A Key Point for the market

Today the Dow Jones Industrial Average has fallen to the minimum of 9525.32. This exceeds the Dow Theory projection of 9531.11 posted on this blog on September 17, 2008 by 0.0006%. Nothing that has happened thus far is surprising according to Dow's Theory.

It becomes academic at this point to suggest that we are either going to the 7197.60 level or either of the next three points on the upside:

• 11,734 (23.18%)
• 12,969 (36.15%)
• 13,727 (44.11%)

Like today's action, the move will be violent on either side up or down in a very short period of time. Touc.

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The Fed's $1.816 Trillion Lifeline Didn't Work

The figure in the title of this site is the amount of money committed by the Federal Reserve Bank since December 17, 2007 until September 23, 2008 in an effort to boost confidence in the financial system. Since December 17, 2007 we've had the failure of Bear Stearns, Fannie Mae, Freddie Mac, IndyMac Bank, WaMu, Wachovia, Merrill Lynch, and various other financial institutions which would have failed but were sheltered in some way or another.

The above figure of $1.816 trillion is the amount that the Federal Reserve has committed to no avail. This does not include the many decreases in the discount rate and Fed Funds rates. These rates have fallen as dramatically as the Fed's tab has increased.

Sure, not all of the money went out at the same time and not all of it was evaporated into nothingness. However, $1.816 trillion is the amount that has been holding the hands of weak or hobbling financial companies. Did it stop the bleeding? Of course not. Which is the reason why the Treasury now feels the need to step in and bail out AIG and ask for $700 billion as the first of many more requests for funds to "save" the financial markets.

As a market historian and participant, I know that no amount of action like restrictions on short selling or throwing money at the problem will solve anything. Notice that the ban on short selling didn't stop WaMu and Wachovia from falling 95% after the ban was put in place.

We cannot seek solace in the fact that our Congress feels compelled to commit an additional amount of $700 billion to the problem. Not only that, giving the Treasury Secretary immunity from criminal charges while handling the nation's purse strings seems troubling to say the least.

The markets cannot correct themselves until the bailout efforts stop and the market resolves the problems that we're experiencing. We as investors can only hope that we're better than Japan in resolving the exact same problem that they experienced over the last 2 decades. If we're not equal to the task at hand then we might be fated to experience a similar 18 year recession (depression) which included Japan's stock market falling from 38,000 level in 1989 to the current level of 11,000.

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Research: Air Products and Chemicals Inc. (APD) at $71.43

In my previous research recommendation of Walgreen’s, I reviewed 3 periods that should have demonstrated, according to Dow’s Theory, the most opportune time to buy the stock (the stock is up 5.58% since that Research Recommendation.) At this point, an investor could feel comfortable about considering the sale of this stock. However, I suspect that my own Sell Recommendation will not materialize for a while.

Today’s Research recommendation is Air Products and Chemicals Inc. (APD.) APD has increased its dividend every year for 25 years in a row. According to Dow’s Theory, APD went through a total of 9 cycles from trough to trough or peak to peak since 1980. This means that the stock has a tendency to take a very short time to reach it’s previous high. I will review only the most recent cycle to determine the projected point that the stock should fall to its ultimate bottom.

From the bottom in October of 2005, APD went from $53 to $106.06 in May of 2008. According to Dow’s Theory, the price of APD was expected to fall from $106.06 to any of the following three levels:

• $88.37
  
• $70.68
  
• $53.00

Thus far, APD has fallen to the $71.43 level but not before reaching a low of $69.22 during Friday’s trading session. In prior cycles from 1982 to 1998, whenever APD was declining from its peak it would fall between the 1st and 2nd price levels (i.e. $88.37-$70.68). However, in the last five cycles APD has fallen, on average, to the level between the 2nd and 3rd levels (i.e. $70.68-$$53).

Air Products and Chemicals Inc. is estimated to fall between the $61.84 and $53 levels. However, if an investor were to take the risk of buying the stock right now then the potential downside is between 13.42% and 25.8% respectively. Considering that this stock has a cycle that averages 4 years from trough to trough you could consider this a stock that will reach the previous high in 1½ to 2 years.

Below is the worst case scenario if the Dow Jones Industrial Average were to fall dramatically. The chart below shows how APD performed compared to the Dow from May 26, 1972 to October 4, 1974. During this period the Dow fell 39.8%, a period which was considered the worst bear market since the crash of 1929. Notice that APD actually went higher to the tune of 65% at the high. Good luck on your research of this stock. Touc

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The Ultimate Dividend Playbook

Now more than ever investors need to understand the reasons why investing in stocks is worthwhile. The primary reason for investing in stocks, as with any other investment, is the income you should be receiving on your investment. When it comes to income investing with stocks, a handy book to have at your side is The Ultimate Dividend Playbook.

Written by Josh Peters, The Ultimate Dividend Playbook offers insights and strategies for investing in stocks that...well, pay dividends. The best parts of this book are the end of chapter "Rules and Plays" and "DividendInvestor Case Study." The "Rules and Plays" section summarizes the chapter in a clear and succinct fashion. If you're the kind of person that gets bored with non-fiction books then this section would be all that you need to know...for the time being. The "DividendInvestor Case Study" provides a closer examination of ideas or assumptions that are either confirmed or shown to be exceptions rather than rules. For those who love to "run the numbers," this book provides ample formulas to run on each stock that you're interested in.

No matter your level of understanding, you will benefit greatly from having this book on hand as you decide which stocks to buy and why.

