Johnson &
Johnson is a major developer, manufacturer and marketer of health care
products. Its major divisions are: Consumer (baby care, oral care,
non-prescription drugs, wound care and skin care), Medical Devices
(electrophysiology, circulatory disease management and orthopedic joint
reconstruction) and Pharmaceuticals (contraceptives, psychiatric,
anti-infective, gastrointestinal and dermatological).Over the past ten years, the company has earned
a 20-30% return on equity while growing its earnings and dividend at an 11-13%
annual rate. While profit and dividend growth may slow somewhat short term, its
strong, well diversified product line should continue to grow rapidly longer
term as a result of:
(1)
acquisitions--the latest being [a] Cougar Biotechnology, a biotech company
developing oncology products for treating prostate cancer, breast cancer and
multiple myeloma, [b] Crucell, which will strengthen its presence in the
vaccine market, [c] Synthes which will enhance its medical device portfolio and
[d] an agreement with Gilead to develop a once daily antiretroviral HIV pill,
(2) continued
strong performance of Remicade, JNJ’s best
selling drug for the treatment of rheumatoid arthritis, Crohn’s disease and
ulcerative colitis,
(3) focus on
commercializing its late stage pharmaceutical pipeline and invest in future
growth areas (venous thromboembolism, deep vein thrombosis, atrial
fibrillation,
(4) growing
presence in the emerging markets.
Negatives:
(1) generic
sales,
(2) FDA warnings
on several drugs including Remicade,
(3) EU pricing
pressures,
(4) FDA recently
imposed manufacturing restrictions,
(5) the risk of
product recalls.
JNJ
stock offers a 3.5% dividend yield, carries a 15% debt to equity ration and is
rated A++ by Value Line.
Statistical Summary
StockDividendPayout# Increases
YieldGrowth RateRatioSince 2003
JNJ3.5%7%46%10
Ind Ave1.89*30NA
Debt/EPS DownNetValue Line
EquityROESince 2003MarginRating
JNJ15%23%021%A++
Ind Ave1914NA9NA
*most companies in JNJ
industry do not pay dividends
Chart
Note:
JNJ stock made good progress off its March
2009 low, quickly surpassing the downtrend off its September 2008 high
(straight red line) and eventually the November 2008 trading high (green
line).Long term, the stock is in an
uptrend (blue lines).Intermediate term,
it is in an uptrend (purple lines).Short term, it is in an uptrend (brown line).The red wiggly line is the 50 day moving
average.The Dividend Growth Portfolio
owns a full position in JNJ.The upper boundary of its BuyValueRange
is $58; the lower boundary of its SellHalfRange
is $78.
The
indices (DJIA 13910, S&P 1501) rested again yesterday. As a result, the S&P closed back below
the upper boundary of its short term uptrend (1435-1504); while the Dow
remained above its comparable boundary (13203-13858). Both finished within their intermediate term
uptrends (13254-18254, 1400-1995).
The
good news is that the Averages did fairly well in the face of a rough headline GDP
number (see below). The bad news is that
the upper boundaries of the short term uptrends may have more power than first
appeared; hence, they may be acting as a governor on the rate of price advance.
Volume
was up slightly; breadth was poor. The
VIX rose 7%, but is still well within its intermediate term downtrend.
GLD moved up, closing
again above the lower boundary of that very short term uptrend. Although it remains within its short term
downtrend and intermediate term trading range.
I
am not buying a direct correlation, though certainly Chinese buying had an
impact on the price of gold.
Bottom
line: I remain of the opinion that the upward momentum in stock prices will
carry them to at least 14140/1576. That
said, the technical evidence continues to grow that this Market rise is getting
a bit long in the tooth. Our Portfolios
remain better Sellers.
(1)the data was a bit dismal: while the ADP
private payroll report was better than expected, mortgage and purchase
applications were disappointing and the initial fourth quarter GDP
number was a shocker.
It was the
latter that garnered most of the attention---coming in down 0.1% versus an
anticipated increase of 1.0%. However,
inside the data did not look so bad.
