Sunday, January 29, 2012

My US Macro view + why CNH and LVS may rally

Welcome back everyone, been out for a couple weeks adjusting to the new semester. Things at school seem to be pretty under control for now, so lets begin with some Macro highlights since last time..

As we see 2012 roll on through with January pretty much in the books, the S&P 500 is looking to have its best start in some time. Towards the end of the year, we saw the Dollar Index rally to near 2 year highs amid continued European concerns. It seems like that has blown over for now and we are back to the same old “risk on” game. Don’t fool yourselves though, Greece WILL eventually default/leave the Euro Zone. There really is no way for them to repay without more haircuts, and debt holders are already disgruntled about only getting 50% back. The only reason people are “less worried” now is because Germany could bail them out. Do they want to? No. Could the EZ force them? Maybe. This is why the Euro currency is such a problem, I can honestly say there has never been a situation this dire until they decided to bring about all of these countries to use a common currency.

Last Friday, Peter Schiff of Euro Pacific Capital did a Skype call with our Students in Money Management class discussing how US is going to be the next Greece. He went on to state our debt situation is pretty much out of control, and that poses risk for high inflation and default in the near future. I have to agree with him on this. Basically within a few years when China no longer wants to buy our debt, we will be in deep trouble. The US will be like Greece without Germany, no one wants to of will be there to bail us out. The reason why we have not seen rampant inflation and high yields is because the Fed has been buying the long end of the curve through Quantitative Easing, especially Operation Twist. This covers up the problem, but really you can only cover up a problem so long. Its fun to spend money you don’t have but we have literally shopped till we dropped.

What we need is job growth, and I know that everyone says this, but it is true. Government jobs do not count and make the situation worse. They are the reason corporations are not able to hire. Too many regulations and double taxation making large companies with profits give back to the government to do what with it? Give to people who don’t work? This is not the USSA it is the USA. At least 1/6 people here are on food stamps, our taxes paying for those who I’m sure would LOVE to work. There are plenty of people who WANT to work but can’t because of the reasons stated above. What we need is a change in Economic policy, we see that supply does not create demand and Keynesian ideology is completely wrong.

Above the US dollar index currently in a channel, expect this to move down and test the lower trendline with a possible break. I have changed views on US dollar now looking for short term bearish because of continued easing and low interest rates till 2015.

Earnings have been so-so to begin the year so far. Google’s numbers were not the best but Apple really did blow it out of the water with a monster beat. We are seeing pickup in global demand from Caterpillar and the larger industrials, along with tech reporting very well. This week I want to throw out a couple names to watch for.

Reporting on Wednesday is CNH Global. (CNH), a 11B mkt cap company headquartered in the Netherlands with business in both the agricultural and construction equipment industries. They manufacture Case and New Holland equipment. As we have seen recently from the very good CAT report, this is one that could go up after the report.
Fundamentally they look pretty good with a profit of 1.2 B in Q3 ’11 compared to 968M in Q1’11. Profit margin also increased 2% last year to near 6%. Costs have been going up, but were able to keep them under control and went down 10% Q/Q in ’11. Another plus was the 20% revenue growth from Q1 to Q2 ’11 which helped boost shares earlier last year. If you are one to believe in Emerging Markets and sustained but minimally slower global demand, CNH looks good to me. It is currently trading 1.4 BV 11.8 P/E, though does not pay a dividend. Expectations are 72 cents/share on $4.41B Revenue.
All time high is 66.00 and 52Wk high is 54.00.

Above some tech analysis on CNH, started off the year with a run up, but this is a buy high sell higher environment in the world of easy money. MACD is looking a bit toppy though so it could slightly sell off pre-report but looks good to buy long term.

Above a couple pictures of fundamental valuation, notice in the one right above, y/y increase in EBITDA/share, profit margin, and ROI.

Next I want to look at Las Vegas Sands. Right now, they have top market share in casinos and resorts in the world. A large percentage of their revenue comes from Macau in Asia. An article I came across this morning from yesterday:
This would be HUGE for LVS and with the worlds second largest population, soon to overtake China in the next 10-20 years, what an opportunity to expand now. If you are a believer in emerging markets and the BRICs there is definite room for this thing to run.

