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Thursday, September 27, 2007

AAII Survey Bulls-Bears vs. DJIA Graph for 09/27/07

This chart shows the 52-week moving average of the AAII bull/bear index (American Association of Individual Investors). 52 weeks removes seasonality from the number and gives startling results.

Click chart to see full sized pdf image

I explain what this sentiment indicator and others mean to me in my newsletter. I post them here to share for all to read and make comments. Request Invitation to facebook discussion group where we have a "Sentiment" topic to discuss the weekly data.

Subscribe now and get the September issue of “Kirk’s Investment Newsletter” for FREE!

Disclaimer: Past performance does not guarantee future results but I prefer to listen to people who have demonstrated good, long-term published performance.

Tuesday, September 25, 2007

Value in Growth at Lam Research and Verigy Inc.

Someone with a large position in Warren Buffett’s Berkshire Hathaway (ticker BRKA) asked if he should buy another cash loaded company with similar valuation metrics, Wesco Financial Corp. (WSC). My reply was the real value today is in some small capitalization technology stocks like Lam Research (LRCX) and Verigy (VRGY.) Here is my reasoning.

One of the reasons I have stayed away from Berkshire Hathaway is its “Warren E. Buffett Premium.” This is what people pay to own BRKA over “fair value” so Warren Buffett can manage their money. What happens to the price of BRKA if Buffett dies?

BRKA today reminds me of General Electric (GE) in 2000 when it still had its "Jack Welch Premium" not to mention the daily gushing on CNBC about how much money the reporters were making in the individual stock they could own. In 2000 GE had a PEG (Price-to-earnings ratio divide by its 5-year growth rate) twice that of the S&P500. Today that premium is gone and GE at $41 is still down about 30% from its 2000 peak while the S&P500 is back to its 2000 peak. High premiums are risky.

Selling at $117,200 with $30,343 per share in cash, BRKA is 26% cash. This survey of CD rates says you can get 5.0 to 5.75% at many banks in CDs. If I want to pay a premium for Warren Buffett to manage my money, then I would want his return on assets to beat safe CDs and treasuries enough to overcome this premium at a minimum.

Yahoo! finance lists BRKA’s “management effectiveness” as:

    Return on Assets (ttm): 4.65%
    Return on Equity (ttm): 11.34%
    (ttm is trailing twelve months)


With Valuation metrics:

    Trailing P/E (ttm, intraday) = 14.99
    Forward P/E (fye 31-Dec-08) = 19.35
    PEG Ratio (5 yr expected) = N/A (no earnings growth predicted)
    (fye is for year ending)


Why not put 25% of your money in 5.75% CDs and invest the other 75% in stocks with better GARP (Growth At Reasonable Price) metrics?

Compare the above numbers for BRKA to one of my larger holdings and a company I have already made about sixteen (16!) times my money on since buying it for my newsletter and personal portfolio in 1998, Lam Research (Ticker LRCX.)

Yahoo! finance lists Lam’s “management effectiveness” as:

    Return on Assets (ttm) = 21.21%
    Return on Equity (ttm): 43.29%

With valuation metrics:

    Trailing P/E (ttm, intraday)= 12.24
    Forward P/E (fye 25-Jun-08) = 12.21
    PEG Ratio (5 yr expected) = 0.65

Verigy is another “GARP” stock I have been buying for my newsletter portfolio and myself. Yahoo! finance lists Verigy’s “management effectiveness” as:

    Return on Assets (ttm): 10.38%
    Return on Equity (ttm): 18.48%

With valuation metrics:

    Trailing P/E (ttm, intraday)= 19.96
    Forward P/E (fye 31-Oct-08) = 13.47
    PEG Ratio (5 yr expected) = 0.79

Verigy has a similar cash/share ratio as BRKA but it makes far better returns overall.

I think there is great value now is in technology stocks that are not in the headlines. Everyone knows about Google (GOOG) and Apple (AAPL) but how many have heard of Lam Research or Verigy? The way to make big gains is to buy well managed growth stocks before everyone has heard of them. I have made good money already in both Lam and Verigy but I think there is much more to be made.

In addition, how are people trying to help third world countries improve? Are they giving them cans of Coke (KO) Geico insurance, Sees candy and Gillette razors (PG,) all subsidies of BRKA, or are they giving the kids portable, cheap, laptops with wireless connectivity that operate on the sun or hand cranking? Lam and Verigy are two of my best-valued stocks that make picks and shovels that help make this new technology possible.

