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!

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