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Research: Walgreens (WAG) at $31

Today’s Research recommendation is Walgreen’s (WAG), which is trading at a low of $31 today. Let’s get straight to the numbers. Below I will list the Dow Theory interpretation of the price movement of prior periods (which is supposed to assist us with finding the final low in the price) and contrast that with the actual low for the stock.

From the bottom in July of 1994, WAG went from $4.22 to $33.94 in February of 1999. According to Dow’s Theory, the price of WAG was expected to fall from $33.94 to any of the following three levels:

· $24.04
· $14.12
· $4.21

WAG actually bottomed at $22.06 in March of 2000.

From the bottom in March of 2000, WAG went from $22.06 to $45.75 in October of 2000. Dow’s Theory says that the stock should fall to the following levels:

· $37.85
· $29.95
· $22.05

WAG actually stopped falling at $26.90 in February of 2003.

From the bottom in February of 2003, WAG went from $26.90 to $51.60 in September 2006. Dow’s Theory says that the stock should fall to the following levels:

· $43.37
· $35.14
· $26.91

WAG is currently selling at around the $31 level.

Walgreen’s has shown from previous periods that the stock price tends to overshoot the second price level on the downside. The current price movement is no exception. With all the drama that we’re seeing in the stock market I’d assume that the price will go as far as the $26.91 level. However, even at the current price this stock is a bargain and would warrant taking the risk of holding with the potential for a 13% decline in the short run. Good luck on your research of this stock. Touc.



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Henry Paulson: Our man at the helm

CEO Paulson was definitely living it up as head of Goldman Sachs back in August of 2005. However, it seems that my favorite magazine Bloomberg was worried about such a firm deviating so far from the tried true revenue model from years past.

The October 2008 issue of Bloomberg shows Secretary Paulson with less of a shine. Don't worry though, at least we know that, no matter what happens, Goldman Sachs has its back covered in case some large losses magically pop up. Almost makes me feel like a can't miss bet is in the offing. Touc

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SELL Briggs and Stratton (BGG) at the Market

The time has finally come to issue a SELL recommendation for Briggs and Stratton (BGG.) The stock has performed moderately since the Research recommendation was issued on April 16, 2008. This company is poised to go beyond the $20.70 level. However, we seek returns that exceed guaranteed funds in the shortest period of time.

BGG was recommended when it was trading at $17.52. As of Monday September 18, 2008 BGG was quoted at $19.00. This equals a return of 8.44% in five months. Conservatively, on an annualized basis this would equal approximately 20.25% return. Selling this stock now also generates a return 65% above the amount of the dividend yield if the stock was held for a whole year. This stock will definitely be purchased again down the road.

It is always recommended that when selling a stock, one should not place an order after hours or when the market is closed. This leaves the seller in the position of being vulnerable to the whims of the market makers. Instead, place your sell orders only as a market order during market hours. Some would complain that a market order during market hours might leave some profits on the table. However, I would rather leave some money on the table rather than have it taken away from me by the trades that are placed by institutions and market makers.

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Dow Theory on the Dow Industrials

Summary

• A brief background on Charles H. Dow
• Dow will now go to 9,531.11 before heading higher
• If falling below the 9,531.11 level, the Dow will go to the 7,197.60 level

Article Details

Charles H. Dow came up with a perspective about the direction of the stock market that was codified in S.A. Nelson's 1903 book The ABC of Stock Speculation. Although Dow never claimed to actually have a theory, Nelson felt that Dow's contribution to economics and finance was so important that it was worthy of being considered a "theory."

In order for Dow to gauge the health of the market and the economy it became necessary to build and index of stocks. This index resulted in the formation of the Dow Jones Industrial Average (Index.) Initially, the Dow Index composed of 12 railroad companies and now composes of 30 companies. Most modern market watchers consider the Dow Index less of an indication of the stock market and economy due the lack of companies in the index. In reality, Dow only wanted the best indicator or barometer of the stock market and the economy not the most diverse mix of stocks.

Dow's theory was later developed by individuals like William Peter Hamilton, Robert Rhea, E. George Schaefer and most recently Richard Russell. As important as the Dow Jones Industrial Average is for the world in determining the current health of the U.S. stock market so too should Dow's Theory be used for determining the future direction of the stock market.

After today's stock market action the Dow Jones Industrial Average closed at the level of 10,609.66. This is below the 50% Principal as devised by E. George Schaefer. The 50% principal indicates that if a stock or index falls below this level it will fall, at minimum to the 2/3 level of Dow's Theory. Right now the 2/3 level for the Dow Jones Industrial Average is 9531.11. If the Dow falls below the 2/3 level the next stop will be 7,197.60.Touc.

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Today's Visuals...

Just imagine, TheStreet.com charges people from $50 to $80 for these stock recommendations. Only my most recent recommendation of SuperValu (SVU) offered any income over the period of time that a "buy" rating and a "hold" rating was issued for the stock.

This is a sample of how the institutional rating agencies (Cramer claims to represent the "blue collar" investor) that charge a fee for their (inaccurate) ratings get it wrong more often than not.

Source:

TheStreet.com

http://www.thestreet.com/_yahoo/newsanalysis/ratings/10432356.html?cm_ven=YAHOO&cm_cat=FREE&cm_ite=NA

August 8, 2008

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SELL Carlisle Companies (CSL) at the Market

The time has finally come to issue a SELL recommendation for Carlisle Companies (CSL). The stock has performed moderately since the Research recommendation was issued on May 17, 2008. This company is poised to reach the $51 level. However, the returns that this stock has provided in the last four months say that it is worthwhile considering alternatives.

