by Phil - June 30th, 2008 11:04 pm
That was a very disappointing finish.
Chrysler announced production cuts, shutting down a minvan plant and cutting back production at a truck plant in St. Louis later this year. Tomorrow is the June sales reports and Citibank is projecting vehicle sales will drop to 12.8M for the year, down from 16.3M last year (21%). Chrysler is down 14% this year, well ahead of F and GM and, unlike "the big 2" they remain cash-flow positive.
Chrysler is still in a tight financial situation, however, and must spend billions to develop new models and start a union-operated fund to cover retiree health-care costs. "The market is at a fairly slow point," Chrysler Vice Chairman Jim Press said in a conference call on Monday. If "we want to continue to meet or exceed our financial targets, we have to move responsibly."
Just before the announcement, at 1:20, one of the members asked me about steel stocks in general and I had said: "I’ve been staying away. High input costs and a global slowdown not a good combo for them. Also, aren’t all the auto companies cutting back production. I’m not sure what’s keeping them up this high really." In light of the announcement, I think X may make a pretty good short again. They have been a great long put to sell front-month puts again and are a little more affected by auto sales than others. I think they would have fallen already but they were added to the GS conviction buy list on the 24th but even that didn’t stop them from falling $10 since. MT may also be a fun put play as they are already looking to test weak support at $97.50.
Here is a great article on what follows bad one-month declines. I doubt it will help us feel better but at least statistics are on our side! Bloggers are most bearish in 12 months. This is how negative sentiment reinforces itself. I read Barry, the WSJ guy reads me, 100 people who show up on TV read the WSJ and there’s barely an original thought in the whole process… Interestingly, bearish blogs reduced 15% from last month AND bullish went down 3% - neutral made the 18% gain.
I have a fairly encouraging Fibonacci view of the S&P but there is a quote from the WSJ that made me question my premise that Q2 would be good: "The sudden shift in demand toward smaller, more-fuel-efficient vehicle has caught U.S.…
by pprice - June 30th, 2008 9:56 pm
Tractor Supply Company [NDQ:TSCO] June 30, 2008 close: $29.04
52-week range: $28.01 [Jan. 22, 2008] – $53.55 [Aug. 8, 2007]
Recreational farming and ranching has been booming in suburban and rural areas of America. Tractor supply serves this market with livestock and pet products, hardware, tools, snow blowers, mowers and other products. Following the acquisition of a competitor in 2002, sales and earning grew dramatically. 2007 saw all-time records in every category yet today’s poor economy has caused TSCO shares to plummet by 57% from an March 2006 high of $67.60 to just $29.04 currently.
Here are the per share numbers* since 2002:
Year …… Sales ….. Cash Flow ….. Earnings ….. Avg. P/E …. Book Value
2007 …. $72.12 …… $3.93 ……….$2.40 ……… 19.9x ………$15.08
2006 …. $58.83 …… $3.31 ……….$2.22 ……… 23.8x ………$14.87
2005 …. $52.44 …… $3.04 ……….$2.09 ……… 22.3x ………$12.11
2004 …. $45.40 …… $2.38 ……….$1.57 ……… 24.1x ………. $9.68
2003 …. $39.39 …… $2.09 ……….$1.45 ……… 19.3x ……… $7.90
2002 …. $33.18 …… $1.51 ……….$0.99 ……… 15.2x ……… $6.25
*sources: Value Line and MSN Money Central
Tractor Supply management is guiding to a range of $2.54 - $2.62 but Value Line and Zacks are taking a more conservative stance with 2008 estimates of $2.45 and $2.51 respectively.
Even the lower estimate makes TSCO’s multiple just 11.8x this year’s and 10.8x 2009’s expected earnings. Compare those to their historical P/Es in the chart above. The price/book value and price/sales are now at levels last seen during 2001’s recession. Investors who purchased during that last economic slowdown saw their shares go from a split-adjusted $2.10/share to $44.90 before the end of 2003.
Debt is low at just 16% of capital and with total interest coverage of 19x last year. Value Line awards TSCO an “A+” financial strength rating.
Despite all the positive factors these shares are now offered for a share price that is lower than the lows touched for even one day from July 2003 right through year-end 2007.
Some well known holders [as of March 31, 2008]:
Capital Research and Mgt. …………………. 11.30%
Franklin Resources ………………………….. 5.99%
AMCAP Fund ……………………………….. 6.76%
Southern Sun Asset Mgt. ……………………. 4.34%
Thomas W. Smith …………………………… 4.09%
Barclays Global Inv. …………………………. 3.21%
Neuberger Berman, LLC ……………………. 3.11%
Vanguard Group …………………………….. 2.88%
Gates (Bill and Melinda) Foundation ……….. 2.68%
Officers and Directors owned ……………….12.90%
What would be a reasonable target price for Tractor Supply by year-end 2009? Even a lower than typical 16 multiple on the 2009 estimate of $2.85 leads me to…
by Phil's Favorites - June 30th, 2008 6:34 pm
Anyone despairing? Okay, don’t. Here’s some marginally good news for those with long positions not sufficiently hedged recently.
