About

Elan Corporation, plc (Elan) is a neuroscience-based biotechnology company. Its principal research and development, manufacturing and marketing facilities are located in Ireland and the United States. Elan’s operations are organized into two business units: Biopharmaceuticals and Elan Drug Technologies (EDT). Biopharmaceuticals engages in research, development and commercial activities primarily in neuroscience, autoimmune and severe chronic pain. EDT focuses on the specialty pharmaceutical industry, including specialized drug delivery and manufacturing.

Earlier in the week we highlighted a company from our list of 10 Stocks to buy on Monday (10 STBOM - Large Cap) from AFG’s annual client conference. The 2 groups of 10 STBOM (10 Large and 10 Small) are some of the more anticipated pieces of information from our conference, providing our clients actionable ideas to consider when they return to the office after spending the week learning about AFG. The names on each list are well researched companies by AFG analysts that look to be attractive for a long term period.

Below is the performance of our 10 Stocks to Buy on Monday portfolios from 2004 to 2008 in which alpha was added to the respected benchmarks every year. Below is an example of one of the stocks that made it to our small cap list this year, American States Water (AWR) . For more information regarding AFG’s 10 STBOM or other research services AFG provides, sign up for a free trial at www.EconomicMargin.com.

Has Lululemon Athletica Inc. (LULU) hit upon the marketing secret for luxury-level profit?

Analyst Barbara Gray at Odlum Brown, who has initiated coverage on the Vancouver retailer’s shares with a Buy rating and a price target of $17, says the yoga apparel company has created a “cultural moat” through its unique marketing program.

Any share price weakness related to the early success of Microsoft Corp.’s (MSFT) Bing search engine should be used as a buying opportunity in Google Inc. (GOOG), according to a new report from RBC Capital Markets.

Analyst Ross Sandler said Google remains the best way to play a global recovery in online advertising, and maintained an Outperform rating and $500 price target on the stock.

I recently did an interview with the FT discussing the healthcare sector as a good defensive sector play. I answered of course that healthcare, along with utilities and consumer staples, are the classic defensive sectors. The stocks in those sectors tend to be lower beta and many are mature companies with good cash flow that pay dividends. We own many companies within the sector.

We watch the sector closely, as the head winds to growth are many, here are a few:

Bemis Company, Inc. (BMS) manufactures and sells flexible packaging products and pressure sensitive materials primarily in the United States, Canada, Mexico, South America, Europe, and the Asia Pacific. The company operates in two segments, Flexible Packaging and Pressure Sensitive Materials. The company is member of the S&P 500 and was a recent addition to the S&P Dividend Aristocrats index.
Bemis Company has paid dividends annually since 1922 and quarterly since 1931 and consistently increased payments to common shareholders every year for 26 years.

From the end of 1998 up until December 2008 this dividend growth stock has delivered a negative annual average total return of 5.30% to its shareholders. The stock has lost over one third from its all-time high in 2007.

Black Box Corp. (BBOX) July 9, 2009 : $29.60
52-week range: $16.24 (Mar. 9, 2009) - $39.53 (Sep. 19, 2008)
Dividend = $0.06 quarterly = 0.80% current yield

Black Box* is a network infrastructure services provider. Black Box offers one-source network infrastructure services for communication systems. The Company’s service offerings include design, installation, integration, monitoring and maintenance of voice, data and integrated communication systems. The Company’s primary service offering is voice solutions. The Company also offers premise cabling and other data-related services and products. The Company provides around the clock technical support for all of its solutions, which encompass all voice and data product manufacturers, as well as 118,000 network infrastructure products (Hotline products) that it sells through its catalog and Internet Website (such catalog and Internet Website business, together with technical support for such business, being referred to as Hotline Services) and its Voice Services and Data Services (collectively referred to as On-Site services) offices.

*Company Profile from MSN MoneyCentral

IntercontinentalExchange Inc. (ICE) and CME Group Inc. (CME) have seen severe declines this week after new proposals for energy regulation were released. The restrictions are aimed at reducing volatility in energy prices which threaten to choke off economic growth in the global economy. Statements from the US commodities futures regulator (the CFTC) as well as from UK Prime Minister Gordon Brown call for limits to the positions speculative traders are allowed to take.

The argument made by the regulatory bodies is that energy speculators are helping to push the price of oil to unnaturally high levels. Many institutional traders with no natural exposure to oil prices have bought futures contracts representing significant holdings in oil and other commodities largely as a hedge against inflation. So in order to curb the recent rise in energy prices, regulators are seeking to place position size limits for non industrial traders. It is expected that reducing the level of exposure each trading entity can take will actually decrease the volatility in the markets and lead to lower prices for consumers and businesses that actually need to purchase oil or petroleum products.

Allegiant Travel (ALGT), being an airline, unfortunately is painted with the same brush as the rest of the industry. Oil up = sell airlines. Consumer weak = sell airlines. All they do is continue to execute. When I compare the data, they are pushing out versus the legacy airlines. It seems like 2 completely different sectors. While it is hard to own a name that trades outside of its fundamentals, I suppose that is becoming the case more and more in the market. Allegiant posted its June / Q2 traffic figures earlier this week, and it continues to stand head and shoulders above its peers. Heck, with oil down dramatically, the stock might even be given a chance to go up based on its own metrics.