CSL was recommended when it was trading at $32.06. As of Monday September 15, 2008 CSL was quoted at $34.45. This equals a return of 7.45% in four months. Conservatively, on an annualized basis this would equal approximately 22.35% return. Selling this stock now also generates a return 3 times the amount of the dividend yield if the stock was held for a whole year. This stock will definitely be purchased again down the road.

It is always recommended that when selling a stock, one should not place an order after hours or when the market is closed. This leaves the seller in the position of being vulnerable to the whims of the market makers. Instead, place your sell orders only as a market order during market hours. Some would complain that a market order during market hours might leave some profits on the table. However, I would rather leave some money on the table rather than have it taken away from me by the trades that are placed by institutions and market makers.

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What does Dow's Theory say about Bank of America?

Today Bank of America (BAC) completed their announcement of the purchase of Merrill Lynch (MER). Although I have stayed out of the banking sector overall I was curious to see what Dow's Theory says about Bank of America. I will examine four cycles for BAC and see if there have been any predictive trends.

Starting with the period from August of 1982 to the top at June 1986 we see that BAC went from $2.94 to $13.88. According to Dow's Theory the price of BAC was expected to fall from $13.88 to any of the following three support levels:

• $10.23
• $6.58
• $2.93

BAC actually bottomed at $3.88 in December of 1987.

Next we have the period from December 1987 to the top at August of 1989. The price rose from the $3.88 level and peaked at $13.75. According to Dow's Theory the price of BAC was expected to fall to the following three levels:

• $10.46
• $7.17
• $3.88

BAC actually bottomed at $4.22 in October of 1990.

Next we have the period from October 1990 to the top at July of 1998. The price rose from the $4.22 level and peaked at $44.22. According to Dow's Theory the price of BAC was expected to fall to the following three levels:

• $30.89
• $17.56
• $4.22

BAC actually bottomed at $18.16 in December 2000.

Finally we have the period from December 2000 to the top at November 2006. The price rose from the $18.16 level and peaked at $55.08. According to Dow's Theory the price of BAC was expected to fall to the following three levels:

• $42.78
• $30.48
• $18.16

BAC actually bottomed at $18.44 on July 15, 2008.

The next question becomes, are there any noticeable patterns that Dow's Theory provides us? Generally, each period from peak to trough (3 out of 4 times) BAC's price fell to the previous low level. What does this mean for Bank of America stock? It means that the $18.44, plus or minus 5%, is the lowest this stock will go.

As hard as it is for me to believe that the bottom is in on this stock, I have to defer to Dow's Theory for some sort of guidance. Since Bank of America is now a bellwether stock for the banking industry, Dow's Theory is saying that either this banking crisis has hit bottom (for now) and might trade up from here (possibly in a range) or that anything below $18.44 is going to be chaotic.

Let's watch and see how well BAC holds above the $18.44 level. I suspect that this price will be revisited in the near term. However, given all the wild moves in the market I can't be certain of what is to come after that. Did I mention that BAC has increased its dividend for over 30 years in a row? This should be interesting. Touc.

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The Real Reason Lehman Failed

In a story published on Friday September 12, 2008 titled "Lehman Workers an Unhappy bunch" this excerpt found on Yahoo!Finance and CNNMoney.com.

From this statement, I can only infer that, if Lehman staff are considered top tier bankers then Bank of America must really be in trouble, especially with the purchase of failed Merrill Lynch. Furthermore, with statements like these it is no wonder why Lehman Brothers failed. Touc.

"One investment-banking analyst spoke with confidence about his job security.

'In banking, we're pretty sure we're going to get bought and if it's by Bank of America, they're going to value bankers highly,' he said. 'They've got C level bankers, and Lehman has A bankers.'"

Ruminations on Fannie and Freddie

The following is my response to an article that appears on the Motley Fool Website.

Greetings Editor,

You wrote a very interesting article titled "How Did Freddie and Fannie Fall?" However, I would like to add some information that I found to be missing or inaccurate from your piece.

First, you stated that, "The two giants could borrow with the strength of the U.S. government…" This statement implies what everyone believed about Fannie and Freddie but was never true until recently and that is the government guarantee of the agencies. Everyone always stated as a fact that the agencies had implicit guarantees when referencing the company’s financial strength. Again, the actual guarantee never existed until this week.

The next matter of concern in your article is the statement "Who's to blame for creating this Frankenstein? 'Blame' is a strong word. This isn't Enron. 'Who was ignorant enough?' is probably a better way to put it." The matters faced by Fannie and Freddie is eerily similar to the tactics used by Enron minus the offshore entities. In 2003, Freddie Mac was forced to restate 3 years of earnings results that led the company to stop reporting earnings for a brief period of time.[i] This after the company was found to have been speculating in the interest rate derivatives market to pad their earnings.[ii] Shortly after Fannie Mae's accounting troubles, 0n September 23, 2004, USA Today quoted Standard & Poor’s as warning investors that, “the sheer complexity of Fannie Mae's activities, together with complex (accounting) rules for derivatives, reduce the overall clarity of financial reporting."[iii] The complexity of the activities was intended to falsify their financial status to ensure that management met quarterly earnings guidance. Meeting their (Fannie’s) guidance ensured that the executives were able to obtain the maximum incentives offered by the board of directors. In retrospect, these strategies are not similar to what Enron did; instead it was exactly what Enron did.

