent progress), and their stock dropped. Sanyo is comprised of approximately 200 to 300 companies. They are restructuring and streamlining their operations with a special focus on turning around (or exiting) their semiconductor, TV, home appliance and credit businesses. If their turnaround is executed somewhat correctly, I believe, this can be an excellent investment. In the short-term, however, the share price may be weak. 

(P.S. I have not yet nail down their potential cash flow, so I won't quote figures, but they maybe able to produce big numbers.)

11/27/06 Stay put, if, you are holding cash.  Yes, the market is down 158 points today, still there are few bargains. As the economy slows, PE ratios may contract, and "steals" may present themselves. The healthcare stocks like UnitedHealth Group (UNH - $46.18) are starting to look attractive, however, I don't see a clear path to real profits. I would wait until Congress show us where they are heading before diving in. 

11/17/07 The best buy all year is available today. Go to the Seiko (Home Office) sale in Mahwah, N.J. They really support the community by offering excellent watches at very very reasonable prices (I believe today's the last day of the sale). Thank you Seiko!

11/16/06 (KBR - $21.93) Nothing-for-nothing, but, I recall Dresser buying Kellogg, for approximately $100 million "yearrrsss" ago. Yes, it's only a portion of the current KBR, nonetheless, at these prices, I don't see a steel. (P.S. I think the country owes KBR, big time, nonetheless, when the powers to be openly state they are going to watch them very closely, it's not a good situation; as a result, one needs to be careful.)

11/14/06 7:30pm.  The TV stock shows are out of control. One "guy" gets on TV and said "bring on the next tech. bubble. He doesn't see enough stocks that he can short. He feels that IPO's that make management wealth then crash and burn is what America needs to be competitive."  These "guys" are out of control and don't care that they are playing with pension fund money. It's legalized steeling. When I was in college 28 years ago, I supported the repeal of Glass Steagall. I now feel it was a mistake. What ever happened to the concept that bankers have a fiduciary duty to protect depositors' money. Loan shark lending practices, out of control IPO's, and private equity & hedged funds gone wild is not a good situation. Again today stocks are up.

11/12/06 Again the NYSE is up!  208 new 52-week highs and only 15 new 52-week lows. The news writers are now suggesting that sitting on cash is a foolish, loser's, strategy; reflecting investor's lack of confidence and understanding of equities.  Arrogance with other peoples money usually ends badly. Remember money is hard to come by, be careful. Wall Street Bonuses are just around the corner, someone has to pay for them. Hopefully it's not our readers.  The real estate market is in a free fall. Just the other day I read an article that mentioned that up to 200,000 real estate brokers could lose their jobs! The developers are now reducing their exposure to land. This is not a good situation. If housing continues to decline, there is a big possibility, the downward pressure on real estate values, will roll over to the stock market. It could happen so quickly that most investors will be unable to react fast enough to protect their portfolios. Prudence is in order! Preservation of capital is an excellent strategy in a slowing economy.

11/9/06 Congratulations, and Best of Luck, to the Democrats. Regarding investing, the stock market game became a little harder yesterday. My wait and see strategy, however, remains the same. Lots of ideas, such as;  Do you short healthcare and defense?  Long Toyota (TM - $122.37) and Devon (DVN - $71.08)?  Buy Pacific Ethanol (PEIX - $17.76) or Altair (ALTI- 3.11)?  Stem Cells?  No answers yet. I don't feel a need to rush in, given the market is at a high. Money market rates are still high. I would wait until we see what happens, before investing.

11/3/06 "Price-To-Perfection" leaves no room for disappointments. Garmin (GRMN - $46.50) and Whole Foods (WFMI - $47.50) are good examples of the risks of momentum investing.  These are great companies who's stock prices got ahead of themselves, then sharply corrected. Yeah, most likely you can pick up some coffee money by playing the next day bounce, however, long-term the game changed. These organizations are still trading with PE ratios far in excess of their growth rates. As growth slows it takes time for valuations to get back into sync. That leads to the question: How long will a valuation correction take? It hard to say, look at Medtronic (MDT- $48.96) It's taking them 7 to 10 years and they executed perfectly. The same with GE. The point is no one knows, so be careful. Remember, protect your capital, don't let your intellect and pride get in the way. If you are involved in similar situations and your investment is down substantially, sell quickly to give yourself time to reassess your position while protecting your equity.  There will always another good investment on the horizon to help recapture any losses. Pricing securities to perfection has a big downside! 

10/31/06 The article in today's Journal regarding increasing bankruptcies and debt settlements in the UK caught my attention. As the world economies slow cracks are opening up. The banks are going to be hurt. Willy Nilly lending practices never end good. I was reading an article the other day on how bond investors of sub-prime debt felt, with the help of derivatives, they would be protected from credit losses. Ok. Good luck to them. Flatting growth and increasing stock prices is what I would call a disconnect.

10/26/06 I'm tired of being wrong for so long. The world seems happy. Earnings are up. No one cares growth is slowing. Stocks are up, even companies with bad earning reports are going up. There is no rhyme or reason. China's ICBC's IPO is a big hit. I just don't understand why investors are paying top dollar to buy a bank with lots of bad loans and weak internal controls. So much for the buy low, sell high theory. Life is good and investors have forgotten that money is hard come by. New home prices are down 10%. To me that's a lot of money, everyone else, however, feels that we are in for a "soft" landing. When the financial markets dropped in 2000 excess wealth was lost. Real Estate, however, is the core wealth of most Americans, another drop in price and middle Americas are going to feel it. We are at war and yet tax rates are low. It doesn't work that way. It's going to really hit home if the dollar drops and foreigners come in and buy our assets on the cheap. I would take your profits and pay down your debts. Secure your house, pay the mortgage off while the financial markets are high.

10/19/06 Aqua America (WTR - $23.61) I feel as if I'm the last Bear standing as I watch the Dow hitting new highs regularly. I missed an excellent three month run; nonetheless, I continue to believe it's better to wait than to jump in on the bull market. I'm not as optimistic on the economy as the TV business newscasters, and my heart tells me the bull market could be the result of an election year spin. Many of the journalist are giddy and sound as if they are the experts. The English and Communication majors are now controlling stock prices. The problem is,  many never had a real job in business and are ignoring the No Swimming Signs. The cyclical companies are slowing and that is bad. It's hard to stop a slow down. Be careful!  Money is hard to come by. On a more positive note, the October 16, 2006 Barron's article on water stocks was excellent. I also feel the long term trends are very favorable for the industry. The infrastructure companies are being recommended. In this market, I like the recurring aspect of the business. I suggest, investors look at Aqua America's Dividend Reinvestment and Direct Stock Purchase Plan. WTR's P/E ratio and market capitalization are high, nonetheless, it's DRIP is a nice way to get your feet wet without jumping in. 

10/6/06 As the Dow was hitting highs yesterday, the stock newscasters all sounded like experts. Many viewers forget that the newscasters are actors nothing more nothing less. I highly recommend not getting caught up in their hype. When the markets are up, as they are now, take some of your profits and pay down your bank debt.

To make good money you need to buy low, even the low stocks, however, may be to expensive. Halliburton (Hal - $27.67), Sprint (S - 17.86), and Boston Scientific (BSX - $14.92) are all near their lows. These are Best-of-Breed organizations that over time should make excellent investments. I, however, would still wait; at their current prices they are not steals. Look for the steal. Anyone can buy a Best-of-Breed Company. Good investments at fair prices are easy to come by. The trick is to get a steal.

9/28/06 And so it begins! As the market is hitting recent highs, friends are saying we are just in the beginning stages of a bull market. Justifying their views, on the theory, that as home prices moderate, investors will be redeploying their money into the stock market, pushing stock prices up. As for me, my neighborhood is seeing home values drop at least 15% in price from a year ago; additionally, regardless of price, there are very few buyers. Local statistics are showing flat or slightly down home prices. The statistics are just wrong! If the trends continue there could be a real issue; my friends, however, may have a point. Business growth is also slowing. Everyone is hoping for a soft landing, nonetheless, slower growth historically translates into lower PE ratios, thus low stock prices. With this as a backdrop. Page B1 of yesterdays WSJ mentioned that the Department of Labor statistics estimated that in 2005, 401k plans had a net withdrawal of $5 billion and the numbers are expected to increase to $39 billion in 2010 as the baby boomers retire. The young generation is not naive, I don't believe they are going to bail out the baby boomers without getting their "pound of flesh".   And so the withdrawals begin!

9/22/06 Boston Scientific (BSX - $14.73) Wait! Don't Rush! Don't be fooled, however, this is an excellent company that just stumbled. Yes, it has product and leverage issues, nonetheless, at the end of the day this is a money making blue chip medical device company.  The stock price will eventually go up, however, the trick is to buy low. We are looking for a steal, a few points can make the difference between a very good investment and a mediocre one. I would take the position, that it is better to miss an opportunity than to overpay.

9/19/06 I believe in the general premise of the election year cycle theory. That the political powers do their best to make the economy run the smoothest at election time. I think the concept also applies to mid-term elections. There's a great deal of uncertainty, and risk, after November. Additionally, I'm not sold on the theory that as home prices decline, investors will move their money out of real estate and into the stock market; creating the next stock market boom cycle. Today, I don't see many steals, and I don't think buying fair value stocks is the way to go. Stock prices are high! You just don't make real money paying "fair" value. Look at my last suggestion, Sea Containers, It's a real crapshoot. You don't make money on companies like that. Stay away from it. So what's the play? Their is none;  for now. So keep your money in cash. Preservation of capital is a very good strategy.

