Monthly Archives: April 2010

Dividend Achiever Watch List

Posted on April 30, 2010 by | Leave a comment
At the end of the week, our watch list contains 29 companies. Here is the watch list which ranks current and former Dividend Achievers that are within 20% of the 52-week low for April 30, 2010. Instead, they are the starting point for doing your research and determining the best company to buy.  Ideally, a stock that is purchased from this list is done after a considerable decline in the price and extensive due diligence.

Symbol Name Price % Yr Low P/E EPS Div/Shr Yield Payout Ratio
MON Monsanto Co. 63.06 1.40% 26.28 2.40 1.06 1.68% 44%
XOM Exxon Mobil Corp. 67.77 6.62% 17.03 3.98 1.68 2.48% 42%
LLY Eli Lilly and Co. 34.97 8.64% 9.01 3.88 1.96 5.60% 51%
FRS Frisch's Restaurants, Inc. 21.91 10.05% 11.07 1.98 0.52 2.37% 26%
SHEN Shenandoah Telecom 17.76 10.31% 27.75 0.64 0.32 1.80% 50%
DNB Dun & Bradstreet Corp. 76.97 11.39% 12.83 6.00 1.40 1.82% 23%
FII Federated Investors, Inc. 24.12 11.67% 12.31 1.96 0.96 3.98% 49%
T AT&T Inc. 26.06 12.38% 12.97 2.01 1.68 6.45% 84%
WMT Wal-Mart Stores, Inc. 53.64 13.28% 14.50 3.70 1.21 2.26% 33%
UHT Universal Health Realty 33.22 14.20% 21.43 1.55 2.40 7.22% 155%
FPL FPL Group, Inc. 52.05 14.93% 13.11 3.97 2.00 3.84% 50%
THFF First Financial Corp. 29.15 15.08% 16.85 1.73 0.90 3.09% 52%
FFIN First Financial Bankshares, Inc. 53.48 15.11% 20.73 2.58 1.36 2.54% 53%
CWT California Water Service 38.73 15.65% 19.86 1.95 1.19 3.07% 61%
HSC Harsco Corp. 30.96 16.00% 21.06 1.47 0.82 2.65% 56%
VIVO Meridian Bioscience Inc. 19.99 16.76% 25.30 0.79 0.76 3.80% 96%
VVC Vectren Corp. 25.01 16.92% 15.25 1.64 1.36 5.44% 83%
TMP Tompkins Financial Corp. 40.62 17.24% 13.45 3.02 1.36 3.35% 45%
WEYS Weyco Group, Inc. 24.44 17.39% 22.02 1.11 0.60 2.45% 54%
SFNC Simmons First National Corp. 28.08 17.49% 17.12 1.64 0.76 2.71% 46%
NTRS Northern Trust Corp. 54.98 17.68% 17.29 3.18 1.12 2.04% 35%
HCC HCC Insurance Holdings, Inc. 27.19 18.11% 8.74 3.11 0.54 1.99% 17%
PGN Progress Energy Inc. 39.92 18.28% 14.73 2.71 2.48 6.21% 92%
NUE Nucor Corp. 45.32 18.42% -188.83 -0.24 1.44 3.18% -600%
WTR Aqua America, Inc. 18.33 19.10% 23.81 0.77 0.58 3.16% 75%
OTTR Otter Tail Corp. 22.22 19.27% 31.30 0.71 1.19 5.36% 168%
ADM Archer-Daniels-Midland 27.94 19.50% 15.70 1.78 0.60 2.15% 34%
NWN Northwest Natural Gas Co. 47.39 19.58% 16.75 2.83 1.66 3.50% 59%
BEC Beckman Coulter, Inc. 62.40 20.77% 28.62 2.18 0.72 1.15% 33%
29 Companies


Watch List Summary

The best performing stock from last week's list was FPL Group (FPL) which rose 1.5%. The worst performing stock was Federated Investors (FII) which fell 6.9%. Overall, the Dividend Achiever watch list lost 1.8% versus the Dow which was down 1.75%.
No two ways about it, stocks got crushed. Monsanto (MON) continued to remain weak but the technical outlook turned rather positive when RSI diverge from the price. We'll have to see if this produce a short term rebound in price. Additionally, two positive notes came from Exxon (XOM) and Weyco (WEYS) which announced dividend increases.
Once again, the key to this list isn't to provide a winner but collectively, we hope that it can be a starting point for you to research these companies and hopefully provide lower volatility, margin of safety and  provide marginally higher return than the general market.
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Notable Dividend Increases

Posted on April 29, 2010 by | Leave a comment
There were two notable dividend increases today from two of the companies on our watch list. The first came from Exxon Mobil (XOM) which raised their payout amount to $0.44 compared to $0.42. An increase of 4.7%. Another company raising payout is Weyco Group (WEYS). After announcing an amazing quarter where diluted earning per share rose 54% (from $0.22 to $0.34), the board approved a 7% dividend hike. Shareholders will  receive $0.16 per share compared to $0.15 per share from prior quarter. - Art
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Sour Grapes: Pharmceutical Product Development Inc. (PPDI)

