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Thursday, August 27, 2009

Citibank: Opportunity in Cow Chip Before It Returns to Blue Chip Status

Former blue chip stock Citibank (C charts) is now a "cow chip" according to Hank Smith, VP, board member, portfolio manager and Chief Investment Officer as Haverford Trust Co.

Click chart courtesy of stockcharts.com for full size image

Hank Smith was a guest on today's "The Call" show on CNBC with Amanda Drury (Bio & pictures), Melissa Francis (bio and pictures) and Larry Kudlow. When asked about Citibank, he said:
"We would put Citi in the category of former blue chip, now cow chip. That doesn't ...

[laughter from Amanda Drury, Larry Kudlow and Melissa Francis in background]

That doesn't mean you can't make money. Look. It was a cow chip in the early 90's as well. It certainly made investors a lot of money for those willing to buy near the bottom."
I agree with Hank Smith. I have made a lot of money over the years buying "cow chips" that are out of favor with investors before major changes are made to the companies to regain "blue chip" status.

Click chart courtesy of stockcharts.com for full size image

Citi is one of the stocks I've done very well with over the long term in "Kirk Lindstrom's Investment Letter" explore portfolio.

Explore Portfolio Summary
Citigroup
Charts
-------------------
-------------------
Total $ Bought ($29,018)
Total $ Sold $26,703
Dividends $7,801
Difference $5,485
Shares held 1,400
Exposure/Share on house $
$ / Share $4.880
Held Value $6,832
Investment Gain $12,317

My most recent "explore portfolio" trade in Citi was to add 350 shares at $2.95. I currently have no "auto sell" levels set for myself or subscribers but I am considering taking profits between $5 and $6, perhaps selling half I bought after a double.

Below are some excerpts from my August 2009 newsletter (composed 7/22/09 and emailed 7/23/09 ) about Citi. You can also read the full text with graphs and table here in slow to load pdf.
Citibank at $2.80
Annual Dividend = $0.04
Dividend Rate = 1.43%
  • Citi reported Q2 profits of $4.28, or 49¢ per share, compared with a year-earlier loss of $2.5B, or 55¢ a share. Revenue surged 71% to $29.97B, driven by profits from selling Smith Barney and “write-ups” from the rising value of its toxic assets. Citicorp retail, commercial and investment banking business revenue and profits fell 11% to $14.96B and $3.06B, respectively. Citi segregated its worst assets into “Citi Holdings” which includes the consumer-finance brands that do not generate deposits such as CitiFinancial, Primerica and CitiMortgage, along with "toxic" loans and securities. Citi’s Tier 1 capital ratio, a key measure of reserve levels, rose to about 12.7% in Q2, compared to 8.7% in Q2-08 and 11.9% in Q1-09. Tangible common equity, another gauge of financial strength based on the amount of stock it has, grew by $9.1B in Q2. This is all good news as it puts distance from fears of bankruptcy.

  • Valuation & Chart: Write-ups of toxic assets could continue as the economy exits the recession. Without the sale of Smith Barney, Citi lost money. Earnings estimates and valuation calculations are still near worthless but I am showing them below so we have a record of analyst estimates near the bottom. Just last month analysts had Citi losing $3.00 to making 40¢ next year. This month they have Citi “only” losing 55¢ to making the same 40¢. It seems insane they cut the loss on the low end by a factor of 7.5 but didn’t increase the upper end by a single penny. The big fear of bankruptcy is past so the bottom should be in. Citi cut the quarterly dividend to 1¢ a share where it will stay until they repay the TARP money. At $0.04 a year, the dividend rate is 1.43% at $2.80.

  • It seems everyone hates Citigroup now so that is the time to have a position which is why I have not sold even though it seems to have stalled its recovery while other stocks we know have great business models are going higher.

For my newsletter, I added C as an original pick in September 1998 at $18.75 split adjusted because it was cheap and it diversified my original portfolio that was 60% in technology stocks. In 2000, I sold enough Citi between $53 and $59 to get all my original investment out and then some. I have used the remaining shares since then to trade its long-term volatility while collecting a dividend. What I used to like about Citigroup was it made real money and paid a good dividend. I was happy to collect the dividend when it traded in a narrow band between $40 and $56 between 2003 and 2007. I feel dumb for trusting Citi management to be smart enough to avoid the troubles from the real estate bubble. My consolation is I sold enough Citi when it was high to be on house money.