Finally, your article claims that a level of hype was created about Fannie and Freddie that somehow was unwarranted. Unfortunately, a majority of investors and politicians had every right to believe that the “hype” was real. How is this possible? Because when the regulator of Fannie Mae and Freddie Mac, Office of Federal Housing Enterprise Oversight (OFHEO), in response to the failure of Long Term Capital Management, spent two years researching and on February 4, 2003 generated a report title, “Systemic Risk: Fannie, Freddie and the role of OFHEO” the head of the agency was fired the next day. This report was intended to prepare the government, regulators and the banking system for whatever the worst-case scenario might be. Instead, it was treated with the regard of a tabloid magazine and relegate to the conspiracy file. It is a wonder that OFHEO still allows the public to access this document. It is clear that the Congress, Treasury and Federal Reserve aren’t reading the section on how to remedy the current dilemma we’re in.

For the reasons stated above, in the minds of many, the hype was real and therefore ensured the loss of what appears to be, at least, $200 billion in a matter of days and much more down the road.

Sources:

[i] Muolo, Paul. "Analyst: Fannie Might Halt Earnings." National Mortgage News . Oct 4, 2004.[ii] Collins, Brian. "Did Freddie Speculate on Rates?." National Mortgage News . Jan 5, 2004.[iii] "Critics call for 'urgent action' by regulators." USA Today .Sept 23, 2004.

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SELL CenturyTel (CTL) at the Market

The time has finally come to issue a SELL recommendation for CenturyTel (CTL). The stock has performed moderately since the Research recommendation was issued on March 31, 2008. This company may be poised to reach the $41 level or Valueline’s cashflow mean of 5x. However, the returns that this stock has provided in the last five months say that it is worthwhile considering alternatives.

CTL was recommended when it was trading at $33.47. As of the close of market on Monday September 8, 2008 CTL was quoted at $39.45. This equals a return of 17.87% in five months. Conservatively, on an annualized basis this would equal approximately 42.88% return. Selling this stock now also generates a return 2.5 times the amount of the dividend yield if the stock was held for a whole year.

It is always recommended that when selling a stock, one should not place an order after hours or when the market is closed. This leaves the seller in the position of being vulnerable to the whims of the market makers. Instead, place your sell orders only as a market order during market hours. Some would complain that a market order during market hours might leave some profits on the table. However, I would rather leave some money on the table rather than have it taken away from me by the trades that are placed by institutions and market makers.

If you’re curious about the rational behind such short-term transactions then please visit the About This Blog section. Touc.

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SELL Clorox (CLX) at Market Open

The time has finally come to issue a SELL recommendation for Clorox (CLX). The stock has performed moderately since the Research recommendation was issued on March 31, 2008. This company may be poised to reach the $72.80 level or Valueline’s cashflow mean of 16x. However, the returns that this stock has provided in the last six months say that it is worthwhile considering alternatives.

CLX was recommended when it was trading at $56.64. As of the close of market on Friday September 5, 2008 CLX was quoted at $62.55. This equals a return of 10.43% in five or six months. Conservatively, on an annualized basis this would equal approximately 20% return. Selling this stock now also generates a return twice the amount of the dividend yield if the stock was held for a whole year.


It is always recommended that when selling a stock, one should not place an order after hours or when the market is closed. This leaves the seller in the position of being vulnerable to the whims of the market makers. Instead, place your sell orders only as a market order during market hours. Some would complain that a market order during market hours might leave some profits on the table. However, I would rather leave some money on the table rather than have it taken away from me by the trades that are placed by institutions and market makers. Touc.

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Research: Archer Daniels-Midland (ADM) at $22.97

Summary

• ADM is at a new 52-week low
• ADM is burdened by the commodity cycle
• Was world population the reason for the stocks growth from ‘82 to ‘97?
• Watch the market price
• Dow’s Theory might assist us
• 33 years of dividend increases

ADM Details

Hitting a 52-week low yesterday is Archer Daniels-Midland Company (ADM). According to Standard & Poor’s ADM is, “one of the world's leading agribusiness companies, with major market positions in agricultural processing and merchandising.” ADM is the largest processor of corn, oilseed and wheat and other grains.

Like yesterday’s Research recommendation on Nucor, this company is heavily associated with the commodity cycle which has either seen it’s peak and has a long way to fall or is mercilessly punishing traders and bandwagoners as it goes through a primary bull market correction. If you’re interested in learning about commodity cycles then read Jim Rogers books Hot Commodities or A Bull in China. Personally, I watched this stock go through the wringer during the period from September ’97 to September 2000 all the while debating whether to buy the stock.

What is most fascinating about this stock is the fact that it went up from July ’82 until the peak of September 2000. Why would this be so unusual? Well, for one thing interest rates were experiencing their great migration to their 40-year lows. The fact that commodities in general and corn producing companies stock moved up during this period is amazing. Many attribute the rise in price with the increase in population. However, the population estimates were nothing exceptional. After all, a 1967 estimate cited in Aramco World showed that population was expected to be 5.7 billion by 1990.1 Of course the actual year this was reached was 1995. Well that must explain everything. It was the population growth that allowed for the increase in the stock of ADM from ’82 to ‘97.

Actually, population growth doesn't quite explain the rise in ADM stock. In January of 1982, the CBOT futures price of corn stood around 271 and declined to the level of 162 in 1986. Corn then vacillated between 270 and 375 with a spike to just above the 500 level in 1996 before sliding to the 256 level throughout much of 1997. Corn only crossed the 500 level in January 2008 a period of 12 years since the last spike in that direction.2 Basically what I have described is a trading range since 1982 with a spike in 1996 and 2008. As recently as June/July of 2008 the price of corn peaked at a high of 775 and has since fallen to the current 539 level.3 Nothing that I have shown would indicate that ADM should have had such a run-up in price from the 1982 bottom of $1.48 to the high of $19.69 in 1997.

