Categories
Articles

Blogging From The Ohio Supreme Court

Jane Genova, who has done the most extensive and detailed reporting on the Lead Paint Litigation in Rhode Island, now moves her “live-blogging” talents to Ohio. She will be there next week blogging to us from inside the Ohio Supreme Court. I recommend all Lead Paint watchers check her blog for the updates as they will be coming fast and furious. What follows below is from her site “Law and More”:

“Tuesday, May 1st, is a double-header at the Ohio Supreme Court. First up, at 9:00 AM is the hearing on Governor Ted Strickland’s veto of Substitute Senate Bill 117 which we had thought had become a law when the former Governor Bob Taft didn’t veto it. The grapevine expects SRO since it’s expected that OH Attorney General Marc Dann is presenting the oral argument on behalf of Secretary of State Jennifer Brunner. She’s the one on the hot seat for taking the bill back and delivering it to the new Governor to veto.

Private counsel representing those who brought this appeal – OH Senate President Harris and OH House Speaker Husted – is Vorys, Sater, Seymour and Pease.

Next up is Arbino v Johnson & Johnson. That hearing is also important because it will test the constitutionality of OH’s tort reforms contained in comprehensive tort reform legislation – SB 80. I have calls out to those in the loop for interviews about that.

The court has wireless so the odds are good I will be live-blogging. I submitted a written request to the court. Incidentally, we bloggers don’t need press credentials to cover court hearings.

Those of you who can’t attend may tune in from a computer with broadband access.

Link to Ohio Supreme Court: http://www.sconet.state.oh.us/default_highres.asp

Link to Ohio Supreme Court Video: http://www.ohiochannel.org/

Categories
Articles

ValuePlays Most Read Posts for April

5 Most Read Posts for April:

1- Altria (MO): Spin Q&A
2- Coal (BTU): There’s Green In It
3- Sears Holdings (SHLD) Securitizes Main Brands
4- Altria (MO): Spin Day And It’s Effect
5- Sherwin-Williams (SHW): No Lead Threat

Site traffic surged again this past month as subscribers rose 30% and daily traffic jumped 98% with 76% being new folks. Keep forwarding the daily email to family and friends and encourage them to sign up themselves, the more of us there are the better for all. Post’s that were picked up in The Street.com and Forbes really helped drive viewers.

  • I have added an email link on the main page. Feel free to email me thoughts and ideas for stocks or general investing. I do not always get a chance to review the comments on a post and if you are commenting on something that was posted days ago, chances are I may not get to it. Enhanced Features Subscribers always get top priority but I will try to get to all of you. As the numbers of site visitors grow each day the delay here may become longer. Do yourself a favor, just buy the subscription for $6.99 a month and guarantee a fast reply. Think of it this way, if you had bought just 10 shares of each stock I recommended when I recommended it, you would have paid for 41 months of the subscription already. It really is a no brainer.
  • Criticism and /or complaints are welcome also just, keep them constructive. I can promise insulting or otherwise inappropriate emails to me or other “commenter’s” will be deleted immediately and the email address blocked. If you are so inclined to send one, make it a good one because it will be the last.
  • I am always looking for way to better the site and frequent visitors at times have noticed some odd things as I learn programing code “on the fly” as they say. Feel free to email any ideas to me. I cannot promise I will act on them but they will be considered. Any legitimate suggestion to better your experience on the site will get serious consideration.
  • Stock or investing ideas are welcome and may be used in a future post. For your privacy, your email address will not (unless you want it to be).

158,304

Categories
Articles

Notes From The Altria Shareholder Meeting


I have had quite a few posts on MO recently and this is a product of both earnings season and investor meetings, not a myopic focus on one stock. There were a couple of very important items discussed and disclosed at the annual meeting today. Here they are with opinion.

CEO Camilleri: “Over the next several months, we will continue to carefully and diligently examine the benefits of a spin-off of Philip Morris International (PMI) and other possible value-enhancing options to decide the optimal long-term strategic course to follow.”

Before the Kraft (KFT) spin there was no mention in any earnings report or announcement of the possibility of a spin. The very fact that Camilleri is even discussing it all but assures the spin shareholders want. It was also discussed on the earnings call last Thursday. It needs to be pointed out here that PMI is set up to run as an independent company so the actual spin will only be a paper transaction, not a logistical one.

Shareholder Returns

  • Our total shareholder return was 19.9% in 2006, assuming dividend reinvestment, outperforming the Standard & Poor’s (S&P) 500 Index for the fifth consecutive year.
  • Over the past five years, our total shareholder return has been an outstanding 142.6%, significantly ahead of the five-year total return for the S&P 500 Index at 35%.

