Prepared by Arsuron Papartassee
Research: Carlisle Companies Inc. (CSL) at $32.06
Prepared by Arsuron Papartassee
Research: Masco (MAS) at $19.43
According to Roy Wenzlick, noted real estate researcher, the U.S. real estate market is supposed to experience a bottom in 2008. While anyone can make predictions of the future, Wenzlick has had a stellar record since 1936. Wenzlick was able to call the bottom of the real estate markets in 1954, 1972 and 1990. Critics of Wenzlick would cite the fact that the new index of real estate prices, known as the S&P Case/Shiller Index would not confirm Wenzlick’s predictive ability; however, the Wenzlick prediction is based on quality research and accurate data.
Where does Masco (MAS) fit into this possible bottom in the real estate market? According to Yahoo!Finance, MAS manufactures, distributes, and installs home improvement and building products in North America and internationally. It operates in five segments: Cabinets and Related Products, Plumbing Products, Installation and Other Services, Decorative Architectural Products, and Other Specialty Products. This company benefits strongly from a rise in home sales and struggles when sales decline.
Considering this is probably the worst real estate decline since the Great Depression, I sought out the period when MAS had its worst performance financially. I have decided to use price to cashflow as the measurement by which I determine the mean for this stock. The mean price is where the stock is likely to return to, at minimum, over time.
When I reviewed Valueline Investment Survey from the period of April 18, 1981 to April 4, 2008, I found that the worst decline of cashflow was 1988 at the peak to 1991 at the bottom. At the peak cashflow, MAS was generating $2.65 per share. At the bottom, MAS had a cashflow of $0.98. This was a decline of 63% over a four-year period. By calculating a decline of 63% from the most recent peak in cashflow back in 2006 at $2.97, we arrive at an estimated cashflow of $1.10.
Using the Standard and Poor’s Stock Report, I ran the numbers for the average cashflow for MAS over the last 10 years. The figure that I arrived at is 11.5 times average cashflow, which is 0.5 short of Valueline’s average cashflow over the last 27 years at 12 times cashflow. What this ratio indicates is that whenever the stock is trading below the average price to cashflow then the stock is probably undervalued on a relative basis. Based on the last 10 years cashflow figures, according to S&P, MAS is trading below the average cashflow at $19.67. Using the Valueline cashflow figures for 2007, MAS is trading below the average cashflow at $27.83.
I believe that the Valueline figure is more accurate and MAS is trading at a discount of 30%. Why do I believe the Valueline numbers? Because Valueline has an incredible ability to generate accurate future estimates. As an example, back in April 18, 1997, Valueline predicted that MAS would generate future cashflow for 1996, 1997, and 1998 of $2.45, $2.80 and $3.15. What did MAS actually do? For the years of:
1996 estimate: $2.45
1996 actual: $2.44
1997 estimate:$2.80
1997 actual:$3.05
1998 estimate: $3.15
1998 actual: $3.60
*(Figures are pre-split numbers)
Either Valueline conservatively estimated or Masco overperformed. Currently, Valueline estimates that MAS is going to generate cashflow of $1.70 in 2009 and $2.25 in 2010. Using these numbers and calculating in the historical mean of 11.5 times cashflow, we come up with an estimated stock price of $19.55 and $25.88 for 2009 and 2010 respectively. This stock is currently selling at a discount relative to 2007 price to cashflow by 30%. This stock is at the mean based on 2009 estimates and trading 24% below the mean based on 2010 estimated cashflow.
However, of particular concern is that this stock is projected to fall to $12.64 if it duplicates the declines of the 1988 to 1991 period. Also, the stock is selling at a relatively high price to earnings ratio (P/E). Historically this stock has averaged a P/E of 17.8 when it has hit its low. Finally, a book value of $11.26 is where the stock could trade at on the extreme.
Despite the risks associated with this stock, I consider it a great opportunity to buy at the current price. However, if I were to buy this stock, I would put down half of the intended amount now and invest the second half later if the stock falls down to the $11.26 level. Touc & Art.
What in the world is "Downside Potential?"

Lesson #2: The stock market's volumn grows because big money is moving it.
Lesson #3: Never consider buying a stock or a mutual fund at or near a 1-year high.
Update: Briggs and Stratton at $14.89
This was not exactly the best news for the company, however it was great news for prospective investors. At this point we are now much clearer on where the company is going to get the money to pay its annual dividend. Also instructive was the fact that year-over-year 3Q earnings were higher but below the target analysts. This creates an opportunity to acquire this stock at a discount to the market.