Courtesy of Minyanville, question by Prof. Sedacca, and answered by Prof. Jason Goepfert. - Ilene
Prof. Goepfert,
What has happened historically after months this lousy, particularly during secular bears?
Thank you,
Prof. Sedacca
Prof. Sedacca,
One of the pieces of data that’s been drifting around the past couple of days notes that this is shaping up to be the worst June in the DJIA since the Great Depression.
That’s sobering stuff, so let’s take a look at the S&P 500 and see how this month is shaping up (subject to change, of course, as the month is obviously not over just yet).
This would be the worst June swoon in the history of the index, beating June 1962 by about 1%. There was a particularly nasty 25% spill in the four months leading up to June ‘62, a touch worse than what we’ve seen so far this time around. 
Overall, this month would rank 10th on the all-time dunce list, and the worst month since September 2002. Going forward there wasn’t a lot consistent about the other months. There was a generally positive bias, but that’s the case for any random month, and especially so after a down month.
Five of these "worst months" occurred during the last bear market from 2000 - 2002, and surprisingly enough the next month was positive four of the five times, and we were positive three months later three of the five. During the mostly-pathetic 1970’s, six of the months qualified for this list, and again the performance going forward was mixed to even slightly positive when looking out longer than one month. There were some huge sell-offs following these already-disastrous months, but also some major rebounds. I’m not sure that this has a ton of use other than the headline shock factor ("10th Worst Month of All Time!"), but generally there has been a positive bias following horrendous performances like this.
-Jason
by Phil's Favorites - June 30th, 2008 1:58 pm
Here’s a trading idea, courtesy of Daniel Jones of Option Notions, along with a summary of his recent trades. Today’s pick is a call spread on VLO.
UPDATE: GM LONG, SPREAD
Last week we mentioned that the market was almost past the technical "Panic point" that we saw at the 11,800 Dow Industrials point. The "left field" loop appeared on Thursday with Goldman’s friendly downgrade of GM, and the mention that Goldman’s analyst figured they would have to raise capital sometime soon. Thus, the market’s vulnerability was exposed and the rest, as they say, is history. Here we sit this morning about 400 points lower. Can the bottom be far away? It’s always darkest before the dawn, and with last week’s downside action, I have to say I think we’re approaching a very tradable bottom in the markets.
We mentioned GM in a bullish pick on 16 June 2008 (ouch!) with long-term 2010 LEAPs and January 2009 calls being recommended. We don’t think the company will have to raise capital, nor will they go bankrupt. They have $40+ billion in the bank and a solid cash flow. Something will happen here from a strategic point - GM is presently valued at only $6.4 billion in equity. That’s shark bait and some private equity player will pounce. We’d like to go on record today as recommending investors add to those GM call spreads at this time. The stock is at a 53-year low this morning (30 June 2008) due to the remaining investors throwing in the towel on them for end-of-quarter window dressing, and of course, the impact perceived from higher oil prices, which are skyrocketing today. We would recommend buying another position of the January 2009 $15 calls that we are long in that spread for $1.45 this morning, and sell the Jan 2009 $25 calls for $0.30, for a net cost to the spread of $1.15. The same goes for the 2010 LEAPS if you got those long. If you didn’t, now is a great time to buy Jan 2010 $20 LEAPS at $1.55 and sell the Jan 2010 $30 LEAPS for $0.55, for a net cost of $1.00.
We sent an update on the FDX and UPS puts last week. We hope you are enjoying those and waiting for the recommended sales prices we highlighted. Those picks are holding up well and nearly to the sales targets. Also, last week’s HBC puts are…
by Phil's Favorites - June 30th, 2008 11:47 am
Courtesy of Notable Calls,
- Citigroup adds Google (NASDAQ:GOOG) to Top Picks Live list based on what presents itself as a highly favorable Risk-Reward outlook. Based on extensive channel checks, they believe that GOOG’s Q2 results are well on track to meet their estimates ($3.82B revenue/$4.73 EPS), despite recessionary headwinds.
- JP Morgan reits Overweight on Research in Motion (NASDAQ:RIMM), with conviction.
Notablecalls: Both look like good bounce plays here.
by Phil's Favorites - June 30th, 2008 11:06 am
Here’s some more interesting information from Bespoke Investment Group:
Excerpt: "So called blue-chip stocks have struggled mightily over the last year. The total loss in market cap from their 52-week highs for stocks in the S&P 100 (largest 100 S&P stocks by market cap) is now $2.5 trillion. Below we highlight stocks in the index that are the furthest from their 52-week highs, as well as the loss in market cap from their 52-week highs. As shown, GM is 75% from its 52-week high, Lehman is 72.4%, and Wachovia is 71.7%."