Fundamentally, they look great. Q4 ’10 rev. came in at 2B and recent Q3 ’11 revenue at 2.4B so about 20% revenue growth y/y. Profit also went from 700M to 1.1B in this timeframe. Costs and taxes have stayed pretty much stagnant, profit margin up 4% to a current 18%. They have double the amount of cash they need to pay down short term debt and enough assets to cover the rest, another plus. They did not suffer from the Auguat selloff as they are now at near pre-Lehman ’08 levels and continuing to grow. 17/20 Analysts rate it a strong buy.

Above valuation shows just how strong this company is. Notice in ’11 they have increased cash, profit, EBITDA, ROE and reduced debt to EBITDA. As for now, I am looking to possibly buy some before the report comes out after the close Wednesday. To do this, I would need to sell my Frontier Communications holdings. I will discuss this later on.

LVS has been getting stopped out at $50 for the whole ’11 year, I think that with this news headline and blow out numbers, we can push above and sustain $50 this year.

Last, S&P dropped a bomb on my largest holding for my IRA fund, Frontier Communications. I will make my decision early this week to sell of hold, I thought things were going pretty well a few months ago, but you can never tell. So far, I have lost over 30% of my position in 2.5 years. (Bought at 7.00 Break-even after dividends would be mid 5.00’s). Live and learn.

Above 5min chart of FTR the past 2 days, nice to know someone knew about it the day before and got out. The SEC is doing a great job on that BTW.

That’s about all I have for this week, I’ll get back to these when able, you can always catch me on Twitter @peter_eller10 for more analysis and trade updates. Let’s make this a good week!

Sunday, January 8, 2012

short review of last wk, long oil, MTB earnings

One week in the books, not too much happened on this 1st week of 2012, but let’s take a look:
S&P 500: up 1.6%
Dow Jones: up 1.17%
Nasdaq the winner up 2.65%

We saw some weakness in IBM, large weight on the Dow, so that was the lagger this week, though by Friday Apple closed at a new high (not intraday high) of 422.40. This is less than $4.00 from an all-time high which I will assume will happen sometime this week. There is still a lot to be bullish about on in this name, iPhones and iPads are still selling very well, and who is to say they don’t have another new invention down the pipeline? Long term, this looks good, and speculation of them paying a dividend or doing a share repurchase makes owning Apple more attractive.

The jobs report came out on Friday, and of course everyone’s reaction was to the headline where we created 200K jobs in December. I would give this a B, because at least 25% of those jobs were due to seasonality and the labor force continues to decline. The positive thing is at least we are not losing jobs, but one has to be careful of the rate. Unless you are looking at the U6 (measures discourages and unemployed “real unemployment) the rate that they give you on TV or in the news is the false. It is only a matter of time before people wake up and realize you can only decrease the labor force so much.

It appears to me like bullish sentiment is setting in for 2012, we are definitely seeing it in the crude oil space. Last week at the open, we saw a rocket higher above 100 and we managed to hold above 100 the whole week getting to almost 104. With continued games in the middle east including the Strait of Hormuz, expect oil prices to be around these levels or higher this year.

Below the narrow trading range in the ES last week, it seems like someone already knew about the jobs report Friday zzz… 20 handle range

This week begins Q4 earnings and what better way to kick it off than highlighting one name on my radar. M and T Bank $MTB is a smaller regional bank, mkt cap ~10B, headquartered in Buffalo, NY. Looking at their internals, the company over the last year has been dealing with declining net income due to selling expenses. As the entire banking sector still continues to teeter in the edge, I would not be a buyer of M&T here. Valuations do look cheap, but there are many headwinds. Current liabilities increased 20% from March to June of this year, though their cash pile also increased.

Above it seems like MTB is ready for a breakout, but this looks to me like the top of a range imo, be careful.

Short post, but last week at home until Spring semester starts, and its going to be pretty boring, might do a couple trades I’ll keep you all updated on twitter @peter_eller10 have a good week all.