Housing, consumer spending and business investment spending were all
strong. The weakness came from:
[a] a draw down in inventories which is actually a long term positive {assuming
sales are strong---which they were},
[b] net exports which were down
as a result of the recent drought,
[c] lower government {defense} spending. I actually look at this as good news; after
all, I have been harping and harping on the necessity of reducing government
spending---and we got some. So, three
cheers. As important, the lower
government spending was accompanied by still healthy housing, consumer and
business investment figures---what more could we want? While it is far too early to tell, it does,
nonetheless, support the notion that cutting government spending will not
negatively impact the rest of the economy as many think and may in fact help
it.
It may also
address the fears that sequestration while reducing GDP
could also negatively affect housing, consumer spending and business investment. That this could produce the same fourth
quarter effect {lower government spending and higher private activity} may be
too much to hope for at this moment. But
I am very encouraged by this data.
But before getting too
jiggy, I need to see the impact on housing, consumption and investment of the
higher taxes implemented on January 1.
Plus God only knows what the reaction of ruling class will be to the
unexpected poor headline number. If it
gives them the excuse to skate on sequestration, then what I consider to be an
encouraging development could turn out to be a Pyrrhic victory.
(2)the Fed finished its latest FMOC meeting followed by
the release of the current Fed policy statement---which wasn’t all that
different from the prior version although it did note a pause in economic and
employment growth. Weather and other
factors were blamed. It expressed concern
about downside risks; hence the Fed expects to continue its highly
accommodative stance for some time to come.
While I am
sure that investors are tickled pink that the presses will remain in high gear,
as you suspect, I think this the bad news for the day. Talk of a $4 trillion balance sheet by the
end of 2013 is now common; and ominously, interest rates continue to inch
upward. If the bond vigilantes are
starting to re-discover their cojones
and these moves anticipate higher rates, the Fed will be totally screwed---it
will have to print even more money not only to pay for the budget deficit but
also to pay for the higher interest costs as well as covering the capital
losses [from lower bond prices] in its own balance sheet.
And this says
nothing about what happens if a real global currency war breaks out.
Bottom line: if
yesterday’s GDP report is a preview to the
results of the sequester, then I have to be a lot more optimistic about our outlook than I was
two days ago. To be clear, I am not
saying that [a] the sequester {or any other subsequent cut in spending} will
happen or [b] if it does, that the extent of any reduction will be confined
solely to government spending. I am
saying that an example exists that if [a] happens, [b] could happen. And that is more than we had.
None of this
alters the assumptions in our Models today; but now we at least have a glimmer
of hope that if the political class will just do its part to return to fiscal
sanity, then the shorter term economic consequences of that action may not be
as painful as I thought.
If only.
Spain
now fighting its own financial scandal (medium):
Steve Cook
received his education in investments from Harvard, where he earned an
MBA, New York University, where he did post graduate work in economics
and financial analysis and the CFA Institute, where he earned the
Chartered Financial Analysts designation in 1973. His 40 years of
investment experience includes institutional portfolio management at
Scudder, Stevens and Clark and Bear Stearns. Steve's goal at Strategic
Stock Investments is to help other investors build wealth and
benefit from the investing lessons he learned the hard way.
Being an English teacher has a lot of perks,
but chief among them is the amount of vacation time you'll get.
As I’m sure you know by now, you already have a skill that can easily
translate into a steady income in a foreign country…English. In fact, thousands
of people just like you have already used the fact that they speak English
fluently to become English teachers in exotic new countries. Here’s why you
should join them:
Reason Number 1: You’ll Be in Demand
In nearly every country on the planet there’s a huge number of people who
want to learn English. It’s the international language of business and commerce
and speaking it improves people’s prospects.
Here’s just one example. In nearly every city and town where
English-speaking tourists go, there’s a line of local merchants eager to learn
how to communicate with them. Why? Because it boosts their bottom line. Also,
in most countries, professionals like doctors, lawyers and businessmen need
English if they want to work overseas. This means people who can teach them are
at a premium.
Reason Number 2: You Can Work Anywhere in the World
Because demand is so high all over the world, you can choose your
destination country at will. Don’t enjoy working in Ecuador?
Try Thailand. Or Korea.
Or Spain.
Your options are endless.