New Products For PM USA Growth:

To enhance its growth profile, PM USA embarked on an adjacency strategy. It took the first step toward this goal in 2006 with the test market launch of Taboka, a smoke-free, spit-free tobacco product that provides a new way for adult smokers to enjoy tobacco in a pouch. PM USA has learned much from this test. While I cannot share our findings for obvious competitive reasons, I can state with confidence that these learnings will be translated into further action, and that a number of initiatives will be announced as the year unfolds.

Much has been said about the possibility of MO buying UST for the smokeless business. It will not happen. Why? Smokers are quite possibly the most brand loyal folks out there, chew users, not so much (I speak from experience, used to be one). What does MO have? The #1 brand of cigarettes with over 50% market share. If they introduce a new product, it will be accepted much like the instant acceptance a new Budweiser product gets by beer drinkers. It will receive a trial by chew users who will be inclined to like it as it will be perceived as being a quality product. They will have no problems abandoning their current product to try the new Altria one. The cost/benefit of a self-produced product vs. an acquired product is huge for us shareholders as it leaves billions to be returned to us.

Working With The FDA:
PM USA continues to be the only major cigarette manufacturer supporting regulation of the tobacco industry by the U.S. Food and Drug Administration (FDA). This February, legislation was introduced in the U.S. Congress that would grant the FDA comprehensive regulatory authority over all tobacco products sold in the United States. We believe that this proposed legislation offers the prospect of effectively reducing harm and providing real solutions to the many complex issues involving tobacco.

Altria and Philip Morris USA (PM USA) believe regulation of tobacco products by the Food and Drug Administration (FDA) would establish a comprehensive national tobacco policy that could potentially create a competitive framework within which manufacturers are focused on reducing the harm tobacco use causes. The companies believe regulation would also bring predictability and clear standards to the tobacco industry in the United States.

On February 15, 2007, Senators Edward Kennedy (D-MA) and John Cornyn (R-TX) and Representatives Henry Waxman (D-CA) and Tom Davis (R-VA) introduced legislation to grant the FDA broad authority to regulate tobacco products. Altria and PM USA strongly support this bipartisan legislation and urge Congress to take quick action on the Kennedy/Cornyn and Waxman/ Davis FDA bills.

The legislation, known as the Family Smoking Prevention and Tobacco Control Act establishes a regulatory structure and standards for the manufacturing and marketing of all tobacco products that will provide its greatest benefits to tobacco consumers. Key legislative provisions include:
  • Regulation of nicotine. The FDA would have authority to reduce nicotine yields and to reduce or eliminate harmful smoke constituents or harmful components of tobacco products;
  • Authority for the FDA to regulate descriptors such as “light” and “low tar”;
  • Changing the language of the current cigarette and smokeless tobacco product health warnings, enlarging their size and granting FDA authority to require new warnings in the future;
  • Full disclosure of ingredients added to tobacco products;
  • Authority for the FDA to require ingredient testing and to remove harmful ingredients;
  • Authority for the FDA to do more to prevent minors from using tobacco products;
  • Authority to establish standards for products that could potentially reduce the harm caused by tobacco products and to define the appropriate ways to communicate about these products; and
  • A ban on the sale of candy and fruit-flavored cigarettes.
Why would Altria be the only tobacco company that supports this? Easy answer. Because what this legislation will do is standardize cigarettes. Nicotine levels and other factors will be regulated, diminishing the differences between brands. When your brand is number one in a brand loyal market, eliminating the competitions ability to make their products substantially different than yours has the effect of negating them. Since cigarette companies cannot advertise their products, other companies will not be able to give tobacco users a reason to try something else. Essentially the brands people smoke will remain that way and when you have over 50% of the market, that is just fine. This is the reason other tobacco companies oppose this legislation. On another note, by letting the FDA control such wide ranging rules, Altria is taking a huge step at eliminating future liability threats. Every action they take will be approved by the Federal government and will remove liability that may stem from those actions. Brilliant. Much like the 1998 Master Settlement that made state governments defacto tobacco bond holders and slaves to the revenues they profess to want to reduce, this legislation will further cement Altria’s dominance of this highly profitable industry.

The Best Part
Camilleri: “Our ability to generate cash flow remains undiminished. Over the four-year period from 2006 through 2009, we project that cash flow will reach a cumulative level of some $41 billion. We plan to continue using our strong cash flow to reward you, our shareholders.”

