Category: Articles

The Wall St. Journal reports this morning that Coke (KO) and Cargill are trying to get FDA approval for a new sweetner called Reninia. It comes from an herb called Stevia which is native to Paraguay. The duo currently face stiff opposition to it’s as neither the European Union or the FDA have approved it and that process would most likely take several years. According to The Journal, a potentially damaging “1985 peer-reviewed study on rats published in Proceedings of the National Academy of Sciences concluded the herb could cause mutations in the liver. Some European food-safety officials have cited concerns about a lack of data on the herb’s safety, amid indications it could lead to fertility problems in men.

Cargill, who admittedly has already spent “significant amounts” of money on the project is hoping the herb will “shake up” the sweetener market. Word is that coke has no plans to tamper with it’s “Coke Classic” formula, learning from it’s 1980’s fiasco so I am left wondering if this will ever be more than just another aspertane, sucralose, saccharin niche product. Folks are very particular about their beverages and will resists any change so I am highly skeptical that it will replace or make a dent in HFCS demand anytime soon.

Perhaps the most immediate reason to be concerned about the product? The herb has become fashionable in Hollywood. On her blog, actress Mariel Hemingway has posted a recipe for a morning shake that recommends mixing in stevia for added sweetness. Correct me if I am wrong, but isn’t this the same actress that suffers (or suffered) from bulimia, anorexia, and depression? So, I am supposed to put anything she recommends into my body?

This stuff looks like it will make folks long for the days when their soft drink just made them fat.

In March I wrote a post about AIG (AIG) and that it’s profit picture was not a rosy as it looked due to some questionable tactics. Now a report comes that they are being forced to return “excess profits” to the state of Massachusetts. HMMMMMM.

AIG, who carried the workers compensation for the “Big Dig” in Boston, recently reached a settlement with AG Martha Coakley in which they agreed to return almost $60 million in “excess profits” and interest to the state. In the original agreement with the state, AIG was guaranteed a limit on it’s potential losses due to the “high-risk” nature of the work and in return, was required to return and excess funds to the state. The AG’s office that AIG never returned these funds to the state. According to AIG, the funds were recently paid.

For those interested in the Lead Paint trials, the City of Milwaukee’s suit against NL Industries (NL) has begun. For the single best day to day converage, there is only one place for you to go…

Visit Jane Genova’s blog Law and More. Jane live-blogged the RI Trial and will present us with the most accurate depiction of events in Milwaukee. I highly advise those interested check out her blog daily.

Here are the Top 10 percentage dividend increases last week

Lowe’s (LOW) = 60%
LMP Capital (SCD) = 40%
Clorox (CLX) = 29%
Monroe Muffler (MNRO) = 28.6%
ARK Restaurants (ARKR)= 25.7%
Omnicom (OMC) = 20%
Assurant (AIZ) = 20%
TansAtlantic Holding (TRH) = 18.5%
SEI Investments (SEIC) = 16.7%
Abington Bancorp (ABBC) = 16.7%

This past holiday weekend I was talking to my 4 year olds and they said that they wanted to get another bird feeder for the house. I asked them where they wanted to go and they both said “Lowe’s (LOW)”. Hmmmmm. “What about going to Home Depot (HD)?”, I asked. They replied that they did not want to go to Home Depot, they wanted to go to Lowe’s. “Why?”, I asked. “There is more light and people help us in Lowe’s” they replied. Now, if a four year old feels this way, I am going to guess millions of other folks out there do also.

This comes off news that Lowe’s recently increased it’s market share in 17 of 19 business categories last quarter. They also announced that they are increasing their dividend 60% and, here is a big one, adding $3 billion to their share buyback program. Last quarter Lowe’s repurchased $650 million of shares and could buy more. This is a company that produces over $2.1 billion from operations each quarter and after all it’s capital expenditures, share repurchases, debt reduction, still had a cool $250 million left to add to it’s piggy bank.

The new buyback announcement means they have a total of $3.8 billion worth of stock they are authorized to repurchase. At today’s prices that will take about 119 million shares of the 1.5 billion total or over 7% of off the market. That is a significant amount. The real beauty of this is that is can easily be done over the next year and a half with very little impact on operations or by adding any additional debt.

The dividend. At it’s new level, Lowe’s will yield about 1%. This is poor when you compare it to the over 2% yield from Home Depot. Lowe’s will spend about $450 million over the next 12 months on dividends (depending on the rate of the share buyback) at the new rate and while significantly higher than the $87 million it doled out in 2004, more is needed.

Now, the buyback will help and let’s look at why. Let’s assume for a minute that Lowe’s does not increase the dividend and keeps it at it’s 20 cent annual level. Currently that means they will return $300 million to shareholders at the current 1.5 billion shares outstanding. After the buyback, there will be about 1.38 billion. This means that all thing being equal, Lowe’s would only need to spend $276 million to keep the dividend at its’ current rate. It also means that at the new rate (32 cent a share) they will be spending $441 million vs the $480 million they would have spent without the share buyback. So buybacks help both us shareholders, buy allowing more of a companies profits to be available to us (higher EPS) and allow the company to increase the dividend without a direct dollar for dollar impact. A win -win.

The only thing stopping me from buying share now is the anemic dividend. In a rather mature industry, I would like to see more of a commitment to shareholders here. Lowe’s is kind of a “tweener” in this respect. It is not really a growth company anymore and it does not yield much for potential investors. But, were shares to get hit and dive under $30, they would be very tempting for me. Very tempting

From the site.

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Until now, customized market analysis has been available only at the institutional level — and at enormous costs. Bespoke has altered the landscape for customized research by allowing anyone — from large institutions to the most modest investor — to receive the specific in-depth analysis they need in a cost efficient and timely manner.Bespoke Investment Group, LLC applies this same “tailored” concept to financial research with MyBespoke.”