Reason Number 3: The Crazy Vacation Time
Being an English teacher has a lot of perks but chief among them is the
amount of vacation time you’ll get. In many countries, teachers enjoy over
three months’ vacation time a year—paid.
In addition to lengthy summer vacations, there’s often a week or two here
and there around holidays like Christmas and Easter. And that doesn’t include
the long weekends for religious and national holidays.
Plus, you get to put this vacation time to good use. Imagine spending your
spring vacation on a beach in Bali, traveling across China
in summer and coming home for a couple of weeks come Christmas. Your passport
could be getting quite a workout.
Reason Number 4: An Ultra-Short Working Week
English teachers are generally contracted for about 25 hours a week and
almost always have weekends off. Working at a language institute can mean only
a few hours of work a day. If you are a morning person, you could work from 8 a.m. to noon
and have the rest of the day to relax or explore your new
city. But if nights are when you really get going, you
can teach business professionals from 5 p.m.
to 9 p.m. after they get off work.
But, for you…the entire day is yours.
Reason Number 5: You Won’t Just Earn…You Can Save
In some countries, the cost of living is so low and the pay for English
teachers is so high that you can save thousands of dollars a year. In places
like China, Korea
and the Middle East, English teachers are paid as much
as $60,000 per year. Sometimes, that even includes housing, medical insurance
and paid airfare.
Even in Latin American countries, where wages appear to be somewhat meager,
once the low cost of living is factored in, an English teacher can live very
comfortably…and even put some money in the bank every month.
Reason Number 6: You Can Do It
In short, you don’t need teaching experience to become an English
teacher. There are so many positions out there that finding work is easy. You
don’t have to speak the language of your students, either—all your lessons will
involve teaching English, through English.
And you don’t have to have some ultra-advanced level of English or a
five-star education. Institutions want you to teach their students because you
know how words should be pronounced.
So put English teacher at the top of your list of ways to earn and income
overseas. Even if you don’t need the money, teaching English is a great way to
integrate into your new culture, meet the locals and see the world
Nucor (NUE):
Q4 EPS of $0.43 beats by $0.13. Revenue of
$4.45B (-7% Y/Y) misses by $0.1B.
Illinois Tool (ITW): Q4 EPS of $0.89 misses by $0.01. Revenue of $4.22B (-2.3% Y/Y) beats by $0.07B
T. Rowe
Price (TROW): Q4 EPS of $0.88
in-line. Revenue of $787.3M misses by $12.11M.
Economics
This Week’s Data
The
International Council of Shopping Centers reported weekly sales of major
retailers down 1.0% versus the prior week but up 2.0% versus the comparable
period a year ago; Redbook Research reported month to date retail chain store
sales down 0.5% versus the similar timeframe last month but up 1.6% on a year
over year basis.
The
November Case Shiller home price indexrose 0.6% versus expectations of a 0.7% increase.
George Will is
another optimist about our future; and like Krauthammer, he postulates a
deteriorating social and economic environment will result in voter rejection of
the liberal agenda.In other words, it
may get worse before it gets better, (medium):
The
indices (DJIA 13954, S&P 1507) resumed their relentless drive to the hoop
yesterday. Both closed above the upper
boundary of their respective short term uptrends (13189-13859, 1435-1502). Clearly this resistance line carries little
weight. They also finished within their
intermediate term uptrends (13226-18226, 1398-1993).
Volume
fell; breadth improved. The VIX
declined, remaining within its intermediate term downtrend---a plus for stocks.
GLD
rose, recovering above the lower boundary of that very short term uptrend. It remains within a short term downtrend and
an intermediate term trading range.
Bottom
line: hello, 14140/1576; here we come. Can
stock prices go beyond these all time highs?
I will answer with a question, are economic conditions or the prospects
of economic conditions in the US
and/or the world better than at any other time in history? Our Portfolios will continue to lighten up
as prices rise.
Yesterday’s
economic data was neutral to slightly negative.
Weekly retail sales were mixed, consumer confidence was terrible while
the Case Shiller home price index rose less than expected. Mixed is our forecast; so nothing new here.
Of
course, investors weren’t paying attention anyway---you know, who gives a s**t
about the numbers, when stocks are soaring into the stratosphere? Indeed, the Market itself was the main
headline yesterday, as the renewed thrust to the upside brought all kinds of
pundits calling for either higher or lower prices.