KEY: I am put SOME “profit taking dollars” back into Citigroup with the hope it can repeat is rise from the ashes much as it did after the housing market collapse in the early 1990s
.

My latest update for Citibank is in the just released September issue of "Kirk Lindstrom's Investment Letter." Subscribe Now.

Since 12/31/98 "Kirk's Newsletter Explore Portfolio" is UP 131% (over a double!) vs. the S&P500 DOWN 1.7% vs. NASDAQ down 7.9% (All through 9/7/09)

As of September 7, 2009, "Kirk's Newsletter Explore Portfolio" is up 18.8% YTD vs. DJIA up 7.6% YTD.

More Information:

Monday, August 24, 2009

Bernard "Bernie" Madoff Cancer Story

The New York Post reported today that Bernard "Bernie" Madoff is dying of cancer: (warning, a pop-up got through my pop-up blocker!)
"He's been taking about 20 pills a day for his cancer," one inmate told the newspaper. "He talks about it all the time. He's not doing very well."
and
Meanwhile, a bare-chested Bernie has been killing time at the prison participating in Native American religious purification ceremonies held at an on-grounds "sweat lodge," other sources said.
Just now CNBC reported that the Bureau of Prisons said Madoff "is not terminally ill and has not been diagnosed with cancer."

New charts:

Thursday, August 20, 2009

Initial Jobless Claims Up but Unadjusted Claims Were Down

The Department of Labor (DOL) reported "seasonally adjusted" (SA) weekly unemployment insurance claims increased to 576,000. This gain in initial jobless claims was not enough to change the insured unemployment rate which remained at 4.7%:

In the week ending Aug. 15, the advance figure for seasonally adjusted initial claims was 576,000, an increase of 15,000 from the previous week's revised figure of 561,000. The 4-week moving average was 570,000, an increase of 4,250 from the previous week's revised average of 565,750.

The advance seasonally adjusted insured unemployment rate was 4.7 percent for the week ending Aug. 8, unchanged from the prior week's unrevised rate of 4.7 percent.

The advance number for seasonally adjusted insured unemployment during the week ending Aug. 8 was 6,241,000, an increase of 2,000 from the preceding week's revised level of 6,239,000. The 4-week moving average was 6,266,000, a decrease of 2,500 from the preceding week's revised average of 6,268,500.

The fiscal year-to-date average for seasonally adjusted insured unemployment for all programs is 5.565 million.

The unadjusted data show initial jobless claims actually declined by 28,406. This decline wast not enough to change the unadjusted insured unemployment rate which remained at 4.6%:
The advance number of actual (NSA) initial claims under state programs, unadjusted, totaled 454,216 in the week ending Aug. 15, a decrease of 28,406 from the previous week. There were 343,169 initial claims in the comparable week in 2008.

The advance unadjusted insured unemployment rate was 4.4 percent during the week ending Aug. 8, unchanged from the prior week. The advance unadjusted number for persons claiming UI benefits in state programs totaled 5,798,001, a decrease of 97,650 from the preceding week. A year earlier, the rate was 2.4 percent and the volume was 3,160,610.


UNEMPLOYMENT INSURANCE DATA
FOR REGULAR STATE PROGRAMS


Advance

WEEK ENDING Aug. 15 Aug. 8 Change

Initial Claims (SA) 576,000 561,000 +15,000
Initial Claims (NSA) 454,216 482,622 -28,406
4-Wk Moving Average (SA) 570,000 565,750 +4,250


Advance

WEEK ENDING Aug. 8 Aug. 1 Change

Ins. Unemployment (SA) 6,241,000 6,239,000 +2,000
Ins. Unemployment (NSA) 5,798,001 5,895,651 -97,650
4-Wk Moving Average (SA) 6,266,000 6,268,500 -2,500

Ins. Unemployment Rate (SA)2 4.7% 4.7% 0.0
Ins. Unemployment Rate (NSA)2
4.4% 4.4% 0.0