This statement makes we want to go buy more shares. $41 billion dollars in the hands of one of the most shareholder friendly companies around makes me giddy. Without using any debt, MO could in theory by back almost 30% of the outstanding shares or, they could almost triple the annual dividend. They won’t go to those extremes of course but I point it out to illustrate the dramatic possibilities for shareholders of the amount of cash they will produce.

This stuff is really fun folks…..

Categories
Articles

Dow Chemical 10am Earnings Call Highlights

  • Repurchased 9.3 million shares at a cost of over $400 million to complete 2005 program
  • 2006 share repurchase program triggered ($2 billion program)
  • Outstanding shares are being reduced and the new $2 billion program should be completed by middle of next year (approx. 45 million shares)
  • The “death of polyethylene” has been greatly exaggerated with demand only slowing in N. America
  • Liveris “2007 will change the earnings profile of the company from a commodity company”
  • Liveris “A big bang deal is not necessary to achieve this”
  • Debt is not being used for “assets light” expansion
  • High feedstock cost assets in N. America that were initially built to export, are being shut and moved to oversees to inexpensive feedstock geographic areas (Libya, Saudi Arabia, India, Russia, Asia) reducing costs.
  • Liveris on acquisitions when asked about GE Global “Nothing is off the table as long as it provides the correct integration” and “they are possible”
  • Increasing dividends vs increasing buyback: Desire to keep yield above 3.5% and add consistency to shareholder renumeration
  • Industry consolidation will continue

PDF. of presentation:

Categories
Articles

Dow Chemical: Transformation Continues

Earnings Highlights:

  • Sales grew 3 percent to $12.43 billion from $12.02 billion last year
  • EPS of $1.00 a share met estimates
  • Earnings were $1.00 per share, down from $1.24 in the same period last year. The fall was principally due to a decline in licensing revenues from extremely high levels a year ago.
  • Double-digit sales growth in Europe, Asia Pacific and Latin America more than offset continued weakness in North America, particularly in the housing and automotive sectors.
  • Volume was up 1 percent in the quarter, with solid gains across most businesses.
  • Asia Pacific, Latin America and Europe all reported strong demand growth — with volume increases of 13 percent, 8 percent and 7 percent, respectively — more than offsetting an 8 percent decline in North America.
  • Prices edged 2 percent higher, with healthy gains across most of the company’s performance businesses and in basic plastics, dampened by lower prices in basic chemicals.
  • Equity earnings for the quarter were $274 million, an increase of more than 60 percent compared with the first quarter of 2006, reflecting the value of the Company’s asset light strategy.
  • Increased the quarterly dividend 12% to 42 cents a share –

CEO Andrew Liveris:

“We have spoken a great deal recently about the power of Dow’s integration and diversification – and these results amplify those words. Our geographic balance meant that robust sales in Europe, Asia Pacific and Latin America more than offset continued weakness in North America; strong growth in many of our Performance businesses and in Basic Plastics countered a downturn in Basic Chemicals; our joint ventures contributed another quarter of excellent earnings; and we continued to strengthen our position in several key industries through our market-facing business model.”

Regarding Feedstock Pricing:

“While there was a temporary pause in feedstock and energy cost increases at the start of the year, we saw a sharp change in direction mid-way through the quarter and expect second-quarter costs to be higher than the same period last year,” said Andrew N. Liveris, Dow’s chairman and chief executive. “That said, strong demand and good pricing momentum has continued through April — reinforcing our view that 2007 will be another solid year for the company.”

Buyout rumors:

Liveris on CNBC: “We are not for sale and have had no conversations with anyone regarding a sale”

Summary:

Another solid quarter for DOW. 5 years ago, the N. American decline would have decimated earnings. Now, it is becoming just a blip on the screen. Share buybacks are continuing, the dividend is increasing and it seems like each week another asset light highly profitable joint venture is being announced. There isn’t anything not to like about DOW now. Liveris is doing a masterful job at reinventing DOW and us shareholders are benefiting and will continue to for a long time… Kudos

I will be on the earnings call today at 10am and will update any significant statements.

Full Earnings Report Here:

Categories
Articles

Sears Holdings: A Technical Look

Sears Holdings (SHLD) is in the process of finishing the rarest and most important “technical analysis” chart pattern, the “humping bulldog.” This phenomenon began in June of last year. You will notice on the chart below the arched tail of the bulldog as SHLD dipped until it bottomed in August of 2006. Then came the share price explosion upward from August to November, which represents the “humping” back of the bulldog. Predictably, the stock leveled out and dipped a bit (From November to January 2007) at the peak of the dog’s back heading into its head.

