Dec

19

Abelson: PNC Financial services every year counts up how much it would cost to buy everything in the 12 days of Christmas song. This year it would cost $18,920, which is up 3.1% from last year. Nice dancing ladies cost $4,759. The main problem with the nutcase from Iran appears to be that he himself is obsessed with dancing ladies. OPEC is acting up, trying to cut production. The drop in oil from $70 to $50 is probably a brief respite … prices should go back up. Abelson flummoxed that the Dow is up 16% this year, and the S&P up 14%, given all the bad news he regularly regales us with. Corporate profits look good, but this can be bad because they come at the expense of hiring people, investing capital, and inventing new gadgets. Of course, there should be a recession next year and earnings will reflect that. However, there is still lots of private equity money sloshing around. Complacency is running rampant. Not only is the country borrowing a lot of money, but John Q Public is all tapped out in his home equity and is now resorting to credit cards and payday loans. The sky is falling.

Page 17: Citigroup is up 12% since Barron’s recommended it. Citi appears to have change agents in the right place, and it looks good. The 10 stocks Barron’s told you to buy after Katrina have done well, averaging a positive 23.2%. The Tulane professor who picked those stocks now recommends SMRT, CRR, and MSL.

Page 19: Turbo Chef makes great ovens, their new home model cooks a 12 pound turkey in 42 minutes. But really, they focus on the commercial markets. The quality of the cooking is generating great reviews. Turbo Chef doesn’t really make any money, yet it has a $418 million market cap. So, the shorts hate it. But, Starbucks is going to be getting into hot foods, so the bull story might actually come true and this stock could be up 40% in the next year. Dunkin Donuts is also testing the ovens.

Page 20: Newfield Exploration used to be all offshore, but now they are drilling for a lot of gas onshore. Because of Katrina, they missed some production goals, but now they look to be about to hit a sweet spot. It is up a little, but still cheaper than XTO and EOG. Unlike others, Newfield has expanded production mostly through the drill bit. Anyway, you should buy it.

Page 21: Some people like New York Community Bancorp because it has a nice dividend, but if things continue the way they are, the dividend could be in jeopardy. Plus, too much of their income comes from low margin businesses, and their acquisitions haven’t been all that great. Sell it.

M3: In case you were planting the raven flag in Newfoundland in an attempt to reclaim Vinland for us, the markets were all up last week, the fed held steady, and bullish economic reports came out. By the way, the Citigroup Panic/Euphoria Model says we are still in a panic mode, as we have been all year, except for in April (when there actually was a panic Is there any more useless model in a mainstream publication?). Even the bulls think that a short term pullback would be healthy. Earlier in the year, the rally was on cheaper oil prices and waning inflation, going forward, the rally will have to be pushed by corporate profits. Some activist hedge funds want Brinks to split up. They think it could go for over 70 per share to a buyout firm. The market hasn’t warmed up to brinks because of pension liabilities and capital expenditure requirements. MasterCard has had a great year, but is now overpriced. Keefe Bruyette and Woods says to sell MasterCard and buy Amex.

M6: Novartis is slimming down as it prepares to invest in new drugs. This should have it on the right track, as Novartis’s prospects should be more clear now.

M7: Macau casinos are hot. Melco and its joint venture partners Publishing & Broadcasting are going to list an ADR in the US. It will be the only pure Macau gaming play in the US. It will have much lower PE’s than Las Vegas Sands and Wynn. The catch is that Melco has spend billions, and hasn’t really made any money yet, and there is a lot of competition, so we don’t really know if you should buy it or not.

M8: While stocks went up last week, the bond market went slightly lower. Dow Theory says that the upward move in the Industrials has not yet been confirmed in the transports. Actually, Yellow lowered its guidance. If this is like the 1995 market, we are in the clear. If it is like the 2001 market, we are not.

M9: Nickel is up big this year on supply and demand dynamics. Specifically, new supply is technologically challenging to mine. What’s next for the market: “Signals are mixed”. Gee, thanks.

M12: Barron’s classifieds, “where opportunities meet their match” down a 1/2 page in ads since last week. But, if you want you can get a timeshare for 60-80% off retail.

M12: A bunch of little companies that run clinical trials for drug makers have been doing well. Despite premium pricing, they could still go up because drug companies are outsourcing more and more late stage trials. There has been a recent sell off, which is a buying opportunity. These stocks are known as “CRO’s” for Contract Research Organizations. Check out Pharmaceutical Product Development and ICON.

M16: You can’t buy options on the IShares Comex Gold Trust or the StreetTracks Gold Trust because it is not clear if the CFTC has to regulate them or not. Lots of investors aren’t comfortable with futures. You can, surprise surprise, buy options on companies that mine gold, like Newmont.

Page 23: Heely’s is a silly fad with huge product liability concerns. Watch out.