BRKA is mostly a perceived "value stock" and we have had about 7 years where investors have shunned growth to buy good, safe value stocks. The numbers I posted above for Lam and Verigy, stocks I buy and sell for added return around a core position, show why I think a rotation to growth with value should occur soon, if it has not already started.

Subscribe now and get my just released October 2007 Newsletter with my two core portfolios plus my more volatile (and higher long term return) explore portfolio with the latest buy and sell targets.

Monday, September 24, 2007

Investors' Intelligence Bulls-Bears vs. DJIA Graph for 09/22/07

This chart shows the 52-week moving average of the “Investors Intelligence Survey“ bulls minus bears data. 52 weeks removes seasonality from the number and gives startling results.

Click to view larger pdf graph

I explain what this sentiment indicator and others mean to me in my newsletter. I post them here to share for all to read and make comments. Request Invitation to facebook discussion group where we have a "Sentiment" topic to discuss the weekly data.

Tuesday, September 18, 2007

Chart of Stock Markets vs Fed Funds Rate

Click chart to see it full sized

The Federal Reserve cut its Fed Funds interst rate today from 5.25% to 4.75% and they cut their discount rate to from 5.75% to 5.25%. Below is the text of their statement explaining their actions.

Release Date: September 18, 2007

  • For immediate release
    .
    The Federal Open Market Committee decided today to lower its target for the federal funds rate 50 basis points to 4-3/4 percent.
    .
    Economic growth was moderate during the first half of the year, but the tightening of credit conditions has the potential to intensify the housing correction and to restrain economic growth more generally. Today’s action is intended to help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and to promote moderate growth over time.
    .
    Readings on core inflation have improved modestly this year. However, the Committee judges that some inflation risks remain, and it will continue to monitor inflation developments carefully.
    .
    Developments in financial markets since the Committee’s last regular meeting have increased the uncertainty surrounding the economic outlook. The Committee will continue to assess the effects of these and other developments on economic prospects and will act as needed to foster price stability and sustainable economic growth.
    .
    Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Charles L. Evans; Thomas M. Hoenig; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; William Poole; Eric Rosengren; and Kevin M. Warsh.
    .
    In a related action, the Board of Governors unanimously approved a 50-basis-point decrease in the discount rate to 5-1/4 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of Boston, New York, Cleveland, St. Louis, Minneapolis, Kansas City, and San Francisco.
Kirk's Comments: I view this is positive as the Fed is taking action to help the credit markets and it has returned its bias to "neutral." What this all means to the stock markets is discussed in my October newsletter I am writing now and hope to release by the weekend. Subscribe now and get my list of stocks I think will benefit from today's action.


    Saturday, September 15, 2007

    Insider Buying at AGEN by Chairman and CEO Garo H. Armen

    On Feb 9, 2007 Garo H. Armen, CEO and Chairman of the Board, bought 50,000 shares to increase his direct holdings to 106,601 shares. I wrote about it and my buy on the news here. The stock soared shortly after this purchase and has recoverd to a seven month gain of 27% trading at $2.45. Details:

    • OFCR/ CEO & Chair o/ Board = Classification of Insider
    • $96k = Value of I-Buy trade(s)
    • 50k = Number of Shares
    • $1.93 = Average Price Paid
    • $1.91 = Recent Stock Price (delayed)
    • 132k = Average Daily Volume (composite timeframe)
    • $88M = Company Market Capitalization
    • 2007-02-09 = Purchase Date
    • 2007-02-13 = Filing Date
    • 13:21:59 = SEC Arrival TimeStamp

    More AGEN Charts

    Yesterday, September 14, 2007, Garo H. Armen bought another 50,000 shares of AGEN at an average price of $2.33. Details:

    • OFCR/ Chair & CEO = Classification of Insider
    • $117k = Value of I-Buy trade(s)
    • 50k = Number of Shares
    • 2.33 = Average Price Paid
    • 2.45 = Recent Stock Price (delayed)
    • 315k = Average Daily Volume (composite timeframe)
    • 112M = Company Market Capitalization
    • 2007-09-14 = Purchase Date
    • 2007-09-14 = Filing Date
    • 17:31:46 = SEC Arrival TimeStamp (Filing appears on SEC site 30-60 secs later)

    SEC Form 4 shows Armen how holds 266,610 shares of common stock directly and holds another 11,489,274 via By Antigenics Holdings LLC and Armen Partners LP ( 3 ).

    The last insider buy in Feb was a good time to buy as the stock soared from $1.93 to about $5.25 two months later. Even if you didn't sell at the top and held, a 27% gain in seven months is nice.