Read more and see table here.
by Phil's Favorites - June 30th, 2008 10:58 am
Check out the chart that’s part of this brief note, courtesy of Bespoke Investment Group’s
If any one tries to tell you differently, all you need to do is show them the chart below. As last week’s trading illustrates, every time oil went up, stocks went down, and every time oil pulled back, the market gained steam.
by Phil - June 30th, 2008 9:02 am
Oil is at $142.50.
That’s it, I can end my column there. What do you think is going to happen with oil over 100% higher than the high of Q2 last year? You can cut back your consumption by 30% but if they drive the price to $200 a barrel, you’ll be just as broke - only 30% less mobile than you were. This morning we had the usual pre-market Nigerian rebel attack… Well, that is to say according to CNBC there was a platform attack in which 5 people were killed. I’m still waiting to see it pop up on a legitimate news source but I think it’s just another case of CNBC reading Wednesday’s copy by accident on Monday, ahead of the scheduled attack. These mix-ups occur frequently in the summer when Rent-A-Rebel requires advanced notice of all attacks so as not to conflict with vacation schedules…
Don Harrold made a scheduled attack on the Fed over the weekend and I can’t say I disagree with him at this point. Certainly the free market couldn’t possibly screw the people of this country more than an active Fed has been doing lately. The only possible way I could find a legitimate justification for the Fed’s actions last week was if they KNOW, for an absolute fact, that the oil bubble is about to collapse and they are leaving liquidity in the market in order to lessen the devastation of the now $6Tn energy sector dropping 30% in short order.
With oil at $142.50, it seems more likely that Don Harrold is right and even Cramer was right, after he was wrong, and then right, and then right even though he was wrong… I spent the weekend reading lots of different viewpoints on the market and my conclusion is - nobody has a clue what’s going on so I may as well stick to my guns. My position is: I think the markets are oversold. I think that the woes of the world are entirely due to commodity prices, particularly oil, which is sucking up 10% of our Global GDP and 30% of the planet’s disposable income, taking much needed money away from housing as well as goods and services. I think the price of oil is greatly exaggerated due to speculation and I think that the price is unsustainable. That is the crux of my bullish premise so if oil keeps climbing here, I can’t be…
by Phil - June 30th, 2008 6:39 am
Politicians often ask you if you are better of than you were 4 or 8 years ago.
I was reading some campaign rhetoric this weekend and I was amused by the fact that there are still rabid calls to "keep the Bush tax cuts" and it got me to wondering who this is really going to benefit. We all know that the US has gone 40% more in debt than when Bush took office and, obviously, inflation is out of control, especially for the things we import, like commodities.
Since core inflation is "under control," what that means is that the price of goods and services we produce in this country are not demanding more money, even with the drastic dollar deflation, and, in terms of foreign currency, we are being paid only 2/3 of what we got paid for the same amount of work or production as we did in 2000.
Now, intuitively, you may think that if the dollar has declined 40%, you need 40% more money to offset the loss but that is not the case… 40% off of 100 leaves you with 60 but - to get back to 100 - you need to multiply 60 by 1.67! This is why we try not to lose money in the markets, once you lose more than 20%, you need to do better than 30% just to get your money back.
So if you had a net worth of $10M in 2000 and voted for George Bush (or, if you lived in Florida, if you did not fully punch your chad for Gore) because you liked his tax cuts, the question you have to ask yourself is if you are 67% better off now than you were then. If you do not now have $16.7M from a $10M start, then you have lost ground. The money you worked for your entire life, not to mention the value of other assets you may have like homes, boats, cars, stocks… has been discounted by 40% over the past 7 years of Bush economic policy.
That’s why the stock market, already trading flat to 2000 levels, is much further down than you think as the Dow valued in Euros is actually already down to 6,807! This is not a math trick - a share of IBM stock (flat at $120 since 2000) that bought you 4 barrels of oil when Bush took office, now does not even buy…
by Phil's Favorites - June 30th, 2008 1:43 am
Most of what I read is negative, with lots of reasons for doom and gloom, but here’s an article by Sean Udall at Minyanville discussing stocks he’s watching, thinking we may be setting up for a rally next month. - Ilene
Courtesy of Minyanville’s Sean Udall.
Here are my targets for accumulation, my potential shorts and adds thus far today. The economic numbers were about as good as they could have been, and I feel we could be setting up for a powerful rally next month. What that means is that a full robust rally won’t happen today, but certain stocks may have set or tested lows for the year this week - including today’s follow on selling. I’ve done little this week except build an ever-growing watch list.
I did add Juniper Networks (JNPR), since I felt the valuation was compelling enough to risk some downside. Additionally, I’ll share some of my current stock themes.