Earnings Source:Thomson Reuters
Research: Briggs & Stratton (BGG) at $17.52
According to the Valueline report dated January 25, 2008, BGG typically trades around 9x cash flow. Based on this measure, BGG should trade at $20.70 using Valueline's estimated cash flow figure of $2.30 for 2008.
There is one matter of particular concern which I hope will be alleviated over time. The company's dividend of $0.88 per share is significantly above the trailing twelve months earnings of $0.12. In situations like this one of several things have to take place, either earnings have to rise, the company may have to borrow or dip into reserves to maintain the dividend or the dividend needs to be cut. All of these outcomes are potentially positive as a remedy except borrowing to keep the dividend.
Speaking of debt, BGG's long-term debt is down from $508 million in 2001 to $268 million in 2007. This has to be a positive if the debt reduction trend can be continued while maintaining the shares outstanding at the same level.
While the verdict is not out on this stock, I noticed that BGG severely underperforms the market during periods of recession. In the recession of 1990 the stock fell 40% from its high of pre-split price of $25. In the recession of 2001, BGG fell 39% from its pre-split price of $48 all the way down to$29. Since recessions aren't usually determined until after the fact and with BGG already down 47% from its one year high of $33.40 back in June of 2007 we could see limited downside risk.
Best of luck on your research with this stock. Touc.
Research: American National Insurance Co. (ANAT) at $105
Prepared by Arsuron Papartassee
American National Insurance Co. (ANAT) operates primarily in the insurance industry. The industry sub-segment is the life insurance, annuities, and property & casualty. ANAT competes with companies such as Prudential (PRU) & American Financial Group Inc. (AFG).
The valuation between these companies can be compared to get a better sense of where they stand in pricing. While AFG is currently trading (as of 4/4/08) at book value of $26 and PRU trading 1.5x book value, ANAT is trading at $105 which is well below book value of $140 this leads me to believe there is an upside of at least 26%.
The price to earning ratio for ANAT is 10 while PRU & AFG are 10.77 & 8.55 respectively.
With such small differences in the P/E ratio, I consider the book value the most significant factor as a reason I'd say ANAT is rather “cheaper” than the rest. One thing to consider is whether that book value is valid or not as we have seen in the recent weeks that book value as it relates to financial sector stocks can’t be regarded as absolute.
ANAT has a short ratio of 0.13% of its share outstanding, which leads me to believe that the short sellers have gotten out of this stock indicating a bottom in the stock's price.
One of the most interesting things I found during this research was that ANAT has a lot of investment tied to the real estate market, but it has no direct exposure to sub-prime mortgage. Needless to say, some of its investments bought/sold may contain at risk assets. Further, its 2006 income grew heavily due to the fact that it had disposed of real estate and mortgage loan payoffs during the peak of the mortgage crisis.
Here are additional highlights of the company:
- Profit margin 9%
- Operating margin 13.7%
- Debt / Equity ratio of 3.5%
- ROE of 8.25% (This figure to me is more important than ROA as insurance industry is not capital intensive)
On the technical side, ANAT is in an intermediate down trend. The resistance is at the $100 range so I would wait for a pull back to that price. The stock however broke out on 4/1/08 with heavy volume indicating some institutional buying pushing it above its previous range. This could be the sign of a turn around.
Some of the things to look out for are ANAT's investment vehicles and its ties to the housing industry. The insurance industry is a cash cow, but it is a maturing market so the growth factor isn’t going to be as big as other industries, however the fact remains that ANAT is rather small (PRU is 12x bigger in revenue)and it has room to grow market share.
In summary, ANAT appears to be undervalued and mispriced by the metrics I have mentioned above. However, any investments must be taken cautiously considering the potential housing industry impact.
Links
http://biz.yahoo.com/prnews/080218/lam051.html?.v=101
http://finance.yahoo.com/q/ks?s=ANAT
Prepared by Arsuron Papartassee
Disclosure: I do not own shares of ANAT
Research: Mine Safety Appliances (MSA) at $41.61
As of today, MSA is within 7% of the one year low. However, when we look at the technical patterns for this stock we see that MSA potentially could fall at least another 15% to 20%. According to Valueline, MSA typically trades at or near the 13x cash flow. Interestingly, this stock broke above the 13x cash flow level in 2004. Prior to this period, MSA was trading far below this level. In most instances 50% below the expected level of 13x cash flow. Be very watchful of this situation because this would indicate that MSA could trade, at best, to the $32 level and at worst, down to the $15 level. This belies the value of a company that has consistently increased it's dividend for over 34 years in a row.