Posted on April 27, 2010 by | Leave a comment
Sometimes the only way to express your regret for missed opportunities is in the form of bitterness.  In this case the bitterness is in the form of sour grapes as described in Aesop's Fables.  Today's regrettable missed opportunity is Pharmaceutical Product Development (PPDI).  At the close, PPDI was up by 8.18% at a time when the Dow Industrials had fallen by 1.90%.
On July 23, 2009, I bought Pharmaceutical Product Development (PPDI) at $19.26.  I was at my smuggest when I sold the stock for a 9.78% gain in less than 2 weeks.  Suffice to say, had I held on to PPDI from July 2009 until today I would have a 43.5% gain on my hands.  On our February 13, 2010 Nasdaq 100 Watch List, we reiterated looking into PPDI since it had fallen within 21% of the new low.  February 16th, the first trading day after our watch list came out, happened to be in the lowest quintile for 2010 that you could have bought PPDI.  Had anyone followed up on the PPDI recommendation you would have snagged 27.7% in less than 4 months.
Oh well, at least my gain was 260% on an annualized basis as opposed to the annualized gain of 110% since February 2010.  Who needs a stock that goes up 8% when the rest of the market is cratering anyway.
-Touc
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After the Crash of 1929, Recovery was Quick

Posted on April 25, 2010 by | Leave a comment

As a stock market historian, the single best benchmark for all market analysis is the years from 1929 to 1954. This is the period when the Dow Jones Industrial Average peaked at 381.10 in 1929 and fell to the astoundingly low level of 41.20, a decrease of 89.19% in a period less than three years. 1954 was the year when the Dow Jones Industrial Average finally went above the 381.10 level and never looked back.

In my article titled "Dow-Jones' Decline Largely Impacted by Index Changes" on SeekingAlpha.com, I explained that the Industrial Average probably would have never gone as low as it did nor would it have remained below the 1929 peak for as long as it did had it not been for the frequent changes to the index which resembled a trader’s mentality rather than a “long-term” investor. In the following article, I wish to demonstrate that, the market actually recovered much faster than most people think. Additionally, if we were to experience a similar 89% decline in the stock market, we probably can expect that the subsequent recovery would come faster than we think.

Below are a list of 28 companies that reflects their respective high price of 1929 and the low price of 1932. The percentage decline in some cases mirrors what happen to the Dow-Jones Industrial Average with all of the changes to the index during the same timeframe.

As we can see, many companies were dramatically impacted by the decline from 1929 to 1932. However, what is most surprising is the time it took to achieve the break-even point. Exactly half of the companies on the list managed to break even after only eight years in 1937. This is less than the time it took for our current market to get back to the 2000 break-even point. One of the more fantastic recoveries that I’ve seen is the price of Dow Chemical, which recovered all of its losses by 1933. This required a 233% gain in less than a year after hitting bottom.

Another point that can be made for these companies is that if taken as a group (similar to a stock index) it took an average of 12 years for the index to break even. This is in stark contrast to the Dow Industrials finally closing above the 1929 peak in 1954, some 25 years later. This also splashes considerable water on the theory that it was WWII that finally got the stock market (economy) out of the “Great” Depression. The break even of the market based on my calculations explains why 1941-1943 was the beginning of a new bull market according to Dow Theory (depending on the Dow Theorist that you want to believe). That bull market indication was in force until 1966.

If this data seems suspect, then it probably is. After all, I selected the companies that fit my model. Critics could also claim that my retrospective analysis works great in theory but doesn’t hold up to the real world. Others could say that changes to the Industrial Average was necessary and meant that the prior companies didn’t reflect the qualitative standards of a premier index of the Dow. However, a careful analysis of Poor’s High and Low Prices for the periods from 1924 to 1940 would show that an alarmingly large number of companies, both high and low quality, achieved a break even in their respective prices long before the year 1954.

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Low Yielding Stocks Offer Exceptional Gains

Posted on April 24, 2010 by | 1 comment
As a reaction to the sting of the stock market decline from October 2007 to March 2009, there has been a mad rush by many investors to seek safety by investing in high yield stocks. The problem with investing in high yield stocks is that high yield almost literally means higher risk. This concept is especially true when an investor cannot differentiate between high and low quality stocks in general. What few investors realize is that stocks that generate “low” dividend yields tend to make up for it with above average price appreciation.
 
Unfortunately, a person who is bound and determined to get the highest yield possible is more likely to select a stock that will not stand the test of time as oppose to selecting a company that, although sporting a high yield, has a reputation of good management and a long history of dividend increases like my favorite Dividend Achievers from Mergent’s. Even more striking is the fact that low yielding, high quality, Dividend Achievers run circles around their high quality, high yielding brethren.
 
A great summary on the misguided effort of buying high yield stocks is titled “Investing in High-Yield Stocks” by Dividends4Life (D4L) at SeekingAlpha.com. In the article, the author cites data that shows the immense trade-offs when trying to obtain the highest yields available without regard to quality. D4L later goes on to name some of the very best high quality, high yielding stocks that are part of the Dividend Achiever index of stocks.
 