9/8/06 Sea Containers (SCRA - $1.77) This is a pure "Atlantic City Play". At present it's gambling not investing. Forget the numbers! The critical issue is: Can all the players come to an agreement and restructure the debt?  I think there's enough money here to make everyone whole, if the players are committed and not greedy. The down side, is that, if the company goes into bankruptcy, asset values can dissipate quickly; wiping out the stock value, as well as, causing the borrowers to take a haircut. I'm optimistic, but things look bleak. Revised 9/10/06 

9/1/06 With the summer coming to a close, yesterday the NYSE posted 184 new 52-week high stock prices with only 8 new lows. Prices bounced back nicely from May. I would thank your broker, take your profits, pay down some debt, treat yourself to a nice cup of coffee, and leave the rest in cash. Mid-term elections are around the corner, and the next presidential election is in 2008. Real opportunities will present themselves, but you need to have cash to take advantage of them. Now is the time to re-familiarize yourself with the Presidential Election Year Cycle Theory.

8/22/06 I feel as if I'm the last man standing; still believing Cash is King in this environment. Everyday, however, stocks are going up, a lot of the money that was on the sidelines in May has been redeployed. Investors seem to be doing well. I see, however, unaffordable home prices that may not be sustainable. Oil is pushing all prices up. Inflation is already here, just go grocery shopping, you are getting less for your money. 7-11 coffee is tasting better. The war is a huge cash drain. I just don't see how we could pay for the war effort without increasing taxes. All the cash on corporate balance sheets imply that CEO's feel better investment opportunities may present themselves in the future, and having cash can be useful. A slowing economy usually means lower stock prices. When growth slows, price earning ratios narrow and per share stock prices decline or stay flat. It's that simple!

8/06/06 El Paso Corp. (EP - $15.89) I believe the past performance of a stock doesn't predict its future performance, it does however, show the pedigree of a security. I was there 34 years ago, when the gas lines were long and gas stations owners would serve their friends at mid-night. The oil service stocks were going up every day. Then there was El Paso with its 13 brand new liquidfied natural gas ships. We didn't lose money, but we didn't make any either. I was also there in 2002 and purchased some shares at $5.00 and change, but, today, there are better opportunities elsewhere in the gas field. Look, this company has approximately $18B in debt. Who really cares how much it makes tomorrow?  Zacks shows EPS estimates at $1.03 for FYE 12/06 and $1.36 for 12/07. Any profits will first go to payback the lenders. Equity holders won't see that cash for a long long time. As a side note, I realize that money that was on the bench is being put back into play; I continue to believe, however, its more prudent to keep one's money in cash to see how the economy plays out over the next few months. Sorry, I don't see to many values out there.

7/26/06 SIRF (SIRF-$20.69) This is one of my trading positions. That said, the stock is down approximately 20% in pre market activity. Yes, sequential quarter-to-quarter growth is slowing; however, I still see a company with excellent growth, good margins, little debt, adequate cash, a great market position and a nice pipeline of products. While I'm still bearish and feel cash is, temporarily, the place to be, this little GPS company is very appealing. 

7/17/06 The US economy is showing signs of Harding of the Arteries. Corporate earnings are starting to slow. Inflation is here; wages and prices are increasing. Housing prices are dropping and the war in the middle east is escalating. The stock market, however, is hanging tough. Prices are very high. Forget the Dow Jones Index. Forget PE Ratios. Just remember back a few years when companies like Bayer sold for $10.00 per share. Corning for 50 cents. Yes, the patient is very sick, but the surgeons are still going on their yearly vacations in August. Code Blue alarms are no where near going off. The time to buy is when the Code Blue alarm sounds and the defibrillators come out! Today is not that day! Now is the time, however, to start developing your Christmas wish list of stocks you would like to own if prices go down.

7/11/06 The slow death is the worst possible investment scenario. Now your down a little. Do you sell and take a loss or do you hold on and hope the market rebounds. Do you follow the crowd into defensive positions? Good companies like EMC (EMC - $10.48) are slowing down and their stock prices are nearing their yearly lows. I realize the consumer staples, defense and energy sectors are holding up; however, if the market drops both the good and bad companies will decline. You could have a very slow deterioration of prices and wake up one day being down "big bucks".  I think it's time to take our basketballs and leave the playground for another day, before we get hurt. 

7/6/06 I noticed Kraft Foods (KFT- $30.90) was downgraded by the same firm that was pushing Aether a few year ago. I still believe "Cash is King" for the next few months, however, Kraft is the type of company that if you buy on dips you should do well. Most likely, "Philip Morris" will eventually spin-off KFT and its shares should trade at a higher premium; and you are being paid 3% while your waiting. 

7/3/06 At my sister's family barbeque yesterday I realized, for the first time, that the internet bubble had far lasting effects on investors' attitudes. There were two camps: 1) there was the buy and hold side, those investors who, on average, shied  away from the 1990's technology stocks and navigated the markets relatively unscathed. 2) There was my side; those investors who were up to their neck in technology as the market burst and got somewhat burned. Six years later, the buy and hold investors are still holding, while the other camp acts more and more like swing traders. They are very skeptical and they take their profits off the table very quickly. The internet bubble changed investors' attitudes forever! Investors are now quick to sell, and that is one of the reasons why more and more investors are holding cash positions. If the path to profits is not clear, or perceived as to risky, investors are opting out of the game. They are taking their basketballs and going home. The buy and hold investors, however, are thinking that these undisciplined hybrid investors (who are sitting on cash) will be back, and when they do start investing again their stocks will go up. I feel that the buy and hold investor, forgot the golden rule of investing, which is: Cash Is King!

6/30/06 Life is good, stocks are up and the "Fed has calm words about inflation." There is one small little issue. When I filled up on gas today my bill was $42.00. The most I paid in a while.  I wonder if the "boys" at the Fed go grocery shopping?  Bread is expensive.  Fruits and vegetables are also kind of high.  They must have focused, their analysis, on the cost of beef and chicken!  Maybe the inflation data they are looking at is the projected price of chicken. In the Fall, when the birds migrate over the United States I bet the price of chicken drops, thus relieving some inflation concerns. The handling of avian flu infected chicken may kill you, nonetheless, if you properly cook it, eating it may be fine. Maybe inflation really is under control. Joking around aside, the newscasters are assuming interest rate increases have paused. I did not here that from the Fed, and we all know what can happen when we ass/u/me.   

6/27/06 Commodities and foreign stocks aside, at a quick glance it looks like the market has held up nicely over the past few months. Moreover, with some minor tweaking into some of the consumer staple stocks your portfolio could have increased. Kellogg (K - $47.87), Campbell (CPB - $36.89) and Heinz (HNZ - $40.20) have preformed beautifully. Here's why, however, I've been pushing cash. Major companies such as: Medtronic (MDT - $47.19), IBM (IBM - $76.77), AIG (AIG - $58.76) and others have been creeping down. These are Blue Chip Stocks that are down 15% to 20% from January. Forget the buy and hold "crap" or "I'm in it for the Long Haul". We are not kids anymore! 15% to 20% is a serious decline. Money is hard to come by, don't fall in love with the idea of owning a BIG portfolio. Sure a selective few stocks did well, but many more declined.  Remember, the goal is to make money.

6/23/06 Another status quo week. I do, however, have two views on the market. First, I'm in Borders reading the Baron's round table stock picks. As I left the café I was thinking "there's no big money in these picks", maybe Foster Wheeler (FWLT - $40.50). However,  It seems like the wall street crowd is "pushing" FWLT, so I'm a little leery. (Zack's is showing 2006 EPS estimates at $1.57 and 2007 EPS estimates at $2.40.)  Second, on Tuesday, I noticed an article in Reuters that mentioned that wealthier investors are leaving more money in cash. It's starting to feel like the early 1970's all over again. I think cash is a good place to keep your money until visibility improves.

6/15/06 Today the markets are up nicely. It's normally a good time to take money off the table, by selling into an uptick. The current thinking is that we will probably see at least two more fed interest increases. I think it's way to premature to buy into this rally. The safe haven stocks have not yet seriously declined. As for the emerging markets (India, Chine, Mexico, Russia, Brazil, and Japan), sure they took a big haircut since May 9th, however, I still see inflated prices. I would wait until the economy slows down and earning estimates start to be revised downward.

6/13/06 Well nothings new today! Stocks continue to decline on interest rate concerns. Increases in housing prices have stalled, and maybe declined somewhat. The emerging markets are in a state of flux, and commodity stocks are in a free fall. Given all this as a backdrop, individual stocks have held up nicely. Now the question is: How do we play the hand that is dealt us?  I believe, except for special situations, it's time to sit out until market visibility improves.

6/9/06 When the federal reserve says they are going to increase interest rates to fight inflation BELIEVE THEM. Increasing interest rates historically slows the economy, thus slows the growth of  corporate profits, which lowers the market value of corporations, resulting in lower stock prices. This trend is now global and the worldwide markets are nervous. I'm not sure you could fight this trend by moving your assets into defensive stocks; such as the consumer staples or the oil companies. If prices continue to drop its going to effect everyone, usually, the financially strong "best of breed" companies comeback. Your highly leverage companies, however, may have issues. When rates increase bond prices decrease; therefore, bonds are also not a safe place in an increasing interest rate environment. If this worldwide decline in asset values accelerates, start to familiarize yourselves with FDIC insured accounts and US Treasuries Securities. I think stock prices are high and investors need to be careful.

6/8/06 The analysts on CNBC are mentioning that the market may be bottoming out. I hope they are right. In the meantime, I'm primarily in cash. The prices of individual companies still look very high. I'm finding myself in the bear camp. The funny thing about it, is that, I'm an optimistic person by nature.  

