BigOlDave

The DJIA's Dangerous Indexing Philosophy

I compare my portfolio with the S&P 500.

Maybe that's because, when I hear the media report "the S&P is up 1.09 points for the day, closing at 1046.50", it's easy for my aging mind to calculate that the market's moved only about a 10th of a percent.

So I'll assume that I've made a little money today.

Cramer's Stop Trading! The Fall of Wal-Mart?(11/3/09)

For many years I worked for a paper company that ran tons of boxes for companies like P&G. P&G sourced through several of our competitors, whip-sawing us to the point where the business had no profit margins. Later many of these paper companies got out of the business entirely, or would not bid on business for cut-throat outfits like P&G.

Wal-Mart is similarly "cut-throat", dealing only with suppliers who sell to them at a price where Wal-Mart (1) makes an acceptable (usually low) profit margin; AND (2) can offer the supplier's product at a price at or below competitors' stores'. Wal-Mart buyers are savvy negotiators who will always leverage volume (good for suppliers -- covers fixed costs and allows economies of scale) and price (good for Wal-Mart customers and, ultimately, shareholders). Suppliers are forced to tighten up their operations to stay in business.

Suppliers that opt to fight with Wal-Mart will get to see Wal-Mart's back: Wal-Mart will walk away. If Stanley Black & Decker thinks they can now squeeze higher prices out of Wal-Mart (or Lowes or Home Depot, for that matter), they will end up with a lot of power tools in their finished goods inventory. If I ever replace my Craftsman drill, I could care less who makes it, as long as it's good value (value = quality + price).

Many Americans still don't accept that all markets are now global. If we can't compete, we die.

In the meantime, Wal-Mart looks like the best, one-stop place in town for good stuff at a bargain price. It lets me maintain a standard of living my income would otherwise no longer permit.

Owning Wal-Mart: Taking the Vito Corleone Approach

Three things worth noting about Wal-Mart (WMT):

(1) S&P gives it 5 stars (“Strong Buy”) with a Target price of $62/share by mid-August 2010. That’s appreciation of over 2%/month, which, added to the current yield of 2.2% gives a return of 27% within the next year. Twenty-two analysts listed by FirstCall have a “Buy” on WMT (7 “Strong Buys), 11 “Buys”, and 4 “Holds”).

(2) At the rate WMT has increased dividends in past, the 2010 quarterly dividend (full year to be announced in the first week of March 2010) may be $0.32. At current prices ($50.44), that’s still only 2.5%. I would expect WMT to lure more institutional ownership (currently 37% of float) by raising the dividend to $.34/quarter, which still would be only 2.7%.

(3) Management has stated that it continues to pursue a strategy of low prices and high value, but has recently stated that WMT will be focusing less on building stores and more on improving net margins. Operating margins are a paltry 5.65% (vs. Sector’s 7.56%), but net margins are 3.42% (vs. Sector’s 2.63%). Part of this is due to addition of grocery departments, which generally have razor thin margins. This also means that prices may not be cut as much, but the other retailers’ net margins will be even further squeezed.

Obviously, I should disclose that I have a relatively large position in WMT. But I’m also a trader: I don’t fall in love with any investment and, if WMT doesn’t perform or if there are better opportunities elsewhere, I’ll not be a long-term holder.

Dave

Top 10 Investment / Finance Websites: September 2009

Interesting that Google doesn't rate: something Google doesn't do well and apparently won't try to improve. The comments posted on Google are 99% spam.

Dave

Top 10 Investment / Finance Websites: September 2009

For those of you with Vanguard accounts, you'll find the online services excellent. Before investing in a stock, you can check analyses by S&P, Reuters, and FirstCall. Vanguard has a brokerage service that permits limit orders, not just market orders. This has saved more than the brokerage fee ($20/trade).

Perhaps Fidelity has similarly extensive services ...?

Dave

O Canada (Part II): There's Gold in Them Thar Hills - and Plains

If anyone doubts the value of paying a 7-12% premium to buy into the Canada Fund (CEF), just pop up its chart and compare it to the gold ETF (GLD) and silver (SLV). CEF outperforms GLD, but SLV is doing the best. CEF is a blend of the two, holding about 60% gold and 40% silver. I suspect that, in the future, it will tilt toward silver, which is under-priced relative to gold.

And I feel a lot more comfortable owning CEF -- knowing the gold and silver they say is there is really there!

HOG Is About to Catch Swine Flu

Here's Value Line's take in this week's edition:

"We are purchasing shares of Harley-
Davidson for Portfolio III this week.
With annual revenues of about $4.5 billion,
Harley is one of the world’s most
recognizable manufacturers and marketers
of heavyweight motorcycles.
The leisure-related stock, though well
off its 52-week low of $8, has taken a
big hit over the past year. Motorcycle
demand has dried up in the face of
weak economic fundamentals, and investors
have grown increasingly concerned
that the aging of the huge Baby
Boomer generation would permanently
damage the company’s domestic
business. (Baby Boomers have long
had a love affair with high-end Harley-
Davidson bikes.) But we believe that
the company’s best days are yet to
come, and that results will recover
quickly once the global economy
warms up.