Then, following this classic chart pattern, the dog’s arched head is represented by the January to March upward trend in the stock. This is classic technical indicators of this pattern. The drop from February to mid March is the tell tale sign of the dog’s open and panting mouth.

The euphoria the dog feels is represented by the share price appreciation both during the chart pattern and after it is completed from mid March to mid April. This bodes very well for SHLD shares in the future as the current downturn since the recent highs may just be the beginning the rarest of rare, “round 2” bulldog patterns. We will need to get confirmation of course like all chart patterns but it looks good so far.

The question that now needs to be asked is….. who bought that? If you did, why? While the name of my “chart pattern” was ridiculous, the theory behind it is not really any different than any other chart pattern out there. The thought you can anticipate stock prices based on a pattern they make is not really any different that guessing you future from the alignment of the stars or a fortune teller reading the lines in your hand. What really drives stock prices? EARNINGS, period. Both actual and anticipated earnings, in the end are what determine the price of a stock. Not a mythical pattern on a piece of paper.

Let’s break it down. If earnings are what causes stock price appreciation or depression, then the lines on the chart simply reflect that sentiment. This means they are always backward looking in nature and give you no insight into any future patterns since their future trends depend on the future earnings of the company. It does not matter what “formation” the stock trading is making because if earnings beat expectations, the stock will rise no matter what the “chart” says it should do and vice versa if earnings disappoint.

I read on another post yesterday the saying “even a stopped clock is right twice a day”. It is true. You will find occasions when the “chartist” accurately predicts price movement in a stock. You will, however, find multiples of instances in which the chartist “did not get confirmation of the pattern”. Translation? They were wrong.

Earnings drive stock prices, not fortune tellers. The next time you are inclined to believe them, remember the “humping bulldog.”

Categories
Articles

What Leprosy Can Teach Us About Investing

Pain…

Anyone who has ever had quad tendon surgery is intimately familiar with this concept. Try doing anything without the use of a quad muscle and then consider that the movement, or any effort to move it will cause your entire body to freeze as you attempt to deal with the searing pain it induces. Pain is your body’s way of saying “hey, you are damaging me… stop it.” The pain caused by hitting your thumb with a hammer while painful at first, is useful because it is your body’s way of telling you not to do that anymore and probably saving you from losing the use of your thumb.

In their non-fiction book “The Gift of Pain”, Phillip Yancy and Dr. Paul Brand describe a world without any pain:

” A WORLD WITHOUT PAIN?

Can such a place exist? It not only can—it does. But it’s no utopia. It’s a colony for leprosy patients: a world where people literally feel no pain, and reap horrifying consequences.”

Yancy writes about Dr. Brand who ran a leper colony in Louisiana. Most people associate leprosy as a skin disease. It is not. What leprosy basically entails is the dying of nerves in the extremities. This causes the leprosy sufferer to feel no pain so a cut on a foot is not known and becomes infected, a broken ankle is not felt and heals disfigured. Those with leprosy, since they cannot feel any pain behave in ways that cause more damage to themselves. Dr. Brand descibes a young boy who reaches into a fire to grab a potato that had fallen off a grill causing third degree burns to his hand all the while feeling nothing and continuing a conversation as though it had not happened. The boy is amused by all the attention he gets from the staff and continues to do things that cause more harm to himself, eventually losing his hands to injuries he never felt. Eventually lepers become crippled due to injuries they receive or, if not medically treated, die from infections they do not know are ravaging their bodies. Brand and Yancy argue that the pain we feel from events actually protects us from far greater pain and harm.

So how does this involve investing Todd?

Investing involves some pain. Not all of our pick are winners and we all lose money from time to time. It is what we learn from that pain that matters . Why did we make the pick we did? Was it a “hot tip” from a cousin? Was is up big one day so we bought it not knowing what the company really did or what kind of financial shape they are in? Was there a stock that we sold because the talking heads on TV or the “analysts” said we should even though in our gut we knew we shouldn’t, only to watch is double or triple after we sold? Did we buy a stock recommended by those newsletters we all get in the mail and lost a bunch? For a great analysis of these picks go the Stock Gumshoe here.

Doing any of these things when investing can cause you financial pain. Repeating them with more money on the line will lead to more pain and possibly financial ruin if the bet is large enough. An investing leper is someone who does not feel the pain of financial loss and continues to repeat the same mistakes until they have no more money left to invest. They refuse to learn from or accept the pain from their actions and repeat them with increasingly dire consequences.