6/6/06 Today's Record has a good article on "Don't try to time the buying and selling of stocks". I guess the "professionals" would like you to think that the small investor (you) can not time the markets, but of course, they could. I believe, however, that you need to try to time your trades. Today's investors are educated, smart, and most have over twelve years of schooling. In the "old" days commission costs prohibited trading, now trading costs are no longer an issue. Firms, such as, TD Ameritrade charges only $9.95 per trade. Yes, the majority of investors, most likely, are unable to accurately time the markets. However, if your stocks are up in value, you could take money off the table and wait for a better opportunity. If the markets are high, and your securities are high, sell a little and cash out. It is better to miss out on an opportunity then to experience a large decline. Try not to give back your gains, if you have them, take your cash and be happy. If you feel the markets are going to decline its ok to hold some cash. The thinking that good companies always come back, is not necessarily true. Most investors don't remember companies like Burroughs, do you know GE is the only remaining original Dow Jones Company.  Let me use a more recent example, Pfizer;  In 2000 when the stock traded at $60 per share, few thought it would be trading at $23 six years later. Look at the stocks that make up the Dow Jones Average, these are mostly excellent companies, who's stock prices, did nothing over the past 6 years. Market downturns are bad if you have money in the market, both good and bad companies go down when the markets decline. It's the investors with cash who are then able to take advantage of cheap stocks. Timing is part of the game, get use to it.

6/6/06 I'm watching some of the companies that are being pushed by the newscaster and it seems that the upside benefit doesn't justify the risk. Sorry, I just don't see many value, or properly priced growth plays, at this stage of the game. For instance, United Technologies (UTX - $61) I don't care how good the CEO is, how much can you really make at 17 to 20 times earnings. The same for Pepsi (PEP - $60). When the target prices are10% or so higher then today's prices, you are there, why take the added risk. Today we have increasing interest rates, high oil prices, the beginning of inflation and large deficits. I guess if you hold these companies forever you could do well. The overall mindset, however, is wrong; I was watching CNBC and one of the equity analyst mentioned that he hasn't seen values like this in 15 year. If he believes that, then he belongs in the market; as for myself, I'm moving more and more into cash. Good Luck - Joe     P.S. Don't misinterpret my point, anyone could buy "best of breed" companies. The trick is to buy good quality stocks cheap. I rarely make money paying "fair value", these companies need to come down in price 20 to 25% before they are good buys.

6/2/06 Welcome everyone! I hope you had a chance to look at my redesigned site. Over the past year I added content to make the information flow better. Being one person, I also had to narrow the focus. I just don't have the resources to be all things to all investors. Now lets discuss stocks!

Putting aside my trading account, for my long term portfolio, I noticed that over the past year I did two things: First, I took some of the profits and paid down my bank debt. We are well into the recovery; while stocks are up, it may be a good move to take money off the table. Second, I've been slowly narrowing my diversification. As I'm writing, I'm only in Oil Service, Defense, Medical and Cash. For those who missed the run up in GPS technology, a buying opportunity may be presenting itself. Start following SIRF Technology (SIRF - $30.17).  Be careful, the stock is heavily played by the day traders, and it had a bad first quarter. I would start following the company again.  Additionally, be careful with your diversification strategies, It's not prudent to be in the position I'm taking.  Good Luck - Joe
 

Q: 12/11/05  Hi Joe, Why does a company buying back stock make the company more valuable?

A:  The total value of a company does not increase when management buys back shares; the individual shares, however, may increase in value.  Here's why:

  • When a company buys back its shares, they are actually calling up a stock broker and purchasing shares on the open market. This creates a steady demand for the company's stock, prompting up the price. 
     

  • The more popular concept is that, by repurchasing its own shares, a company is reducing their shares outstanding, all other things being held constant, the company EPS would increase, thus increasing its share price. The total market capitalization, however, should remain the same. 
     

  • Management also hopes that as the company's EPS grows, its price earnings ratio may also increase. This, however, may or may not happen.  
     

  • Every situation is different and you really need to find out why a company is repurchasing its shares. Many times, a company has issued so many stock options that it repurchases shares to hide the negative effect that option dilution will have on its stock price.  
     

  • Another factor to look at is: Where is the money coming from to pay for the shares? Is the cost of the shares coming out of cash or is the company borrowing money to pay for the repurchases. By understanding the flow of cash it may (or may not) give you some insight as to what is driving the repurchase.
     

  • Giving money back to shareholders can also be considered a negative. Of course, some companies like Microsoft, have so much free cash flow that not returning the excess cash flow to shareholders can be somewhat negligent. Many other companies, however, return money to shareholders, in the form of buybacks, because growth opportunities are not available. 
     

  • Companies just don't give money back, there's pressure put on them to do so. You need to find out where the pressure is coming from.    

It's not a slam dunk investment move. Don't equate all stock repurchases with increase stock prices. Yes, it is a positive; you need, however, to find out what is motivating the company to repurchase shares to determine if it's a good stock move.   Good Luck. Joe
 

Q: 11/29/05  I am looking for an international bank play and leaning towards India. I am looking at hdb or ibn which would be the better choice?

A:  I like India to; however, I would like you to take a look at SMFG Sumitomo Mitsui Financial Group (SMFJY.PK - $9.5). The price is up from a few years ago, but there's still a lot of value left to go. If the Japanese recovery continues, Sumitomo should regain its world class status. It's still turning around and they are working thru their bad debts and loan to value real estate short falls. I like this Asia move better, because you are picking up a potentially world class bank "on the cheap". Good Luck - Joe  Click here:  for my 8/27/04 comments on SMFG.

 

Q: 11/24/05 Sirf Technology (SIRF - $28.12)  I was recently asked "Is there money to be made on SIRF".

A:  Let me start by mentioning that I own SIRF. For those who never heard of SIRF it's a leader in the GPS semiconductor location technology. Zacks has high earning estimates of .65 for the YE 12/05 and .90 for YE 12/06; resulting in a estimated PE ratio of 31 times 2006 earnings. Revenues grow 56%, from the prior year, in the September quarter and 23% on a YTD basis. Market Capitalization is $1.4b.  The Balance Sheet has $100m of cash and investments with little LT debt. Its cash flow is being used to grow the balance sheet. I think it's a risky play and am concerned that the insiders seem to be selling a lot of shares. I ambivalent. I like the company's growth potential but it could turn out to be just another small technology company with a lot of promise and a high stock price that fizzles out.  It's just to soon to tell.  I purchased SIRF for some very simplistic reasons; SIRF is still somewhat under the radar screen, the growth prospects are excellent, by listening to the investor conference calls, the management team sounds smart. Overall, I believe this is a good choice for an aggressive growth play; and Yes, I think you can make money on SIRF.  
Good Luck - Joe

10/6/05  I noticed that over the years whenever I buy a stock at the so called "fair value" I lose money. Many times I just lose patience; especially if I held the stock for a while and it's down a little. That's why I always think it's better to pass then overpay.  The Dow at 10,317 is not cheap. This is the time to be careful. Don't be overly confident. Wait for the low price. Remember Cash is King and prices don't move that fast. The last few nights I watch some TV stock talk shows and they made buy and sell decisions in 2 seconds. I have done that many time, however, for me to answer a simple stock question on this website it takes HOURS. I don't think buying stocks when they are being pushed is the way to go. Yeah traders make money on a 1% move but that's a full time job. Many people who work can not dedicate the time to do that; and yet people buy the popular stocks anyway. I don't think they understand the game.  A few years ago when I purchased Halliburton at $13 I was worried. Look, I realized a lot of investors made very good money in oil. If a company like Halliburton made .73 per share for the quarter annualized that at $2.92 grow it 30% for 2006 and value it at 30 times earning and you have a $113 target price. I personally hope that happens, however, normally, except for Valero, things just don't turn out that way. I hope everyone thinks before they jump.   Good Luck - Joe  

9/5/05 Hello everyone! I hope you had a good summer and my preys go out to the citizens of New Orleans.

As a short recap, it seems that stocks, oil prices, and housing costs are high and interest rates are increasing. I'm extremely cautious! I think it's time to pay down debt, while the market is on the high side, both your high cost credit cards, as well as, your mortgage debt. We are well into the recovery and high oil prices and increasing interest rates don't lend themselves to higher stock prices.

My focus, this summer, has been on the oil service companies such as Halliburton (HAL $31.16) and Nabors (NBR -$33.56); defense contractors like Raytheon (RTN - 39.34); and specialty medical firms such as, Biomet (BMET - $37.34).

Oil service stocks, while high, are really not that expensive; for instance, Halliburton is at the same price that it was at in 1997. Nabors is only a few points above its 2001 high. Input/Output (IO - 8.19); is my small cap aggressive investment move. It's a low price, technology based, seismic oil service company. IO is a somewhat risky investment because of its choppy history. I'm betting that the oil situation is real and that the majors and the smaller oil producers will increase their exploration budgets; which eventually should filter down to Input/Output.  I also think defense electronics is going to stay somewhat strong and companies like Raytheon should do well. As for Biomet, the fourth largest orthopedic manufacturer in the country, it has excellent profit margins and EPS growth; selling at a reasonable PE ratio. Biomet operates in a recession proof market and business should only get stronger as the baby boomers age.  Good Luck -  Joe

I'm in the process of writing another investment book. I'm trying to get the bulk writing completed by December. The preliminary feedback is that its very very good. As I progress I'll keep you informed. After the book is completed I'm going to reinvent this website. The focus going forward will be on investor education. - Joe

7/8/05 I was very sorry to hear about the blast in London. My prays are with them.

For those investors who feel the markets may decline and are interested in locking in their profits, options may be a good tool to protect the value of your portfolio. Additionally, writing covered calls can also increase your yield in a flat or declining market. - Joe

5/24/05 As I mentioned, I'm  writing another investment book. It's going to be an investment handbook for young adults. One of the topics I'm addressing is zero coupon bonds. On page C3 of The Wall Street Journal there is an article on how companies are misclassifying accrued interest on zeros in their cash flow statements. I don't see it as a big issue, but the companies, (including their outside auditors and bankers) should get their bookkeeping right.