While MSA has a volatile earnings history where only 8 of the last 16 years have had higher earnings the stock has had a doubling of the book value from $6 in 1998 to $12 in 2006. Another boost for this company is the fact that the number of shares outstanding has gone from 56 million in 1991 to 36 million in 2006.
The numbers regarding this stock were obtained from the Valueline dated January 25, 2008 and are not based on the estimates for the coming year(s). However, this stock has had good cyclical history which may prove useful when deciding to buy. All the best in your in research. Touc.
Research: CenturyTel (CTL) at $33.47
According to Yahoo quotes, CenturyTel (CTL) is now trading 6% above the 1 year low making this a timely investment opportunity. On a technical basis, CTL is trading above its $33 support from 1999. Such a technical support level from so far back in time indicates that the worst case scenario is that this stock will likely trade down to the 25 level but not go much further.
On the upside, CenturyTel (CTL) seems capped at the $50 level as far back as 1999. After hitting $50 in 1999, 2000 and 2007 the next run will be back to $50 with serious implications. An ascent back to the $50 level will occur with either a MAJOR breakout to the upside or a total collapse of the price. Either way this is a stock to watch with short term trading and long-term investing opportunities.
According to Valueline, CenturyTel (CTL) normally trades at around the 5x cash flow. If CTL were to trade at 5x based on last year's cash flow it would be trading at $41. Keep in mind that Valueline, from 1985 to 1997, used to have CenturyTel (CTL) trading at 8x cash flow. At 8x cash flow, CenturyTel (CTL) would be trading at a mean price of $64. We have to take the conservative route on this and project towards the $41 level.
Another compelling element of CenturyTel (CTL) is the fact that shares outstanding have decreased from 144 million down to the 108 million. All this at the same time that long term debt from 2003 to 2007 also decrease from 47% of equity to 44% of equity. Meaning, the company isn't taking on more debt solely for the purpose of reducing shares outstanding reflecting good management policy. Also, of particular interest is the fact that CTL is trading at 6% above book value.
Take the time to do the research on this stock and learn something new about the market for rural telephone service. After doing the research you too might be convinced that this company with its 31 years of dividend increases proves it is a quality short and long term investment. Touc.
Research: Illinois Tool Works (ITW) at $50.34
When looking at the last Valueline report dated March 21, 2008 you can see that ITW's stock price is projected to conservatively increase 17% annually through 2013. Valueline also indicates that ITW normally trades at 13.5x cash flow. Currently, ITW is trading, based on 2007 cash flow, at 11x cash flow. If Valueline's price/cash flow projections are correct ITW is projected to trade up to 63.45 at minimum. The last time ITW traded above the 13.5x cash flow was back in 2004. After it's most divergent fall below the mean the stock may be poised for its next move higher.
An interesting characteristic about ITW is the steady decline in shares outstanding since 2003. At it's peak, ITW had 617 million shares outstanding. As of Dec. 2007, ITW had only 530 million shares outstanding. Along with the reduction of shares there has been a steady year over year increase in earnings since 2001. What this translates into is greater per share earnings and even greater value for the company. However, we must be aware of the company taking on too much debt either to buy back shares or expansion. Currently ITW has total debt at $2.9 billion with long term debt at $1.8 billion.
With ITW at 50.34 a share the stock is 12% above it's 1 year low and could be researched further as your next dividend achiever investment. Touc.
Research: Clorox (CLX) at $56.64
After determining that the dividend is within the sphere of trailing earnings I look at the Valueline metric that indicates where the stock normally trades. In the case of CLX the stock normally trades at around 16x cash flow. This means that when the stock is trading below this measure the shares are undervalue and above this level the stock is overvalue. All that undervalued and overvalued means is that the stock is more likely to rise or decline. According to Valueline of April 4, 2008, CLX is trading at 12x cash flow and is therefore likelier to rise than fall. Keep in mind that according to Valueline during the period from 1981 to 1997, CLX normally traded around 12x cash flow. This indicates that Valueline has raised the level at which CLX is expected to trade around on a cash flow basis.
CLX has increased its dividend for 30 consecutive years in a row at a ten year compounded annual rate of growth of 8.79%. An annual increase of the dividend is management's view that prospects for the company overall are decent at worst and are probably going to get better.
The downside to CLX is that it is heavily indebted which is not going to change soon. Also a negative is CLX's reliance on commodity price movements. As the continued increase in commodities goes on CLX's profit margins will be whittled away. However, if you consider the fact that this company has increased its dividend every year since 1978, during periods of intensive commodity price increases, there is good reason to believe management will get through the threats of commodity inflation. Touc.