Since 12/31/98 "Kirk's Newsletter Explore Portfolio" is UP 125% (over a double!) vs. the S&P500 DOWN 2.6% vs. NASDAQ down 9.3% (All through 8/20/09)

As of August 20, 2009, "Kirk's Newsletter Explore Portfolio" is up 15.8% YTD vs. DJIA up 6.5% YTD.
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Friday, August 14, 2009

Elaine Garzarelli Gives Market Targets On Kudlow Report

Yesterday Elaine Garzarelli gave her market outlook on Larry Kudlow's program, "The Kudlow Report." This article summarizes her key points, shows the whole video interview then lists what it would take to turn her bearish.

Elaine Garzarelli's Key points:
  • Household formation data through 2015 will be very strong due to demographics. This same thing happened in 1983, the beginning of the last great bull market.
  • She is buying Retailers. She would play Walmart because it has lagged the whole market.
  • Elaine likes the industrials because the whole sector has lagged.
  • She also likes financials and technology. Both require a gain of over 200% to get back to where they were.
On what would turn her negative, she said she would short the market if FASB imposed new "mark-to-market" rules on the financials. She says that was the reason "everything happened to begin with."

Developed countries like Europe are "the next to go" since they lag the US markets in the recovery.

On Bonds, Elaine thinks we will have low inflation for a long time. Capacity utilization rate is 68%. The Fed doesn't normally tighten until it gets to 80% and they don't usually tighten until a year after a recession ends.

She thinks we could get a correction of 10 to 15% if/when short-term rates get up near the S&P500 dividend yield of 2.5%.

She thinks the S&P500 can go much higher
  • Has 2010 S&P500 earnings of $73
  • said apply a 17.5 multiple for her target
$73 x 17.5 = 1,278
S&P500 Charts

Best earnings will come from consumer discretionary and materials. She likes materials, aluminum, paper, infrastructure (industrial) for the next six to twelve months.

Garzarelli interview starts at 2:30 on the video.
===========================================

===========================================
Airtime: Thurs. Aug. 13 2009 | 4:48 PM ET

Biggest risks to the market are if:
  • BAA bond yield goes up and interest rate spreads widen
    or
  • the Fed raises rates close to the S&P500 dividend yield
Elaine thinks a sideways or 4 to 7% correction at any time but nothing more.

Current Market Statistics:

9,296.24
1,001.35
1,981.67

Past Reports:

click chart courtesy of stockcharts.com for full size image

Post and Read Comments



Monday, August 10, 2009

NanoViricides Potential Herpes Simplex Virus Cure

NanoViricides, Inc. Anti-Herpes Drug Candidate Reduces Viral Load by 99.99%

NanoViricides (NNVC Charts) jumped 29% today on this great news.

click chart courtesy of stockcharts.com for full size image

Press Release
Source: NanoViricides, Inc.
On Monday August 10, 2009, 7:00 am EDT

WEST HAVEN, Conn.--(BUSINESS WIRE)-- NanoViricides, Inc. (OTC BB: NNVC.OB) (the "Company"), announced today that the herpes simplex viral load was reduced by 99.99% or 10,000 fold in in-vitro studies by nanoviricides(TM) drug candidates. The studies were performed by Thevac in Baton Rouge, LA, in collaboration with the Division of Biotechnology and Molecular Medicine at the LSU School of Veterinary Medicine under the supervision of Dr. Gus Kousoulas.

Four different nanoviricides showed greater than 10,000-fold (>99.99%) reduction in virus quantity compared to untreated controls in a cell culture assay employing the LSU proprietary green-fluorescent-protein-tagged (GFP) modified HSV-1 McKrae strain.

These nanoviricide drug candidates are designed to act against all herpes simplex virus strains, including HSV-1 and HSV-2. The Company has commissioned additional in vitro studies to confirm the results. Animal studies have also been scheduled.

"We are very excited with this success against HSV-1," said Eugene Seymour, MD, MPH, CEO of the Company, adding "and expect this to lead to a topical skin cream against herpes cold sores and genital herpes. This opens up another significant commercial opportunity for the Company."