In an effort to demonstrate the power and conviction of the idea that high quality, low yielding stocks make up for what they lack in yield, I have compiled a list of current and former Dividend Achievers with dividend yields below 3% that have appreciated in value by at least 60%. This list does not include financial (banks, brokerage, and insurance) companies since most, if not all, increased in proportion to their exaggerated declines. Also, this list of stocks excludes non-financial companies that have increased in value more than 30% to 59%. Having so many companies on the list would only overstate the obvious.
 
Symbol
 Name Price Yield % Up
XEC Cimarex Energy Co $64.42 0.50% 157.06%
HP Helmerich & Payne, Inc. $42.76 0.50% 60.51%
GCI Gannett Co., Inc. $18.28 0.90% 509.33%
HOG Harley-Davidson, Inc. $35.22 1.10% 134.96%
NDSN Nordson Corp $75.58 1.10% 120.80%
ROST Ross Stores, Inc. $58.40 1.10% 68.11%
HRC Hill-Rom Holdings Inc $31.55 1.30% 177.97%
SCL Stepan Co $74.79 1.30% 113.44%
TJX TJX Co, Inc. $47.69 1.30% 79.15%
TDS Tel and Data Systems, Inc $35.42 1.30% 60.93%
WWW Wolverine World Wide, Inc. $31.50 1.40% 75.00%
FO Fortune Brands, Inc. $53.73 1.40% 70.14%
FELE Franklin Electric Co., Inc. $35.40 1.40% 64.65%
JWN Nordstrom, Inc. $45.34 1.50% 149.81%
JCI Johnson Controls, Inc. $35.01 1.50% 100.98%
FAST Fastenal Co $55.71 1.50% 90.46%
AOS A.O. Smith Corp $52.87 1.50% 88.62%
PH Parker-Hannifin Corp $70.44 1.50% 78.19%
TNC Tennant Co $34.86 1.60% 147.76%
CSL Carlisle Companies $40.75 1.60% 100.54%
MAS Masco Corp $18.10 1.70% 122.09%
SWWC Southwest Water $10.55 1.90% 144.21%
BGG Briggs & Stratton Corp $22.57 2.00% 75.10%
SWK Stanley Black & Decker $63.00 2.10% 101.92%
BRC Brady Corp $33.29 2.10% 79.46%
TFX Teleflex Inc $64.46 2.10% 65.41%
PNR Pentair, Inc $37.85 2.10% 63.15%
AVY Avery Dennison Corp $38.57 2.10% 62.40%
HHS Harte-Hanks, Inc. $13.88 2.20% 112.88%
DOV Dover Corp $50.25 2.20% 70.05%
SJM J.M. Smucker Co $63.01 2.20% 67.71%
GD General Dynamics Corp $78.21 2.20% 64.27%
UTX United Technologies Corp $76.43 2.30% 65.22%
NC NACCO Industries, Inc. $86.59 2.40% 219.64%
FSS Federal Signal Corp $10.01 2.40% 84.35%
ITW Illinois Tool Works Inc. $52.35 2.40% 66.30%
CAT Caterpillar, Inc. $67.51 2.50% 124.96%
MDP Meredith Corp $37.01 2.50% 93.16%
ACO Amcol Intl $30.60 2.50% 89.47%
NFG National Fuel Gas Co $53.10 2.50% 73.76%
MMM 3M Co $86.05 2.50% 64.82%
EMR Emerson Electric Co $52.59 2.60% 73.34%
PII Polaris Industries Inc. $63.99 2.70% 141.11%
HD Home Depot, Inc. $35.72 2.70% 60.40%
KWR Quaker Chemical Corp $32.54 2.90% 211.98%
LYTS LSI Industries Inc. $6.89 2.90% 66.02%
VFC V.F. Corp Co. $86.84 2.90% 63.02%

 

The average performance of the above 47 low yielding stocks exceeded the 1-year gain (April 23, 2009 to April 23, 2010) in the Dow Industrials by 64%, the Nasdaq Composite by 53% and the S&P 500 Composite by 75%. Although all of the stocks on this list had much higher dividend yields one year ago, they certainly weren’t the “must have” high yield stocks that everyone was clamoring for.

It should be noted that there is a distinct difference between a high yield and a high paying out of company earnings to meet the quarterly dividend payments (also known as payout ratio.) A high dividend yield is derived from the amount of the dividend payment in relation to the current market price of the stock. If a stock is selling for $10 and earnings are $12 per share with the dividend payment at $2, then the dividend yield is 20% and the payout ratio is 16%. However, if the same company with the same dividend payment has earnings per share of $2.05, then the yield is still 20% but the payout ratio is 98%. Although a 20% dividend yield is extremely high, it is unclear how sustainable the dividend is, especially with earnings at $12 per share. However, with a payout ratio of 98%, the likelihood of the dividend being cut is almost guaranteed. It is just a matter of time.
 

Please note that the New Low Observer team does not endorse the purchase of the 47 companies mentioned above. Our strongest conviction lies in the selected companies that are on our Dividend Achiever Watch List for the week ending on April 23, 2010. 

Investing Notes:
  • Avoid stocks with high payout ratios
  • Don’t ignore low yielding, high quality stocks
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Nasdaq 100 Watch List

Posted on April 24, 2010 by | Leave a comment

Below are the Nasdaq 100 companies that are within 21% of the 52-week low.