Page 25: Cover Story: ConocoPhillips is a big bargain. It has been in the dumps since last years Burlington acquisition, which the street didn’t like. It has the lowest PE amount the Dow Global Titans. Some guy echoes that, saying that it is too cheap to ignore. A guy from Morgan Stanley likes it, and John S. Harold says it is the top value among the energy firms it tracks. It currently trades at $9 per barrel in the ground, with most E&P firms valued at 12, and this ignores Conoco’s other assets. Wall Street is happy that they have cut their 2007 capex budget, and are doing more share repurchases. Oh, and Warren Buffet likes it. (Why didn’t you say that earlier, case closed, I wouldn’t have had to read the article!) Anyway, they are not planning any more big acquisitions. The big knock on Conoco is that most of their reserves are in mature areas. Conoco says that people underestimate the ability of new technology to expand reserves in these areas. Also, they have a sizable Venezuela exposure, and who knows what that psycho down there might do.

Page 30: We warned you about SIRF, you should have listened. Despite the bulls, it could still be bad going forward.

Page 31: Ryan Jacobs, who helped you lose a ton of dough promoting tech stocks on CNBC and running the Kinetics Internet fund and the Jacob Internet fund, is still in business. After the crash assets dwindled to 10 million. But, he endeavored to persevere. He now has $100 million, his holdings are more diverse, and he has learned to appreciate value. His fund now has a five star rating from morningstar. He’s up well the last three years. Right now, he likes Napstar, Infospace, Google, Yahoo, Newscorp. He says that margins in e-commerce are too thin, which is whey he doesn’t like Amazon or Ebay. On a totally different subject, retro video games are back in business, and Glu Mobile is putting old Atari games on cellphones.

Page 32: www.timertrac.com measures the performance of nearly 600 market timers. It turns out that some of them are actually doing well (but no mention of the fact that just by randomness some of the 600 should do well). Tradestation now has live Eurex stuff. OptionsXpress now has 24 hour trading for electronically traded futures contracts.

Page 33: Interview with Manu Daftary of the Quaker Strategic Growth Fund. He’s battered, but unabowed. Recently, it has had poor performance. He had beat the S&P 500 for eight years in a row… but not this year. However, the fund still looks good. He likes GD, MER, and COP. His home run stock for 2006 is BG. The fees on this fund are huge. 5.5% upfront, 1.9% expense ratio. Then again, his ten year return is 17.94%. He got shelled in the 3rd quarter owning PD,CNQ, and X. He has restructured and added defensive names WYE, and WLP. He likes GS, too.

Page 36: George Roche is retiring from T. Rowe Price. He thinks individual investors need to educate themselves more, particularly since he thinks returns won’t be so hot the next few years. He think the whole reason for the bull market is the Fed having driven interest rates down to 1%. Individual investors chase performance too much. He used to think scandals on wall street were limited, but now he sees greed everywhere. Today’s markets look like the 60’s. Unpopular war, big deficits, inflation risks. Probably 10% of a family’s assets should be in inflation protected investments. Evergreen is mailing out proxies to merge a bunch of their funds.

Page 37: Books for the holidays — Commodities Rising says commodities are going up. Money, Bank Credit, and Economic Cycles says that the Fed screws everything up, and it is the power given by governments to bankers to create money and credit that causes booms and busts. The Quotable Mises quotes Mises. Notable commie Barbara Eherenreich says in Nickel and Dime’d that low wage work leads to poverty and debt. She did no research for this. Navigating the Low-Wage Labor Market, using lots of research, finds the opposite. Shelby Steele wrote a good book called “White Guilt”. “The Cure” proposes market reforms to health care.

Page 38: It looks like this decade is shaping up to be the worst ever for stock markets. But that doesn’t mean the next few years will be bad. There is no reason to expect markets to continue to be bad, it is just not rational to think so. Economy is going well, corporate finances are doing well. All this says the markets will do well for the next few years.

Page 40: Interview with Jeff Everett, CIO of Templeton Global Equity Group. He oversees $152 billion. Unlike everyone else, he digs the largest companies in developed markets with stable businesses. Anyway, their methodology is to look at industries first, and then countries. He rates the global equity environment very strongly. He sold BHP Billiton and bought News Corp. US investors think foreign returns are great, but a lot is due to dollar depreciation. In local terms, the foreign markets have not been as hot. Anyway, he is a dollar based investor and doesn’t try to predict currency movements. He likes GlaxoSmithKline. It has a cost of capital of 5% and ROE of 15%, and is trading around the low end of its historic multiples. He also likes Sanofi. He likes US financials MER and JPM, and some foreign banks. He likes France Telecom, strong balance sheet, 5% dividend. The most threatening external risk is trade disputes.

Page 42: Scotts Miracle Grow is going to make a large one time dividend payment, and repurchase some stock. BA, GE, HON, and EXC all upped their dividends.

Page 43: Patents are very important. A Chicago Bank named Ocean Tomo has developed a 300 company index that have a large part of their book value in patents. They claim that they have a computer that rates the value of patents. The R&D tax credit comes and goes, we know it will exist next year, but not the one after. Everyone thinks it should be permanent, but Congress just turns it on and off and tinkers with it. Instead, then, we should just abolish it.


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