    Disclaimers:
    1. I first reported this purchase here on Feb 13, 2007.
    2. I own AGEN in my personal portfolio and bought 1,000 shares on the Feb 9, 2007 news.
    3. I may trade the ups and downs of AGEN in either or both my personal and my newsletter explore portfolios without announcing it here or anywhere else.
    4. Dr. Armen is CEO, Chairman of the Board of Managers and a member of Antigenics Holdings LLC ("Holdings") which, as of the date of this report, owns 11,154,274 shares of Antigenics Inc. common stock. Dr. Armen has a pecuniary interest in only a portion of the shares held by Holdings and disclaims beneficial ownership except to the extent of his pecuniary interest therein. Dr. Armen is also General Partner of Armen Partners LP. Armen Partners LP owns a total of 335,000 shares of Antigenics Inc. common stock. Dr. Armen has a pecuniary interest in only a portion of the shares held by Armen Partners LP and disclaims beneficial ownership except to the extent of his pecuniary interest therein.

    Thursday, September 13, 2007

    AAII Bull-Bear Data Charted for September 13, 2007

    As of 9/12/2007, the AAII members are:

    • Bullish: 40.00%
    • Neutral: 24.71%
    • Bearish: 35.29%

    This chart shows the 52-week moving average of the AAII bull/bear index (American Association of Individual Investors). 52 weeks removes seasonality from the number and gives startling results.

    Click chart to see it full sized.

    I explain what these indicators mean to me in my newsletter. I post them here to share for all to read and make comments. Request Invitation to facebook discussion group where we have a "Sentiment" topic to discuss the weekly data.

    Tuesday, September 11, 2007

    In Memory of 9/11 - A look back at 9/11/06 Six Years Later

    My reflection on that horrible day six years ago.

    September 11, 2007:

    I'll never forget that day.

    Listening to Mark Hanes on CNBC cover the story in disbelief as the second tower started to smoke and we thought it was bombs inside...

    Watching the people jump out of the WTC as it burned down...

    Wondering if Lakshman was OK...he was there for a meeting.....

    Then learning planes flew into the towers, not bombs. Terrorists piloting bombs with wings.

    Then learning the Pentagon was hit by a plane

    Then learning a plane went down in a field in Pennsylvania. Such brave people to bring their plane down before the hijackers could finish their deadly mission.

    Then seeing the towers collapse..

    One of the few times in my life I remember crying as events unfolded....

    Is that how my grandparents remembered Pearl Harbor?

    I recorded my thoughts as we all watched in horror here.

    September 11, 2001 6:13 AM
    1. Kirk - World Trade Center
    I was watching CNBC showing one tower of the World trade center on fire when the other tower exploded!
    Maria B called in and said she saw a 2nd plane fly into the 2nd tower!
    As I was watching the futures crashed....
    CRAP!

    September 11, 2001 6:50 AM
    5 Kirk - Pentagon has been hit!
    The pentagon is on fire.

    7. September 11, 2001 6:53 AM
    Kirk - White house being evacuated
    Capital building also evacuated.
    Warning.
    Don't go near any major landmarks!
    Center of US Financial Markets - World Trade Center - Attacked and on fire.
    NYC shut down, can't get in or out...
    Tunnels closed...
    Center of US Military Power attacked.
    People being reported dropping out of WTC to avoid the heat!
    Jumping to their quicker deaths...
    (picture of Trade Center Burning and people jumping to their deaths)
    Sad... very, very sad. (picture)

    Finisar: Analyst Comments on Q1 2007 Results

    The Sept 4, 2007 7:10PM EST Press Release says:


    • Networking equipment company Finisar Corp. said Tuesday its fiscal first-quarter revenue declined slightly, but the company did not give detailed earnings results because it is reviewing past stock option granting practices.

    • For the quarter ended July 29, Finisar's sales totaled $105.7 million, down slightly from $106.2 million in the year-ago quarter. Analysts polled by Thomson Financial were expecting sales of $107.32 million.

    • The company said gross margins were lower than the previous quarter, due largely to higher costs from new product introductions. "We were pleased to see revenues bounce back from last quarter as we recovered from a number of customer supply chain and excess inventory issues," said Jerry Rawls, chief executive, in a statement. Finisar's sales in the prior quarter totaled $97.3 million.

    Not stating earnings until they sort out the option backdating issues was not news. The news was they missed analysts’ expectations for earnings by $1.6M or 1.5%, which is pretty much noise. On the news, Finisar fell 24% from $3.78 to $2.87 in two days.