For additional quality insight on CLX please go to:
On the Watch
- AOC
- BEC
- BGG
- BKH
- BRO
- BUD
- CLX
- CTAS
- CTL
- CTWS
- ED
- WTR
- AJG
- EAS
- FPU
- GCI
- GPC
- HNI
- ITW
- JNJ
- KMB
- LEG
- RRD
- GAS
- MCY
- MDP
- MDU
- MDT
- MMC
- MRK
- MSA
- MSEX
- NWN
- PBI
- PFE
- PGN
- PGR
- PPG
- RLI
- SHW
- SJW
- SLM
- TDS
- TFX
- TGT
- UGI
- UTX
- VVC
- WGL
On the Watch
- ANAT: Has fallen from the Feb. 2, 2008 level of 127 to today's 104.
- AWR: Has risen from the 2/2/2008 level of 34 to today's 36.
- ARTNA: Has fallen from the previous level of 19 to today's 18.
- BRC: Has risen from 31 to 33.
- CWT: Up from 35 to 38.
- ED: Down from 43 to 39.
- HNZ: Up from 42 to 46.
- MDT: No change has occured possibly indicating that accumulation is taking place.
- PAYX: Up from 33 to 34.
- PGN: Down from 45 to 41.
- QUIX: Down an amazing 50% from 16 to 8. Must be verified as a viable going concern.
- SLE: Down from 14 to 13.
- TDS: Down a sizable amount from 54 to 39.
- ADP: Up 39 to 42.
All stocks that are down from the previous period are candidates worth researching as possible purchases. Touc
Sell Recommmendations & Realized Gains
2009 Sell Recommendations
- American National Insurance (ANAT) +18.27% in 630 days
- Northwest Natural Gas (NWN) +10.53% in 80 days
- AquaAmerica (WTR) +10% in 46 days
- Air Products & Chemical (APD) 9% in 345 days
- Walgreen Co. (WAG) +11.03% in 338 days
- Sysco Corp. (SYY) +10.85% in 253 days
- Bard Corp. (BCR) +10.11% in 126 days
- Bank of Hawaii (BOH) +11.36% in 207 days
- Matthews International (MATW) +10.25% in 126 days
- Cardinal Health (CAH) +10.28% in 54 days
- Meridian Biosciences (VIVO) +11.75% in 78 days
- H&R Block (HRB) +11.50% in 18 days
- Altria (MO) +13.11% in 52 days
- Helmerich and Payne (HP) +15.88% in 16 days
2008 Sell Recommendations
- Helmerich and Payne (HP) +141.50% in 684 days
- CenturyTel (CTL) +17.87% in 159 days
- Clorox (CLX) +10% in 161 days
- Carlisle Companies (CSL) +7.45% in 124 days
- Briggs and Stratton (BGG) +8.44% in 156 days
- Archer Daniels-Midland (ADM) +9.09% in 61 days
Something to ponder...

The chart above depicts the wholesale inflation rate from 1749-1980. The wonderful chart comes from The Wall Street Waltz by Kenneth L. Fisher manager of Fisher Investment and columnist at Forbes. What I would like to point out is that during this war we have experienced relatively little inflation. In fact, no other congressionally approved war except for Gulf War I did we not have to feel the consequences in the way of significantly higher prices at the pump and other basic necessities.
Since we're not feeling the inflationary heat right now we can only expect that, at some point soon, we will experience inflation on the level of what happened during and after the Viet Nam War. If, for some reason, we're able to stave off inflation somehow I expect that we'll see the impact somewhere else in the world. Matters of inflation do not exist in a vacuum. Keep in mind that on every equation both sides need to be equal. The only difference in the world of economics is that it takes time for the equation to be reconciled.
More news on AFLAC...
In the April 9, 2007 edition of Forbes magazine, John Rogers advises the purchase of AFL. I promise I didn't get an advanced copy of the magazine. Rogers makes two very interesting points about AFL. Point number one, AFL "has payroll deduction arrangements with employees at 91% of the companies traded on the Tokyo Stock Exchange." As Rogers points out, this is a monopoly if there ever was one. Point two, AFL shares "trade at a 21% discount."
John Rogers' opinion carries a lot of weight in my book. I suspect that AFL might be able to fall another 5%-10%. Despite my downside projections the upside reward far exceeds the potential risks.
Near the Bottom...