What is of interest is that a shift has occurred; many investors are now focusing on a company's cash flow, as they should. Cash flow is becoming the measurement (instead of earnings) on how to value a company. I notice with myself, Cash Flow from Operating Activities, EBIT and EBITDA are some of of the first figures I review when looking at a stock. If one is serious about making money in the market, you need to focus on understanding a company's cash flow. I routinely talk to a lot of investors and many have no understanding of cash flow. I think it time for most investors to take their game up a notch.   -  Joe

5/7/05 Rhodia SA (RHA - $1.82) - The troubled $7b French global specialty chemical company. Is Rhodia a cheap stock or a junk stock? Can it turn itself around? At present I have no comment; however, at $1 per share it's time to do some homework on the company. I just remember my days at National Distillers over 20 years ago, profits swung widely as the price of oil went up and down.  Good Luck - Joe

4/22/05 Now that the NYSE is being automated, I believe its time to come clean on the issue of counterfeit shares. I'm concerned that the system may be flooded with counterfeit shares of common stock adding a potential valuation risk to securities that is not presently priced into their market values. Individual company's issued shares should be supported by stock certificates held individually or in street name, secured, at financial institutions; and reconciled to individual statements. I have never seen any attestations that all shares have been, secured, accounted for and reconciled. The results may be scary but I would rather know now if there's an issue then finding out in retirement. I think the SEC and the brokerage firms should add this to their reporting requirements as quickly as possible.- Joe

4/18/05  When I original wrote the text to my book I was going to leave out "The Spinella Heart Rate Theory"  however, my editor found it of interest and value, and suggested I leave it in. Below is a recent Q&A example as to how the theory is applicable to you:

Q:  4/18/05  What is your opinion of Research in Motion? I knew that it was speculative when I bought it, but it seems to be doing very well. It seems that anyone who has a substantial job has a Blackberry!
 
A:  I believe your observation on Research in Motion (RIM.TO - $85.78) is correct. However, I don't think trying to find the next Microsoft is the way to go anymore. Buying Rim at 48 times earnings is expensive. Years ago my father owned a few of the "Nifty Fifty" stocks; after the market broke in 69, there was very little money to be made in most of those companies for a long long time. Today, the echo-boomers are still buying computer technology stocks, I believe, however, that the baby boomers have moved on, into dividend paying value stocks. That said; the pool of money flowing into technology stock may not be there to cash out computer technology investors.
 
Additionally, I think stocks may move in a trading range for a long time. That said; the true buy and hold investor may not make real money, because their stocks will be trading in a range; they will get their dividends and hopefully some price appreciation to offset inflation but not much more. [Think of the market in the follow manor:  stock prices will go up and down like your heart rate, but eventually they return to a resting rate. Of course their will be exceptions, but stocks price movements may perform in a heart rate pattern for a prolong period, similar to the picture above.]
 
Who then is going to make money?  I believe the turnaround investors, as well as those investors who are able to invest in a trading range are going to do well. This is not day trading, its buying low and holding until the company becomes in favor again, and then sell when the stock hits a reasonable value. And then find another out of favor stock. The cycle may take a few years. Selling and take profits is part of the strategy and then be willing to sit on the side lines until the next opportunity presents itself. - Good Luck - Joe   


4/8/05  I'm concerned with the tightening of the consumer bankruptcy laws. The arguments seem sincere, no one wants an abusive system, but when I see companies like Morgan Stanley divesting their credit card holdings as the M&A cycle is improving, I think why? Infighting is common in business you don't divest a cash cow because of bickering.  Maybe I've been watching to many late night conspiracy theory movies. I believe, as the baby boomers reach retirement (at some pushed back age) the economy may gradually slow down. As immigration tightens and we become a more closed society; the echo-boomers may be unable to pick up the slack. It seems that our economy may imitate Japan's 1990's downward trend. That said; over the past decades the US credit card companies were not prudent in issuing consumer loans and setting lending limits. I'm surprise that the law allows FDIC insured institutions to willy-nilly issue credit cards. Is trouble on the horizon for our financial institutions?  Normal credit losses are priced into the yield, however, a prolonged high level of unusual losses on unsecured loans would become a major issue. Are the tightening of the consumer bankruptcy laws a precursor for real trouble ahead?  Do the real insiders suspect what I suspect?     

4/4/05 AIG (AIG - $1,019 adjusted for a 20 to 1 reverse split in 8/09, at the time, however, it sold for $50.95 ) AIG is a beautiful company. Issues aside, if you change its managers, eliminate its incentive plans, and demoralize the organization; What's left? A semi-cyclical company with little motivation to blow out budgets or create new products or markets. That said, today (if facts remain constant) I would value AIG based off a PE ratio of approximately 10 to 12 times, and would not consider purchasing shares unless they sells for less. In today's market its hard to make money buying at fair value I would wait (and hope) for a steal.

For those investors who are unfamiliar with AIG, while their numbers are in a state of flux they have four significant sources of cash flow; general insurance, life insurance, financial services and retirement services each generating billions in operating income. They also have a very strong foothold in the Asia markets. I suggest investors get to know AIG the education may be worth it.- Good Luck - Joe

3/19/05 I just finished watching an investment news show on PBS. On the whole the advice was excellent. However, when the host discussed index funds he mentioned that an average return is ok. Investors are being sold that an "Average" return is a good rate given that many money mangers can't beat the averages. Aspiring to be average is wrong. A "C" is average. Did your parents teach you to be average? Why are we so willing, to pay high fees, to accept mediocre returns from our investments? Returns from professionally managed funds should be an "A". Investment strategies have to be changed to strive for better returns. A percentage or two will made huge difference in the quality of your life.

3/17/05 GM's 14% stock price drop along with downward 2005 earnings estimates should be a wake up call to investors. I was a kid, but I was there, 32 years ago, when the 1973 oil embargo occurred. Back then the oil and defense stocks climbed daily. The autos, chemicals and airlines preformed poorly. Many technology stocks also collapsed! Remember the Nifty Fifty. I don't recall what happened to the drug stocks, I assume they did well. Today oil at $57 a barrel is getting scary. My only idea is to, don't over pay, but, Follow The Money. Invest in those company that are; and can continue to, produce profits in this environment. Stocks are high, I don't see many contrarian plays. Good Luck - Joe

3/15/05 While my kids were in Karate this afternoon I read the stock pages in the Journal, there's really not that many good buys around. I think investors need to be extremely  selective in their choices. - Joe

3/10/05 Pearson (PSO - $12.16) - Pearson is a global media company that has re-shuffled its businesses over the past few years to focus on education, business information and consumer publishing. The company's main properties are Pearson Education, The Financial Times Group, and The Penguin Group. My thinking is that; as the baby boomers age, more of their disposable income will be used on reading materials where Pearson should benefit. On February 28, 2005 the company reported its YE 2004 results - $'s stated in pounds. Sales of $3.9b, free cash flow of $288m, pretax income of $171m and net income of approximately $109m. The company has a negative tangible net worth of approximately $74m and LT debt of $1.7B. It seems that PSO's free cash flow of $288m was mainly used to pay dividends of $201m. The company's ADR's pay a 60 cents (US) dividend which translates into a 4.9% yield. The yield is attractive, however, the company has a $9.8b US market capitalization, selling at approximately 46 times unadjusted last years earnings (using an exchange rate of 1.92479). I like the organization, however, even though its stock price is off approximately 60% from its 2000 high of $30; I would still hold off on purchases until a better price presents itself. - Good Luck - Joe

3/5/05  In responses to a comment on the message boards, I did not recognized CRA's stock symbol at the time.  However, I wrote this comment a few weeks ago and it still applies and hopefully it will be a value in your investment strategizing.

Celera Genomics (CRA - $11.12) - "The company has significant cash and short term investments to cover expenditures for the foreseeable future. It only has 73 million shares outstanding. If it develops a "hit" it has the potential to be a big win. This is a good long term "Atlantic City" stock play. I think it's to early to evaluate the potential of the CRA's research pipeline. Celera has a high beta and large losses, I don't see a rush to buy the stock, as such; I would wait for a lower price. Look, I like Applera! Try to buy low so the investment really pays off."  That said; you should be able to make money at these prices. Additionally, I believe CRA may one day see a $40 plus stock price again.  Good Luck - Joe

3/1/05  Repsol YPE (REP - $27.18) - Interested in a reasonably priced oil stock? Take a look at Repsol!  It's one of the largest intergraded oil companies in Europe and is based out of Madrid and Buenos Aires. Repsol is only 3 points above its 2000 high of $24 per share. It has a relatively strong balance sheet and a reasonable PE ratio, selling at approximately 11 times earnings. Reserves are an issue and the company acknowledges that it has a low organic reserves replacement ratio. It seems that the company is spending its exploration dollars on projects in Western Argentina. I recently added Repsol to my portfolio because it's a moderately priced commodity play. - Joe

2/24/05 Royal Group Technologies (RYG - $7.74) - This is a company in turmoil that now qualifies to be placed on a Watch List for potential purchases. RYG is a mid-cap vertically integrated manufacturer of home improvement and construction products. It had FYE 9/30/04 revenues of C$1.9b. The company has issues, for now just become familiar with the company and its risk / reward equation.- Joe

2/15/05 Service Corp. (SCI - $7.37) - The largest funeral parlor & cemetery operator in North America. Five days ago Service Corp initiated its first dividend, 10 cents annually, since 1999. SCI is generating significant free cash flow. Over the past four years the company stream-lined its operation by selling foreign assets, paying down debt and settling litigation. The company is now is well positioned and the stock has significant upside potential. Value line has projected 2009 EPS estimates at $2.00. I just increased my position in the stock, I also believe that SCI is a good fit for most portfolios. - Joe

2/14/05 Bombardier Inc. (BBD-SVB.TO - C $2.61) This is a nice, but risky, pre-turnaround situation. For those investors who never heard of Bombardier, it is a Canadian Aerospace and Transportation company. Their results for the nine months ending 10/31/04 were; revenues of $11b, net loss of $141m, and a YTD cash flow from operating activities of $18m (breakeven). Business was split practically even between aerospace & transportation. They also have a small inventory & lease finance subsidiary. The businesses are cyclical, the company is leveraged, and has a negative tangible net worth of approximately $139m. Bombardier also pays a 9 cents per share dividend. For $2.61 your getting a well respected, well managed, global industrial organization that should benefit from the ongoing world wide recovery.

