This is just me taking notes on my reading so please excuse the totally random nature of this column but it was very popular last time I rambled on like this:
Just in case you didn’t think our government does anything useful, check out this very nicely written set of oil articles by the FTC, which gives a great overview of the major market factors:
http://www.ftc.gov/ftc/oilgas/index.html
The WSJ has a leading article that the “Fed sees inflation rise as Fleeting.” Wow, I have to start shopping where they do!
http://online.wsj.com/article/SB115465026825226400.html
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GMCR is consolidating for a breakout if it can get itself above $40. They had one of those quarters that was better than it sounds because they had a .08 loss on the investment in Keurig before the acquisition and another .02 in amortization expenses causing earnings to be a penny lower than last year’s .26. There was also a charge of $400,000 for stock option compensation compared to none the year before. If this is an anomaly rather than a trend, things are looking very good indeed!
The company was up 17% last year and Q1 was a 20% increase and this quarter has 21% more sales than Q2 ’06 but this is nothing yet as they only just began rolling out their Newman’s Own Oganic Coffee (you didn’t think Paul made it did you?) through McDonald’s who also began a test program of iced coffee in May.
They also just got deals with Sam’s club and Target so maybe my wife doesn’t have to drive to Vermont anymore to buy the stuff. SG&A shot up but that is to be expected with an aquisition and all this new sales activity, pay them more I say if they can deliver those results every quarer…
All those one time charges and increasing expenses and higher taxes caused the company to lower guidance significantly from $1.19 to $1 for ’06 but they left ’07 estimates at $1.54 so this really is just a growing pain if anything (I think they are wrong about their own business and will blow away estimates).
Sadly, this is not an optionable stock or I would be loading up the truck but I would look to buy this one for the long haul, hoping for a pullback to maybe $35 but not counting on it. I would buy above $40 and watch for the 50 dma at $38.50 as possible downside buy spot if it holds.
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On the whole it was a flat week, with only the Nasdaq losing ground. The Dow formed what candlestick people call a spinning top for the week, a major signal of indecision but the fact is that it was only the first 40% of the week that was down with the last 60% heading straight up into a one day spinning top on Friday. So we have an indecisive week ending on an indecisive day, no wonder I’m feeling so uncertain!
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I mentioned yesterday that the S&P was up 30% since the 2003 when the Fed cycle reversed itself but I failed to mention that that was a very fair number since companies have put in double digit earnings growth for most of that time leaving the composite p/e of the S&P 500 at 15 vs. a historical 24. These kinds of numbers mean people are expecting a wipeout on growth between now and 2008 where the word recession wouldn’t begin to cover it.
8% growth for the next 3 years would bring the average p/e of the S&P 500 down below 11 if prices remain flat. Are you a buyer then? I’m obviously not one for index funds but we are back to looking at Berkshire Hathaway, GE, INTC, TXN (p/e 11.5), MMM, C, KO, etc… as nice safeish long-term plays that can be used as income producers by taking leaps and selling calls.
TXN for example has Jan ’09 $30s for $7.70. Your bet is that the company will grow just 8% a year between now and then to break even. During that time you can sell calls like the Sept $32.50 for .40, a 10% profit in 6 weeks. If you get called away, you can roll the position by reselling the next month or just taking the difference and getting out. There is some danger in the first month of owing a little on a huge run but that gets very remote once you do this 3 times and your basis drops below $6.50.
C is a nice way to play the Fed is done game and any pause this week means they are going to be done one day, regardless of the near term gyrations. Jan ’09 40s have a very low $2.80 premium at $11.30 which will likely change very soon (the stock is up 6% since 6/17) so I love these along with selling Sept $50s for .60.
I recommend at least paper trading one of these for a few months to see how you do. I usually buy out my caller if a sudden dip costs them 60% or more and they have time to recover or sometimes I roll to the next bracket on a rally so I don’t owe any money out so managing these can be tricky but very rewarding and a nice way to bide your time in a choppy market.