- Brown and Brown (BRO)
- Brady Corp (BRC)
- Cincinnati Financial (CINF)
- Citizens Banking (CRBC)
- Cullen Frost Bankers (CFR)
- First Charter (FCTR)
- FirstMerit Corp (FMER)
- Fulton Financial (FULT)
- Progressive (PGR)
- Protective Life (PL)
- Sallie Mae (SLM)
Performance Update of Select Dividend Achievers
- ABM Industries (ABM) 62%
- Applebee’s (APPB) 45%
- Aptar Group (ATR) 45%
- AT&T (T) 57%
- Avon (AVP) 45%
- Bandag (BDG) 55%
- Eaton Vance (EV) 49%
- Energen (EGN) 54%
- EnergySouth (ENSI) 41%
- Family Dollar Stores (FDO) 36%
- Frischs Restaurants (FRS) 68%
- Fuller H B (FUL) 46%
- General Growth Properties (GGP) 58%
- Gorman Rupp (GRC) 64%
- Healthcare Properties (HCP) 46%
- Helmerich and Payne (HP) 41%
- Holly Corp (HOC) 80%
- Johnson Controls (JCI) 43%
- Kimco Realty (KIM) 47%
- McDonald’s (MCD) 40%
- McGrath Rents (MGRC) 45%
- Meridian Bioscience (VIVO) 50%
- Nucor (NUE) 46%
- SEI Investments (SEIC) 51%
- Service Master (SVM) 58%
- Sherman Williams (SHW) 54%
- San Jose Water (SJW) 82%
- Stryker (SYK) 67%
- Supervalu (SVU) 49%
- Telephone Data (TDS) 56%
- VF Corp (VFC) 48%
- Vulcan Materials (VMC) 81%
- West Pharma Svc (WST) 44%
- Wolverine Worldwide (WWW) 44%
As you’ll notice, companies with 10 to 35% returns were not included. However, if they were included during this time frame I would have had to add many more companies to the list. If anyone were to complain about receiving only 30% percent in one year with significantly reduced risk then investing in stocks isn't their cup of tea.
Despite the performance of these stocks I would not buy any of them since they are at or near their 1 year high. I currently hold a large position in Helmerich & Payne which I bought near the 1 year low. I always focus on those stocks that are within 5% of their 1 year low. At that time I determine if the stock is actually worth buying. Once I find another stock that is worth buying I will then jump ship.
Investment Tip: The larger your stake in a particular investment the better. While diversification is the general rule it is only sufficient when you don't understand the risks associated.
Stocks to Consider...
- AFLAC (AFL): This company is among the leading insurance companies in the U.S. and Japan. This company has traded in the $45 - $50 range since 2005 while the dividend has increased over 17% annually over the same period. According to IQTrends (www.iqtrends.com) written by Geraldine Weiss, AFL is undervalued when the dividend reaches 2%. The current dividend yield is at 1.60%. AFL has increased it's dividend for 22 years in a row.
- Bank of Hawaii (BOH): BOH is the largest bank in the state of Hawaii. BOH has increased it's dividend for 27 consecutive years in a row. This stock has traded in a range for the last 3 years. According to IQTrends BOH is undervalued with a dividend yield of 4%. BOH is yielding around 3.20%. While I am hesitant to dive into banking stocks, especially after the rash of mortgage loan delinquencies, I believe that BOH will prove profitable since it finances some of the most valuable real estate in the world. BOH has traded in $50 range since 2004.
- Lancaster Colony (LANC): This company is a diversified consumer product company that produces packaged foods to automotive parts. LANC has increased it's dividend for 35 years straight. This stock has traded in a range since 2002.
- Leggett and Platt (LEG): LEG has traded in the $20 -$30 since 1998. This translates into an incredible amount of untapped value. LEG has increased it's dividend for 33 years.
Good luck with your research. Please note that this list is expected to change.
Famous Last Words...
"...we have several years worth of losses built up in the current allowance for loan losses."
At the time, NEW had a closing price of $35.90. Today, NEW trades at $3.87. With such a brazen and flippant response, one has to wonder if the management team at NEW was thinking clearly at the time.
Source Citation: "Q3 2006 New Century Financial Corporation Earnings Conference Call - Part 2." The America's Intelligence Wire (Nov 2, 2006): NA. InfoTrac OneFile. Thomson Gale. San Francisco Public Library. 9 Mar. 2007
Gaming the Pre/After Hour Markets
Articles
Entropy notes
Gold-Eagle
http://www.gold-eagle.com/editorials_98/marantette121698.html
The Entropy Danger We continue to review Entropy Tops and Bottoms in our newsletters. Over the past 27 years, we have found the analysis of Entropy Tops and Bottoms a terrific addition to the buy and sell points of cyclic analysis. No more valuable or accurate technical analysis tool exists.