1/21/05 I need some quick information from my readers. First, I'm looking for a few public companies that are experiencing explosive growth today or in the near future. Second,  I'm looking for public companies in the computer forensic field. (To respond, use the e-mail set-up in the ask the author section). Thank you in advance! - Joe

1/10/05 My bookstore is finally up. Take a look at it, its very cool; not that bad for an accountant! My book should be out in about a month I'm trying to feature it on the site. Nothing new on stocks today. On Sunday I was looking at some of the 2005 stock picks by the analysts in the newspapers. I'm not mentioning names, my one thought was that the prices were high and most investors won't make that much money on these picks. Be careful, most of the low hanging fruit is taken. I believe going forward the opportunities are going to be in contrarian / turnaround situations. The game is to be able to separate out low price stocks from junk stocks. Its going to take work and some degree of luck. It is a risky strategy but the returns are good. Keep your eyes open for one. - Good Luck - Joe

1/6/05 As you may know, I'm working on developing a global investing section on my website; as I'm going thru hundreds of ADR's I noticed a lot of opportunities all over the place for many types of investors. The risks are high and the information is limited, but for those willing to do their home work I believe theirs good money to be made here. I need at least another week to complete my first draft of the section. If your interested Click Here to look at the construction site.  Have Fun! - Joe

1/5/05 I just don't understand why the Fed is obsessed with slowing down the economy. If Asia keeps on growing and we stand still eventually we will become a secondary economic power. Growth is good, it feeds on itself. It builds infrastructure, creates jobs, fixes the deficit. People like to get raises, they feel good about themselves. I realize inflation is bad on the seniors who live on fixed incomes, however, you grow or you die. That said, I believe its time for a leadership change at the Fed. - Joe   

1/4/05 I think the tsunami in Asia is going to have a big emotional effect on the United States and its spending patterns. My first thought when I heard about the disaster and our response of donating $100,000 to four countries was that we are broke as a country. Of course that is not true, but money must be tight. Sometimes being broke is good, it teaches you budgeting 101. Do we spend our money on humanitarian aid or buy another F/A-22 fighter? That said, today's WSJ, page A3, mentions a proposal to cut $18b, over six years, out of Lockheed Martin's (LMT - $54.21) contracts. While this is only talk, the investment dynamics of LMT may be changing. If the company loses $18b of contracts, its growth rate will slow. You could find yourself owning a company growing in the low single digits selling at 20 times earnings. Owning a great company with a flat stock price is a poor use of ones money. I think, if your portfolio is over weighted with LMT  starting thinking about rebalancing your position. Good Luck - Joe   [6/8/06 - I'm still not sure I miss read the facts. Sure LMT is up 30%, nonetheless, I still think our spending habits may come back to haunt us.]

12/30/04 I need to apologize because I'm falling behind on answering some questions. Please bear with me.  I'm working on an ADR analysis in my (Foreign Correspondents) section of this website. Its very interesting, however, as I'm going thru the countries looking at their ADR's I noticed that, for what ever reason, a lot of foreign companies are no longer trading on our exchanges. Look, someone in the government needs to: first see if my observations are true; and if true take action. We as a country can not be an economic power if foreign companies don't trade on our exchanges.

12/27/04 Today’s NY Time's business section had an excellent article on page 6 titled Economic View. The author cited various investment strategist who believe, as I do, that the growth rate of profits for businesses is likely to be less in the next 50 years than, over the past 50 years. The article mentioned that returns could be as much as 1/3 less. That said, how do you invest going forward?  (I’m not going to pull out brokerage statements for exact figures, but, the numbers should be close) I’m not a pure turnaround player; I’m all over the place and participate in many types of strategies. I do believe, however, that in an environment where equity is plentiful (like today) you need to find value in places where equity is scarce and thus the potential returns are greater. Many of the stocks I’ve been mentioning on this site have commonality. They are $10b (revenues) turnaround companies; where the equity players left. Go back and look at the name. Halliburton $12 per share, AT&T wireless $3 and change, ICI $5-6 and change, El Paso $3? and change per share, Sumitomo Bank $1 and change, Lucent $20.00. Turnarounds situations are very risky; you don’t know where the bottom is. Take Lucent, I thought $20 was the bottom and it went to 50 cents. You just don’t know. I’ve been looking at Calpine (CPN - $3.78) & Tenet (THC - $10.71) for the longest time, looking for signs of a sure turnaround. Something that says its time to buy! I’m still waiting for more data on these companies.  It’s a difficult and risky process. (See 12/20/04 Q&A section on Calpine) You don’t want a whole portfolio of turnaround companies because they could all turn out to be junk. If you accept the premise that all you could earn is 4 to 6% on your money use the index funds at Vanguard they are excellent. Turnaround situations are for those investors looking for a significantly higher rate of return than the market rate, but you need to be extremely careful.  If the readers know of any other big turnaround names please e-mail me, I'm always in search of a good investment.  Good Luck, Joe

12/24/04 I hope Santa is good to everyone tomorrow. The big question is: What is our strategy on Pfizer (PFE -$26.07)?  I think this is being play tight to the vest and the facts may not all be out yet.  I would watch the price on Monday, then use a dollar cost average approach over the next year and build into your position. If it goes up don't over pay. There's no rush, however, you need to act if you want to participate in the game.

12/17/04 I was recently asked, what stocks are you personally buying? Well, recently I did some rebalancing of my portfolio. I reinvested some gains I had in energy stocks and purchased QLT (QLTI - $15.50). QLTI is a small drug company located in Vancouver (I normally stay away from Vancouver companies). QLT “is a drug company that makes money, has a good pipeline, has cash, is growing, and is reasonably priced.” Its main product is the anti-blindness drug Visudyne. This may interest investors who have some Atlantic City money to invest. Postscript: QLT's competitor Eyetech Pharmaceuticals (EYET - $45.50) received FDA approval for, Macugen, a competing eye therapy.  Macugen is sold by Pfizer while Visudyne is sold by Novartis.  

12/10/04 Vimpel Communications (VIP - $29.35) - For those who never heard of Vimpel it’s the Bee Line cell phone company operating from Moscow. It’s a well managed, and adequately financed, midsize company; generating approximately $2b in annual revenues. FYE 2004 EPS estimates seem to range between $2.00 and $2.45. Here is a company with a high growth rate, and low PE ratio, however, I still think it’s pricy. You don’t need to be a PHD to figure out what is going on in Russia. Not that long ago (a few years ago) there were articles explaining how the Russian Army were not paying their soldiers. The government needs funds and is taking it! That said; there is an enormous legal risk involve with Russian ADR’s that is not priced into their securities. Be careful. - Good Luck, Joe

12/10/04 Pfizer (PFE - $27.37) Pfizer is an excellent defensive play. I’m concerned that the investment mood may change in 2005. There are a lot of signals suggesting caution. Oil prices and unemployment figures are high; interest rates are rising and the dollar is low. Zacks has 2005 EPS estimates for PFE at $2.43 resulting in a forwarding PE Ratio of 11. Here you have one of the best, and strongest, growth companies in the world; growing earnings in the low teens and selling at 11 times earning. It also is paying a 2.5% yield while you wait for the investment climate to improve. So far it seems that Pfizer’s Bextra and Celebrex will remain on the market. Additionally, drug stocks perform well in recessions. I believe the risk reward ratio is very attractive at this price and strategically, healthcare is a good sector to be in if the economy slows down. – Good Luck, Joe

12/3/04  For those stock investors interested in buying gold, silver or platinum coins take a look at www.bordergold.com. I liked their upfront format of listing prices and references right on their website, as well as their gold and silver market commentary. I don't know the firm well enough to personally recommend them; however, I spoke to their contact representative, and feel they are very reputable and can be a valuable resource for the readers of this site. If you are interest in buying investment coins you should take a look at their website. - Good Luck, Joe

11/25/04  I Wish Everyone a Happy Thanksgivings. I have one investment observation for the contrarian investor. Yesterday the NYSE had 384 new highs and two new lows. Pfizer (PFE) was one of the new lows, ending the day at $26.79. The stock is down approximately 47% from its 2000 high. The company also pays a 2.5% dividend. I'm off today, this is just an observation.

11/23/04 I just looked at some of the stock prices of the bigger oil service companies. Most of the articles think these stocks can increase a few points each. I think the upside is a lot more; don't be surprised to see increases in the 50% range next year.

11/22/04 The Sunday money section of the New York Times had an excellent article on investing titled “The Four-More-Years Portfolio: How to Narrow the Field.” The author had a good clarity of investing strategies. Nothing really new, but it was well written, organized and had good picks. The five areas discussed were: Military and aerospace, Oil, Financial services, Managed healthcare and Bibles. The article mentioned a few names; however, there are a lot of good companies in these sectors. That said;  I believe the game is: selection, price, and timing. Everyone is watching these groups; therefore, the key is not to over pay for any security. Whatever price you set as a good and realistic entry point for a stock, try to buy it for less or pass on it. Don’t over pay. – Good Luck, Joe

11/19/04 Taser International (TASR - $26.42) - A follow-up to my 9/16/04 comments: This is a mess in the making. The FDA needs to step in here fast. The body’s electrical system is delicate; for example, if you have a heart attack today it may take ten years before a life threatening arrhythmia occurs. This country has been watching too much Star Trek. Police Officers are now “testing” the weapons on themselves. What are they thinking?  They are shooting kids with this gun. This could be another asbestos type situation in the making.  Investors need to be careful.