Symbol Name Price P/E EPS Yield P/B % from Low
GILD Gilead Sciences 41.67 14.77 2.82 0 5.74 4.44%
QCOM QUALCOMM 38.25 30.7 1.25 1.90% 3.08 7.87%
GENZ Genzyme Corporation 53.93 35 1.54 0 1.85 14.53%
ATVI Activision Blizzard 11.6 136.47 0.09 1.30% 1.35 16.82%
RYAAY Ryanair Holdings 29.19 N/A - 0 0 17.61%
APOL Apollo Group, Inc. 63.53 15.89 4 0 7.34 20.34%

This list is strictly for the purpose of researching whether or not the companies have viable business models or are about to go out of business. These companies are deemed highly speculative unless otherwise noted.

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Posted in apol, atvi, GENZ, GILD, qcom, ryaay

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Dividend Achiever Watch List

Posted on April 23, 2010 by | Leave a comment
At the end of the week, our watch list contains 21 companies. Here is the watch list which ranks current and former Dividend Achievers that are within 20% of the 52-week low for April 23, 2010. Instead, they are the starting point for doing your research and determining the best company to buy.  Ideally, a stock that is purchased from this list is done after a considerable decline in the price and extensive due diligence.

Symbol Name Price % Yr Low P/E EPS Div/Shr Yield Payout Ratio
MON Monsanto Co. 65.66 3.00% 27.36 2.40 1.06 1.61% 44%
XOM Exxon Mobil Corp. 69.24 8.94% 17.40 3.98 1.68 2.43% 42%
LLY Eli Lilly and Co. 35.46 10.71% 9.00 3.94 1.96 5.53% 50%
SHEN Shenandoah Telecom 18.00 11.80% 28.13 0.64 0.32 1.78% 50%
T AT&T Inc. 26.25 13.20% 12.38 2.12 1.68 6.40% 79%
FPL FPL Group, Inc. 51.30 13.27% 12.92 3.97 2.00 3.90% 50%
FRS Frisch's Restaurants, Inc. 22.70 14.01% 11.46 1.98 0.52 2.29% 26%
DNB Dun & Bradstreet Corp. 78.82 14.07% 13.14 6.00 1.40 1.78% 23%
WMT Wal-Mart Stores, Inc. 54.53 15.16% 14.74 3.70 1.21 2.22% 33%
CWT California Water Service 38.90 16.15% 19.95 1.95 1.19 3.06% 61%
TMP Tompkins Financial Corp. 40.44 16.73% 13.66 2.96 1.36 3.36% 46%
UHT Universal Health Realty 34.25 17.74% 21.96 1.56 2.40 7.01% 154%
FFIN First Financial Bankshares 54.82 17.99% 21.25 2.58 1.36 2.48% 53%
PGN Progress Energy Inc. 39.59 18.18% 14.61 2.71 2.48 6.26% 92%
THFF First Financial Corp. 30.14 18.99% 17.42 1.73 0.90 2.99% 52%
HCC HCC Insurance Holdings 27.43 19.16% 8.82 3.11 0.54 1.97% 17%
WEYS Weyco Group, Inc. 24.94 19.79% 22.47 1.11 0.60 2.41% 54%
FII Federated Investors, Inc. 25.90 19.91% 13.49 1.92 0.96 3.71% 50%
WTR Aqua America, Inc. 18.47 20.01% 23.99 0.77 0.58 3.14% 75%
SFNC Simmons First National 28.74 20.25% 17.52 1.64 0.76 2.64% 46%
NTRS Northern Trust Corp. 56.31 20.53% 17.82 3.16 1.12 1.99% 35%
21 Companies


Watch List Summary

The best performing stock from last week's list was Brown & Brown (BRO) which rose 7.7%. The worst performing stock was Eli Lilly (LLY) which fell 3%. Overall, the Dividend Achiever watch list gained 2.8% versus the Dow which was up 1.7%.
I revisited our watch list again from three months ago (January 22, 2010) to see what result these companies produced. The average gain for the list was 11.5% compared to the Dow's gain of 7.8%. The three biggest gainers were Republic Bancorp (RBCAA), Family Dollar (FDO), and Hershey (HSY). All rose more than 30%. The worse and only non-performer was Monsanto (MON) which fell 15% and remains on our list.

The key to this list isn't to provide a winner but collectively, we hope that it can be a starting point for you to research these companies and hopefully provide lower volatility, margin of safety and  provide marginally higher return than the general market.
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Sell Weyco Group (WEYS) at the Market

Posted on April 22, 2010 by | Leave a comment
It is now time to recommend that Weyco Group (WEYS) be sold at the market. The stock has performed moderately since the investment observation was issued on July 6, 2009. Based on the Research Recommendation that was given, the price we quoted was within 7% of the lowest closing price for the last 4 years. Although Weyco Group (WEYS) seemed to have traded in a range in the last year, the stock has continuously climbed higher since our recommendation.