Herpes simplex virus (HSV) causes "cold sores", the incidence of which is second only to the common cold (100 million recurrences annually in the US alone). In addition, genital herpes prevalence is 67 million infected individuals in the US alone. HSV also causes keratitis, a disease of the eye (250,000 US cases/year).

Existing therapies include acyclovir and drugs chemically related to it. These drugs, nucleoside analogs, act by inhibiting viral DNA synthesis. However, there is known drug toxicity due to interference with human metabolism. Currently, there is no cure for herpes infection.

Nanoviricides act by a novel and distinctly different mechanism compared to existing drugs. Nanoviricides are designed to mimic the human cell surface to which the virus binds. Our results suggest that a nanoviricide could become a highly sought after drug against HSV.

The market size for herpes simplex virus treatments is in excess of $2 billion annually.

This press release contains forward-looking statements .... more here



At $0.99 the market cap for NNVC is only $121.79M

For commentary and my current outlook for NNVC, read "Kirk's Investment Newsletter"

Disclaimer: I own NNVC in my personal and newsletter accounts with shares added at 56¢ and 80¢ for overall profits in my position as of this writing. I have targets to take profits on these shares listed in the newsletter should my price objective be reached. I will not announce buying or selling ahead of time here on the blog.

DateOpenHighLowCloseVolume
10-Aug-09
0.81
1.09
0.79
0.99
1,332,103
7-Aug-090.750.770.720.77125,700
6-Aug-090.760.760.710.75106,300
5-Aug-090.730.750.710.7336,100
4-Aug-090.750.770.720.7564,700
3-Aug-090.730.770.710.7794,700
31-Jul-090.760.780.710.76219,900
30-Jul-090.710.780.710.75120,400


Sunday, August 09, 2009

The DOW Measured in Ounces of Gold Up 39% From Recent 17-Year Low

The Dow Jones Industrial Average measured in how many ounces of gold it takes to buy the 30 stock DOW is up 39% from its 17-year March 6th low of 7.03. Despite that impressive gain, the DOW-Gold ratio remains 78% below its 1999 peak of 44.77.

Here is a chart showing the current Dow to Gold Ratio, the ratio of the price of the Dow Jones Industrial Average to the price of gold.

When measured in ounces of Gold, the DOW has been in a secular bear market since peaking in late 1999.

Click chart courtesy of stockcharts.com for full size image


The markets, measured by the S&P500 (S&P500 Charts) and DIJA (DJIA Charts), may have reached new highs in 2007, but the DOW:Gold ratio told a different, truer story of just how unhealthy the US economy was.
  • Back in 1999, it took 45 ounces of gold to buy the DJIA.

  • On Friday March 6 of 2009 the DOW-Gold ratio hit a low of 7.03

  • As of Friday (August 7, 2009) it only took 9.80 ounces of gold to buy the DOW, a nice jump from the recent low.
The scary part is the DJIA-to-Gold ratio got down near 1 in the early 1980s and was just under 0.2 in the early 1800s.

With fiscal irresponsibility in Washington DC as well as many states such as California, many people believe we will have hyper inflation in the future that could give us a DOW-to-Gold ratio near 1.0 again.

Which way do you think the DOW-Gold ratio is headed?

Post your answer here.

This 200 Year Dow/Gold Chart shows the DOW/Gold ratio from 1800 through August 2008.
Click chart courtesy of www.sharelynx.com for full size image

With the DOW:Gold ratio now at 9.80, it is trading below the green zone in the second chart. The ratio is oversold, but nothing says it can't get more "oversold."

CDs have been a "safe haven" for those wishing to preserve assets and get a small inflation adjusted return. See "Very Best CD Rates with FDIC" for a list of the best rates and terms.

US Treasury rates are so low, that they are paying less than long term inflation. See:

As of August 9, 2009, "Kirk's Newsletter Explore Portfolio" is up 15.9% YTD vs. DJIA up 6.8% YTD.