President Yudhoyono appears to be on the way to a striking victory in Indonesia's election, and this not very well-followed country continues to attract some fans. With the caveat that if Western markets take another plunge this summer, emerging markets most likely will follow, this country continues to intrigue me over the longer run. Thus far in this correction, the major ETFs for Indonesia have held support well.



The two main ways to play were outlined in [May 22, 2009: Indonesia: A Must Own Emerging Market] and Morgan Stanley jumped on the bandwagon a few weeks later [Jun 15, 2009: Morgan Stanley - Add Indonesia to BRIC]

I generally use the VIX as a speculative vehicle rather than a hedging tool, but lately I have received several questions about how one might go about hedging a portfolio with the VIX. The subject of hedging is going to require a series of posts in order to do it justice, but before I dive in, I thought I should share an interesting paper from Edward Szado that recently became available on the web site of the Center for International Securities and Derivatives Markets ((CISDM)) at the University of Massachusetts.

In Szado’s own words, his paper “assesses the impact of a long VIX investment as a diversifier for a typical institutional investment portfolio during the 2008 credit crisis. The analysis covers the period of March 2006 to December 2008 (beginning shortly after the introduction of VIX options in February of 2006) with a focus on the latter part of 2008 (from August to the end of December).”

By David Russell

Investors could have avoided losses during 2008's sharp selloffs declines using the VIX volatility index as hedge, according to a new study by the Chicago Board Options Exchange.

With the rain ceaselessly falling in our little town of Piedmont and the bike tuned and waiting for just a spot of sunshine, it is time to re-evaluate midyear market action.

Does the stock market reflect, in its pricing, all information available at any given time? This question has been batted about for years by the efficient market or “random walk” theorists on one side and the market timing specialists on the other. In this week’s Barron’s, Burton Malkiel, author of "A Random Walk Down Wall Street", stands firm in his belief that the individual investor is best served by buying and holding broad market exchange traded funds (ETF) such as SPY. Whereas Bill Gross in his July publication states that “the efficient market hypothesis was always dead from the get-go.” He foresees stock markets performing below average for an extended period of time allowing astute investors to beat the market's random walk.

This bit of data came as a surprise to me because, generally, I thought the rising trend in foreclosures would have expanded the pool of potential renters. However, that is not the case at all these days as vacancy rates topped out at 7.5% in the last quarter according to real estate research firm Reis Inc. That rate falls just short of the 7.6% level in 1987, but the Reis blames the soft market on unemployment, which most analysts believe will continue to be a problem for at least the next quarter or more.

There are two main contributing factors that lead to the trouble for apartment leasing. For one, the growing number of job losses is wrecking havoc on demand. As one example, would be apartments with rent divided among multiple working parties are being vacated when one of those people losses their job. The remaining tenants often cannot cover the extra portion of the rent in the time necessary to find another roommate. Some people that once lived on their own are finding roommates to help cover costs and some people are moving back home to live with their parents. Furthermore, with new buildings being finished adding to the supply overhang, some building owners are having to convert properties that were once for sale to rentals in order to get the cash flow. The growing supply and the shrinking pool of renters is having a heck of an effect forcing rental rates to come down. The asking rates for rentals has fallen .6% in each of the last two quarters. Effective rates, or the rates actually paid by tenants have fallen even faster dropping .9% in the last quarter and 1.9% from a year ago.

Walgreen Company (WAG) has raised their dividend for the 34th year in a row, and this hike is more substantial than most at 22%. The anticipated yearly dividend will be 55 cents, raised from 45 cents over the previous four quarters. As the company’s CEO Greg Wesson said in the press release, “This dividend increase reiterates our confidence in our key growth strategies and our ability to generate strong free cash flow in the future.” The company has grown impressively over the last five years with an average revenue of more than 12%, but because of the recession the company has slowed new store openings. The increased dividend payout is expected to cost the company $99.2 million this year. It appears that at this time instead of using the capital to continue the breakneck growth, the board sees increasing the dividend substantially as a more appropriate use of the funds.

Walgreen reported 3Q earnings last month and results were mixed as the company reported better sales results but those sales were on lower margin items. This falls in-line with the company’s current strategy to emphasis on “affordable essentials” such as paper products and groceries. Even though this is pressuring margins, in the current consumer spending environment the strategy is tough to argue with. Because of the close competition among drug stores Walgreen’s has never been able to have high margins anyway, and their strategy is much more suited to making up for the lack of margin by selling volume and turning over retail inventory quickly.

The moneygardener darling, US drugstore chain Walgreen Co. (WAG), has increased its quarterly dividend by 22%. This is the 35th consecutive year that Walgreen has raised its dividend. Walgreen has been growing its dividend at a torrid pace over the past few years. In fact, since 2006 WAG has roughly doubled its dividend.

The stock is now yielding only 1.8%, however a purchase during the depths of March, 2009, would have yielded 2.6% on cost. It is interesting that the company is choosing to increase the dividend at such a high rate given the current slowdown in earnings growth. Walgreen's last quarterly earning report was actually down 9% from 2008. The pay out ratio is rising and the company's traditional objective of rewarding shareholders with growth may be shifting to include paying out cash in the form of dividends.