Saturday, December 15, 2012

Review of Barron's -- Dated 17 December 2012

I am happy that my first weekend back from Peru is tranquil enough to write up a review of this weekend's issue.  The Cover Story ("Outlook 2013") is titled appropriately enough, but I wonder how much these "Wall Street's Top Strategists" will actually perform re grading their predictions.  I have noticed before that "Investment Pros" at Barron's often underperform the market.  I will try to check up on these predictions as 2013 goes on.

Vito J. Racanelli writes the article and begins by noting that the S&P 500 Index is up some 12.9% this year (so far).  For easy reference he provides a table showing the S&P 500 annual movements from 2009 - 2012, he also breaks it down by sector of the S&P.  Here are the price returns for these recent years:

2009    +23.5%
2010    +12.8%
2011    +  0.0%
2012    +12.9%

The S&P 500 beat the Dow (+ 7.8%) and gold (+8.5%) so far in 2012.

So that 2012 is almost an "exact average" (my words) of the previous three years.  Racanelli writes that the Top Strategists are MORE bullish this year than last year, he suggests that it is because we have had a pretty good year so far, whereas 2011 was not.  Hmm.  Confirmation/Normalcy Bias?  The S&P 500 is now about 1419, a 10% move up would take it to 1561, which would be VERY CLOSE to its all time high of 1565 in October of 2007.  I was curious enough to want to do a little math on the 10 predictions (remember, "Top Strategists", but I do concede that they know far more than I do, and they are sticking their necks out with specific predictions, FWTW):

Average of the 10 predictions: 10.1%
Standard Deviation: 4.6% (72 pts on the S&P 500)
Highest prediction and analyst: 17.0% / Stephen Auth (Federated Investors)
Lowest prediction and analyst:   0.1% / Adam Parker (Morgan Stanley)

Favorite sectors: Industrials, Technology
Disliked sectors: Telecom, Utilities

Average guess of yield on the 10-Year Bond: 2.13% (now at 1.70%)

Various of the Strategists commented that we need to "solve" the Fiscal Cliff" business, or the market will not go up as they currently think...  They also say it will not be a straight line to 1562 +/- 72 pts...

[Ed. Note:  Duh, re last two comments!]

Racanelli goes on to report, that as a group, they LIKE stocks with more foreign exposure, he lists 10 companies, five BIG ones with good foreign exposure and five with the MOST foreign exposure:



ExxonMobil
XOM
45%
ConocoPhillips
COP
37%
Hewlett-Packard
HPQ
65%
General Electric
GE
55%
Int'l Business Machines
IBM
65%
Broadcom
BRCM
99%
Molson Coors
TAP
98%
Qualcomm
QCOM
97%
Diamond Offshore Drlg.
DO
90%
Texas Instruments
TXN
89%


I did not know that BRCM, TAP and QCOM has such high levels of foreign exposure, I might have guessed 90% re QCOM, but the other four surprised me...

Finally, Racanelli provides an interesting graphic that shows that a mere 10 companies accounted for the incremental (marginal) profit growth last year, just FOUR contributed about 58% of the increase in marginal profits (AAPL, BAC, AIG and GS)...  What does that mean to any stock investors?  "Danger, Will Robinson!"

They also note that China imploding or the Middle East exploding might mean they miss their targets...

***

Alan Abelson writes in his column this week that the Fed has essentially promised not to raise rates until the unemployment rate falls to 6.5% (which might take a while).  He notes lack of progress re the Fiscal Cliff (at least I did not miss anything about this in Peru...) and mentions that many are "fed up with the Fed".  He thinks that we may very well go over the Fiscal Cliff, which the "smart money" says we will avoid.

He then goes on to mention that Bank of America Merrill Lynch sees lower tax receipts than Obama is banking on, even though taxes on the rich (still an income over $250,000 I believe) are being so strongly pushed by the D-Team that that is likely to happen.  Merrill Lynch (or Abelson anyway) offered nothing re spending cuts (which, of course, is the real root of our financial woes).

[Ed. Note: As a conservative/libertarian, I would like to see the R-Team fight like dogs to cut spending, ONLY offering tax hikes for at least 3 - 5 times the spending cuts, but that will not happen, sigh...]

Abelson finishes by noting that Bank of America president Moynihan in a recent speech noted that the traditional assumption that all Americans ought to be homeowners might be wrong...

***

"Streetwise" author Kopin Tan wrote that the upcoming year is EVEN MORE uncertain than normal, with all kinds of conflicting economic signals...  I did not get what we used to call "actionable intelligence" from the column this week...

