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TheDumbMoney (79.22)

Keep it in Perspective



April 09, 2012 – Comments (13) | RELATED TICKERS: SPY , AAPL , BRK-B

So just before the end of March, when everybody was still ll atwitter with joyjuice and the world was our oyster, I wrote about how I was not buying and had not bought since January.  I'd just like to note that post predated Doug Kass' "Sell in April" call, and predated just about all other statements of risk-offedness. 

 Almost like clockwork, suddenly after Q1 ended, people rediscovered that Europe is not fixed, some data indicative of slowing crept in, bad China inflation numbers came out, people started talking about gas prices gain, and the market tanked.  Wait.  Tanked?  Nah.  Let's keep it in perspective.  After the recent 'drop' we are still not even down to the levels we were at on March 1.  The S&P would have to drop to 1320 for us to get a 10% correction.  (Apple's weight in the S&P index may however disguise the severity of the drop a bit, which likely feels a lot worse to you if you don't own any Apple shares and you are not otherwise invested in Dow type stocks.) 

Personally, my view has not changed.  As discussed in this separate post on my standalone blog, I rarely sell and I never sell because of market drops.  My primary concession to market timing is in the amount that I buy from my saved income.  Since January that has been virtually nill.  I would still like to see an actual correction in the S&P down to around 1320 or so, or else a strengthening of fundamental data before I buy a whole lot more.

That's not to say I see no cheapness, but it's not as extreme as it was six months ago.  Apple and Microsoft have had great runs and are probably not overvalued still.  All the talk of an Apple bubble is preposterous at its current forward P/E -- people are just scared by the numbers, because they don't seem yet to grasp yet the power of the iPad market that Apple created from scratch.  Phillip Morris is beating gold over a two year holding period but looks affirmatively expensive to me right now.  So does Altria.  

Transocean is still cheap but I am questioning my deepsea drilling thesis more and more in the wake of the continued emergence of fracking:  it's going to release lots more onshore oil, not just gas.  I think this decade will be all about what fracking did for oil production, just as last decade was about what it did for natural gas production. 

I think Hewlett Packard still has some potential and I will buy more of that on a drop.  Exxon remains a bit elevated; it looks cheap because cyclicals look that always look cheapest when they are near highs.  I think Sodastream is undervalued but I am fully invested there after more than doubling up at $28.50/share, and I'm not confident enough in the call to add more.  McDonalds is in a total holding pattern after its run.  Coke and PG do not look extremely compelling to me at these levels. JNJ is a decent value still.  ABT has had a nice run and is not longer as cheap as it was before the spinnoff was announced.  

VHT continues to a nice way to play our country's idiotic healthcare system, and our idiotic obesity and stress levels and proclivity for medication rather than basic exercise and moderation.  If this country started collectively exercising 30-minutes a day, cut red meat to minimal levals, cut sugar consumption, and started charging fat people, heavy meat eaters, smokers, and heavy drinkers more for even employer-funded insurance (which I would wholly advocate for), the value of this ETF would go into terminal decline.  Since I can't change America, I'm at least going to profit from our collective stupidity and from the horrible incentives our policies have put in place.

On my DRIPS:  UNP, LMT, and BDX, I think all are neither under- or over-valued much, and frankly I don't care.  These are bonds as far as I'm concerned.  I invest $50/month though DRIPs that are free, and I will never sell anything unless I think the firms are seriously threatened with business model obsolescence, which they will not be.

Berkshire is still a good deal, and a likely add for me.  AT&T is overvalued.  Intel and Cisco are still decent deals, particularly Cisco.  United Health is going to see a big drop if Obamacare is overturned, at which point it will be a good buy.  HMC is a play on an eventually falling Yen and is still a phenomenal company: it has been really hurt by the Tsunami, by the strength of the Yen, and in investor's minds by the idea that American car companies are resurgent.  HMC and TM still have major competitive advantages that are surpassed only by the Koreans.  Walmart is reasonably priced, but not terribly compelling to me right now.  Ituran seems like a decent value especially below $12, and it and SODA have been hurt by the perception that Israel and Iran might have a little war.

Intuitive Surgical continues to be a f^cking beast.  I am struggling with some serious stock-price-anchoring on this one.  That combined with the very high P/E, and the fact that the Livermore-loving "traders" view it as a "market leader" that is "holding up well" and a winner to "let run" "for now" has me VERY leery of it.  I have no plans to sell.  But I'm looking to see their next report, and I would really like to see at least a 20% drop here, and for the technical guys to abandon it.

My geographical ETFs continue to be some of my worst laggards.  Yet again (as with my purchase of a European mutual fund in 2007) I am learning the lesson that diversification for its own sake is a fool's errand.  Yet my initial purchases were very small, and I have added to VWO and EPI at lows.  I think the best regions for the next ten years are going to be Africa, India, and....the Middle East. 

I ran a screen this weekend and I did not see many compelling values amongst stocks that I do not own but would like to own forever.  As of now, my likely next adds are to Ituran and Berkshire.  But we shall see.

13 Comments – Post Your Own

#1) On April 09, 2012 at 6:56 PM, portefeuille (98.91) wrote:

data for some shares of DAX companies.

share price in Xetra trading (EUR), 2013 consensus earnings estimate (EUR), 2013 consensus dividend estimate (EUR) and dividend yield.