11/10/04 Today’s WSJ (Page C5) has a article on “Accounting Body Plans to Clarify Rules for Booking New Tax Break” Over a decade ago I implemented FASB 96 when I was Controller of Copelco Capital (now part of Citigroup). The issue back than was very simple; deferred tax liabilities on the balance sheets of most old companies, no longer had any correlation to the company's actual tax liability; resulting in misleading financial statements. FASB 96 corrected years of abuse. Many late nights were spent implementing FASB 96. The intent was that future tax rate changes would run through the current years P&L, so your deferred tax balances would always represent the company’s future tax bill. Now tax rates dropped 3%, fine, less tax is always good. The entire deferred tax balance needs to be re-priced with the new tax rates. In this case the benefit should run through this years P&L. Some companies like GE have huge numbers. This creates swings in a company’s P&L, but that reflects the true economic picture of what occurred. GE’s stock price deserves to go up; the company’s future free cash flow will increase. Now executives are discussing ways to smooth future earnings by recognizing this benefit over time. The accountants and lawyers seem to be stuck on the cook book approach to rule making. If the goal is to have transparent financial statements, then having swings in earnings is ok. GAAP earnings, where possible, should equate to economic earnings. If this creates market opportunities so be it.   
 

11/9/04 Scientific-Atlanta (SFA - $29.16) I just have an observation: I no longer own SFA, but I did for a few decades. I consider it an excellent cyclical growth company. Investors in this security need to find out what effect Microsoft's Foundation software will have of SFA's set-top boxes. - Good Luck - Joe Spinella
 

11/9/04 Merck (MRK - $25.87)  Wait! Its to soon to purchase. Remember tax selling is around the corner. Read my 10/1/04 & 11/5/04 comments they still apply. I can't imagine the boy and girls at Merck doing anything bad. Ultimately, this is a nice company to have some capital in. The risk is high so therefore the potential return also needs to be high. To have a balanced risk / reward equation; the price must drop substantially. - Good Luck - Joe Spinella

11/8/04 Univision Comm. (UVN - $28.90) is the latest casualty caused by missing earning estimates by a penny or so. Potentially UVN is a beautiful company with the trends going in its favor. The issue I have is that; it’s highly leveraged and has a negative tangible net worth. Its entire market capitalization is Air. That said; its cash flow and markets are strong and growing. I would put it on a watch list in the event that it drops to 20 times earnings (.77 EPS times 20 PE Ratio) or $15.40 per share. Twenty times earnings is still expensive but there would be enough upside potential for your investment to be worthwhile.

11/8/04 GlobalSantaFe Corp (GSF - $28.30) I was marketing my website on the message boards of GSF and noticed the price at $28.30. It seems to me that a few points (or more) can be made here if the price of oil stays on the high side.

11/5/04 Today’s Wall Street Journal, (Section C-1 – Heard on the Street) mentions some of the pressures that Merck is facing. I think Merck is an excellent company that will ultimately prosper. I don’t think 20 employees calling a head hunter is a big deal. Investors seem to be looking at the 5.6% yield, along with a stock price that has not reached these levels since 1996, and think they are getting a bargain. Investors don’t seem to get it; forget Vioxx for a minute, Zocor comes off patent in 2006.  

11/3/04 How do we play a Bush victory? Stay with the basics: Oil (CVX); Oil Service (HAL, BHI); Defense (RTN, LMT); Healthcare (WYE); Media (DIS, SBGI); Insurance (PRU, MET); Banks (JPM, BAC) Contracting Manufacturing  (FLEX); and the like.

11/2/04 Videsh Sanchar Nigam (VSL - $7.64) The Wall Street Journal announced that Tyco (TYC - $31.70) sold its global fiber-optic network for $130m to VSL. For a risk taker who has Atlantic City money and is looking for international exposure; Videsh may be an inexpensive way to diversify into India.
 

11/1/04 I would like to wish the candidates good luck tomorrow. This election has taught me that as the population ages, security and religion becomes more important. As such; Socially Responsible Investing may play a greater role going forward than it did in the past. I suggest everyone read up on the strategy (It’s discussed in detail in the Education Library section of this website.) Additionally this election has highlighted the fact that the country is divided. The lines have been drawn. This website is neutral and somehow we need to figure out how to profit by this disconnection. I would take a little money off the table until its clear how the election plays out. Don’t forget to vote tomorrow.  - Joe
 

10/27/04 Hear is question from a reader:  What do you think of Avid Technology (AVID - $50.51)  Avid makes the film editing equipment for the post production houses and film studios. All of the old film equipment has to be replaced to handle the new digital format. In my opinion that should be a one-time benefit (that should take a few years) and than the growth trends should flatten out. That said; Avid is a few years into the upgrade cycle; the stock is selling at approximately 24 time earnings. Your long term upside may be limited. I don't believe the market is that big, somehow you need to find out for sure. I would be careful here. - Joe


10/25/04 Today’s Wall Street Journal (section - C1) has a very good article titled “Counting on Rebounds Can Be Folly” The Article quotes a manager from the Clipper Fund, his experiences seem similar to mine. It seems that he has gone through The Mines of Moria; his fund may be a good investment.  

The problem with March & McLennan is that, all the professionals are discounting the company’s future cash flows and determining its fair value. Assuming the professionals factored in the risks correctly; if everything happens as anticipated, one would get a nice return, but it won’t be a steal. A negative emotional wave has not occurred yet. The company has had a heart attack, but it is not in cardiac arrest. The time to buy (if you like the investment) is when the company is in Ventricular Defibrillation.
 

10/24/04 Today’s New York Times (page 8 – business section) under Market Week – Believe in Magic? – There is an interesting Presidential Election Year Theory. According to the article, "since 1900 there were 16 occasions in which the Dow rose in the two months before the presidential election. The incumbent won 15 out of the 16 occasions. There were 10 instances when the Dow fell, and the challenger won 9 of those times. The Dow was 10,290.28 two months prior to November 1, 2004. The Dow closed at 9,707.81 on Friday; suggesting that if the market remains constant Senator Kerry would win."  Don’t be surprised, if in a few days another Theory is released showing that the President would win.
 

10/23/04 Google (GOOG - $172.43) Investors are bidding up Google based on the underwriters adjusting their “Valuation Models.”  In most cases a valuation model is only an excel spreadsheet. Yes, the company had a good quarter, but the current $47b market valuation seems high. Here is my algebraic formula that I used to determine if the value of Google seems reasonable.  G = (R + H + T + C + A) or - expressed another way - Google = (Raytheon + Halliburton + Textron + Cablevision + Applebee’s) This means that all these companies combined have the same market capitalization as Google  I have two additional comments: 1) Google is not the only search engine. 2) It is my understanding that search engine technology is not that difficult. I'm not suggesting that you can't make money at these prices, just be careful.


10/22/04 Titan Corp. (TTN - $15.35) This is a $2b company with a $5.5b backlog; its hard not to be interested in Titan. Titan is a leading technology contractor for the Department of Defense and Homeland Security. Allegations (prisoner abuse sandal & security violations) aside, I think the risk reward equation is out-of-balance. Titan has mediocre margins, pays no dividends, has a negative tangible net worth, and a lot ($575m) of debt. The stock seems fully valued. The appeal is that it would be a nice fit under the umbrella of one the prime contractors, particularly, Lockheed Martin. The short term strategy is usually to purchase stock in the smaller company that hopefully would be acquired for a premium. In this situation, I believe, there is more potential in Lockheed Martin (LMT -$53.49) then there is in Titan.
 

10/21/04 Today’s Wall Street Journal article on Marsh and McLennan (MMC - $25.21) “Down but Not Out: What Is Marsh Worth?” is excellent, but I think the conclusions are wrong. I don’t think this is the time when “cool” people make money on MMC. The stock may seems to be at fair value from a cash flow stand point, but it only seems that way. Who buys at fair value? To make money you need to buy at a discount from fair value. There is no “panic in the streets” the stock has just adjusted to today’s best estimate of the company’s  future cash flow value, as more information develops that figure will also change. The company’s cash flow is drying up, it has approximately $4b of debt, and the bankers are knocking on the door. $25 is a lot of money for this company. Competitors should be able to take MMC’s insurance business easily. All one has to do is hire the sales force, and they could pick up the entire insurance side of MMC for nothing. It’s that easy. I think the real power is using MMC to go after the AIG money. Sometimes doing nothing is the best stock strategy.
 

10/20/04 The secondary semiconductor stocks are interesting. Stock prices are low, attracting the bottom fishers. The industry is cyclical and competition from China is here. Inventories are slightly bloated, putting pressure on sales and margins. The finances, however, of the individual companies seem to be in order. The economy is improving, creating opportunities in the 2nd half of 2005. Here are some names for the patient adventurous investor: 

Veritas (VRTS – 20.24) – Storage management
Xilinx (XLNX - $27.83) – Fast programmable circuits
Altera (ALTR -$19.81) – Fast programmable circuits
Q Logic (QLGC - $28.70) – Storage networking
Nvidia (NVDA - $13.50) – Graphics
LSI Logic (LSI -$4.38) – Complex high performance circuits
Atmel (ATML - $3.08) – Commodity chips
 

10/18/04 Today, a Wall Street Journal article compared the insurance organizations in NYC to the Mafia. The Mafia were murderers and drug dealers; the insurance allegations are just about money. There is a very big difference. This is the beginning signs for contrarian investing opportunities. The goal is to profit by an over reaction to the situation. Now is the time to develop a watch list or wish list in case of an industry collapse. Initially focus your research on the NYC insurers. I realize that the emphasis is on the brokers,  however, I would take an opposite approach and become familiar with a few of the more established insurers like Met Life (MET - $34) and Prudential (PRU - $44). It’s homework time!    
 