As
I have repeatedly noted, I can’t get valuations higher without a significant
improvement in the outlook for economic growth; and I can’t get that without a
meaningful reduction the deficit to GDP and
the debt to GDP ratios; and I can’t get that
without a substantial decline in government spending (a more responsible
monetary policy would also help). To be
sure, spending cuts are clearly possible.
The question is, are they probable?
Was
Paul Ryan speaking the truth on Sunday (about the sequester occurring)? Could be; and if he was, then maybe we are at
the nadir of fiscal irresponsibility.
But the ruling class has much to prove before I buy it. Along those lines, Reid is already
crawfishing on the likely deficit reduction actions that would forestall the
sequester saying that there has to be more tax increases.
Further,
even if the sequester occurs (or some equivalent deficit reduction measure) and
rekindled my faith in a return to the long term secular economic growth rate of
this country, to get from here to there is going to be painful in the short
term. Reducing government spending will
initially slowdown the economy.
Bottom
line: profligate spending and currency debasement may be great in the short
term for investors; but long term, the picture isn’t pretty. On the other hand, a return to fiscal and
monetary responsibility may be the optimal long term economic strategy; but
short term, the economy can not avoid the hangover. Either way, I can’t get valuations higher
over the next 12-18 months.
In
a recent Buy Discipline review, Sysco (SYY)
financial quality score fell below the minimum level to qualify it for both the
Dividend Growth and the Aggressive Growth Universes. Hence, it is being Removed and, at the Market
open, will be Sold by the Aggressive Growth Portfolio. No shares are owned in the Dividend Growth
Portfolio. It’s score remains high
enough to be retained in the High Yield Universe and Portfolio.
Small
portions of the following technically overextended stocks are being Sold this
morning:
In
the High Yield Portfolio: Oneok Energy Ptrs (OKS)
In
the Aggressive Growth Portfolio: Oracle (ORCL)
and Donaldson (DCI).
Steve Cook
received his education in investments from Harvard, where he earned an
MBA, New York University, where he did post graduate work in economics
and financial analysis and the CFA Institute, where he earned the
Chartered Financial Analysts designation in 1973. His 40 years of
investment experience includes institutional portfolio management at
Scudder, Stevens and Clark and Bear Stearns. Steve's goal at Strategic
Stock Investments is to help other investors build wealth and
benefit from the investing lessons he learned the hard way.
Conoco Phillips one
of the world’s largest exploration and production (E&P) companies. Profits and
dividends have grown approximately 9-13% annually over the last 10 years. In the same time frame, COP
has earned between a 10-20% return on equity. The company should continue to
make progress as a result of:
(1) its exposure
to promising international regions,
(2) domestically,
its capital expenditures will focus the development of Eagle Ford Shale,
Permian, Bakken and Barnett fields,
(3) splitting
the exploration and production from the refining and marketing should unlock
value for shareholders,
(4) utilize its
strong cash flow to pay down debt, raise dividends and buy back stock.
Negatives:
(1) short term,
its production will be impacted by the shut down of its Libyan production,
(2) price
fluctuations of oil and natural gas,
(3) its
international operations are subject to political risks.
Conoco is rated
A++ by Value Line, has a 28% debt to equity ratio and its stock yields
approximately 4.6%.
Statistical Summary
Stock Dividend Payout # Increases
Yield Growth Rate Ratio
Since 2003
COP 4.6% 10% 41% 9
Ind Ave 1.0 8 12 NA
Debt/ EPS Down Net Value Line
Equity ROE Since 2003 Margin Rating
COP 28% 18% 3 13% A++
Ind Ave 44 14 NA 18 NA
Chart
Note:
COP stock made good progress off its
March
2009 low, quickly surpassing the downtrend off its June 2008 high (red
line)
and the November 2008 trading high (green line). Long
term, COP
is in an uptrend (straight blue lines).
Intermediate term, it is in an uptrend (purple lines). The
wiggly blue line is on balance
volume. The Dividend Growth and High
Yield Portfolios own full positions in COP.
The upper boundary of its BuyValueRange
is $30; the lower boundary of its SellHalfRange
is $67.