Monday, January 2, 2012

2011 in review, my take on 2012, some earnings

Another year in the books, and what a year it was indeed. Huge volatile swings first beginning with Japan in March, soon leading us to the highs of the year in May, back down to the lows in August-October over European debt contagion and US default fears. For long term investors, this was probably the worst they have suffered since ’08, though the S&P 500 ended only 4 pennies below unchanged. We saw a large inflow of capital into the utility sector and large outflow from the financials. Looking at the XLF the financial sector SPDR, it was down roughly 20%, near levels not seen since July ’09. Financials finished the year near the lows, some including Bank of America, down 70%. We continue to see fear in the US banking sector over toxic mortgages and home foreclosures. Until the housing market turns around and the banking sector once again has credibility, we will continue to see weakness in this sector. The inflow of capital into utilities tells me that those long the market in the hope of a recovery are fearful and are looking for a place to hide out. If investors were to be betting on a global recovery, we would be seeing more buying into the emerging markets.

Below are two charts, one of the XLU and the EEM. You can see the inverse relationship take place, especially after the large drop off in August. I expect this trend to continue until we get some clarity in our global markets.

One positive thing we did see this year was the rally in the US dollar. This strength will benefit those who consume, giving them more of a bang for their buck. As I have stated before, 70% percent of US GDP is consumption.

Lets take a look at what happened with me this year:

Above shows trades/transactions I have made. As you can see, 2011 for me was not the best. My worst was betting on a steel rebound. I got long AKS a bit over 12 at the end of July, then got completely crushed after a straight shot to 8 ish. I got out at the end of August before it continued down to break below 7.00 and continued to stay weak and close out the year down 50%. Second worst trade, though I did not lose too much money, was going long AMR after the initial plunge under 2.00 at the beginning of October. I should have sold a week after, but waited too long and actually sold a week before they filed for Ch11 and closed under a dollar.

Above are my current holdings, worst performers being Invesco and Frontier, both of which I am holding for my IRA. I plan on selling out of Kodak within the next 2 weeks before they have to delist for a pretty substantial loss. THQ is a small position hope play for now.

This week I want to highlight 2 possible positions to take follow earnings releases. Keep in mind Q4 2011 earnings will be in full force starting January 9th. On Wednesday, we get Mosiac, and on Thursday Constellation Brands.

Looking at Mosiac, this has been beaten up pretty bad this year on fears of global slowdown, weather concerns, and glut of vegetation. Down about 25% in 2011, I see this as a long-term value play on the need for more seed/potash for global agriculture. As population increases, not necessarily in the US but other countries, there will be a greater demand for food. The income statement by quarter over a year looks a bit rocky with continuing increases in revenue, though costs also increasing, so profit margins are being squeezed. One positive note I could was the decreased amount of borrowing they have had to do from 439K on the Feb report to just 6.5K in the August report. Borrowing less creates more cash on hand for future purposes.

Some fundamental analysis shows that MOS is still doing very well, increasing amount of cash per share and profit margin since Feb.

Basic technical analysis show it a buy also.

I probably will not act on this, but will give it a buy now for a long-term investment.

Next, we will look at Constellation Brands. Per the company’s website, they sell wine, sprits, and beer of brands such as: Corona, Svedka, and Black Velvet. A large majority (core business) of their sales are done in North America (primarily USA), Canada, and New Zealand. Having done a marketing presentation on Franzia, I know about the amount of people who drink and even during hard economic times, alcohol is not terribly expensive, and people are still going to use it, hopefully responsibly, to have a good time on weekends/special events. Looking at their fundamentals, Net Income nearly doubled from May to August, 40% less borrowing also took place with revenue increasing 5%.

Fundamental analysis show STZ holding up well, decreasing EBITDA debt, increasing EBITDA/share, cash per share also stable and profit margins still increasing and very strong.

Basic technical analysis also show this a buy here and might I add on cheap valuations. P/E under 10 is basically a steal and a good place to put $ on a US recovery.

Not much in the way of earnings this week, these are just a couple that stuck out to me. I also see that Family Dollar is reporting, an earlier post of mine described my bullish sentiment on DG, basically the same business and I would also get long that name as well.

The New Year is here and it’s time to get a fresh start. I wish all of you the best of luck in 2012, catch me on twitter @peter_eller10 I’ll be here all week, lets all make some $$!!