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Brendan O'Boyle

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  • Marc Faber: Crash Of 1987 Revisited [View article]
    I don't see it. In 1987 the stock market was in hyperdrive all year, everyone was super-bullish. The market was up >20% on the year. We are currently below last year's highs.

    If you want to make comparisons to 1987 last summer's crash looks almost exactly the same.
    May 14 08:16 PM | 2 Likes Like |Link to Comment
  • Recession Forecast Reaffirmed [View article]
    It's not only uncommon, the only example is 1980. This was the year the fed raised interest rates to double digits to fight inflation. A mild recession was considered the lesser of two evils.

    Unemployment claims are trending down, jobs growth is positive. It was negative for many months in the summer of 2008.

    We will get another recession eventually, by then the market will have gone up for a while and everyone will be saying "it's different this time."
    May 14 05:47 PM | 1 Like Like |Link to Comment
  • Plunging Commodity Prices Are Ominous For Stock Market [View article]
    Wouldn't you say from the charts that commodities are coincident indicators for the stock market? Everything is declining together, so the argument is basically just momentum.

    We are very oversold, expect a rally. The real question is when the next rally comes and surprises everyone do you sell it?
    May 14 05:24 PM | 1 Like Like |Link to Comment
  • Is 9% A Realistic Long-Term Rate Of Return For U.S. Equities? [View article]
    The red line on the chart hasn't deviated from the blue because he came up with the method in 2000, thus there are only 2 years of real data because the 10 year forward return is only known for 2000-2002. The rest fits because he wouldn't have proposed a model that didn't fit.

    Equities are currently priced at the same level as 1994, the problem with staying out of the market is that if it takes off you will be sorry. An investor today who has been in the market since 1994 would have a very different perspective than one who entered the market in 2000. Stocks are probably priced to give 5-7% returns, but what if they rally and you miss it? It is conceivable that most of the gains between now and 2025 will come in just a few years (as most of the gains from the last secular bull came between 1995 and 2000), do you really think you can predict which years or which quarters those will be?

    While I will concede equities aren't super cheap, dividend paying stocks are an investors best (and only) hope for beating inflation in the next 10 years. Bonds are so expensive there is no opportunity cost, it is best to accept you can't predict the market and buy good dividend paying companies in a time averaged manner.

    Hussman for all his analysis has lagged the market, you simply cannot predict the market and you shouldn't pretend that you can.
    May 14 02:17 PM | 3 Likes Like |Link to Comment
  • AT&T: My Stock Pick Of 2012, An Update [View article]
    The other way to value T is a dividend growth formula...

    For this formula: V = Dividend * (1/(R-G))

    Where V is the intrisic value of the stock, R is the cost of capital and G is the dividend growth.

    For T's price V = 1.76 *(1/(0.1-0.044)) = 31

    So if you want your capital to cost 10% (a nice return) and the dividend growth rate is 4.4% you should demand a dividend of about 6% to say a stock is fairly valued. Of course you can always fudge these numbers higher or lower based on the expected future dividend growth and how high you want the cost of capital to be.

    The dividend stock I am getting excited about right now is TOT. They are trading at 44 with dividends last year of 3.11 and 4% dividend growth over the past 5 years. This would lead to a fair value of 52, which is about an 18% discount to the current price. Of course it is a Euro stock, but I would intend to hold it for a long time, so I don't really care about the volatility.

    Total is currently at a 15% premium to their book value, if they drop to 40-41 it's a steal.
    May 14 07:39 AM | 1 Like Like |Link to Comment
  • AT&T: My Stock Pick Of 2012, An Update [View article]
    I'm giving them 15x their 10 year normalized earnings, or 12x their anticipated 2012 earnings. I will note their forward P/E is 13.5, which is a 13% premium to the 5 year average of 12x, so I would like a 10% pullback from here before I would put money on the table. I'm being very conservative because I don't like chasing a stock that has eclipsed it's 52 week high. I would also like to get in with a yield of ~6%.