Although the price of WEYS has drifted higher, the pursuit of "seeking fair profits" requires that we consider alternative opportunities. The key to investment success and a key principle of economics is to seek the best alternatives.
WEYS was recommended when it was trading at $22.26. As of April 22, 2010, WEYS was quoted at $24.89. Based on the closing price of $24.89, WEYS has gained a total return (price appreciation plus 3 dividend payments) of 14.02%. The annualized return on this position would be 17.58%. Selling this stock now generates a return of 5.21x greater than the amount of the dividend yield if held for a full year. Additionally, the 14.02% gain exceeds the return on a 30-year treasury purchased on July 6, 2009 by 3.22x.
Those not interested in following through with our sell recommendation can feel comfortable knowing that WEYS is a great long-term holding with a 14.02% downside cushion since our investment observation.  An additional insight on WEYS is the fact that the stock is approaching a technical breakout on the upside.  The prospects are that the stock could revisit $27, $32 and $35. 
As we have indicated in the purposes and function of this site, our goal is to:
  • maximize the annual yield of each trade.
  • reduce time between buying and selling of each stock.
  • exceed the annual yield of government guaranteed alternatives in each trade.
Investment observations are intended to be a starting point for investigating a quality company at a reasonable price. It is hoped that after doing the background research you can buy the stock at a lower price. Ideally the stock should be held in a tax-deferred account and should not consist of less than 20% of your holdings. Personally, we prefer holding only 2-3 stocks at a time.
Sell recommendations are intended to deal with the short-term reality of the market. The tracking of the Sell recommendations are the worst case scenario if you happen to have bought a stock at the time the Investment Observation was made (please avoid making this mistake.) We aim for mediocrity in our returns, therefore we are happy with 9-12% annual gains.
It is always recommended that when selling a stock, one should not place stop orders, limit orders or orders after hours. This leaves the seller in the position of being vulnerable to the whims of the market makers. Instead, place your sell orders only as a market order during market hours. Some would complain that a market order during market hours might leave some profits on the table. However, we would rather leave some money on the table rather than have it taken away from us by the trades that are placed by institutions and market makers.

-Touc

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Qualcomm (QCOM) Dropped After Earnings

Posted on April 22, 2010 by | Leave a comment
Qualcomm (QCOM) tanked 7% today after the company announced their fiscal 2Q earning. The "reason" for the move, despite beating analyst expectations, is because of lower than estimated guidance for the upcoming quarter.
 
Let's take a look at the actual figures to see if we can make sense of this situation. Net income for 2Q10 came in at $0.59 vs. consensus of $0.56. That's 5% above consensus view. Guidance for 3Q10 is between $0.51-0.55, take the average and that is $0.53. The Wall Street expected $0.55. Given the company beat expectations by 5% and offered guidance that is 3% lower than expected ($0.53 vs. $0.55), QCOM shares fell 7%. That doesn't make sense to me.
 
In light of all this, we spoke about Qualcomm in late March 2010, which was only a month back. The action for this stock has been very volatile. With shares dropping 14% after reaffirming guidance to rising 8% after boosting forecast. Volatility, in my view, is great for value-oriented investors who are looking to acquire shares at a discount.
At the end of our March 25th posting, we said "we'd rather not chase it at this point" and we did just that, we stayed on the sideline. But now that Qualcomm is back within 20% of the 52-week low (at little less than $40), we are excited about the shares once again. Our initial model shows a good price to enter at $39 and a bargain price of $25.
 
We believe that you can start researching Qualcomm's viability as a company. With the recent announcement of a dividend increase of 12% and a $3 billion stock buyback program, we like the prospects of this company. – Art

 

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Nasdaq 100 Watch List

Posted on April 18, 2010 by | Leave a comment
Below are the Nasdaq 100 companies that are within 20% of the 52-week low. Instead, they are the starting point for doing your research and determining the best company to buy.  Ideally, a stock that is purchased from this list is done after a considerable decline in the price and extensive due diligence.

Symbol Name Price P/E EPS Yield P/B % from Low
GILD Gilead 45.7 16.19 2.82 0 6.4 10.63%
GENZ Genzyme 53.64 34.81 1.54 0 1.82 13.91%
RYAAY Ryanair 29.23 0 0 0 0 17.77%
ATVI Activision 11.79 138.71 0.09 1.30% 1.36 19.33%
SYMC Symantec 16.68 43.32 0.39 0 3.1 19.40%

This list is strictly for the purpose of researching whether or not the companies have viable business models or are about to go out of business. These companies are deemed highly speculative unless otherwise noted.

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Posted in atvi, GENZ, GILD, Nasdaq 100 Watch List, ryaay, SYMC

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Quote of the Day

Posted on April 16, 2010 by | 1 comment

The following quote is drawn from the SEC Inspector General's (IG) finding in the "alleged" $7 billion ponzi scheme committed by Allen Stanford. To add insult to injury, the report ascribes the finding to the Fort Worth, Texas office, as if there was a remote and isolated instance of disregard on the enforcement  teams part in that office.  The full report can be found in PDF format HERE.

"The OIG investigation found, however, that the Enforcement staff [of the SEC] completely disregarded the investment adviser examiners’ concerns in deciding to close the Stanford MUI, and there was no evidence that the Enforcement staff even read the investment advisers’ 1998 examination report. Notwithstanding this lack of Enforcement action, by the summer of 1998, it was clear that both the investment adviser and broker-dealer examiners 'knew that [Stanford] was a fraud.'"