10/16/04 Aegon (AEG - $10.71) All eyes seem to be on the NYC insurance situation. It’s a mess and may get worse. Aegon may be good alternative. US investors may be more familiar with its Transamerica subsidiary.  On a per share basis, the company has a $15 bookvalue, earns approximately $1.21, and pays a 21 cents (euro) dividend. The company's operations are primarily situated in The Americas (52%), The Netherlands (20%) and The United Kingdom (21%).  In the short term, the ongoing investigations in New York may put selling pressure on the entire insurance sector.
 

10/14/04 Denny’s Corp (DNYY.OB - $2.85) Yesterday’s Wall Street Journal had an interesting article on the success of Denny’s back-to-basics strategy. I think the management of Denny’s is moving the company forward nicely. The company is notorious for its breakfast menu. It has 556 owned stores plus 1,063 franchise stores, generating $959m in total annual sales. At best GAAP profits are breakeven. The company is highly leveraged with $553m of debt;  pro forma debt to EBITDA is 4.7 to 1.  Today, this is primarily a banker’s game, not an equity play. The debt restructuring cost approximately $20 million in bank, accounting and legal fees. Future free cash flow is going to be used to pay down debt with modest capital expenditures. Denny’s real estate assets are appraised at $248m, but all the assets are pledge to the bank group. Look at the stock from a different angle; profits are breakeven, yet the company’s market capitalization (debt & equity) is approximately $800m. If one likes the restaurant business, compare Denny’s to Applebee’s (APPB - $24.97). Applebee's generates net income of $115m per year, has a market capitalization (mostly equity) of approximately $2b, and has a growth rate in the mid-teens. Applebee’s free cash flow belongs to the equity holders, thus the stock price should benefit, versus, Denny’s free cash flow is first earmarked to the bankers. Leverage investments can be very profitable, but Denny’s stock has already made its move (up from 45 cents on 1/4/04). I suggest investors wait until GAAP profits materialize, debt is pared down and the turnaround is further along.
 

10/13/04 Thermo Electron (TMO - $ 27.33) At 18 times next year’s projected earnings Thermo Electron seems properly valued. There are no bargains here; however, TMO is a nice company to have a position in. The company streamlined its ownership structure and now has a $1.3b Laboratory Instrument Division and a $.6b Measurement and Control Unit, with little debt.  Operating margins are in the 16% to 18% range, earnings growth is in the high single digits, but it is a cyclical business. I’m interested in TMO because, management is smart, and the businesses are generating a health free cash flow. I believe the pieces are in place for this stock to do well.  
 

10/6/04 Chiron (CHIR - $37.28) – Hold off on buying Chiron. The stock looks attractive because the manufacturing issue seems contained within FYE 2004. The company also has three sources of operating cash flow: Blood Testing, Vaccines and Biopharmaceuticals which deemphasizes the situation. Additionally, with $830m in cash as of June 30, 2004 the vaccine shut down in England won’t put the company out-of-business. Yes, Chiron is a good company! Its earnings, however, are mostly back ended; thus meaningful positive financial results are a year away. The stock is down, but the company’s market capitalization is still $7b. In a good year the company only makes (net income) about $220m.  I noticed UBS upgraded Chiron’s rating from “Reduce” to “Neutral” I agree with UBS. In my book neutral is associated with dead / flat money for awhile. I would hold off on purchases until a better price presents itself.
 

10/6/04 I watched the Cheney / Edwards debate last night, both were excellent and good luck to them. It seems evident that the defense contractors will benefit no matter who wins. Don’t get caught up in the euphoria, wait for a price dip before purchasing, and avoid the commercial plane side of the industry.

I also believe if Halliburton settles its asbestos issue the stock may have another nice run.

Edward’s position on buying drugs from Canada (and from other foreign counties) is a recognition of what is occurring in the United States.  If you are one of the 45 million people without insurance, and need recurring or multiple prescriptions, you may have to purchase your medications from Canada; prescription drugs are just not affordable any more without an insurance plan. The ground has moved from under the feet of the drug companies, be careful with these companies.

Updating skills and staying current with new technology is not limited to the unemployed or aging groups. The long term trends seem to favor the for profit training companies. However, I would wait, for clarity on the various government probes, before investing in this sector.
 

10/1/04 The Bush / Kerry debate last night was interesting. Good luck to both candidates. I took note of the democratic instability in Russia. It’s now apparent that it is not just limited to Yukos

One by one the consumer product companies are stumbling. After three years of a tight economy it is now evident that many consumers are only spending on the necessities.  

Merck & Co. (MRK - $33.00) – From an investor’s prospective It looks really dark for the next two to three years. We are talking big numbers, in terms of lost sales, profits and cash flow. Vioxx generated approximately $2.5b of global sales in 2003, and Zocor $5b in global sales (coming off patent in 2006). The company still has a $75b market value; the remaining products and pipeline may not justify its current price. The entire organization will be effected. The company is not contemplating cutting the 4.6% dividend, however; I believe the dividend is in jeopardy. Period-to-period financial comparisons will be negative. Cost cutting and layoffs are coming. Product and class action lawsuits are expected and normally, government inquiries follow. At the current price I see a lot of risk and limited short term upside potential.   
 

9/30/04 Colgate-Palmolive (CL - $45.36) – The current earnings weakness seems to be an industry issue. I believe it’s attributed to the retailers gaining size, preventing the manufactures like Colgate from passing along cost increases to their consumers in a timely fashion. Nonetheless, the company is a leader in a stable and very attractive market, has an excellent global geographic mix, strong cash flow, and seemingly reasonable market value. My issue with this company is that as of December 31, 2003 it had a negative tangible net worth of approximately $1B. It seems like the company bought out the old shareholders leaving the new shareholders with nothing. I would have expected a 200 year old company, with its stature, to have equity. This stock has been flat for five years. Now it’s a pure cash flow play. In the current market, at its current price, I’m not excited.
 

9/27/04 Fannie Mae (FNM - $66.85) – As of March 31, 2004 the company reported net comprehensive losses on their balance sheet of $14.8B. These are primarily losses on mortgage related derivative transactions for their core business. This presentation (bypassing the P&L and charging losses directly to equity) may be fine for the accountants; however, from an economic perspective, prior year’s earnings were overstated. If additional capital is needed, I believe it will ultimately be available. Keep Fannie Mae on a watch list, because there may be an opportunity here. Halliburton situations can be profitable if played correctly.
 

9/24/04 Fannie Mae (FNM - $65.51) and Freddie Mac (FRE - $64.59) – In an increasing interest rate environment, I anticipate mortgage originations to slow, resulting in a reduction of Present Value Profit on the new business generated by these companies. This eventually will affect GAAP earnings. These companies are also light on equity and may require some sort of capital infusion. Declining earnings, equity that may be required, combined with a loss of confidence in management and numbers, is not a good situation for companies that rely on the debt markets. Without an immediate commitment by the government to back their debt; potential liquidity situations exist. I would sit on the sidelines until a better entry point presents itself.
 

9/24/04 Unilever ADR’s (UL -$16.53) – At 11 times earnings Unilever is a good buy. Yes earnings are going to be below walls street estimates, but so what. Let’s face it; this is a slow growth business. The company pays a cash dividend of approximately 3.48% or $.58 per share. Its consumer brands have strong customer loyalty. Normally, if a mother uses Hellman’s Mayonnaise or Lipton tea in her household, so will her daughter when she starts a family. Unilever won’t make you rich, but it should, in the long-term, protect your capital. The company pays a steady and growing dividend, is a hedge against inflation, and most likely will provide some juice in terms of stock appreciation.  
 

9/18/04 Raytheon (RTN - $36.88) - The turnaround continues! Defense electronics is a great business to be in. A Kerry victory may also benefit this Massachusetts based company.  

Valero Energy (VLO - $18.02) - Refineries are a low margin cyclical downstream energy business. Currently the margins are high; profits are at record levels, double from last year. 2004 post-split Wall Street EPS estimates are in the vicinity of $5.65 per share, with a PE ratio of 6 times. Valero seems to be a very good short-term play. However, the long-term buy and hold investor should pass.  

Fresenius Medical Care (FMS - $25.30) and Renal Care Group (RCI - $32.11) - Kidney Dialysis is a fast growing and lingering problem in the United States. FMS and RCI trade at 13 and 16 times projected 2005 earnings, respectively. These are two moderately priced healthcare companies with good earnings prospects.   

Genentech (DNA – $51.80) - Forget this company! When comparing DNA’S original IPO returns against Amgen, Genentech was a poor investment. Hoffman-LaRoche already showed their colors. Roche took most of the money on the first go-a-round. Genentech always had great drugs and innovation!  Roche still owns 58% of the company. Why would the outcome be any different this time?
 

9/16/04 Taser International (TASR - $21.55) – Medtronic (MDT - $49.62), Guidant (GDT - $63.54), and St. Jude Medical (STJ - $71.81) are making oodles of money on correcting electrical malfunctions within the human body. The body's electrical system is delicate. The effect of stun-guns on recipients needs to be determined by electrophysiologists or the FDA, not coroners or law enforcement officials. EP studies can easily determine the lethalness of these weapons. No one wants another Amadou Diallo situation. However, the live testing of these weapons on police officers is foolhardy, because the long-term health effects are unknown and may have serious consequences. Stun-guns appeal to the security concerns of the world. The market potential is attractive. However, there are financial risks that are being ignored by investors. First, the PE ratio is enormous. Second, government deficits are large, budgets are stretched, resources may be unavailable for immediate purchases of these guns. Third, there is potential litigation resulting from the incorrect use of these guns causing death. Fourth, a public backlash may occur against the lackadaisical and inhuman use of these devises. However, in the short-term, momentum investors and day traders may do well, but long-term value investors should be extremely cautious.
 