In order to invest with success you must have a investing strategy. I am always amazed how people will invest thousands in a stock because Uncle Leo said to yet will drive to 3 different stores to save 20 cents on a gallon of milk. Why don’t they take the same time with their investments than they do shopping for food or clothes? The strategy you begin with will not be the same you end with. Learn from the mistakes you have made (we all make them) and adjust your strategy to eliminate them in the future. Making an investing mistake is not a crime, repeating it is.

In 2003 I sold USG because I listened to analysts and talking heads who said the company would be ruined by asbestos induced bankruptcy. I then sat and watched as the stock doubled, tripled and then quadrupled. I vowed to never make that mistake again. Because of that vow I have held Altria (MO) since 2003 despite the dire predictions regarding their litigation situation and continue to hold Sears Holdings (SHLD) despite the “dying retailer” predictions on TV and both have rewarded my patience spectacularly. Had I not learned from my earlier mistake I would have sold both long ago and would have a headache from beating my head against the desk and I watched thousands in potential profits never materialize.

You will make mistakes, learn from them and avoid far greater pain.

Categories
Articles

Short Term Thinking and Altria, A Profit Killer

I received an email this weekend from “Rich” in Weston, VA. in response to my post on Altria last Thursday. I will paraphrase the applicable portion of it:

  • “No matter how you try and spin it, they missed the quarter, missed it. All the other items in your post (spin off of PMI, buybacks) are all old news, the street has already factored them into the price of the stock. That is why it did not even participate in this weeks action.”
This email is the poster child of short term thinking. If you are a long term investor what did you take away from the post? They raised full year guidance! I have a real hard time understanding how someone can think this is a bad thing. Unless that is, your time frame for investing does not extend to the whole year. Now, it should be noted than earnings adjusted for items were up 5% from last year. They just fell short of what analyst expected. So a 5% quarterly profit increase is bad?

I said in my interveiw with Geoff Gannon for his wonderful blog Gannon on Investing my best investing decision was buying MO in 2003 (my worst was selling USG in that same year, although my not buying CHD last year is rivaling that moronic decision). Let’s see what MO has done since then:


I am averaged in at about $29 a share. Has MO beat every quarter ‘s estimates the last 4 years? Absolutely not! But, is there anyone out there, looking at this chart who would have sold this stock, OR be disappointed had they bought it? Let also not forget the 12% dividend I got in 2003 that has continued to climb along with the stock. Had some of you been “Rich” from the email and a short term thinker, I am sure you would have sold along the way after an earnings “miss” and would be kicking yourself now.

Let’s talk about the “news already factored in” comment. To a certain extent this is true. To an extent. The “hope” of these events are in the stock, not the actual event. For proof we only need look at the recent Kraft spin off from MO. The day before the actual event (well after it was first announced in Jan.), MO traded for $85 a share. For the spin, we got Kraft shares with a monetary value at just under $22 a share. The day after the spin, MO traded for $70 a share. Given our $22 Kraft windfall that means MO had a pre-spin value (for trading purposes) of $92 but traded for only $85. Why the difference? If the announced event was fully factored in, the value of it should have been realized in the stock pre-spin, but it wasn’t.

Should the actual spin of PMI be announced, the stock will jump. It will jump again after the actual event. The same can be said of a share buy-back announcement. There is a possibility these will not happen anytime soon or ever, this is why the value of them is not fully being realized in the stock now. The buyback possibility is not being factored in at all because nobody knows how much they will buy back. 1% of the shares? 10%? More? The amount is a huge determination is what happens to the price of MO shares.

More proof that a PMI spin and buybacks are not being factored in? Look at MO’s PE. It currently stands at about 13 times earnings, well within it historical range. Were these upcoming stock boosting events being factored into the stock price currently, one would expect MO to be trading at a premium to it’s it historical PE, not at the midrange of it.

In my reply to “Rich” I stated the above albeit an abbreviated version and asked him to save my response and get back to me in a year…… let’s see if he does.

Categories
Articles

ValuePlays in Forbes.com Personal Finance

Forbes.com:

This past week my post on selling puts was picked up in Forbes.com. You can view it here. I received a ton of email on it from readers and will probably do a follow up piece soon. I seem to have people thinking about them and it did spur a bunch of additional questions the original piece may have not answered totally.

They have been featuring articles by various bloggers lately and the site is full of great info. Please visit them here.