    Assorted comments follow:



    • Sept 5, 2007: Needham & Co downgraded FNSR from “Strong Buy” to “Buy”

    • Sept 5, 2007: Deutsche Bank analyst Cobb Sadler reduced his price target on the stock to $4 from $4.50, calling the first-quarter results "disappointing" and the company's second-quarter revenue forecast "conservative." Sadler maintained a "Buy" rating the stock, and wrote in a client note, "We remain buyers of Finisar on weakness as we see medium term potential."

    • Sept 5, 2007: TSC Staff wrote ”Finisar sees revenue of $105.7 million for its fiscal 2008 first quarter -- $500,000 less than the comparable period last year and below the $108.2 million consensus estimate recorded by Thomson Financial. Shares fell 81 cents to close at $2.95.”

    • Sept 5, 2007: Ruthie Ackerman of Forbes may have hit the nail on the head with this comment linking Finisar to the subprime mess:

      “Finisar, the report stated, had negative $24.4 million in free cash flow in the
      latest fully reported fiscal year. The last time Finisar filed a complete earnings report with the Securities and Exchange Commission was on July 31, 2006, according to the report. Late earnings filings with the SEC are a potential risk because companies can be considered in technical default if they file late financial statements, giving bond holders the right to demand automatic repayment of debt. “While there may not have been many such demands in recent years, a strained credit market may test the leniency of note holders,” the report said. (See “ Subprime Spillover: Who’s Next?”)

    • Sept 10, 2007: James Altucher or The Street.com wrote:

      "The downgrade sent shares to a fresh 52-week low. Finisar provides optical components that connect local area network and storage data. Some investors feel that Finisar is losing sales to other competitors, but upon a closer look, this does not appear to be the case. With $100 million in cash on the balance sheet, Finisar is not going anywhere.ADC Telecommunications (ADCT,) a major competitor, recently reported great earnings showing the true cyclical strength in this sector. I expect similar results from Finisar next quarter. In the near term, I believe Finisar is poised to bounce back from the 52-week low list as investors and traders see a buying opportunity with the recent selloff.

    I believe James Altucher and Ruthie Ackerman have it right. Opportunity knocks.



    More Finisar Charts here

    Disclaimer. I accumulated Finisar in my Newsletter Portfolio between $1.01 and $1.99 and still hold it today in both my newsletter and personal accounts. I may buy or sell at any time and will probably not announce it here. Of course, I have "auto sell" levels in the newsletter to take more profits and any additional buys or sells in the newsletter portfolio will be announced to subscribers via email when made.

    Monday, September 10, 2007

    Quality Real Estate Holds Up In Sub Prime Meltdown

    I am impressed at how negative “the boyz” have everyone from Jim Cramer and Larry Kudlow to Republican politicians fearing for their jobs. They are panicking as the stock markets are correcting for excessive risk taking when they ask the Federal Reserve to bail the risk takers out before the Fed is sure inflation is going down for good (See Chart of ECRI's WLI Growth Rate vs US GDP: 09/09/07 that shows the Fed can now cut rates.)

    It is sad to see some will lose their homes when their mortgages reset at market rates they can't afford, but what made them think they could live in a house with a monthly mortgage far cheaper than the house cost to rent?

    I have little sympathy for those seeking returns in excess of safe CDs and US Treasuries who are being crushed when their sub prime paper they bought with all sorts of fancy names is worth less than they paid. Sure it was nice to get 8 or 11% yields for awhile, but only a fool would think you get that sort of yield without high risk. (See Best CD Rates.)

    In the major cities benefiting from global trade where there are good jobs and homes are too expensive to buy for speculation, real estate is going up! I do not think anyone is talking about this on TV.

    Los Altos, California Real Estate Prices 2000-2007

    Click image to see it full sized.

    Los Altos, CA, just down the street from Google with its young millionaires looking for homes to raise families in a city with great schools, is doing great despite sky high prices.

    Towns across the SF Bay or in South San Jose where renters were converted to homeowners to buy inflated houses due to the low cost of money are not doing well. This should serve as a reminder to anyone “speculating” on a home that buying a house in a poor location just because it is going up is risky.



    Allan Coleman on Vanguard High Yield Fund

    Allan Coleman likes Vanguard's High Yield Fund ( a "junk bond" fund with ticker symbol VWEAX ) at $6.00.