    However, I think T has a lot of momentum going for it at the present time. If you own I would hold, I don't think you will be disappointed. But personally, I would rather wait for a pullback than get in now. Preferably around 30 or maybe 31.
    May 13 09:46 PM | Likes Like |Link to Comment
  • Prepare For Volatility [View article]
    I should also mention, I don't believe we have seen the top of this bull market. I only think that it is very likely if the market can't make new highs we will see more attractive prices in the near future. Maybe a pullback of another 100+ pts.

    In this sense I am expecting a repeat of 2010 and 2011, unless we get a new rally above 1425. The next few weeks will be telling, I remain fully invested at the present time.

    You are referring to long term trends. We will not see highs in equities like 2000 for many years. Probably 2030, but there is no sense trying to forecast so far out. You are referring to the highs of the next cyclical bull, I am referring to the intermediate future (3-6 months).
    May 13 07:08 PM | 1 Like Like |Link to Comment
  • Prepare For Volatility [View article]
    Fund flows show that investors are selling the rally. This is indicative of a cyclical bear market. It's hard for a rally to pick up steam when everyone is using it to sell their holdings. You are right that many are underinvested, but the question is whether they intend to get back in. I think the answer is no, most investors have had it with the market.

    Range bound markets are indicative of a bull market or short term tops. Range bound markets like 2000, 2007 and 2011 tend to be resolved to the downside. It is indicative of a lack of sufficient buying power to propel the market to new highs. There should never be any hurry to sell, but when the market fails to make new highs after several months it is best to error on the side of caution and move to the sidelines.

    Unfortunately we remain in a cyclical bear market. I define a cyclical bear as a long term period in which stocks remain in the same range. In this case the range is 800-1550 on the SnP with the exception of early 2009 when everyone thought the world was ending.

    A cyclical bear is characterized by short holding times and a trading mentality. During cyclical bulls in contrast investors do not feel the need to sell every rally, holding times are long and rallies are stronger as fewer sellers are available to satisfy many buyers.

    Thus no new highs will be a signal to the hot money that it's time to get out. The next rally will be sold on strength if it cannot break through 1425. I think the chances of a breakout are diminishing by the day.
    May 13 06:13 PM | 3 Likes Like |Link to Comment
  • Stocks That Should Be On Buffett's Radar [View article]
    We definitely think alike. I bought CTSH after last week's sell off and SYK a few weeks ago.

    I got the idea for CTSH off of Forbes list of 25 tech stocks with the best sales growth for the past 5 years. I would also add CACI, GPN and QSII from this list. All 4 sold off hard last week and look very undervalued relative to their growth. Oh, and AAPL was on the list, but I already owned that one.

    AFL looks very good at the current price and I've been thinking about it, but haven't pulled the trigger. I would wait until they either go below 40 or break out of the current down trend.

    BBBY and TROW are less appealing to me. I am not on the same page as Buffett when it comes to financial stocks. I believe they are probably dead money for a long while. Too many people got burned 2008 and last year and there is too much uncertainty there. Stay away from financials, the easy money has already been made.
    May 13 05:49 PM | Likes Like |Link to Comment
  • Yes, I Am Looking For The Perfect Stock [View article]
    Sure cyclical stocks are more volatile, that is why you buy them when they are oversold. I will note CAT has rewarded shareholders with a much better return over the last 10 years. At 25% off it's 52-week high it's a bargin and it was never much below 80 last year. I am very confident a holder of CAT will realize a 20% return from the current price sooner than a holder of KO. I will also add that if you look at the shares CMI bought back last year, their total yield is 3%. If an undervalued company reduces it's float with buybacks that is as good as a dividend in my book. But CAT doesn't do that.

    But if you prefer low beta consumer staples I would prefer PEP at the current prices, lower valuation and better dividend yield with similar growth. In my opinion saying you wouldn't buy at the current price is the same as saying you should sell. I am not a day-trader, but I do take money off the table when the price looks rich. But that's just my opinion, I'm sure you won't be disappointed holding KO, I just think there are better buys out there right now.
    May 13 04:10 PM | Likes Like |Link to Comment
  • Prepare For Volatility [View article]
    Even the permabears are long, it's time to sell. If the permabears are long there is no one left to buy. I hate to say it, but if he SnP can't make a new high it means we've topped.