A Good Read:

Since I am laid-up recuperating from a torn quad tendon and patella bone repair and will be for the next 6-8 weeks (If I was a horse I would have been Barbaroed’ by now), I now have a bunch of time to catch up on some reading. This weekend I read through a little known Benjamin Graham book, “The Interpretation of Financial Statements”. It is a short book , only 88 pages plus 31 pages of financial terms defined at the end. I highly advise this book to anyone who decides to take stock picking into their own hands (which you should do if you currently own mutual funds). It is written for investors of all experience levels and provides examples for each “Lesson”. Please click on the link below and pick up a copy for yourself.

Read front cover flap here:

Table of Contents here: Note: click on the arrows on the side of the page 1 to see the second page of contents, it is the good stuff!

Oh yea…………. “Who was Ben Graham”? You may be asking. None other than Warren Buffet’s teacher and mentor. Read it and you will be keeping good company!!

Categories
Articles

SUGGESTED BLOGS AND SITES- Updated

SUGGESTED BLOGS AND WEBSITES TO VISIT:

New Titles Are In Bold

Categories
Articles

Sherwin-Williams: Just Paint Baby!


Earning Highlights:

  • Consolidated net sales were $1.756 billion and diluted net income per common share was $.83
  • Opened 27 net new stores; 17 in Paint Stores Group and 10 in Global Group
  • Working capital ratio–accounts receivable plus inventories less accounts payable to 12 months sales–was 13.1% for the quarter compared to 13.7% last year
  • Gross margin increased 150 basis points to 45.1% of sales from 43.6% last year
  • Reaffirming EPS guidance of $4.55 to $4.65 per share for the full year


Christopher M. Connor, Chairman and Chief Executive Officer, commented

  • “In spite of the tough paint market in the first quarter, we continued to invest in new stores, opening 17 net new locations in Paint Stores Group and ten in our Global Group. We made further progress in our management of working capital, reducing our working capital ratio to 13.1% of sales from 13.7% in the first quarter last year. Our operating segment management teams continued to achieve improved gross margins as a result of hard work invested over the last few years to return our gross margins to more normal run rates after being pressured by the significant rise in raw material costs during 2004, 2005 and 2006. We created shareholder value by our practical use of cash to buy shares of our own stock and increased the dividend rate (26%), and have strategically positioned our balance sheet to be financially sound and capable of financing our business growth. “
  • “During the second quarter of 2007, we anticipate achieving a percentage increase in consolidated net sales in the low single digits over last year’s second quarter. With sales at that level, we expect diluted net income per common share for the second quarter to be in the range of $1.37 to $1.45 per share compared to $1.33 per share last year. For the full year 2007, we anticipate that the percentage increase in our consolidated net sales will be in the low single digits over 2006. With annual sales at that level, we are reaffirming our guidance that our diluted net income per common share for 2007 will be in the range of $4.55 to $4.65 per share compared to $4.19 per share earned in 2006. For the second quarter and full year 2007, we expect the effective tax rates will be slightly higher than the rates recognized in 2006.”


Sherwin Williams (SHW) has taken a hit the past month due to it’s ties to the US housing market and the RI ruling. This ruling, while a short term negative is virtually meaningless when compared to the California Superior Court Ruling which will eventually lead to the RI case case being filed where it should be, the garbage can. This quarters numbers prove that management is adept at managing the company through these headwinds. Let’s not forget, these numbers are up against 2006 numbers that included a still booming residential housing and DIY (do it yourself) market. Two key factors contributed to offsetting the earnings decline:

  • The Company acquired 3,350,000 shares of its common stock through open market purchases at an average price of $69.27 during the quarter and had remaining authorization at March 31, 2007 to purchase 9,471,000 shares.
  • The Global Group’s net sales in the quarter increased 5.7% to $402.2 million from $380.6 million in the first quarter last year when stated in U.S. dollars. This Segment’s net sales increase of 4.8% in local currency was due primarily to a new product introduction in the U.K., architectural paint selling price increases and volume gains in South America and improved automotive and product finishes sales. Segment profit of the Global Group for the quarter improved $2.9 million, or 9.0%, to $35.4 million from $32.5 million in the first quarter of 2006 and increased as a percent to net sales to 8.8% from 8.5% last year

The growth in the global group offset the decline in the US DIY and New Residential segment and the shares buybacks did the rest as SHW was able to avoid an earning decline of a strong 2006 comparison. It should not be lost on readers that this international segment will take on further prominence and do more to insulate SHW from the US housing market due to it’s recent purchase of India’s Nitco Paints. This gives SHW a huge footprint in an paint market growing at a near double digit rate. The effects of this should be seen in the second half of 2007 and is probably the reason that despite the predicted Q2 earnings miss by the company, they still back their full year estimates. Another note: This anticipated “earnings miss,” is a miss on the current estimates that analysts have for Q2. SHW’s estimate of $1.37 to $1.45 a share is still above last years $1.33 number. I can live with that given the drastic deterioration in housing since last year.

