I added more shares of Lockheed Martin (LMT) at $75.50 today. While the market has rallied Lockheed has declined. I also bought the UltraShort Dow Jones ETF (DXD) at $41.80 today. The Dow is looking overbought at 9000.
Archives for July 2009
I picked up shares of Lockheed Martin (LMT) at $76 per share today. Lockheed has dropped from the mid 80’s after reporting a decline in profitability and amidst news that the US government cut funding for the F-22 fighter jet program. I think the nation’s largest defense contractor is very attractive at this level. It’s trading at just 10 times earnings and has a solid balance sheet.
I also bought Allegheny Technologies (ATI) at $28.40. Allegheny was down 18% after reporting negative earnings for Q2 and forecasting no earnings growth for Q3. This stock could drop to $26 in the short term but I like the upside potential when metal prices rebound and the aerospace industry recovers.
Picked up shares of SPXU at $65.00 today. I think the S&P 500 is due for some kind of pullback.
I bought a couple hundred shares of CIT Group for a quick trade. There is no fundamental reason for this purchase. It’s pure speculation. CIT is a dollar stock and may go bankrupt.
I bought shares of Kroger (KR) at $21.50 and Nokia (NOK) at $12.90 today. Kroger is a great grocery chain whose stock trades close to its 52 week low. Nokia has been beaten down after announcing terrible quarterly results last week.
I started a small position in YUM! Brands (YUM) at $33.60 for my long term stock portfolio. I have had YUM! on my radar for awhile and it piqued my interest when I heard Karen Finerman discussing YUM! on CNBC’s Fast Money. She discussed how YUM! was trading at a cheaper valuation than other casual dining chains like Cheesecake Factory. YUM! is trading at 15 times earnings for the current fiscal year. While I don’t think that YUM! is expensive at $33 per share, I don’t think the shares are a steal either. YUM!’s shares appear fairly valued based on current earnings expectations of $2.09 per share.
I think that YUM! is attractive based on its long term growth prospects. YUM is the largest quick service restaurant chain in the US owning KFC, Taco Bell, Pizza Hut, Long John Silver and Wing Express franchises. The story for YUM! is in its international growth where YUM! is growing in the high teens overseas especially China. For the 2nd quarter YUM! grew earnings per share (EPS) by 10%. This is in the midst of a recession that has caused same store sales to decline 1% domestically and 4% internationally. Despite decreased sales YUM! was able to improve profitability. Net income increased by 35% due to higher margins on sales.
YUM! is proving that it can operate efficiently in a challenging economic environment. YUM! is tempering expectations by revising earnings downward and forecasting 0% EPS growth year over year. I think the long term story is still in tact for YUM. In the short term as consumers trade down from higher priced restaurants brands like KFC and Taco Bell should directly benefit. Longer term as foreign economies improve YUM! should see greater top line growth in the form of increasing sales and comps internationally. US growth should be moderate in the single digits and overseas growth should be robust in coming years. The company also pays a decent dividend of 2.3%. While McDonald’s is my favorite company in the restaurant industry; I think that YUM! Brands is a solid investment opportunity as well.
Here’s my take on each of the financial companies earnings:
It was a great quarter for Goldman Sachs. The investment bank had huge gains from its trading operations and bond offering business. I know that everyone is saying buy Goldman right here and now but I wouldn’t buy the stock at its current levels. The stock is trading at $150 and I would like to know more about the investment bank’s business model will be going forward. Goldman appears to be taking great risks again. Will Goldman’s trading operations be as profitable quarter after quarter?
JPMorgan Chase had a mixed earnings season. The banking giant saw its margins, trading and deposits go down. JPMorgan increased its loan loss reserves for the quarter as its loan portfolio saw increasing delinquencies. JP Morgan did have strong results from its commercial banking and asset management businesses. Analyst Dick Bove says “The reality is that this was a very bad quarter for JPMorgan Chase.” “Capital gains are the reason for the strong revenue and earnings performance and these are not sustainable.”
Bank of America
B of A is my favorite bank because of the upside potential but it is also the bank with the greatest downside risk. Bank of America’s earnings were boosted by its sale of China Construction Bank Corp and its strong deposit base. But the nation’s largest bank is still facing rising charge offs from its commercial, residential and credit card loans. CEO Ken Lewis stated that “Profitability in the second half of the year will be much tougher than the first half.” He attributed much of the bank’s success to capital gains.
I think that Citigroup still faces the same problems that have plagued the company for years. Citi does not have core businesses that make money. If you factor out the sale of Smith Barney to Morgan Stanley, Citi would have lost 2.4 billion in the second quarter. While JPMorgan Chase, Goldman Sachs and Bank of America were all able to generate substantial gains from trading operations, Citi was unable to do the same. The promising news for Citi is that CEO Vikram Pandit stated that troubled asset write downs “may be largely behind us.” This may be true but I still wouldn’t buy Citi even at $2 per share.
Short Term Outlook for 2009
The banking giants were able to post decent results for the second quarter but many of these gains were attributable to capital gains. It is unlikely that these one time gains will be duplicated in coming quarters. Loan losses will continue to grow as unemployment and income levels continue to drop.
Long Term Outlook
When unemployment moderates and the economy rebounds, the earnings power of these mega banks will be realized.
Added shares of Fairchild Semiconductor(FCS) at $8.50 today.
Took off SDS SPXU, FAZ trade early this morning. Lost about 4% and 6% on these ETF’s. I will get back in later.
Today was a weird day in the market. The Dow opened positive, turned negative and then soared almost 200 points to end the day. The market was fueled by upgrades by analysts to financial stocks Goldman Sachs, Bank of America and JP Morgan. The interesting part is that these stocks have seen extreme run ups from their March lows. Wasn’t the time to upgrade Goldman Sachs to a buy when it was trading below $100? Or Bank of America when it was trading in the single digits? Analysts are often late to the party and miss big moves in individual stocks. They will rate a stock a “buy” after it has had a huge move to the upside. Or rate a stock a “sell” after the stock has dropped precipitously. It appears that investors are once again chasing stocks based on momentum plays. I find it interesting that as retail investors are buying, insiders are selling shares. I believe that these companies are good long term buys but i would load up on shares at cheaper levels.