The company, now headed by CEO
Keith Wandell (he took the helm in
May), has been managing its business
fairly well during the recession. Indeed,
Harley has slashed headcount,
boosted manufacturing efficiencies,
and significantly reduced its inventory
position, factors that should support
good earnings growth once the demand
demand picture stabilizes. Meanwhile,
over the next 3 to 5 years, results are
poised to benefit from share advances,
efforts to attract younger consumers in
the U.S., and a foray into the large market
in India."

I'm not convinced.
Dave

Real Journalists vs. Bloggers: Which Journalism Will Prevail?

nic,

As a journalist, you had to have heard of "Spell Check". When you post, just click "ABC Check Spelling" and your post will more closely resemble that of someone who uses words for a living.

Dave

Virtualization Demands Will Drive the Next Network Revolution

Though "Long VMware", which do recommending as an investment to play this space?

Average P/E for this group is 33 (leaving out Sun with negative earnings), ranging from the long-in-the-tooth IBM and HP in the teens to VMware at 52 !

This is a nice recap of the SRI Infrastructure 2.0 meeting, but I'd have liked some investment ideas pro- or con- for these 11 companies, or others that might be big-time victims of the oncoming changes.

Dave

Walmart Launches Walmart Marketplace

GHIDRA likes The Huffington Post !

As newspapers decay / disappear, we all look to other media for real, credible news coverage. The Huffington Post will be one of the last places I'll ever go -- correct that: I'll never go there -- for truth.

As Wiki notes ( en.wikipedia.org/wiki/... ), it gives a soapbox to the likes of Rosie O'Donnell and John Conyers. I get more opinions than I need from SA, realizing that SA also provides a forum to vapid, fringe thinkers.

Why I Prefer McDonald's over Apple

Nice reading this article: I've needed some facts behind my hope after taking a hammering on my (MCD) shares.

Why I'm Shorting Costco

I thought I was a genius for picking Wal-Mart (WMT) before the 3/09 dip -- WMT held up well. Now the market has caught up to it, which still makes no sense to me.

Investing in (COST) instead of (WMT) never made sense and still doesn't even tho it's caught up with Wal-Mart too. Just on the basis of P/E, WMT seems fairly-/under-valued and COST looks over-valued.

Good short call, Trader Mark. Unfortunately, I'm a long-only player.

Dave

Why U.S. Government Should Cut Federal Workers' Lavish Compensation

When will Americans wake up and realize we don't need a Federal agency to deliver junk mail to our homes? The joke is that we Americans start to complain when the idea of abandoning Saturday delivery of ...? "mail" ... bubbles up.

Think about it: what if the USPS started delivering only 3X / week, alternating neighborhoods with either M/W/F or Tu/Th/Sa delivery? Would you be okay? Then how about once a week?

If we started aggressively phasing out the USPS and having UPS and FedEx bid on the work on a state-by-state basis, there would have to be savings to be realized.

Don't read this as a criticism of Postal Service employees, who rank high on the list of public servants IMO. But require the successful bidder (by state) to hire these people and let the private sector start turning the thing around.

Except for the armed forces, there is very little worthy of commendation about the way Federal government is run. And the scary thing is, recently the idea of having the Federal Government run more things that would impact our lives (think "Health Care Reform") is being well-received by the Federal Government employees that represent us.

Except for mine (Eric Cantor), I'd vote for terminating all of them!

Dave

Walmart Launches Walmart Marketplace

GHIDRA is one of those fortune-hunters that concoct incidents and then hopes to get paid off. He's the kind that runs up our health care costs with frivolous medical malpractice suits also. Good on Wal-Mart for stiffing him: keeps prices down for when I go shopping there.

My wife avoids shopping at Wal-Mart because of the long lines (as Yogi Berra said: "Nobody shops at Wal-Mart, it's too crowded!"). So I'm there at least 2X/mo. Usually the lines are no more than 2 deep and they have a lot of registers going.

We go to Wal-Mart for rock bottom-priced RXs (consistently beats my health plan's Medco option), other pharma items, groceries, hardware, bird seed ... anything: Wal-Mart seldom has an item with a higher price than what we'd pay elsewhere.

Nobody can compete with the internet for big-ticket items like PCs and TVs. I also think the internet will be the place to shop for a car in the future. We're already using the web to find homes.

So don't go to Wal-Mart for PCs, TVs, cars, or houses. For anything else, protect your standard of living by making a trip to Wal-Mart a regular event in your life.

12 Ready-to-Rally Stocks - Barron's

What a disappointing line-up! As I read down the list, I kept gagging until ...oops: there was Wal-Mart (which I own). Went back to the beginning and the retch reflex started all over again.

Now I'm wondering about the wisdom of holding Wal-Mart (WMT). Let's see:

* stoXline's 12-mo target is $71.28 (that's 38%);
* S&P rates it 5/5 stars with ($62.00, yep = 20%) target;
* sales up 6.8% y-o-y;
* unfavorable forex impact likely to reverse if USD weakens;
* 2.3% dividend yield;
* $8 billion cash on books;
* retired $2.8 billion in stock in 7/31/09 qtr;
* cash flow positive $722 million in 7/31/09 qtr; and
* P/E lower than S&P, sector, and industry.

Well, I think my rationale for Wal-Mart is intact. Maybe I'll check out some of the others. Can't get excited about researching anything else on the list except Microsoft (MSFT). To free up funds to buy Microsoft, I don't think I'd sell any of my Wal-Mart.

Dave