Let’s also not forget the stock buyback. Although they do not expect to use the bulk of the authorization this year, the number of shares they are still authorized to buy represent about 7% of outstanding shares, providing another buffer for us shareholders. Gotta love it.

Lead Paint
After a brief summary of current litigation statuses, the subject was not revisited. Not one analyst on the call ask a single question about this. This is very telling as during the Altria (MO) call this morning (yesterday), several questions referenced the litigation environment surrounding tobacco, despite this being the best that environment has been in almost a decade. This has to lead one to believe that the analysts on the call (as well as yours truly) are not very concerned about the possibility of an eventual negative outcome here. While it is having a restraining effect on the stock now, when this cloud eventually evaporates, away we go..

SHW CEO, Mr. Christopher O’Connor is another wonderful example of a CEO who takes his fiduciary responsibility to us shareholders very seriously. Everything he is doing at SHW (dividend increases, buybacks, overseas expansion) are all geared at rewarding us shareholders. Sherwin is going to be not just a national leader but a global one soon. I currently own shares and will look to pick up more on weakness.

Categories
Articles

Phillip Morris: Smokin’


MO Earnings Highlights:

— Adjusted for items, diluted earnings per share from continuing operations up 5.1% to $1.03 versus $0.98 in 2006

— Altria raises forecast for 2007 full-year diluted earnings per share from continuing operations to a range of $4.20 to $4.25, up from its previous projection of $4.15 to $4.20
— Strong operating companies income growth of 9.5% at Philip Morris International

So, another great quarter for “Big Mo”. Now, going forward, what do we expect? We would like to see the international operations spun off from the PMU (Phillip Morris USA). In the earnings release CEO Camilleri said:

  • “Strategically, the key event of the first quarter was the successful spin-off of Kraft. We now are focused on growing our tobacco businesses, while continuing to take measures to further enhance shareholder value,”…..”Philip Morris International had a strong first quarter with robust income growth, driven by higher pricing and aided by favorable currency, but faced challenges in certain markets, most notably Japan and Germany,” Mr. Camilleri said. “Philip Morris USA had a relatively weak quarter, but its retail share and volume performance improved as the quarter unfolded.”
Say what you want about tobacco and it’s evils, but as shareholders, MO has been wonderful stewards of our dollars. There is no doubt in my mind that “enhance shareholder value” means a couple of things. First, a dramatic increase in the dividend. Second, the international operations will be spun off. Third, MO will begin buying back shares on a large scale. Now, these may or may not be announced today at 9 am during the conference call but I would be very surprised that if they are not “officially” announced, they are not at least alluded to.

What will we have then? In PMU, we will have a slow growing cash machine that will most likely end up crushing the yield of every other DJIA stock. It’s cash position will allow it to buy back shares on a regular basis to enhance eps growth and reward shareholders.

In PMI (Phillip Morris International) you will have a fast growing company that will begin to gobble up more tobacco companies around the world. It will also be free from US regulation since it will be headquartered abroad and have no US operations. This is a point that cannot be overlooked. The regulations that currently hamper PMI operation and the US litigation threat always present are a damper on the valuation of this segment. Once these are removed, in the word of Ralph Kramden “to the moon Alice”. In Q1 2007 PMI:

  • PMI’s market share in the first quarter of 2007 advanced in many countries, including gains in Austria, Argentina, Australia, Egypt, Finland, France, Greece, Hong Kong, Hungary, Indonesia, Italy, Korea, Mexico, Philippines, Poland, Portugal, Singapore, Serbia, Sweden, Ukraine and the United Kingdom.
  • Operating companies income increased 9.5% to $2.2 billion, due primarily to higher pricing and favorable currency of $96 million.
  • Cigarette shipment volume for Philip Morris International (PMI), Altria Group, Inc.’s international tobacco business, increased 1.5% to 213.3 billion units,
  • During the first quarter of 2007, Philip Morris International (PMI) acquired control of Lakson Tobacco Company Limited, increasing its shareholding to over 97%. Lakson Tobacco is Pakistan’s second-largest tobacco company, with cigarette volume of approximately 30 billion units in the fiscal year ending June 30, 2006.
This segment will be a gusher for shareholder once free from the US. No matter what MO shares do today hold them. Let them drop today, I do not care , it will let me buy more cheaper. Altria is the single best performer in the history of the US stock market. Just hold your shares, collect your 4 percent plus dividend (taxable at only 15% after a year by the way) and wait for Altria to treat you like a true owner and reward you for your loyalty.

