DJI @ 7,840
Flowers First!
New York, BizBlog100@blogspot.com Roubini remains a doom monger, thank heavens! At least someone besides Glen Beck is not basking in the satisfaction of the April shower of gains. In particular, consumer durables (F, GT) rebounded from 20-year lows as the government made it clear that auto spending will be stimulated. Even better, Goldman Sachs echoed my comment that Ford is a beneficiary of GM’s demise. Our credit card position advanced, while the software positions posted mild gains enhanced by a happy turn in JAVA, as Sun was bought by Oracle.
I remain fully invested, retaining only a 10% margin cushion. I do have some short losses to liquidate if the market dips. But the DJI remains 40% below 12-month peak and I remain convinced this is a historic time to accumulate select equities.
The market can continue to rise until the recovery, defined by industrial production, is evident. Based on projected auto build, this cannot happen until the fourth quarter. Once the fact of a statistical recovery is evident, the market path will be determined by the character of the recovery, which will be defined by employment trends. If the business recovery is marked solely by productivity gains, corporate valuations will suffer. If, on the other hand, there is any consensus or even whiff of a broader prosperity, valuations can expand.
There are enormous risks investing risks today. For this reason, I prefer owning large, market leading companies. I avoid the financial sector, accepting only AXP and DFS, each of whom now has the good fortune to borrow at a government rate but otherwise minimum encumbrance.
In the meantime, I see Ford and Goodyear as important strategic assets. Whatever the future shape of credit, currency and commodities, their market share and brand equity will remain central to any national or global industrial strategy. Ford’s share of the domestic light truck market is likely to pop from its current 22% (GM and Chrysler, hereto at 20% at 12% look like dead men walking). The current stock prices are far below company and business norms, based on both profit and deal prospects. IU also notice that Toyota stock price is strong.
I added technology, buying Intel and holding GE through short term loss. The chance to add a premier growth company at a 3.7% yield (more than double its lesser competitors) is compelling. My idea is that when consumer driven investments stall, tech stocks will pick up momentum. Ten years ago INTC had $26 billion revenues; today sales are $38 billion. If the company is able to return to earlier margin levels, earnings growth will be spectacular. INTC may be hostage to the PC market --- but that’s not all bad as the TV merges with the PC.
I also added a starter position in New York Times (NYT), on the theory that the relentless criticism of the New York Post is both right and wrong. The depiction of a one-time preening queen, now local harlot, has zing to it. But the forecasted demise as part of the nationwide newspaper decline misunderstands the real value of the Times and also ignores cyclical nature of advertising. Tribune Company had $11 billion debt at bankruptcy; NYT less than $1 billion. This is a straw hats in winter type of investment. But, even if the Post is correct, and Pinch is punched, a strategic valuation will be well in excess of the current sub-$700 million market cap.
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