When applying Dow Theory to ADM we find that there is interesting precedent for what might happen to the current stock price. As mentioned earlier in the period from July 1982 until September 1997 the stock increased 1,262%. Dow’s Theory states that the ADM should retrace either 1/3 or 2/3 before recovering to new highs. In the case of ADM, it retraced 2/3 of the increase by falling to the level of $8.21 or $0.66 above the exact 2/3 level.

Applying this approach to ADM’s rise from the low in September 2000 until December 2007 we find that there are four critical support levels. The first support level was $33.69, which the stock broke through with some hesitation back in June. The 2nd support level, according to the 50% Principal, at $27.32 was grudgingly broken through in the month of August. The next stop for the 3rd and final support level before total collapse is $20.95. It is the $20.95 level that corresponds to the 2/3 retracement from 1997 to 2000. This would lead me to believe that with the stock at $22.97 we are near either the end of this downturn or headed back to the September 2000 low of $7.80.

Considering that corn has a cyclical pattern to it the month of September should mark the reversal of this stock. With ADM increasing it’s dividend every year for at least 33 years I feel this stock will be worth the risk at or around $20. Put this on your watchlist, do your research and be ready to buy. Touc.

1 Carmicheal, Keith. Oil in 1990. Aramco World. July/August 1967.
2TFC Commodity Charts. http://futures.tradingcharts.com/old_hist_CN20084.html
3 www.cmegroup.com

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Research: Nucor (NUE) at $48.84

Summary

• NUE is within 3% of 52-week low
• Dow Theory says that NUE may fall to the $38 or $32 level
• Standard technical analysis says next levels are $40 or $32
• Commodity cycle (steel) could drop further
• Drastic increases in earnings and dividends could revert to long term mean
• 35 years of dividend increases

Nucor Details

Just on the horizon with a declining price trendline is Nucor (NUE). NUE is described by Mergent Online as a company that, "...produces and sells steel and steel products via its steel mills and steel products segments."

As of today, NUE is within 2.35% of the one year low. On the technical side, according to Dow Theory, NUE potentially could fall from 22% to 33%. The 22% represents a price of $38.09 which is part of Dow Theorist E. George Schaefer’s 50% Concept.[1] The 33% represents a price of $32.78, which is derived from the standard Dow Theory 3-phase analysis.

Using standard technical analysis we see that the fact that NUE has fallen below the $50 level could spell disaster for this stock. The next meaningful support level is at $40 and is followed up at the $32 levels. Considering the fact that Dow Theory and standard technical analysis converge at the $40 and $32 levels we can conclude that $40 is the next stop for this stock with a $32 not far behind.

According to Valueline, NUE typically trades at or near the 10x cash flow level. Interestingly, the last time this stock broke resoundingly above the 10x cash flow level was in 2002. It appears that NUE has the pattern of trading up to the 10x level but not going too far above for a long period of time. 10x cash flow means that this stock is expected to trade up to the $65.10 level based on Valueline’s 2007 full year numbers. Currently, NUE is 25% below Valueline’s cashflow figures. If we took NUE’s average low price/cashflow over the last 11 years then we arrive at a $36.65. This would be the most ideal purchase price.

According to Geraldine Weiss, editor of IQTrends, NUE is considered undervalued when the stock is yielding 1.4%. Currently, NUE is yielding 2.6%. NUE has sported double digit return on equity and return on assets in the low twenties and high thirties. While these are exceptional numbers we have yet to determine whether or not this is a new standard for the company. If nothing else, NUE is a candidate for takeover by the likes of Acelor Mittal.

NUE’s earnings have been relatively smooth until 2004. After 2004 the earning figures jumped 17 times the 2003 numbers. Likewise, the dividend jumped dramatically from $0.24 to $0.93 to $2.15 in 2004, 2005 and 2006 respectively. Such drastic changes may have to be pared back when and if the commodity boom completely falls flat (if it hasn’t done so already.) However, NUE’s ability to remain lean and mean along with its 35 years of consistently increasing its dividend bode well for the stock price. Put this on your watchlist, do your research and be ready to buy. Touc.

[1] Schaefer, E. George. How I Helped More Than 10,000 Investors To Profit In Stocks. Prentice-Hall. 1960. p. 73.

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If a picture is worth a thousand words then...

I have been a stock market observer and participant for almost 13 years now. However, in all those years I have never seen what I saw in yesterday's (Thursday August 28, 2008) market.

Thursday's regular market trading session and after-market action was unprecedented in it's scope and range. What happened is that most large cap stocks that had a higher closing price at the end of the day closed down by exactly the same dollar amount in after-hours trading.

At first I thought it was some sort of quirk or error by the website or quote provider. However, when I typed in random large-cap stock symbols, the answer turned out the same most of the time. Here are the examples that I found on the internet from Google Finance, Yahoo!Finance and CNNMoney:

In all of the visual examples that I have provided, you should be able to find the source, date, closing price, and the after-hours price. Air Products (APD) was the company in the first three examples and General Dynamics (GD) was in the last two. I cross referenced the data with the New York Stock Exchange after hour system (Arca) and the NASDAQ after hour system and arrived at the same prices.