***

William Waitzman (at "Review & Preview") writes that Lending Club, "an online peer-lending network based in San Francisco" pays a yield of 9 - 10%.  Wow!  Uhm, but there was no ticker provided, this is probably one of those investments where you have to be an "Accredited Investor" (have over $500,000 to invest).

"He Said":

"Any protracted fall over the fiscal cliff would have grave economic consequences that I think most observers underestimate."

Former Treasury Secretary Lawrence Summers

***

Andrew Bary writes a bullish piece on Johnson & Johnson (JNJ).  ACtually the stock has not done all that badly, it has reached its 2008 highs.  But Bary notes that even Warren Buffett is fed up (he sold his stake) with the slow turnaround, Bary notes that JNJ may very well grow faster vs. peers like the major pharmas...

***

Kopin Tan more then redeems himself (re the boring "Streetwise" article) by writing about undervalued KOREA!  In his piece "Asia's Cheapest Market" he outlines various pluses and minuses re why Korea has underperformed vs. the rest of Asia.  Demographics (an aging society) and the murky ownerships of the Chaebols (Korean conglomerates) has kept investors away...  He thinks many analysts are cautious because of worries about the world economy.  He suggests that ETFs on Korea may be a good bet, and maybe buying certain companies like Samsung Electronics (005930.Korea, Korea's largest company I would add) and some others.

Nice piece Mr. Tan!

If I had the chance, I would buy into Iljin, Korea's manufacturer of wheel bearings, owned by ONE MAN.  Iljin is a high quality manufacturer of wheel bearings, they claim they are the LARGEST wheel bearing manufacturer in the world.  I visited two of their factories there in May, and I was very impressed, I have never seen such high-tech efficient bearing manufacturing...  Iljin is our (Ameru Trading del Peru S.A.) second biggest selling brand down there.

***

David Englander writes a bullish piece on Tronox (TROX), the world's largest producer of titanium dioxide (used in most paints, as it is a very opaque substance).  Meryl Witmer, a frequent visitor to Barron's has written about the stock before, but, alas, the stock has done badly for various reasons (bad economy, lawsuits, etc.).  Englander writes that if the world economy picks up, so will Tronox.

***

Jack Hough seems to pick four stocks to be bullish about almost every time I see his column.  I will keep an eye on this pattern, he picks (as safe, undervalued stocks) Aflac (AFL), Lab. Corp. of America (LH), Nasdaq OMX Group (NDAQ) and Western Union (WU).

Is someone at Barron's keeping an eye on his picks?

***

Lawrence C. Strauss interviews well-known and long-time market pro Laszlo Birinyi.  I have noted Mr. Birinyi's name for a LONG TIME now, But I do not know his longer term track record.  He contends that we are in "Stage Four" (of four stages) of a bull market since 2009 (and of course the market HAS gone up a lot since then).  Even though we are in Stage Four, he thinks that the market has another year or two to run up some more.  He likes Walgreen (WAG), Sears Holdings (SHLD) and Apple (AAPL).

Birinyi thinks that all the attention focused on the economy and sectors is misguided (oversimplifying his remarks) and that looking at the market itself is what's important.  Birinyi:

"You have to focus in on what's going on in the market, whereas the strategists too often are telling you what should be going on."

Also Birinyi:

"A lot of analysis is really commentary.  What we try to do is understand what's going on in the market and not necessarily forecast the future."

This sounds like "old market wisdom" I have not seen for a long time: "reading the tape".

***

DC pro Jim McTague ("D. C. Current") notes that the Business Roundtable, normally a reliable R-Team supporter, went along with Obama's suggestion of lower business taxes for support of HIS ideas re taxes and spending.  OUCH!  McTague notes that businesses look out for themselves, even if that means leaving principals behind.  I guess this is yet more proof that we are all (or almost all) just a bunch of selfish beings...

***

Tiernan Ray ("Technology Week") writes that various segments of the tech sector could do well in 2013.  Maybe even most sectors (except hapless PC-makers), as more tech companies will likely start throwing more dividends, low valuations now and perhaps better business prospects.  He then goes on to write about a new technology that will likely change mobile computing for the better: "LTE" (long-term evolution -- a technology standard that I know ZERO about but want to learn more soon...).  LTE will help enable more computation to be done on smartphones and tablets, it should mean up to 10 times the speed of internet data flow for us poor schlubs...  It will take a few years, but AT&T and Verizon (and others around the world) are already starting to build out the technology...  Ericsson (ERIC) is specifically mentioned as is Alcatel-Lucent (ALU, but Alcatel is in BIG TROUBLE, no?) as well as the Nokia-Siemens joint venture.  No American companies are mentioned in the infrastructure side here, but Qualcomm (QCOM) would benefit from more hand-set sales...