Our Entropy work comes from a tangential application of The Second Law of Thermodynamics. This law basically says that, in the end, all things come to rest. When applied to humans, Entropy equals death.
When applied to the stock or commodities markets, it means the end of one move and the reversal to the other direction. If the current direction is up, it shows the end of the upmove and the reversal to the downside. If the current move is down, it shows the end of the downmove and the reversal to the upside.
As we read our charts and discover Entropy Tops and Bottoms, we find the rules apply equally to charts of stocks or commodities. The rules apply equally to charts of any time period — daily, weekly or monthly. The rules apply equally to Dow Jones Industrial stocks and gold mining company stocks. The rules apply equally to Standard & Poor Futures and to Gold or Silver Futures.
Entropy rules as we now apply them are correct over 90% of the time. No other Technical Analysis tool comes close.
This week we are fortunate to have a weekly chart that exemplifies the basic rules and also shows a couple of the finer Entropy points as well. Over the years our work has shown us two basic time elements. They are: 1.) Moves up or down at the rate of 80 to 85 degrees, normally last 6 to 9 units of time. 2.) Moves up or down at the rate of 85 to 90 degrees, normally last 3 to 6 time units.
On a daily chart, time units are calendar days, not trading days. Entropy moves are a minimum of three days. The first unit of any Entropy move counts as day one.
Entropy moves are basically moves up or down at a rate of change of 80 plus degrees. Entropy moves are exhaustion moves and signal the end of the effort required to make the move to begin with.
Entropy moves end when the price move of a certain day goes above or below the extreme of the prior day. If a current move is up, the Entropy Top is in place when price action goes below the low of the prior day. If a current move is down, the Entropy Bottom is in place when price action goes above the high of the prior day.
The chart we use today to show examples of Entropy is the S&P Futures chart – weekly time period.
The first Entropy move to the upside begins the week of 6-19. It is a rise of 87 degrees and lasts 5 weeks. It ends the week of 7-24 when price action that week goes below the low of the prior week.
The week of 7-24 begins an Entropy move to the downside. This move lasts 4 weeks at a rate of decline of 88 degrees. It ends when price action the week of 9-18 goes above the high of the prior week. In this instance the downmove doesn't end, as there is a two week extension. However both the Entropy upmove and Entropy downmove result in profitable trades.
The next upmove begins the week of 10-09. This rise lasts an abnormal 8 weeks long. This rise is truly stupendous at the rate of 87.39 degrees. Remember this is an index of 500 stocks. Some stocks in the index are rising at even higher rates of climb.
The Entropy Top is now in place as price action last week went below the low of the prior week.
BUNGEE JUMPERS — READ ON
So far we've covered the basic points that we make in our two weekly newsletters. Here are the additional finer points we want to point out now.
There are times when, especially in rises, we say, "Watch Out – after rises like this, the decline on the other side can be as fast if not faster than the rise that brought us to this Entropy Top."
Now you look at this S & P Futures chart and your reaction may be, "Marantette – No Way!" Well, stay with us. Look back at the 06-19 rise. It took 5 weeks to go from 1074.67 to 1188.04. It took 4 weeks to fall from 1188.04 to 1054.00.
5 weeks up +113.37 points
4 weeks down –134.04 pointsMarkets go down faster than they go up.
Now look at last week's price action on the chart again. Is this market now starting down faster than it went up? Looks like it! Time and time again our Entropy analysis shows that after an Entropy rise, the stock or commodity can decline at a rate faster than the previous rise.
This is why our long-term stock market investors are now 100% in cash. This is why our DowStock mid-term portfolio is 90% short.
Other work of ours also shows that over the past 30 years, when the stock market declines, gold stocks decline faster and longer then the general market. In our Goldstock Trading Portfolio, which by the way is +62.48% year to date, we are now 100% in cash.
Unless you are truly a gunslinger, this is no time to be in the stock market.
David T. Marantette III
Goldstock Newsletter
http://www.goldstock.com
16 December 1998
What kind of game is this?
Today, Standard and Poor upgraded Countrywide Financial (CFC) from Strong sell to Sell. What kind of game are these analysts trying to play with us? Does it make sense that something which is so unattractive be worth deeming it less dead that previously noted.
This kind of manipulation by analysts raises my suspicions. Are the analysts fearful that, by painting a negative, but accurate picture, it is going to become a self-fulfilling prophsey? Does Standard and Poor have a vested interested in CFC? The justification given by Standard and Poor analyst Stuart Plesser for raising Countrywide from the dead to near dead is that it has been hammered so much that it couldn't possibly go any lower. Come on!!!!