I have been receiving the daily emails from Bespoke for a few weeks now and they are good. I like the “Morning Lineup” email. It gives a very concise and informative capsule of the upcoming day and arrives about 8:30 am est. Now, eventually they will begin to charge for this service so the “value” of it will then be determined. I have no idea of any potential pricing so I will not even attempt a guess.

You can go the the site and request a “Sample” and they will email it to you in a pdf format. I suggest you do it as the information is detailed and different that the normal research out there. I specifically enjoy the work they do on sectors and the overall markets and the economy. It is “big picture” items and worth the look.

Since Owens Corning (OC) emerged from bankruptcy last October, there have been 19 transactions from corporate officers of shares and all 19 of them have been buys. As Peter Lynch famously said “There are a multitude of reasons insiders sell stock, there is only one reason they buy, they think the price is going up.”

Corporate officers spent $1.9 million of their own funds to pick up over 68,000 shares. The big fish was 10% owner Harbigner Capital Partners, who bought $35 million worth for 1.04 million shares.

Officers:(rounded)

Chairman Mike Thaman- $505,000
CEO David Brown- $505,000
DIR. James McMonagle- $160,000
VP Dean Roy- $65,000
VP Charles Dana- $74,000
VP Brian Chambers $74,000
DIR. Ralph Hake- $93,000
VP Sheree Bargabos- $99,000
VP Joseph High- $50,000
VP David Johns- $74,000
VP Stephen Krull- $74,000
VP Frank OBrien- $50,000
VP Charles Stien- $50,000

I have been recommending Owens since January and am up over 20% so far. It would seem like my enthusiasm is shared by those with the most intimate knowledge of its operations and prospects, management.

Similar to George Soros’s recent purchase of ADM shares seeing folks purchasing a stock you have been invested in does reassure you of your picks and when you are in the stock well before their purchases and at much lower prices, it does bode very well for the future of your investment.

On May 22nd. Sherwin Williams (SHW) held an investor conference at the company’s headquarters.

Lead Paint was the first topic: Inside Council Dale Normington addressed the gathering after CEO Chris Connor stated, “While Rhode Island has been a little bit of a hiccup, we think there is a light at the end of the tunnel”

Mr. Normington:

Rhode Island:
“It would seem inappropriate to say, but I do take great pleasure in announcing that after almost 8 years we finally get this out of the hands of the judge who was handling this in Rhode Island and to the Supreme Court. There is no question the court will hear our appeal and that will happen in the next year.” (8 to 10 months)

The appeal will be five parts running concurrently:
1- Contingent fee
2- State is appealing win Arco got
3- state will appeal contempt citation against RI AG
4- Appeal of legal issues by Sherwin
5- Appeal of trial issues by Sherwin

“For those who saw the trial and seen the judge’s opinions”, according to Normington there are a “plethora of issues” both legally (market share, product identification, contingency fee, public nuisance) and from the trial (jury instructions, issues with witnesses, evidentiary rulings and opening and closing arguments and more) to address.

Issue of remedy(Special Master). “There is no plan in place and there will not be one for quite a while.” The scope of any remedy “I can assure you will be thoroughly debated”

Two full days of oral arguments are expected in Q1 of next year and he expects a decision before they adjourn in June 2008.

A “win” is a new trial or a reversal based on legal issues of allowing trial to go forward to begin with.

“Sherwin Williams currently has third party action against landlords and judge has not announced when those trials will go forward”

Ohio:
“Localities heeded the siren call of Motely Rice”

Asking for a Federal Constitutional review of Trade Association (LIA) involvement being a function of free speech. Sherwin is claiming free speech activities cannot be a basis for liability.

“Ohio product liability law prohibits prosecution without product identification and there is no product identification available in lead paint cases” Meaning there is no way to identify the maker of the paint that may have poisoned children. Localities have argued this law does not apply here, Sherwin obviously feels it does. Common sense would lead one to believe it does also.

Federal judge in Ohio will review contingency fee legality. A decision is expected in 30 days.

“If Federal judge rules contingency fee illegal under federal constitutional grounds, we can argue that ruling enjoins all localities from using contingency fee council”

California:
“Judge ruled cities cannot use contingency fee council. Localities may not be able to go forward without contingency fee council”

“Cities have requested a stay pending review”. Judge will rule this week or next on stay request.

The Business:
CEO Connor: “We have lots of opportunities ahead of us”. Perhaps giving insight into future plans for Sherwin, Connor then said, “Our model transports to other regions of the world.”

Paint store expansion has been “very successful” and will continue “for the better part of the decade”.

My takeaway:
Official at Sherwin are actually relieved to be in the appellate process and seem very confident in the direction the lead pain litigation is headed. Why? I guess it may be because when all is said and done, they did nothing wrong and eventually truth and what is right always wins. It may not be easy or quick, but it happens.

The tone of the business talk was one of expansion. Whether it be through the acquisitions of more local dealers to expand the paint stores or international to open more markets, Sherwin is not sitting still. While not specifically stated, it is clear that Sherwin is intent on being the #1 paint and coatings company in the world. They plan to “aggressively pursue” expansion in China and India, markets where the current coatings landscape in very “fragmented” and ripe for consolidation. According to Connor, the companies affirmation of guidance and Q1 share buybacks should illustrate their confidence in both the results and the value of shares.

This is a very exciting time to be a Sherwin shareholder. The company is on the cusp of finally ridding itself of the lead paint albatross and is correctly looking towards the future. I think one will look back at this period of time several years from now and view it as the seminal point in which Sherwin vaulted itself from a huge regional to a huge worldwide presence.