    I would be a seller at or near 1400, with the intention of reentering the market once a new high is made or when the market declines >10%. Expecting the market to remain range bound is unrealistic, it will break higher or lower before too long. A month ago I thought higher, now I think the path of least resistance is down.
    May 13 10:08 AM | 4 Likes Like |Link to Comment
  • AT&T: My Stock Pick Of 2012, An Update [View article]
    To me it looks like T is in a breakout, I would expect higher prices in the near future. However, I'm not convinced there is much undervaluation at 33 a share, so personally I'm not going to speculate on it. I would put fair value at about 30.
    May 13 01:38 AM | 1 Like Like |Link to Comment
  • Yes, I Am Looking For The Perfect Stock [View article]
    "If you add all that information up, it tells you Coca-Cola is not a buy here. It is a wonderful business -- I own it and will continue to own it -- but I would not buy Coca-Cola at these prices."

    If you would not buy at the current price you should sell. Holding an asset at an unattractive price makes no sense, if Mr. Market offers you more than the business is worth you say thank you.

    You want to put your money to work in the best place possible. I bought KO last summer at 65 but for 78 it is a sell. Just like MCD was a sell above 100. MCD is beginning to look attractive, at 85 I would be a buyer.

    There are many companies to be had at more attractive prices. May I suggest CAT or CMI. Each have half the earnings multiple, with twice the growth and a similar dividend.
    May 12 07:44 PM | 1 Like Like |Link to Comment
  • 10 Scary Charts: May 10, 2012 Update [View article]
    I don't believe this doom and gloom outlook.

    Fact: debt service is at the lowest since 1980, mostly due to low interest rates. Flow matters more than stock, the cost of servicing debt is low not high, this is bullish.

    Fact: the US governments debt to GDP is 100%. In 1945 it was 160%. In 1945 this did lead to higher inflation and taxes (a good reason to avoid bonds and cash) it did not lead to a collapse in the stock market or the end of the free world as we know it.

    "Since 1980 the economy has been broken." Huh, what world do you live in? Tell me where so I can avoid it, it sounds very dreary. Good times to buy stocks happen when everyone is depressed about the future, good times to sell stocks happen when everyone is excited about the future. I'll let you guess which is true today.

    I do not know when this cyclical bear market will end, probably 3-5 years if history is any guide. I do know that it will end, the government will cause inflation, debts will be watered down and the economy will recover. It did in 1932, it did in the 70s and it will again in the not too distant future. Look at the glass as being half full. Don't complain about the cost of health care: think about the miracle it is that you have heath care. You could have lived any time before 1900 when there was no heath care. Sure we have money problems, but other than that there has never been such a good time to be alive.

    Also, if you want 'cheap' Euro heath care you have to deal with all their problems, they may have cheaper heath care, but their economies are seriously troubled. The USA is not such a bad place to be.
    May 12 12:52 PM | Likes Like |Link to Comment
  • 10 Scary Charts: May 10, 2012 Update [View article]
    I will only say that the market is discounting all of these charts (and high government deficits are bullish for stocks not bearish).

    Average return of the stock market is 10% per year and we are still below the highs of 5 years ago. The slow recovery is priced in. The question moving forward is will the recovery eventually improve? And what is your opportunity cost for holding stocks vs. bonds or cash?

    I'm not expecting great returns, but dividend growth stocks should strongly outperform bonds over any reasonable investing timeframe (>5 years). The only alternative is to try and time the market by holding bonds or cash with the intent of buying for a better price down the road. If you are good at timing the market that's fine, but were you buying during Q3 2011 or Q2 2010 or Q2 2009? If not maybe you have to ask yourself if timing the market is a viable strategy for you. I don't think holding bonds or cash is a viable long term investment strategy, both are expected to give sub-inflationary returns.
    May 12 11:06 AM | Likes Like |Link to Comment