    Posted on our Facebook Forum by Allan Coleman:

    September 10, 2007: As expected , the navs of our favorite Vanguard GNMA funds ( VFIIX & VFIJX ) went UP to $10.26 today .

    Observations:

    • VFIJX = 4.28% ytd with a 5.24% yield
    • $404k of GNMAs purchased at an average price of $9.95 since June 22nd of 2006 is now worth $426,710.36
    • VMMXX = 3.60% ytd with a 5.09% yield
      On my radar screen is the Vanguard High - Yield ( junk ) bond fund ( VWEAX ) that closed UNCHANGED today at $5.96 a share that I'm waiting to either break through the 50 day moving average and show a turn to the upside or to decline to a lower price .
      Either way , I feel a purchase price below $6.00 a share is a good value .
      Especially IF the Fed cuts rates next week .
    VWEAX Prices

    DateClose
    10-Sep-075.96
    7-Sep-075.96
    6-Sep-075.96

    Chart of Vanguard's High Yield (Junk bond) Fund
    more VWEAX charts

    (Unlike Allan Coleman, I, Kirk, never liked or recommended this fund. I prefer "explore portfolio" stocks for this sort of risk where your upside is unlimited with the same downside risk of the company going out of business.)

    More information:

    Request Invitation to our facebook discussion group

    Sunday, September 09, 2007

    Chart of ECRI's WLI Growth Rate vs US GDP: 09/09/07


    The growth rate of WLI is at a 43-week low. This decline has been signaling that we should expect the economy to slow and not repeat Q2's 4.0% GDP growth. The fear now is an external shock, such as a 9/11/01 like attack, could send the economy into a recession.

    With ECRI's FIG at a 27-month low (see Sept 7th Jobs Report & ECRI's WLI & FIG) the Federal reserve has done its job to reduce inflation pressure and they should cut the Fed Funds Rate at their next meeting if not before.

    It usually takes months for Fed Funds rate changes to show in the GDP numbers, but the signal to the markets they are on top of the situation could ease fears and help insure a soft landing.

    • ECRI is Economic Cycle Research Institute
    • FIG is Future Inflation Growth
    • WLI is Weekly Leading Index
    I cover what this chart means to the stock market in "Kirk's Investment Newsletter."

    ECRI’s Recommended Books:



    .

    Friday, September 07, 2007

    Sept 7th Jobs Report & ECRI's WLI & FIG

    The poor jobs report, WLI at a 43-week low and ECRI's FIG at a 27-month low should make it a "no-brainer" for the Federal Reserve to cut interest rates at its September 18th meeting, if not before then.

    ECRI's WLI:

    • 7-September-2007 The Economic Cycle Research Institute, an independent forecasting group, said its Weekly Leading Index (WLI) edged up to 140.4 in the week ended Aug. 31 from 139.2 in the prior week. ECRI said the annualized growth rate in the index declined to 0.6 percent from 1.3 percent in the prior week. It marked the smallest growth level since the week ending Nov. 3, 2006.
    • "With WLI growth at a 43-week low economic growth prospects have clearly dimmed, but not yet in a recessionary way," said Lakshman Achuthan, managing director at ECRI.

    USFIG - ECRI's U.S. Future Inflation Gauge:

    • 7-September-2007: U.S. inflationary pressures fell to a 27-month low in August largely owing to disinflationary trends in commodity prices, jobs, loans and interest rates. ECRI's U.S. Future Inflation Gauge (USFIG), designed to anticipate cyclical swings in the rate of inflation, fell to 116.8 in August from 119.5 in July, upwardly revised from 119.3.
    • "With the USFIG at a 27-month low, underlying inflation pressures continue to ebb," said Lakshman Achuthan, managing director at ECRI. "With respect to the inflation outlook, this gives policy makers additional leeway to lower interest rates."
    • "The (USFIG) gauge was pulled down in August mainly by disinflationary moves in measures of jobs, loans, commodity prices, vendor performance and interest rates," a statement from ECRI said.
    • The USFIG's annualized growth rate, which smooths out monthly fluctuations, dropped to minus 5.1 percent from minus 1.4 in July, revised from negative 1.7.

    JOBS Report:

    • 7-September-2007: August saw the first decline in jobs since August 2003. The Labor Department said August nonfarm payrolls fell by an estimated 4,000 while the unemployment rate held steady at 4.6%. Wall Street economists on average had expected 115,000 more jobs, not a loss of 4,000. Read the full BLS report.
    I'll post charts of WLI and FIG here as soon as I figure out how to upload them from my hard drive.

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