SEC Office of Inspector General, "Investigation of the SEC’s Response to Concerns Regarding Robert Allen Stanford’s Alleged Ponzi Scheme," Case Number OIG-526, page 27, March 31, 2010. accessed online April 16, 2010.

The fact that the findings of this report was issued 3 hours after the charging of Goldman Sachs (GS) of fraud brings into question the legitimacy of the SEC's willingness to take these matters seriously.  To be blunt, I think the Goldman charges are a PR ploy to draw attention away from the Stanford failure.

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Posted in Goldman Sachs, GS, Inspector General, Robert Allen Stanford, SEC

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Dividend Achiever Watch List

Posted on April 16, 2010 by | Leave a comment

At the end of the week, our watch list contains 23 companies. Here is the watch list which ranks current and former Dividend Achievers that are within 20% of the 52-week low for April 16, 2010.

Symbol Name Price % Yr Low P/E EPS Div/Shr Yield Payout Ratio
MON Monsanto Co. 64.73 -0.69% 26.97 2.40 1.06 1.64% 44%
XOM Exxon Mobil Corp. 67.93 6.88% 17.08 3.98 1.68 2.47% 42%
FPL FPL Group, Inc. 48.43 6.93% 12.21 3.97 2.00 4.13% 50%
TMP Tompkins Financial Corp. 37.74 8.93% 12.75 2.96 1.36 3.60% 46%
DNB Dun & Bradstreet Corp. 76.31 10.43% 12.72 6.00 1.40 1.83% 23%
T AT&T Inc. 25.93 11.82% 12.24 2.12 1.68 6.48% 79%
FRS Frisch's Restaurants, Inc. 22.35 12.26% 9.93 2.25 0.52 2.33% 23%
FFIN First Financial Bankshares 52.61 13.24% 20.39 2.58 1.36 2.59% 53%
BRO Brown & Brown, Inc. 18.59 13.91% 17.23 1.08 0.31 1.67% 29%
LLY Eli Lilly and Co. 36.54 14.08% 9.27 3.94 1.96 5.36% 50%
THFF First Financial Corp. 28.94 14.25% 16.73 1.73 0.90 3.11% 52%
WMT Wal-Mart Stores, Inc. 54.11 14.28% 14.62 3.70 1.21 2.24% 33%
PGN Progress Energy Inc. 38.70 15.52% 14.29 2.71 2.48 6.41% 92%
CWT California Water Service 38.73 15.65% 19.86 1.95 1.19 3.07% 61%
UMBF UMB Financial Corp. 42.09 15.82% 19.13 2.20 0.74 1.76% 34%
WEYS Weyco Group, Inc. 24.14 15.95% 21.75 1.11 0.60 2.49% 54%
SFNC Simmons First National Corp. 27.79 16.28% 15.97 1.74 0.76 2.73% 44%
HCC HCC Insurance Holdings, Inc. 26.93 16.99% 8.65 3.11 0.54 2.01% 17%
WTR Aqua America, Inc. 18.08 17.48% 23.57 0.77 0.58 3.21% 76%
AROW Arrow Financial Corp. 27.33 19.18% 13.73 1.99 1.00 3.66% 50%
NWN Northwest Natural Gas Co. 47.40 19.76% 16.75 2.83 1.66 3.50% 59%
SYBT S.Y. Bancorp, Inc. 23.73 19.85% 19.94 1.19 0.68 2.87% 57%
OTTR Otter Tail Corp. 22.34 19.91% 31.46 0.71 1.19 5.33% 168%
23 Companies

Watch List Summary
The best performing stock from last week's list was Shenandoah Telecom (SHEN) which rose 4.8%. The worst performing stock, once again, was Monsanto (MON) which fell another 6% (it fell 2.8% last week). Overall, the Dividend Achiever watch list gained 0.2% versus the Dow which was flat.

I revisited our watch list from three months ago (January 15, 2010) to see what result these companies produced. The average gain for the list was 13% compared to the Dow's gain of 3%. The biggest gainer was Southwest Bancorp (OKSB) which rose 92%. The worse performer was Exxon (XOM) which fell 1.7% and remains on our list. Although OKSB appeared to be speculative because of regional banking sector, we mentioned that we will include regional banks that have payout ratios of less than 50%. OKSB's payout ratio was 16%.
The key to this list isn't to provide a winner but collectively, we hope that it can be a starting point for you to research these companies and hopefully provide lower volatility, margin of safety and  provide marginally higher return than the general market.
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Dow Theory Q & A

Posted on April 13, 2010 by | Leave a comment
Reader SD asks:
 
"If the Dow appears to hit a peak and begins dropping (Dow Theory bear market indication), is the indicated action to sell your stocks and put your investments into cash until the Coppock curve or other indicators show the market has hit a bottom?"
 
Touc's Reply:
 
There are several approaches to the use of Dow Theory when determining the best time to sell stocks. The first could be to sell all stocks when a Dow Theory bear market is signaled. The second could be to ignore the gyrations of the market and only sell a stock when it is "clearly" overvalued. The final method is the one that I use which involves changing my allocation of stocks.
 