What I have just shown in the above examples could be found in so many stocks that I got tired of chronicling them all. The anomaly can be found in the following (although incomplete) list of stocks:

• UTX
• HON
• PH
• MU
• PG
• CL
• ECL
• TGT
• COST
• HD
• LOW
• NOC
• GD
• RTN
• COL
• VZ
• CAG
• WWY
• BDK
• GIS
• GPC
• GT
• PKI
• ED
• ABT
• MKC

Never before have I seen such broad based market activity that glaringly highlights "management" of the stock market. The scale of such an endeavor, if proven to be "managed," would point to an organization(s) with unlimited resources at its disposal. My only conclusion is that something is brewing and it is beyond the scope of most "average" market participants. Touc.

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SELL Helmerich and Payne at Market Open

The time has finally come to issue a SELL recommendation for Helmerich and Payne (HP). The stock has performed wonderfully since the Research recommendation was issued on September 29, 2006. While this company and the oil services industry can go higher than the previous peak our funds could be better employed in other areas.

HP was recommended when it was trading at $23.03. According to the most recently available data from Morningstar.com, as of the close of market on Tuesday 8/5/2008, the stock closed at $53.95. This stock has provide a total return (price appreciation plus dividend income) of 141.50% or approximately 70.75% annually. If we considered this stock without using total return this stock would have returned 134% or approximately 67.12% annually.

It is always recommended that when selling a stock, one should not place an order after hours or when the market is closed. This leaves the seller in the position of being vulnerable to the whims of the market makers. Instead, place your sell orders only as a market order during market hours. Some would complain that a market order during market hours might leave some profits on the table. However, I would rather leave some money on the table rather than have it taken away from me by the trades that are placed by institutions and market makers. Touc.

Disclosures: None

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2009 Research Recommendations

• Aqua America (WTR) October 31st
  
• Northwest Natural Gas (NWN) October 3rd
• Weyco (WEYS) July 6th
• Cardinal Health (CAH) June 4th
• H&R Block (HRB) May 19th
• Bard Inc. (BCR) April 23rd
  
• Matthews Intl. Corp. (MATW) March 31st
• Meridian Biosciences (VIVO) March 26th
• Helmerich & Payne (HP) March 10th
  
• Bank of Hawaii (BOH) January 12th

2008 Research Recommendations

• Sysco (SYY) December 17th
• Altria (MO) December 9th
• Air Products & Chemicals (APD) September 29th
  
• Walgreen's (WAG) September 24th
• Archer Daniels-Midland (ADM) September 5th
• Nucor (NUE) September 3rd
• SuperValu (SVU) August 6th
• Carlisle Companies (CSL) May 17th
• Masco (MAS) May 15th
• Briggs & Stratton (BGG) April 16th
• American National Insurance (ANAT) April 10th
• Mine Safety Appliances (MSA) April 4th
• CenturyTel (CTL) April 3rd
• Illinois Tool Works (ITW) April 2nd
• Clorox (CLX) March 31st

2006 Research Recommendations

• Helmerich and Payne (HP) September 6th

Research: Supervalu Inc. (SVU) at $25.97

Today's Research recommendation is on Supervalu Inc. (SVU). According to Yahoo!Finance SVU, "operates as a grocery retailer in the United States. The company operates combination stores, food stores, and limited assortment food stores. Its stores offer various grocery products, general merchandise, health and beauty care products, pharmacy products, fuel, and other items and services." According to Mergent's, SVU has increased it's dividend 35 consecutive years in a row.

The above table illustrates the perspective that I have on Supervalu Inc. (SVU) as compared to the other Dividend Achievers that are ranked by price closest to their 52-week low. As you can see (when you click on the image) SVU is the only company that is within it's 1 year low and selling below book value. Click on the following link to get a reasonable breakdown by message board poster GOOFERB who does a great job with an industry peer review on SVU.

The most alarming matter for SVU is the issue of the amount of long-term debt held by this company. Just to reiterate, from the Yahoo!Finance message board post by GOOFERB, the debt situation is as follows:

"The debt load: SVU’s long term debt is bloated due to its Albertsons acquisition. The company has pared its debt, but with long term debt topping out at about $8.8 billion, it’s significantly higher than KR’s $7.7 billion and SWY’s $6 billion. All three company's have about $250 million in cash. It's apparent that SVU's debt service is eating into the bottom line and it’s the probable reasoning behind Wall Street’s relatively low valuation of its share price."

With the debt situation in mind, I have to say that when reviewing Valueline Investment Survey's report on SVU over the last 20 years I find that the company has consistently maintained a mean price-to-cashflow of 5 times. According to Valueline, SVU registered a cashflow per share of $7.59 in 2007 which implies a mean price of $37.95.

According to Valueline, the book value for SVU in 2007 was indicated to be $28.08 in 2007 and is expected to reach $30 and $32 in 2008 and 2009 respectively. Currently, Yahoo!Finance has SVU with a trailing twelve month (ttm) book value of $28.83. This implies a discount of around 9% of book value.

From a technical perspective, the stock has moved upward from an important support level of $24 back to 1999. If the $24 level holds up this stock will likely trade in a range and/or move higher. SVU must trade above $26.25 and exceed $27.55 in order to give the investor the green light in terms of going back to the $35 level.

SVU's ability to increase the dividend over the last 35 years along with it's well protected dividend, due to the low payout ratio, suggests that this stock is a great opportunity with limited downside risk. Touc.

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Is Owning a Home an Investment?

Many times I get into a conversation with someone about what is the best investment to make. More often than not the topic turns towards housing and homeownership. When someone talks to me about owning a home I hesitate to mention that owning a home isn't exactly an "investment," not in the same way that owning an apartment building, a dividend paying stock or your own business is an investment. A home is only an investment if it isn't your primary residence. A home is an investment only if it will generate income beyond the cost of holding the property, typically this takes place in the form of a second property that does not act as a primary residence. The cost of holding the property includes taxes, utilities, repairs, interest minus government incentives.