***

"Economic Beat" economist Gene Epstein writes of Yet Another Peril in 2013, namely that the IRS may be forced to delay sending out tax-refund checks because of lack of clarity in what Congress and the President will re the Fiscal Cliff.

Good observation, Mr. Epstein!

***

Wow..., "Other Voices" (Barron's occasional columns written by non-Barron's people) by Robert M. Sussman is extremely bearish on stocks because Obama won...  Sussman writes of many of the issues discussed at Zero Hedge (big defiicits, our welfare state, the electorate voting Obama despite presiding over the worst economic recovery on record, etc.) is compelling.  He says the S&P 500 fair value, based on Southern European multiples (which he compares the USA with) to be around 800.  Beware!

***

Editor Thomas Donlan writes Yet Another Piece on the Fiscal Cliff and related issues.  It is his guess that there will NOT be a resolution by year-end, and even if there were, so the f**k what (my term not his).  Every year brings more retiring baby boomers and higher health-care costs.

"Crisis Without End" is his final heading.  Yes, I think he is right.  Big problems ahead, f**king right.  While Donlan is better informed than I am, I seem to almost always be on his wavelength...

***

The front page of the Market Week section (always a cartoon of crusty old Mr. Barron from long ago I presume), "Mr. Barron" is "quoted":

"All aboard for QE4?  If you miss it, there will be more."

Yes...

***

Moving right along through the Market Week section I note that investors ignore QE4 as stocks slip ("The Trader").  The authors suggest that Apple buy back some stock (cheaper now!) and that Puerto Rican debt should be avoided (I am certainly OK with avoiding Puerto Rican debt).

"Asian Trader" author Assif Shameen writes about CNOOC's recent acquisition of Canadian oil company Nexen (offshore in various countries as well as oil sands in Canada) in a positive way.  CNOOC has long stated that they want to be run like a "Western" oil company, and so may allow Nexen's policies to have some clout as time goes on...

"Emerging Markets" writer Ben Levisohn writes about a possible Russian Rebound.  He says that Russia may surprise us in 2013: that their stocks are cheap (always have been though) and that Russia is "finally embarking on some much-needed reform" (really?).  Ahh, Levisohn himself notes that Russia is ranked 112th out of 185 countries (World Bank), that is ALL I need to know to stay away...  LOL they're going to reform...  Right.  /sarc  As they say in Polish (I do not know Russian, so Polish will have to do for now: Nie Dzienkuje!  (No thanks!)).

"European Trader" author Jonathan Buck writes that two big British banks (HSBC and Standard Chartered) have ponied up a combined $2.6 billion to settle money-laundering charges with US regulators.  And so might be a Buy.  Ahh, no thanks!

Michael Aneiro (who has the most secure job at Barron's if he keeps cranking out nice pieces on the VERY IMPORTANT fixed-income markets, "Current Yield") writes that if the Fed indeed keeps its promise NOT to raise interest rates until we hit 6.5% unemployment, then when we DO get near that unemployment rate..., well, don't be left holding THAT bag!  Quite right.

***

Rhiannon Hoyle ("Commodities Corner") writes that coal may be a good play (as well as its miners of course).  She quotes three analysts who like coal's prospects because of recent price increases of natural gas and the prospect of a good China recovery.  Hmm.  I think I would stick with natural gas...

***

Insiders sold (remember, I use both of the somewhat different data sources in Barron's re insider sales) a lot (over $30 million) of several companies: NCR Corp (NCR), Henry Schein (HSIC), UnitedHealth Group (UNH), Verisk Alaytics (VRSK -- a company that had a nice write-up in Barron's sometime back), Warnaco Group (WRC -- who?), LinkedIn (LNKD), Lowes (LOW), Splunk (SPLK) and Yum Brands (YUM). Wow!  That's a LOT of selling since I started looking at these numbers...

Do I even have to mention that he Mighty Peruvian Sol once again reached another record vs. the US dollar, up 0.4% last week.  Yes, my haircut did indeed cost me almost exactly $5.00 (as I forecasted, vs. $4.00 last time I was there...).  Well, I will not be heading for Peru for a while yet, so let 'er rip guys!  A rising Sol, is, after all, good for Ameru.

Verdict:  Yes, if you need details on any of the stories I reviewed above, buy this issue!

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