This leads to unjustified optimism without the necessary proof that things have turned around. We need evidence not an analyst's assurance that it can't possibly get worse. This seems all the more outrages when you consider that some 21 companies in the subprime lending industry have filed bankruptcy at or near a perceived top in the real estate financing market (as opposed to the valuation of real estate itself.)
Continue to wait for the proof before considering this company as worth investing in. Countrywide is still a STRONG SELL.
Countrywide Financial (CFC)
Ups from 1 STAR (strong sell) to 2 STARS (sell)
Analyst: Stuart Plesser
http://www.businessweek.com/investor/content/feb2007/pi20070227_897788.htm?campaign_id=yhoo
Overall Market Direction...
I have decided to review the previous market cycle top that occurred from Jan. 1966 and ended around Jan. 1982 to demonstrate the power of the market cycles. The chart below from "The Wall Street Waltz" by Forbes Columnist Kenneth Fisher shows the Dow on an inflation-adjusted basis. This chart shows how, after inflation, the market moved sideways or down from Jan. 1966 to Jan. 1982.
As any cycle goes there is a point that there is an ultimate high or low. The best we can do as market observers and investors is to guesstimate where the bottom might be. Since the stock market has run on a 16-year cycle for the last 100 years it is safe to say that the stock market will hit it's ultimate bottom between 2008 to 2016.
This forecast doesn't seem very upbeat, I know. However, it is important to keep in mind that this will help you to choose your investments wisely in the coming years. Companies that have a consistent history of paying dividends are definitely going to make the difference in your investment performance.
Imagine if you bought stocks at the peak of the market in 1966 or 1972. If you had, the biggest stocks for that time would have broke even on your investment in a short period of time (3 to 5 years.) That is why I recommend that you read the article titled "The Nifty Fifty Revisited" by Jeremy Siegel. Siegel studied the top companies performance assuming that you bought at the market peak. It is no coincident that a majority of the companies studied by Siegel were dividend-paying stocks that can still be found in the current Mergent Dividend Achiever list.
If you chose to invest in stocks then knowing the market's history should serve you well. For those who bought the largest income paying stocks, from '66 to '72 and held on, they were richly rewarded.

Informative Financial Resources
- Mises- Hard Core Economics
- John Reed -Real Estate
- Caroline Baum -Interest Rates
- John Rogers -small cap values
- Gary Shilling -big pic and stocks
- James Grant -big pic and stocks
- Steve Hanke -big pic and stocks
- David Dreman-big pic and stocks
- Richard Russell's Dow Theory Letters
- Prudent Bear -potential pitfalls
- Financial Sense- Book Author Interviews
Investment Myth Number 2...
This thesis is based on the assumption that, if you’re wrong about your investment choices (lose all/majority of invested capital) then you’ll be able to make up money lost at a later time.
Yes, you’ll definitely have a chance to make up for the loss later on down the road. However, by the time you get to the point of “down the road” you’ll have lost the one thing that you could never get back and that is time.
During the time that you’ve erroronously invested your funds (you believe otherwise at the time) you’ve lost the opportunity to compound your investment with dividend paying stocks, CDs, bonds, real estate or any other income producing investment. You end up carrying all the risk with little to show in the way of reward as you finally and ultimately give in to the reality of your current investment choices.
Investment Reading List
- The Nifty Fifty Revisited by Jeremy Siegel
- Relative Dividend Yield- Anthony Spare
- Dividend Connection- Geraldine Weiss
- Single Best Investment- Lowell Miller
- Dividends Don't Lie by Geraldine Weiss
- 100 Minds that Made the Market by Kenneth Fisher
- A Treasury of Wall Street Wisdom- Harry Schultz
- ABC of Stock Speculation- S.A. Nelson
- Against the Gods- Peter Bernstein
- Bear Markets- Harry Schultz
- Beating the Dow by Michael O’Higgins
- Dow 3000- Richard Shulman & Thomas Blamer
- Dow Theory Today- Richard Russell
- Dow Theory- Robert Rhea
- General Semantics of Wall Street- John Magee
- Investment Madness- John Nofsinger
- The Great Crash- John Kenneth Galbraith
- The Intelligent Investor- Benjamin Graham
- The Stock Market Barometer- William Peter Hamilton
- The Ultimate Dividend Playbook-Josh Peters
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Research: Helmerich and Payne at $23.03
HP is now selling 6.72% above it’s 52-week low. According to Standard & Poor’s stock report, HP sports a Price-to-Earnings ratio (P/E) of 10, which is well below its 10-year average of 17. This presents an opportunity to buy at or near the lowest price relative to historical earnings.