In the first scenario, we will take the perspective of the great Dow Theorists Richard Russell on the application of Dow Theory towards the portfolio when a bear market is signaled. Upon reflection of the market declines from October 2007 to March 2009, Richard Russell said, "...Let's say you are compounding your assets (reinvesting your dividends and interest) beautifully until a full-fledged primary bear market comes along (1973-74 and again in 2008). Within a year or two your assets are cut in half, and all your compounding has gone to waste." By this commentary, Russell seems to imply that an investor should sell all of their stocks at the onset of a Dow Theory bear market indication or risk wiping out tremendous gains that might have been accrued in the process.
 
On November 12, 2007 Richard Russell call the bear market top in the weekly financial publication Barron's. According to Russell, it makes no sense to trifle with the bear market which can plumb depths unimaginable in a period of time that is far shorter than it takes to rise in a bull market. So why risk wasting the power of compounding to a bear market, especially when you "know" it is coming. In this respect, Russell says sell all of your stocks and wait until the next bull market indication to arrive.
 
The second Dow Theory approach to selling a stock is the most commonly misapplied. This approach is supposed to be grounded on the belief that market participants understand values. The misapplication that often occurs is when overvaluation is ignored and a stock isn't sold based on this fact. All Dow Theorists can point to the buying and selling of stocks as being based in the understanding of values. The claim of an understanding of values applies to stocks that are undervalued as well as overvalued. An undervalued stock should be bought while an overvalued stock should be sold, regardless of market condition. Once an undervalued stock has been purchased it could take weeks, months, or years before the stock is overvalued. A stock that has become overvalued should be sold at the earliest opportunity and is often at a new high.
 
In answer to the question of when to sell a stock based on values, the renowned Dow Theorist Robert Rhea had the following to say:
 

"Investors may ask how they can determine the point when stocks are selling far above value and probable earnings. That, indeed, is a hard question to answer because no two men appraise values on the same basis. I can only say that sometime before the peak was reached in 1929, American Telephone and Telegraph [AT&T] (T) was selling around $300 per share. It had a book value of about $128, and its best recorded earnings were in 1929 when the reported net for common was $12.67 per share. Now in 1926 the stock had sold for $151 when its book value was $126, with earnings of $11.95. With its dividend at $9.00, a comparatively small amount was carried to surplus each year. At the price first noted above, the advance in the quoted value of this stock had obviously discounted earnings for many years in the future; moreover, it was selling far above its intrinsic value."

The last method for buying and selling is one that I have combined and modified based on the methods described above which involves taking the Dow Theory signal and allocating more or less money to a given stock. During periods when there is a Dow Theory bull market indication, I invest a minimum of 25% of my capital in a single stock that is at or near a new low. After obtaining what I believe to be "fair profits," I rotate the money into the next "undervalued" Dividend Achiever or Nasdaq 100 stocks. As long as the bull market indication is in effect, I continue to overweight my stock positions in solid companies with proven track records. I'm very flexible in the amount of time that it takes to accomplish the goal of exceeding "guaranteed" money alternatives like treasuries, CDs, money market and savings accounts on an annualized basis.
 
As soon as a bear market signal is given, based on Dow Theory, I shorten the amount of time that I'm willing to wait for an undervalued stock to generate "fair profits." In addition, I cut my minimum position in an individual stock down from 25% to 12% (generally speaking). Basically, I reduce the amount of risk that I'm willing to take in a stock under conditions that might not be as favorable for gains. However, I do not sell stocks outright in anticipation of market declines based on Dow Theory bear market indications. Keep in mind that, under certain circumstances, a bull market can still be in effect after a decline of 20% to 30%. This leaves a lot of room for miscalculation if you automatically sell based on a decline of 10% or more.A review of my 2008 and 2009 transaction histories should demonstrate the value of the approach described above. Follow-up commentary regarding the 2008 transaction history is worth reading as it provides additional insight to the methods now used by the New Low Observer team. It is important to note that, although there was a bear market indication since November 2007, activity in the market did not cease.
 
Again, keep in mind that bear markets are no guarantee of losses in your portfolio. Charles H. Dow, founder of the Wall Street Journal, has said that:
 

"Even in a bear market, this method of trading will usually be found safe, although the profits taken should be less because of the liability of weak spots breaking out and checking the general rise."

I feel that the strategy that we employ is very close to what Charles H. Dow had written about in regards to buying and selling stocks in both bull and bear markets.
 
Art's Reply:
 
Even when a bull market indication is given or the Coppock Curve turned positive, we have to be rational about deploying our capital. A Dow Theory buy indication doesn't signal "all-in" or imply that we can buy stocks blindly. Some stocks performed wonderfully and some lag the market. The same can be said about bear markets.
 
Touc and I bought Altria (MO) in early December 2008 when the company yielded 8%. This transaction occurred during the bear market and took place months before the market reached a bottom. Our sell recommendation netted 13% in less than 2 months.
 
If you'd like to prepare yourself for the coming bear market, I suggest that you pick up a book by Harry Schultz, Bear Market Investing Strategies.
 