9/13/04  Career Education (CECO - $34.43); Corinthian Colleges (COCO – 13.65); ITT Educational Services (ESI – 35.94):  School has now started. Students and families have liquated assets and taken on debt to pay tuition bills. Investors are experiencing, first hand, the raising cost of tuition and are now noticing that the for-profit colleges and training centers are generating significant sales, profits and growth. Igniting the excitement are stock prices that are off 50% from their highs from just a few months ago. These companies now have reasonable P/E ratios. Additionally, there may be a strengthening of revenues from possible draft deferral programs, expected after the elections in November. That said; is their an investment opportunity here? Yes! But not today!  Some of these companies are being investigated by the government for abuses in student-aid, student-loan or accounting practices. There have been management changes. The companies also have significant off-balance sheet debt (operating leases) that is often overlooked in research reports, causing misleading debt to equity analysis. I would hold off on purchases, in the industry, until the government probes are quantified.  
 

9/3/04 Lucent (LU - $3.11) - The Company’s recent announcement of a potential $816M tax refund is a nice financial boost. This gives Lucent the strength and flexibility to regain market share from Nortel (NT - $3.83). Lucent needs to convey the urgency of the situation to the IRS and grab Nortel’s customers while Nortel is firing employees, and mired in an accounting sandal. It is now a down a dirty street fight for customers. Place your bets! - See additional comments on 7/27/04.
 

9/2/04 Bristol-Myers Squibb (BMY - $23.51) – The current thinking on BMY is simple. One can receive a 4.7% cash yield ($1.12 per share dividend), while waiting for the company to turnaround. If all goes well, another 10 to 25 points may be possible from the stock’s appreciation potential.  For investors unfamiliar with BMY, they are a global ($20B) pharmaceutical house, specializing in: cardiovascular, cancer, consumer and baby healthcare products. Management has been busy over the past few years; they purchased DuPont Pharmaceuticals, invested in Imclone, sold Clairol and spun off Zimmer. The company seems to be well capitalized; their 12/31/03 tangible net worth was $3.1B. BMY has net long term debt of $3.1B as of 12/31/04; included in the net debt figure is $2.5B of debt due in 2006. The projected debt payment is easily covered by their $5.4B cash and marketable securities on hand at year end. Cash flow, however, is tight. $2.8B in annual sales from Pravachol comes off patent in 2006. Erbitux, Imclone’s colon cancer drug should help, but future dividend coverage may become an issue. For now, I feel the dividend is safe. However, I’m leery of Value Line’s projections dated 7/23/04. The current price is appealing; however, the stock is not for the risk adverse investor.
 

8/27/04 Sumitomo (SMFJY.PK - $5.65) – SMBC is for the adventurous investor. It’s the third largest lending institution in Japan. The bet is that the Japanese recovery will continue, increasing property values, thus reducing the collateral shortfall (“air”) in the company’s problem loan portfolio. Real estate values in Japan have been declining for the past ten years, resulting in loan to value collateral distortions. The company is already highly leveraged; if it merges with UFJ its finances will be further strained. However, the risk / reward trade-off is very appealing. The journey from a troubled bank (on the verge of bankruptcy a few years ago), to a world class investment grade institution is within reach. It’s the equivalent to purchasing stock in an American Money Center Bank in the early 1990’s. I believe SMBC is an attractive long-term stock, whether or not the merge succeeds.
 

8/24/04 El Paso (EP - $7.92) – Focus on the company’s cash flow; an estimated $1.8b operating cash flow can cure a lot of problems. The company has an appealing combination of gas exploration, production and transportation properties. Long-term debt, projected at $15b - $18b is scary, but manageable. The uncertainties surrounding security litigation, government fines, and production may limit the short-term upside potential. Don't count on the old 21 cents quarterly dividend being restored any time soon. However, the long-term business fundamentals are excellent, as such; this is a good choice for most speculative energy portfolios.    
 

8/18/04 CP Ships LTD (TEU - $11.53) - Investors first need to realize that the accounting issues faced by the company may not be a financial blunder. This is how business operates. When a company implements major new computer systems there are issues. That said, Is there money to be made here?  Let’s look for the answer to that question from a different angle. CP Ships is a global container shipping company, generating approximately $3.5 billion in annual revenues. Long-term debt to EBITDA is manageable at approximately 2.5 times. The company has a market cap of $1b, bookvalue of $1.3b and a tangible net worth of $687 million. Forget EPS, the company's valuation seems reasonable. However, presently there are extra risks associated with TEU. There are possible government inquires into what happened, class action law suits, high oil prices, rising interest rates, and a slowing down of the global recovery. The risks seem to outweigh the benefits of possible container rate hikes. There is also the cost and fear of terrorism that may not be fully factored into the stock price. Treat CP Ships the same as Commerce Bank. I would hold off on purchases to see if more news is forthcoming and if the company’s valuation substantially declines. I like the company and think the current price is reasonable. However, I would wait and hope for a steal!   Good Luck - Joe


8/9/04 – Here is a comment to our website from another investor: “Stay away from telecommunication stocks and buy Service Corp (“SRV”), because people always pass away.”  I can’t beat his logic on the longevity of men, and I also think Service Corporation has a good future. Regarding telecom stocks, I also feel that one needs to be very selective if participating in this sector.
 

8/5/04 - Here is an idea from a reader:

Hello Joe, what are your thoughts on International Game Technology (“IGT”)? Here is my thinking on the company:  I believe that the current conflicts our country has been involved in will drag the nation's economy for years to come.  Therefore, handouts from the federal government to states will be little to none.  One of the fastest ways for states to increase revenue is to allow gambling and IGT is the best in providing slot machines to the states.  IGT views consumer addiction as a science and they aim to prosper from it. I may not agree with what they are doing but I do believe it will make money.  Let me know what you think. - Gregory

Hi Greg, the analysts also seem to like IGT and think $31 is a good entry point. I like the company, but feel that you may not make money on the stock at the current price. Right now the stock is selling about 23 times projected 2004 earning. There is an article from The Street.com, mentioning that IGT is projecting 15% annual earnings growth over the next few years. (Actual machine sales are projected to drop from an estimate 90,000 in 2004 to approximately 75,000 to 80,000 in 2005).  You could have a stock with growing earnings and a declining PE ratio. In effect, IGT could be flat for the next few years. That said, the stock looks appealing to investors because it has had a nice 5 year run, it’s a very well managed organization that is still growing earnings, selling at a 35% drop from a few months ago. It is also a favorite of Wall Street. However, I would pass on it, because machines shipped are expected to drop next year, combined with a slowing earnings growth rate. Good luck - Joe


8/3/04Commerce Bancorp (CBH - $24) - I live in New Jersey and I like the company, but not at the current price. Now for the “Time and Temperature” on Commerce Bank; one should read the August 2nd Barrons article, the August 1st NY Times article and the May 28th Value Line Report. I’m giving credence to Ernst & Young’s 2/16/04 Audit. After the World Com fiasco, capitalization of expenses is probably one of the most reviewed items in an audit. Regarding the comments by its competitors, if they really saw something wrong, they would have reported the company immediately, and not waited until Commerce took the market from them. I would value Commerce as a multiple of bookvalue not earnings. Given the uncertainty surrounding the company’s employees, class action law suits, the industry (with raising interest rates), and the economy; I would hold off on purchases to see if more news is forthcoming and if the company’s valuation substantially declines.    


7/27/04 - This website will officially open on Thursday, September 9, 2004. Feel free to look around during the construction process. I recommend you review the educational library section; it is full of investment ideas. 

I suggest investors review the Oil Service sector. Normally, demand for oil is low in August and picks up by February. Additionally, barring a double dip recession, the global demand for oil should continue to pick up as the worldwide recovery continues.  

I like, and own, Halliburton (Hal – $15): It is down 52% from its 1997 high of $31. The company’s asbestos issue is close to being settled. The Barracuda-Caratinga vessel project, by now, should be properly reserved. Also, the company has substantial ongoing government work in Iraq. I think the outcome of the November election will have more of an emotional effect, rather than a financial effect on Halliburton. Lower revenues and higher profits are projected. The company’s businesses are strong going into 2005 and its stock price is reasonable. 

For those who play the quantity game, Lucent (LU - $3) is interesting. It announced a $5b contract with Verizon wireless. It has had four positive quarters. In the most recent June quarter; it earned $387 or 8 cents per share, and projected single digit growth going forward. That translates into an approximate 9 times (running rate) projected PE ratio.     

Inflation is here, just look at the price of oil, lumber, and metal. Be careful with the bank stocks as interest rates raise. No one is 100% hedged.  

The semiconductor companies are also under selling pressure. The analysts expect a 2005 supply glut originating from China. Some of the stock prices are starting to look appealing, I would hold off on purchases until more bad news is released. 

Read my Investment Strategy section on IPO’s. I generally don’t view IPO’s as a good investment. I think this holds true for the upcoming IPO of Google. 

Boston Scientific (BSX - $37) – It seems that investors are looking for a quick 15 points. If I were a cath lab cardiologist I would be afraid to use their product, and if I were the patient I would specifically ask for Johnson and Johnson’s stent. An open chest emergency heart operation is extremely serious. It is major surgery where patients do die, and /or have major complications, like a stroke. This risk factor should be avoided where possible. That said; forget the numbers and projections wait for both FDA guidance, as well as evidence of customer acceptance of the Taxus stent before making stock purchases. 

Good luck, see you in September! – Joe Spinella

 

     
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