To be sure that we're in agreement of the term investment, I went online to the Oxford English Dictionary. I typed in the word investment and was pleasantly referred to the word income. It is no surprise that the first attempt to gain the definition of the word investment should refer us to income. But we need to focus on what exactly the definition of investment is. According to the Oxford English Dictionary, the term investment is characterized as:

b. gen. The conversion of money or circulating capital into some species of property from which an income or profit is expected to be derived in the ordinary course of trade or business. Distinguished from speculation, in which the object is the chance of reaping a rapid advantage by a sudden rise in the market price of something which is bought merely in order to be held till it can be thus advantageously sold again. (Second Edition.1989.)

Let's take a look at this definition and see if this fits with what many people often call "investments." As we can see, we first need to convert our available capital (cash) into some other form of property. This property is then supposed to generate INCOME or PROFIT in the ordinary course of trade or business. What this means is that while going about your daily activities (work and family life) you need to derive first income and possibly a profit will follow.

Does owning a home that you are currently living in derive income for you? Absolutely not. It should be stated that if you're not deriving income from your "investment" then you're not investing. Instead, you're probably speculating or gambling. In fact, it is costing you to retain this "ownership" interest in the property. Therefore, a home that you live in isn't an investment. It is merely a forced savings account at best and a liability at worst.

To further the idea of what an investment isn't, the definition goes on to describe what speculation is. Speculation is the attempt to benefit from the (rapid) rise in the price at which point the item would be sold. This is hardly the case with a home. Rational individuals don't decide to move simply because the price of the property has gone up in value.

Some homeowners might rationalize that owning is better than renting and the potential rise in the value of the property when they decide to sell will reward them for their decision. History has proven that if you bought at the right time and live in the right region of the country and have the ideal location then you'll be rewarded handsomely for your patience. This, however, becomes problematic if you bought at the wrong time and wrong location.

This does not mean that I wouldn't advocate buying a home. Instead, I'd rather suggest that those who are interested in buying a first home put the purchase into perspective. The view that should be taken is that buying the first home is a method to avoid paying rent and passively saving money through the buildup of equity over time. Touc

Oil market commentary...

There is a lot of concern regarding the current price of oil and it's related impact on the price of gasoline. While there is a general relationship between the two I would like to provide some insight as to a possible explanation of why the price of oil is going up. I hope this explanation is clear enough to see the relationship between the decline in the dollar and the increase in oil.

The following is an excerpt from Richard Russell's Dow Theory Letters*. The concept that one needs to come away with after reading this piece is that as the dollar has sunk to new lows, the value of dollars traded for the same amount of oil has decreased. Keep in mind that oil is traded on the international markets in US dollars.

"THE PICTURE: The eyes of the financial world have been riveted on the economic disease of 1974, the 'energy crisis.' And why not? The oil (gasoline) shortage is aggravating, it’s visible, it’s caused by “foreigners,” It’s something we don’t have to feel guilty about, and it’s all so easy to comprehend.

My answer to this approach (as it has been all along) is that it’s bunk, pure bunk! The real economic disease which has been eating away at this nation (and the world) is inflation, the systematic destruction of the Free World’s currencies. It started in the1950’s, increased during the 1960’s, and is now reaching crescendo proportions. Gold is the real value by which paper (fiat) money is measured, and the increasing number of dollars, pasetas, francs, marks, etc. which it takes each month to purchase an ounce of gold testify to the demise of the world’s paper currencies,

What has the oil crisis got to do with that? Not very much. True, the oil crisis did intensify the interest in gold but for one main reason. And the reason is the same inflation.

The Arabs are taking in (and holding) billions of dollars, dollars received for their oil. Those dollars have been hit by two devaluations and a steady torrent of inflation. So the Arabs said, “less oil and at higher prices." And they dovetailed with the Israel-Arab War into their 'inflation solution' with consummate skill. Meanwhile, the various governments continue to pour gasoline on the inflationary flames and it continues to take more dollars or pounds or marks or yens to purchase an ounce of gold."

*Russell, Richard. Dow Theory Letters. February 27, 1974. Issue 590. page 1.


Now, in order to offset the loss associated with the decline in dollars, oil producing nations need to reduce the amount of oil they sell on the open market in order to receive the equivalent worth that their product normally sells for. Another possibility, however unlikely, would be that the US dollar increases in value in an extraordinarily short period of time to blunt the effect of dollars for oil.

With all the global demand that currently exists, Saudi Arabia and other oil producing nations don't really need to decrease production as much as they just need to keep output at a lower rate of increase. This also explains why President Bush's request for increased production was rebuffed by the Saudi government. The Saudis want their money's worth and aren't going to placate the demands of a lame duck administration. Touc.

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Research: Carlisle Companies Inc. (CSL) at $32.06

Prepared by Arsuron Papartassee

According to Standard & Poor's, Carlisle (CSL) is a diversified manufacturer of rubber roofing and insulation, small tires and wheels, heavy duty braking systems, foodservice plastics, and specialty wire. Carlisle is a Dividend Achiever that has increased it's dividend every year for at least 28 years in a row at a 7% compounded annual growth rate.

As of May 17, 2008, Carlisle is trading at $32.06. The stock currently trades at 7.73 times 2007 cash flow with a price/earnings ratio of 17 and 0.65x price to sales. According to Morningstar, Carlisle has a fair value of $46. Standard & Poor's places a conservative 12 month target price at $40. Using the conservative valuation of the two, there is at least 20% upside to Carlisle.

