Thursday, January 31, 2013

Johnson & Johnson (JNJ) 2013 Review

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.


(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

                 Stock      Dividend         Payout      # Increases  
                 Yield      Growth Rate     Ratio       Since 2003

JNJ           3.5%           7%                46%              10
Ind Ave     1.8              9*                 30                NA 

                Debt/                       EPS Down       Net        Value Line
               Equity         ROE      Since 2003      Margin       Rating

JNJ           15%            23%            0                21%           A++
Ind Ave     19               14             NA                9             NA

*most companies in JNJ industry do not pay dividends


            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 Buy Value Range is $58; the lower boundary of its Sell Half Range is $78.


The latest from Byron Wien (Blackrock)

Jeremy Siegel for the optimists

Morning Journal--More on immigration


   This Week’s Data

            The ADP private payroll report was up 7,000 versus expectations of down 13,000.

            Weekly jobless claims rose 38,000 versus estimates of a 20,000 increase.

            December personal income jumped 2.6% versus forecasts of up 0.7%; personal spending was up 0.2% versus expectations of up 0.3%.

            December German retail sales plunged 4.7%.



More thoughts on immigration (medium):

  International War Against Radical Islam

            The Middle East is starting to heat up again (medium):

The Morning Call--Some good news in the GDP report

The Morning Call


The Market

            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.

            Still more on the January effect (short):



            Economics dominated yesterday’s news cycle:

(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.
                        The latest from Ken Rogoff (medium):

                        More analysis of the GDP number (medium):

                        And (medium):

                        And (medium):

(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.

                        More on the developing currency war (medium):

                        And today’s must read on the folly on our global central banks (medium):

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):

            The latest on Italy’s banking problem (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.

Wednesday, January 30, 2013

Investing for Survival

Investing for Survival

        6 Reasons Why Teaching English is For You

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

Art Cashin: why the GDP # didn't sink stocks

Another entertaining Liesman/Santelli faceoff

The latest from Marc Faber

Morning Journal--Thoughts on the new immigration proposal

News on Stocks in Our Portfolios
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.


   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 index  rose 0.6% versus expectations of a 0.7% increase.

                The Conference Board’s January index of consumer confidence came in at 58.6 versus estimates of 65.1.

                        Weekly mortgage applications fell 8.1% while purchase applications dropped 2.0%.

                        The initial fourth quarter GDP report came in at -0.6% versus consensus of +1.0%.


            The latest from Nouriel Roubini (medium):

            The latest facts bout rising US energy independence (medium):

                For those interested, this a long and detailed look at how the Libor scandal unfolded:

                Update on student loans (medium):



Mickey Kaus, my favorite liberal, dissects the latest immigration proposal (medium):

And Powerline looks at it from a more conservative point of view (short):

Statesmanship is so much harder than banalities (medium):

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):

            More crony capitalism (short):


            It does make a difference, Hillary (medium):

            Ditto (medium):
            The growing demographic problem in China (short/medium):

The Morning Call & Subscriber Alert

The Morning Call


The Market

            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.

            Margin debt up; short interest down (short):


            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.

            The latest from Doug Kass (medium):

            The fear and greed index (short):

            Update on the trials and tribulations of Monte del Paschi (Italian bank) financial problems (medium):

     Subscriber Alert

            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.

Tuesday, January 29, 2013

Conoco Phillips (COP) 2013 Review

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.


(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


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 Buy Value Range is $30; the lower boundary of its Sell Half Range is $67.