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Thursday, August 06, 2009

Avago's Successful IPO is Second Largest of 2009

Avago Technologies Limited had a very successful IPO today. KKR & Co. LP and Silver Lake Partners took Avago private as a spin-off from Agilent (Agilent Charts) that was spun-off from Hewlett-Packard (Hewlett Packard Charts). KKR and Silver Lake Partners had the IPO today to use the recent strength in the stock markets to raise cash to return to investors and to reduce debt.

click chart courtesy of stockcharts.com for full size image

Avago, which is based in Singapore, sold 43.2 million shares at the $15.0 IPO price. Avago raised $648 million making this the second largest IPO in the United States so far in 2009 according to Reuters.

Google Finance says:
Avago Technologies Limited is a designer, developer and global supplier of a range of analog semiconductor devices with a focus on III-V-based products. The Company’s product portfolio includes approximately 7,000 products in four primary target markets: industrial and automotive electronics, wired infrastructure, wireless communications, and consumer and computing peripherals. Applications for its products in these target markets include cellular phones, consumer appliances, data networking and telecommunications equipment, enterprise storage and servers, factory automation, displays, optical mice and printers. Avago Technologies Limited’s locations include two design centers in the United States, four in Asia and three in Europe. The Company has developed a portfolio of intellectual property that includes more than 5,000 United States and foreign patents and patent applications.

Between 1978 and 1998 I worked in the group that became Avago when it was part of Hewlett Packard. Their chairman of the board, Dick Chang, is someone I have good experience with but I did not buy AVGO shares as I worry their private owners were not able to invest enough in the business to match the growth I expect from some of their competitors that I have in "Kirk Lindstrom's Explore Portfolio." That is they may do very well, but my money is on some others doing better going forward. This could change as there are some very good people at Avago.

I also think the private equity partners would have kept this private longer if they thought it was as under valued.

I will keep my eye on Avago and perhaps look for a buying opportunity after the lock-up period expires.

Charts for:

As of August 6, 2009, "Kirk's Newsletter Explore Portfolio" is up 15.4% YTD vs. DJIA up 5.1% YTD.

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Abby Joseph Cohen Stock Market Outlook

Today on CNBC Goldman Sach's senior investment strategist Abby Joseph Cohen told Larry Kudlow and Melissa Francis (Anchor Women of CNBC) they believe we are in a new bull market and the recovery will be better than many people expect.
"We are beginning to see improvements, EVEN in the labor markets. We have many more months of difficult labor ahead even if the recession, using GDP or industrial production, is almost over."
Larry Kudlow asked:
#1 "are we in a new bull market for stocks?"

#2 "Are you confident we are going to have an economic recovery later in the year?"
Abby Cohen answered #2 first

Point 2:
  • Labor markets will take many months to turn completely.
  • Data points for Q3 are looking quite good
  • first few months of a recovery can be much more "energetic" than people expect
Point 1:
  • We do think that a new bull market has begun. It may prove to have begun in March of this year.
  • Not every sign is positive but we've seen an upturn
  • Inventories will prove to be very important
Melissa Francis: You were early to predict Q3 would be better than most expected. Are you even more positive now?

Cohen: The data for Q3 data are looking quite good. First few months of a recovery are often more energetic than people expect. "things are coming together, not just in the US but there are some other nations, primarily in Asia, where economic growth does seem to have resumed."

Kudlow: Asked about stock market target for S&P500 target (now at about 1,000)

Cohen:
  • 1050 to 1100 range is where we should be towards the end of this year
  • "we believe a reasonable number for next year is $75 per share" so at 1050 this is 14 times earnings.
  • "Staircase Pattern of Recovery" with market not going up in a straight line
  • Stocks should perform better than bonds
  • Of stocks, they think the more "cyclically exposed categories" that include energy, technology and "dare I say it, financials"
  • Many of us have lost track of the fact that most of these stocks follow economic growth.
Kudlow: Are businesses now "lean and mean" enough with cost cutting for better than expected profits recovery to blast the stock markets higher?

Cohen: "Larry, you are right on target." Things to look for:
  1. Margins held up remarkably well. Expect 2nd half of this year to show great improvements in margins.
  2. Very favorable year-over-year comparisons ahead
  3. Many of the under performing, very strained companies of a year ago are no longer in the S&P500.
More info:

As of August 6, 2009, "Kirk's Newsletter Explore Portfolio" is up 15.4% YTD vs. DJIA up 5.1% YTD.

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