Using the Valueline estimates, Carlisle should be trading at 11x cash flow which brings the upside to $45.65. I agree with the Valueline upside target and I’ve placed a downside price of $22. This figure is based on my analysis of the company discounted cash flow model.

The next issue is why has the stock been declining since October 2007? Further research unveiled a loss of $1.01 per share in the first quarter which, according to the company, was from after-tax impairment charges of $89.5 million, or $1.46 per diluted share, related to Carlisle’s power transmission belt business and on-highway brake business reported in the Specialty Products segment. In addition, Carlisle announced on April 24 that it will sell the specialty product group. The revenue from this segment is 12% of total corporate revenue, but contributes only 5% of operating income. Disposition of this business should allow the management to concentrate on segments such as construction materials which account for 47% of sales, but 57% of operating income. Due to higher input costs (rise in commodities) the margins have been hurt in such segment.

Carlisle, in my view, has been oversold and mispriced. The stock has been sold off hard and currently trading more than 60% below its high and within 10% of its low. Margin contraction along with one time charges have created a great opportunity for you to research more into Carlisle.

Disclosure: I currently have a long position in this stock.

Prepared by Arsuron Papartassee

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Research: Masco (MAS) at $19.43

Masco (MAS) is a very interesting stock that I would have normally characterized as speculative only a few weeks ago. Why? Because MAS has strong ties to the housing sector and all companies associated with such a sector are tarred with the prospect of further declines. However, the time has come to seriously consider stocks that are involved in the housing sector of the economy. Let’s dive in to this fascinating investment opportunity.

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.

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What in the world is "Downside Potential?"

Today I'm going to revisit a topic that was posted on this site back on February 27, 2007. In retrospect it would seem that my commentary about Countrywide Financial (CFC) was all too obvious. However, I believe that my commentary then was based on a concept that should always apply whenever reading financial media, "don't trust, then verify."

At the time, CFC was trading around $37.58 a share and according to Standard and Poor's was projected to decline to a level of $36 a share before going higher. As analyst Stuart Plesser put it, "Countrywide's shares have fallen over 10% year-to-date, in our view leaving only modest downside potential." (emphasis mine) For the most part Mr. Plesser was correct. The stock fell as low as $32.73 on April 2, 2007 and then went near it's high at $41.31 on May 17, 2007. However, nearly one year from the old high price the stock has fallen by an astounding 87.8%. The stock sells for $5.12 today.

Could you imagine if, based on Plesser's "upgrade" of CFC on February 27, 2007, someone bought the stock shortly thereafter with the belief that there was "only modest downside potential." Fortunately, most individual or small investors don't invest their money based on the recommendations of a stock analyst at a big ratings agency. Unfortunately, mutual funds, hedge funds, and pension funds do make stock purchases based on rating agency recommendations. To further compound matters, the money that is invested is seldom their (fund companies) own and therefore can easily be put to work.

Other people's money (OPM) also explains the reason why there is so much trading volume on the stock exchanges. Professional money manages can buy and sell with little regard for the consequences. If things go wrong then the managers can say,"I got my information from sources that everyone can agree are considered reliable."

Mr. Plesser is not likely to be held accountable for influencing so many institutions, charged with the responsibly of managing the public's money, to buy a stock so out of whack with reality. You can bet your bottom dollar that recommendations like Plesser's provided the impetus for money to flow from the strong big investors (i.e. insiders) to the smaller weak investors (i.e. mutual fund investors) during the period from February 27 to May 17, 2007. Touc.

Lesson #1: Don't trust, then verify

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.

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Update: Briggs and Stratton at $14.89

Briggs and Stratton collapsed 13% on Thursday April 17 when the company "...reported net income of $37.1 million, or 75 cents a share, for its fiscal third quarter, compared with $9.3 million, or 18 cents a share, a year earlier, when results included a large writedown. The company said it expected full-year earnings in a range of 60 cents to 71 cents per share, compared with Wall Street forecasts of a $1.19 per share in full-year profit."

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

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Research: Briggs & Stratton (BGG) at $17.52

Today's research recommendation is Briggs and Stratton (BGG). BGG produces small engines and their parts. According to Mergent's, BGG has increased it's dividend at least 13 consecutive years in a row.

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.

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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

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Research: Mine Safety Appliances (MSA) at $41.61

Just on the horizon with a declining price trendline is Mine Safety Appliances (MSA). MSA is described by Mergent Online as, "...engaged in the global development, manufacture and supply of enhanced products that protect people's health and safety. Co.'s line of safety products is used by workers around the world in the fire service, homeland security, construction and other industries, as well as the military. Co.'s product offering includes self-contained breathing apparatus, gas masks, gas detection instruments, head protection, respirators and thermal imaging devices. Co. also provides an offering of consumer and contractor safety products through retail channels. As of Dec 31 2007, Co. operated through three geographic segments: North America, Europe, and International."

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.

As mentioned before, and should not be overlooked, this stock has had volatile earnings which may come to light once the shares are purchased. Also of concern is the most recent doubling the long term debt from $45 million in 2005 to $112 million in 2006. This is a very small number however we wish to recognize any and all discernable patterns that might emerge from this. Finally, the most unpredictable aspect of this stock is the past history of trading well below the 13x cash flow level. While this is a great stock to research in anticipation of the $38 one year low or the $35 trading range low since 2004 or the $32 level equaling the 13x cash flow level, an investor should take the attitude that whatever money they're putting in this stock is only half of the intended amount with anticipation of a potential price decline down the road.

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.

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