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Dow Theory

Posted on April 11, 2010 by | 2 comments
On Friday April 9, 2010, the Dow Jones Industrials and the Dow Jones Transportation Averages both moved to new highs at the same time. According to Dow Theory, this confirmation by both averages would indicate that the market has more room to go on the upside before a change of direction is to take place.
The path to this bull market confirmation (within a secular bear market) has been a battle with many casualties. The last week had many examples to demonstrate this point. On April 5th, the Industrials broke to a new closing high however the Transports did not confirm. On April 6th, the Transports broke to a new high but the Industrials did not confirm. On April 8th, the Transports broke above the high that was established on April 6th however the Industrials could not exceed the previous high of 10,973.55 set on April 5th.  April 9th finally cleared the air on the much needed confirmation of the market's trend.
The factors that are in favor of the continuation of the bull market are that the Industrials and Transports are 50% above their respective 2007 to 2009 declines. Additionally, prior declines within secular bear markets like 1906 to 1924 or 1966 to 1982 have had many retrenchments of 80% to 100% before falling back to the old lows. So far, the Industrials have recouped 58.42% of the previous decline. If the Industrials were to retrace a classic Dow Theory 2/3 of the previous decline, the index could go to 11,574.59 with no problem.
However, the tepid nature of the gains that led to the new highs along with the lackluster volume that has accompanied the move up from the March 9, 2009 low doesn’t seem to encourage confidence in the direction. More alarming is the fact that we are not near historical levels of under-valuation in the market in general. The Dow Industrials currently has a dividend yield of 2.48% when the long-term average high yield is around 6%. Also of concern is that the Dow Fair Value is at 6.92 times the dividend yield. This is contrasted with the 1.52x that is normally associated with great buying opportunities.
The former editor of the Wall Street Journal and Dow Theorist William Peter Hamilton once said, “the wish must never be allowed to father the thought.” For this reason, we will take a wait and see approach to the market going forward.  However, until proven otherwise, we are on a march back to Dow 14,164.53, which was set on October 9, 2007. In anticipation of the rise to the old market high, we have illustrated, in the chart below, three upside scenarios for the Dow Industrials.
The first projection (green line) assumes that the Industrials will continue the torrid pace set from March 9, 2009 to January 19, 2010. The likelihood of the index continuing at such a pace is not expected. However, in the book Charles H. Dow: Economist by George W. Bishop, Jr., it is noted that, according to Charles Dow, there are two stages to a bull market in stocks and that the second stage is more bullish than the first stage. This contrasts sharply with Robert Rhea and William Peter Hamilton’s assertion that there are three stages to every bull and bear market. If we are in the transition to the “second and final” stage of this bull run then it is possible for the market to continue on, and possibly exceed, the first trajectory that was previously set. The projected date that the Dow would reach 14,164.53 is November 19, 2010.
The second projection (blue line) is based on the March 9, 2009 to April 9, 2010 action on the Dow Jones Industrials. This pace seems more realistic than the first projection since it assumes a less dramatic increase in the index. To think that the market could continue moving higher as it had in the past would be quite unrealistic. Based on the current trajectory the Dow would reach the old high by January 31, 2011.
Finally, the third projection (black line) is based on the current trend being the mean and the first projection being the high end of the range. The third projection is a mirror of the first. The third trajectory would reach the old high by June 18, 2011.
Although we have a clear bull market confirmation (within the context of a secular bear market) it is necessary to determine where the downside targets should be. According to Dow’s Theory the following are the targets for a subsequent decline:
  • 9513.92
  • 8030.49

In addition to the normal downside targets, there is the prospect that if the Dow falls below the imaginary third projection level (black line), then all bets are off.  From the current Dow Theory confirmation, if the index cannot retains the level of 10,997.53 beyond July 15, 2010, then the market should have a major correction shortly thereafter.
Reaching the old high is all within the context of a normal secular bear market. The tendency is for the market to get to the old high and then quickly wipe out the notion that a new secular bull market is about to begin. This is the nature of a secular bear market.
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Nasdaq 100 Watch List

Posted on April 9, 2010 by | Leave a comment
Below are the Nasdaq 100 companies that are within 20% of the 52-week low. Instead, they are the starting point for doing your research and determining the best company to buy.  Ideally, a stock that is purchased from this list is done after a considerable decline in the price and extensive due diligence.

Symbol Name Trade P/E EPS (ttm) Yield P/B % from Low
GILD Gilead 45.7975 16.2 2.822 0 6.48 10.86%
GENZ Genzyme 52.8 34.3 1.54 0 1.81 12.13%
SRCL Stericycle 54.58 27 2.03 0 5.44 18.76%
QCOM QUALCOMM 42.17 33.8 1.25 1.60% 3.32 18.92%
APOL Apollo Group 63.14 15.8 4 0 7.13 19.61%
RYAAY Ryanair 29.75 N/A - 0 N/A 19.86%
This list is strictly for the purpose of researching whether or not the companies have viable business models or are about to go out of business. These companies are deemed highly speculative unless otherwise noted.
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Posted in apol, GENZ, GILD, qcom, ryaay, SRCL

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