Imagine keeping a company profitable while at the same time rewarding investors for their patience. The executive team at HP has managed to increase its dividend every year for the last 28 years. This implies that the management team knows exactly how to run a company in a volatile industry.
If we were to look back 28 years ago, we would find that the Oil & Gas drilling sector experienced tremendous growth due to the OPEC oil cartel in the late 1970’s. The cartel forced major oil companies to seek oil supplies from non-traditional regions of the world. This meant significant growth in oil services drillers who built oil platforms and oil rigs that could be easily be built anywhere around the world.
However, as the oil cartel lost its grip on the price of oil, drilling companies had already over-committed themselves by borrowing excessively to meet anticipated demand that never materialize and flooded the market with too many rigs. The drilling industry went into a nose-dive which left only a few companies standing, HP being among them.
HP has fallen 42% from the 52-week high of $40.24, which implies that significant opportunity exists for upside potential. HP moved to the $40 range mainly due to the fact that the price of oil rose so much. Now that the price of oil has fallen from a high of $79 to the around $60 there exists the feeling that oil will continue to fall.
A decline in the price of oil is the most likely risk facing this stock. Many commodity analysts, such as the famed Jim Roger, believe that we are in the early stages of a commodity bull market. And while we might not be at the peak of this bull run there will be many brutal dips to the downside between now the next market top. Since oil often moves in unison with political and economic turmoil I expect that a decline of at least 33%-66% is waiting in the wings before rebounding to its ultimate top.
What happened to the dividends?
The answer will follow the latest on Dividend Achievers at or near their 52-week lows.
Stocks within 5% of their 52 week low:
- Atmos Energy (ATO)
- Bandag Inc. (BDG)
- Popular Inc. (BPOP)
- Anhueser Busch (BUD)
- Conagra (CAG)
- Community Bank System (CBU)
- Commerce Group (CGI)
- Forest City Ent. (FCY)
- FNB Corp. (FNB)
- First Oak Brook (FOBB)
- Frischs Restaurants (FRS)
- General Electric (GE)
- Hersey (HSY)
- Johnson and Johnson (JNJ)
- Sara Lee (SRE)
- Sysco Corp. (SYY)
- Tootsie Roll (TR)
- Wrigley, WM (WWY)
If dividends were reinvested in the DJIA, the average would have been 652,230 at the end of 1998.
(source: Roger Clarke and Meir Statman. 2000. "The DJIA Crossed 652,230." Journal of Portfolio Management. Winter 89-93.)
The Power of Dividends
Steve Leuthhold and his group turn out some of the best research obtainable (612-332-1567). In his latest report, Steve notes that the annual compound growth of stocks, with dividends reinvested, is 10.8%. But excluding dividends, the long-term total return drops to 5.9%. Thus, 45% of the annual total return over the last 100 years has come from dividends and the reinvestment of those dividends.
Then Steve notes that the “difference between 5.9% compounded over 100 years and 10.8% compounded is GIGANTIC.” This sounds incredible, but here’s the difference: $1,000 invested at 5.9% in 1900 grew to $319,694. But $1,000 invested at 10.8% grew to $29,471,614.
Dividends don’t matter? Don’t tell that to someone who understands compounding. Market action plays a large part in how and when companies pay dividends. When stocks are going up and producing capital gains, it is said that companies don’t have to pay dividends because corporations, in their wisdom, can make better use of the money than simply paying it out in taxable dividends. But when times are hard and stocks are down, it is said that dividends are valuable because even if your stock is declining or going nowhere, the dividend is something tangible, the dividend is income, and in hard times income is extremely important and in many cases “a life saver.”
Leuthhold notes that in 1978 the S&P [500] was priced at less than 10 times earnings while providing a yield of better than 6%. Investors in 1978 were still traumatized by the 1973-74 bear market collapse, and they wanted value and the wanted a return on their investments. In 1978 66.5% of the stocks on the NYSE (New York Stock Exchange), the Amex and the Nasdaq paid dividends. In 1998, however, only 20.7% of stocks on those exchanges paid dividends.
Today the percentage has dropped below 20%, largely because the great majority of IPOs and new issues pay no dividends. And as Steve Leuthhold says, “How can they pay dividends? Then don’t have any earnings.”
Russell, Richard. Dow Theory Letters. "Dividends and Total Return." September 27, 2000. p.5. http://www.dowtheoryletters.com