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RVB's Market Musings

What began here as an avenue to interact and learn has far exceeded those goals.

If you are a prospective employer, please consider this site a place where you can see my passion for investing...

Tuesday, September 27, 2005

Is Pfizer (PFE) cheap again?

Now I'm talking about investing again. "Geez", you say, "how can I know what the hell that guy is talking about on what day?" Well, I may be bringing in some fundamentals for my investing speak, or some rational thoughts.

First off, Pfizer pays a 3% dividend. Now, I'm not a huge 'collect the dividend and get rich' kind of guy, but at least the dividend can offer a little bit of downside protection. The stock trades below 20 times earnings. I'm not a huge P/E, kind of guy, but that seems reasonable, as compared to Bristol-Myers Squibb, which has the same P/E.

The stock seems to have the cheapest price/book ratio (2.8) of the group -
SGP - 5.3
MRK - 3.5
BMY - 4.4
ABT - 4.6

Now, the Net Return on Assets is just over 10%, and the only company close to compare is ABT, at about 12.3%, and the rest are well below that.

From a rational standpoint, PFE has some great drugs in the pipeline, such as what they are doing to work on balancing the body's cholesterol - for heart health. Lipitor, already the world's best selling drug is also Pfizer's baby - so they have expertise in this area.

So, do we go buy the shares now? I'd say no, for now. I'd take a pass. Why? We can wait yet. Let's see how the market behaves, and let's see how PFE is acting in conjunction with the markets. At this price, it offers decent value. But, why pull the trigger now? Unless the markets look favorable, or UNTIL they do, rather, the least risky thing to do is stand aside.

Wednesday, September 21, 2005

Oil's on the cover!

USA Today's website had an article showing an oil rig on it, talking about prices and Hurricane Rita. That's it, I thought. This price is too high. EVERYONE's jumping on board.

Then, I noticed that the Wall St. Journal also has an article on the opening page of it's Money and Investing section that shows a chart of crude oil.

Get ready. At least the risk/reward ratio is set up properly. Even if this isn't the top. I feel it's sooooo close. One could be wrong on this one, and still get out with minimal damage, but the potential reward is big. Real big.

Followed through on a post-fed day...

What do I mean, by "followed through"? I mean that yesterday's reaction was continued. On heavy trading, no less. The internals are ugly. The charts are ugly.

If I weren't in school and doing homework 85% of my awake time, I'd be looking for things to get short. I already said that Oil is setting itself up, and I think that perhaps XTO is the winner to get short on. BUT, not yet...we need an entry, and some confirmation. If you want to get a little bit more aggressive, look at ATW (Atwood Oceanics).

Understand that these companies are fundamentally sound (especially XTO), so this is more of a TRADE, than an investment. The market works in mysterious ways sometimes. Sometimes I talk about investments. Other times I talk trades.

Tuesday, September 20, 2005

Technical owie

Today's post-fed reversal looks to be a bad sign for the markets. Rarely does the next day follow through, but our chances of continued selling seems higher now.

There's a new hurricane on the way. I think it's time to get ready to SHORT, yes, that's SHORT oil once this hurricane passes. I believe that the latest surge in buying on nothing but the fear that this hurricane will be another katrina is wrong. And, I believe that the surge in buying will leave many investors on the wrong side of the markets - and lead to capitulation (mass selling). I could be wrong. Next week will be interesting, as Rita seems determined to make me wrong - she's gaining steam and is now a Cat 4 'cane.

Back to the technical owie. Look at this chart (chart courtesy of Stockcharts.com):

This is the third time the Nasdaq has hit this level. The MACD lines are showing a triple negative divergence on the Index. That's not a good signal for the markets as a whole. This RARELY sets up. And when it does, look out below.

Tuesday, September 13, 2005

Ouch, BBY

And so they missed the 0.38 mark, and shares are off over 5 bucks (Best Buy's that is)...

Now what? It's a good thing we took some of those shares off the table, huh?

Is this overreation?
I don't know. Perhaps. My inclination is to not fight the tape. Get out, and reassess later, or move on to the next big opportunity. That's how I manage money...

Notice that we are out at $46 (near the open price today, after the miss).