Visa (V): Now in the mid $79s and under, this is a good buy. I added it again, will likely clip some for a day trade and may allow some to run. Furthermore, this is one of the stocks I’ll likely use again and again in times of market weakness.
VMWare (VMW): I sold this sometime ago, but every time it hits the low $50s, I put it on the front screen. I believe virtualization will be huge and that VMWare will maintain a sizable lead despite new product releases from Microsoft (MSFT). If it goes under $50? I’ll own some.
Research In Motion (RIMM): See my comments from yesterday’s Buzz. The cellular market, like the broadband market, is bifurcated. High-end multi-function phones are replacing the lower-end handsets - see Research In Motion results versus those of the Sony (SNE)/ Ericsson (ERIC) joint venture. Some companies will defy the prevailing negativity.
I think Apple (AAPL) and Research In Motion are moving into a more dominant position every month. And the lower each of them trade, the more I like them.
Ciena Corporation (CIEN): Another nasty downturn for this terrific renewed growth story on a fundamental basis. Ciena has leading solutions for the intelligent, dynamic and bandwidth-straining networks in secular-growth mode worldwide, as well as new software coming for yet another revenue stream. However, only the toughest traders and investors need apply to the long Ciena club, because when Ciena is caught in the undertow, it really does feel like it will never rise again.I added…
January 7th, 2009 11:53 am
This measure of overbought is consistent with the bearishness of several contributors to Phil's Favorites who expect lower prices.
Percent of Stocks Above 50 Day Moving Average: OverboughtCourtesy of Ben, the Financial Ninja
The market is severely overbought for a Bear Market rally when 83.4% of all stocks on the NYSE are above their 50 day simple moving averages. Considering that equities are overbought as I’ve mentioned in McClellan Oscillator, Super Overbought, ...
January 6th, 2009 4:08pm
The alternative energy sector has been heralded by many as an investment opportunity in the US over the next four years. The rationale:January 6th, 2009 1:16 pm
Today's tickers: MOT, RIO, ICE, ERTS & CHK
MOT – Motorola Inc. – In an attempt to revamp its product line-up and find a successor to an unsuccessful Razr, Motorola just announced a new cellphone operable over third-generation networks to be made available in North America, Latin America and Asia. The phone will be made of recyclable plastic bottles and will be available through TMobile. Motorola came under fire for failing to stem seven consecutive quarterly earnings declines, along with failure to follow the lead of Apple or Blackberry by adopting touchtone screens and full keyboards. The news boosted shares at Motorola to $4.62 as they stretch towards $5.00 for the first time in two months. The option market was set alight by heavy demand for call options reserving rights to buy the stock at a fixed price of $5.00 per s...
more from Andrew
January 4th, 2009 8:16 pm
Let's start the new year with a new post and a new portfolio.
2008 was an amazing year for us with the portfolio up 725.49%. We have to be thankful for all this volatility! Let's hope 2009 is very good to us as well.
Thank you to everyone who participates in the comments in the optrader's section, we have a smart group of people, with great ideas.
Live portfolio and comments are only available to members of the swing trading portfolio.
To learn more about the swing trading portfolio (strategy, membership etc.), please click here
- Optrader
...January 5th, 2009 1:37 pm
-“Volatility is lower evidenced by the VIX in the mid 40s. The chart indicates the same with narrowing of the bollinger bands and the formation of a symmetrical triangle. Volume has been extremely low for the most part due to the holiday season. I feel that we will go up to test the 9000 area. Note how the market reacts at that level to give you clues on further movement.” The DOW closed last Friday 12/26 at 8515 and finished this week at 9035. Middle East turmoil translated to a DOW drop of 32 points to open the week. It was a light volume affair primarily due to the holiday season. Stocks rose Tuesday amidst a $5 billion capital infusion into GMAC. It now appears unlikely that GMs demise is imminent. The DOW posted a 184 point gain. The market closed 2008 on a positive note with the DOW moving up 108 points. The VIX continued to drop and Initial Jobless Claims improved. 2008...
December 20th, 2008 2:19 pm
As 2007 drew to a close, Phil predicted ‘Asian-style’ moves in US indexes and I wrote an article projecting 2008 would be a very difficult year to trade due to ‘unprecedented volatility’. As 2008 draws to a close it looks like both predictions were realized but pleasure does not necessarily accompany vindication. As John Maynard Keynes wrote: “It is usually better to be conventionally wrong than unconventionally right” In short, when you are right about bad news, little benefit is experienced because so many will have suffered whereas being wrong with the crowd means comfort in numbers. As I watched CNBC’s Year in Review last night I was struck by how many times the commentators noted that nobody could have foreseen the carnage. In fact, many were anticipating a recovery in the middle of the year including Hank Paulson! When history judges such projections unfavorably, credibility quickly diminishes.&... more from Option Sage
Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
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