Categories
Articles

Patience Pays Off: Sears Holdings (SHLD)

Back on Feb. 27, during the 400 point sell -off on the Dow, I wrote:

“Here is the test: What you want to happen on a day like today is for your portfolio to drop less than the market. If you are a value investor this is a true test of it. Since we are buying “cheap” stocks, if they truly are, there will not be as much pain during sell-offs. The opposite is true also. During rallies, we should see percentage growth in excess of the market because our shares are so cheap others will rush to pick them up. That is how we should beat the S&P. Drop less during sell-off and jump more during rallies”

Time to put my words to the test. I am going to use my largest holding, Sears Holdings (SHLD) for this exercise since, the health of it determines the health of my portfolio as a whole (In Eddie I Trust). We are going to look at two three month charts. The first will be the S&P 500:


You will notice the huge drop on Feb 27 as all the averages plummeted. The S&P was down 3.5% on that day and eventually closed 5.5% down a couple trading days later. It took until yesterday to erase all the loses from that drop and currently stands about 1% over the pre-drop highs. As I said before, in order to check the strength of our picks we want to see a drop of less than the averages and a rise greater than them. Having picks like this will ensure that when all is said and done, we have beaten the S&P, our benchmark for the year. Now, lets look at a chart of SHLD for the same time span and see what happened:


After getting hammered along with the rest of the stock universe on Feb. 27, SHLD, like the S&P has steadily recovered. A few days after the drop, SHLD had not been hit as hard hit as hard as the S&P as it was down only 5%. The major difference is that while the S&P has realized an almost 1% gain, SHLD is sitting on an over 2% gain from its pre-drop high levels. It is important to note that the previous high prices were also 52 week highs for both the S&P and SHLD.

So, in less than 6 weeks SHLD took the hit the markets sell-off gave it and has recovered not only all of the losses from that drop, but added over 2% to the all time high set the week before the drop. Those of us who were patient and believed in our pick (and picked it for the right reasons) have been rewarded. Those who panicked (there were millions of shares dumped so a whole lotta folks did) and sold off their shares at the end of February or March are undoubtedly kicking themselves as they calculate the lost profits. They may have sold at a profit in February (if they had bought a while ago) but after the commissions they paid to sell, the taxes they will pay on the profits, and the missed appreciation of the shares since then, they are far behind us in total gains.

Sear Holdings proves, patience pays…

Categories
Articles

ValuePlays: In the Legal News

In The News

Recently I was asked for a response to an article titled “Getting The Lead Out” that ran in The Nation magazine. Jane Genova, who runs the blog Law And More asked for a response and you can read it on her blog below. She has done the most extensive work to date on the lead paint trials in Rhode Island and for those of you interested, she actually “live blogged” from the court room in the Rhode Island lead trial. I consider her blog to be the starting point for any details you want on this litigation. You can read the response here.

Also, the legal website Legal Newsline.com did an article on the California Superior Court ruling on the contingency fee issue and picked up my post on it for reference. The article can be viewed here

A Trade:

Last Thursday we had a trade in the ValuePlays Portfolio. We sold April $45 puts in BTU. We received $90 for each put we sold. This means that is BTU closes below $45 on or before this coming Friday, We will be forced to buy 100 shares of BTU for each put we sold. As long as BTU closes above $44.10 ($45 – $.90 ) the trade is in the positive. Either way, we are pleased with the trade as BTU is a security we would have been comfortable owning at the price it was selling for last week ($45.85). The put enables us, should we end up owning it to do so at a lower cost basis. Nothing wrong with that..

Categories
Articles

Request for Comments

I am looking to create a comments page of readers thoughts and experiences with the blog. While I have received many of them from you up until this point, I do not feel right about publishing them unless you submit them knowing they may be. So, if you have already sent one, please re-submit it so I know it has been submitted under the assumption it may be published. That being said, please email me at valueplays@gmail.com and give me your thoughts.

Please Include (some ideas):

  • Your name
  • A website or blog title if you have one (I will provide a link to it)
  • Your position if applicable, for example: fund manager, analyst etc..
  • A favorite post, pick or other notable item
  • Why you read ValuePlays
  • What makes ValuePlays different

Should there be a reason that you may not want you name published, please let me know and I will oblige. I will need to verify the authenticity of your email but will honor any special requests.

Thank you

Todd