That still puts our remaining shares at a gain from $44, plus the shares we cashed out at $50. So, mathematically we've made $2 x 2/3 of the position PLUS $6 times 1/3 of the position. Or, $3.33 on 44 -> 7.5% on our money in 3 months...all while managing the risk quite nicely. It's also a 33.9% annualized return. That's worth smiling about, despite the fact that we just gave a whole lot back! It's better than being in a savings account! (even after short-term capital gains tax)

Monday, September 12, 2005

The Best Buy (BBY) position

I promised to continue to follow up on this position as it unfolds. If you'll recall, this is about month 3 of this position - and it looks like we're going to be "long" best buy for some time longer. How long? Who knows...BBY reports quarterly results tomorrow morning, before the market opens. Thus, the last chance to get out of this position before the release is today (but since we've taken some profits, a full exit at this point seems illogical).

Let's quickly revisit a chart of BBY to see how it's done in the past year. (Chart courtesy of Stockcharts.com)

We took some partial profits in the circled area. To be exact, the date was July 20th. On the chart you'll notice that's just before the downswing before the jump to the recent high. Not too bad - we can't be "perfect" (and trying to manage a position "perfectly" generally leads to freaking out and losses).

By taking some profits, we found it much easier to sit through the drawdown in late August. Some may have actually re-purchased the shares that we sold in this range. That is a very valid move, given that you really believe in the position and the fundamentals suggest that it is prudent. However, I probably wouldn't buy back the same amount that I had sold. Perhaps buying back about 1/2 of what we sold makes sense. It depends, however, on many factors (portfolio size, market conditions, Best Buy fundamentals, etc...the list goes on).

Anyhow, the drawdown was not too painful, mostly because we took some profits. We also endured a stock split (now we have more shares). Notice how the position gets easier to manage after we've taken some profits. We can rest somewhat assured that we've made some money.

So what do we do? Best Buy, according to CNBC is expected to report earnings of 0.38, on average. Last quarter they announced earnings of 0.34, 70% higher than analysts' expectations! Will that happen again? Unlikely. A year ago BBY earned 0.35 a share. So, 0.38 seems to make sense. Will the 2nd quarter's momentum carry over into the 3rd? I guess in 24 hours we'll know.

I will say this: It's unlikely that BBY misses that number by a wide margin. Why do I say that? Simply because BBY, on a yearly basis, has not had a lower growth year in 5 years. I expect that trend to continue. Best Buy is the best of the retail electronics stores (Gamestop is probably the video game winner, but doesn't compete in the broad electronics sales market with BBY).

So, with what looks to be more upside than downside yet, I'd continue to hold. Technically, the chart agrees...with low volume during the price decline in late August.

If BBY announces a bad number and we need to get out, we will...and probably still at a modest profit.


Thursday, September 08, 2005

Stock Analysts

You probably have heard of a stock "Upgrade" or "Downgrade". They come in all kinds of flavors. One brokerage may upgrade a stock buy moving it's rating from Hold to Accumulate. The other would use Neutral to Buy. Yet another may use Market Perform and Outperform. A plethora of terms have been created to simply refer to buy, sell, or hold. Why? To be honest, I've no idea. Perhaps it's ego food?

Anyhow, these ratings have some interesting stats. I would guess that there are 3 buy ratings to every sell rating out there. That's not an exact stat, though the real # could be found. The point is that there is a generally POSITIVE bias among analysts. Is that human nature? Is it something else? Could it be that the analyst has a relationship with the CEO of the company being covered? Could it be something else? Sure.

It's not a perfect system. In fact, it's far from it. I actually watched Shufflemaster (SHFL) get downgraded several times en route to a 100% gain in a 1 year period.

Not all analysts are equal, either. So, I always like to tell people to perform their own due diligence. Sure, an analyst might be able to do a better job than you. But then again, maybe not. Perhaps an analyst is upgrading a stock based on "valuation" in the midst of a bear market. What's the likelihood that the stock price will increase in the midst of such a market? Is it worth buying at that point?

Wednesday, September 07, 2005

Checkin' in

I'm going to try to make a better habit of writing something every day, no matter how small. Yesterday's rally was interesting, since it was very, very broad. It could have simply been from the oversold condition combined with the fact that most traders are back - off of vacation.

But, most "leading" stocks were up big. Apple Computer, AAPL was up 2.5 points, Assett Acceptance Corp, AACC, was up 1.68, DR Horton, DHI was up 1.46.

Is this a new rally? I'm not sure. Investor's Business Daily is calling it a rally. I'm not so sure, because I think even if it is that it will be somewhat short lived.

The good news is that by following proper money management, it doesn't matter.