Deutsche Telekom (DTE:GY) - 8.801, 0.66, 0.70 (8%).
E.ON (EOAN:GY) - 17.25, 1.81, 1.10 (6.4%).
RWE (RWE:GY) - 34.80, 4.04, 2.07 (5.9 %).
Münchener Rück. (MUV2:GY) - 111.50, 15.21, 6.56 (5.9%).
Allianz (ALV:GY) - 86.68, 11.81, 5.00 (5.8%).
Deutsche Post (DPW:GY) - 14.155, 1.36, 0.80 (5.7%).
Daimler (DAI:GY) - 42.855, 5.86, 2.40 (5.6%).
METRO (MEO:GY) - 27.345, 3.31, 1.42 (5.2%).
Deutsche Börse (DB1:GY) - 50.23, 5.07, 2.5 (5%).
Siemens (SIE:GY) - 73.88, 7.33, 3.20 (4.3%).
BASF (BAS:GY) - 63.48, 6.41, 2.7 (4.3%).

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#2) On April 09, 2012 at 7:00 PM, portefeuille (98.91) wrote:

#1 You can easily find a few hundred "European large capitalisation companies" with shares that have dividend yields greater than 5% p.a. using 2013 consensus estimates currently ...

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#3) On April 09, 2012 at 7:21 PM, portefeuille (98.91) wrote:

#1 E.ON and METRO are Düsseldorf companies, by the way, hehe.

As are Henkel and Vodafone.

Henkel preferred shares (HEN3:GY, 2013 dividend yield consensus estimate of around 1.9%).


Vodafone (VOD:LN, 8.7%).




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#4) On April 09, 2012 at 7:38 PM, portefeuille (98.91) wrote:

Münchener Rück. (MUV2:GY) - 111.50, 15.21, 6.56 (5.9%).

October 19, 2010, Buffett Increasing Stake in Munich Re

Munich Re in Xetra trading.





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#5) On April 10, 2012 at 1:03 AM, TheDumbMoney (79.22) wrote:

Porte, I agree that some of the best values in the markets are German industrials.  Particularly the ones that do a lot of business either in Germany, or outside of Europe entirely.  I have thought Daimler was a good deal for some time.

However, I do worry about currency risk.  We are drawn to equities on our own shores for parochial reasons, yes, but also because it removes one type of uncertainty.

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#6) On April 10, 2012 at 8:56 AM, PeteysTired (< 20) wrote:

dumberthanafool -

Why do you think UHG is so dependent on the ObamaCare ruling?

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#7) On April 10, 2012 at 9:53 AM, TheDumbMoney (79.22) wrote:

UNH, not UHG.  I don't think it is "dependent."  I think that Obamacare was very much a net positive for all insurers, including United Health, because it would have added millions upon millions of typically healthy and young (paying customers who don't need expensive care) people to insurance roles.  That was the whole point of the individual mandate.  Multiple experts have concluded that this would have been a strong net positive for the insurance industry (and note the insurance industry supported the bill), despite new restrictions against the non-insurance of people with pre-existing conditions.  The individual mandate was originally thought up by the conservative Heritage Foundation, in part for this reason, and in the past numerous conservatives including Newt Gingrich have expressedd support for it, for reasons that included this one.  Which is of course partly why Romney originally advocated for it in Massachussetts -- it was a rather mainstream Republican idea in the first place and at that time.  (Of course as soon as a Democrat supported it, it became another part of the Democratic Socialist Agenda in their minds, and all the Boobs who don't know the history of the idea bought into that hook-line-and-sinker.)  If the bill falls, as it seems it will, we'll go back to the status quo.  That is not horrible for the insurance industry, but not as positive as Obamacare would have been. 

Per my call on VHT, I continue to think healthcare policy in this country is a joke.  Not that Obamacare would have fixed the fundamental problems.  Here is an outstanding post by the conservative commodities trader Peter Brandt on what a joke the U.S. healthcare system is:

We spend way more as a percent of GDP than any other country, including the semi-socialist ones that have public healthcare, and yet our results, for lack of a better word, suck.  My view is that this is one of those situations where liberals and conservatives have fought each other to a standstill and have compromised by implementing the worst ideas on each side.  Thus we have a situation both where private employer-based insurance is prohibited from charging a higher rate to a morbidly obese smoker than it charges to a marathon runner (terrible liberal idea), and there is no true mechanism for public healthcare for the poor (terrible conservative idea).  Obamacare solved nothing really because it solved neither of these problems.  It is/was primarily a milquetoast extension of current policies and a sop to the healthcare industry. 

One of its better features was trying to set some limits on what government will pay for.  But now Republicans in the House are now screaming about the "rationing" that Obamacare would have imposed on useless end-of-life medical procedures.  Think about that for a minute: the supposedly conservative party in this country is now scoring political points by criticizing government for trying to limit government spending on medical care, as if this "rationing" would preclude care at all.  In reality, anyone who wanted the ninth end-of-life procedure to prolong his life for another month would be free to pay for it in the private markets, as it should be.  

In short, the entire healtcare system is a mess.  This is not about pro-government or anti-government.  Either a public system like Frances, or Paul Ryan's plan would possibly have a better cumulative result than what we have now, which is a "worst possible" mish-mash of terrible but politically-feasible ideas dressed up as an "intelligent compromise."

End of rant.

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#8) On April 10, 2012 at 10:05 AM, Frankydontfailme (29.51) wrote:

+1 for nice rant.

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#9) On April 10, 2012 at 1:33 PM, leohaas (29.81) wrote:

+1 for the rant from me as well.

Franky and me agreeing on something. Can you believe it?

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#10) On April 10, 2012 at 1:36 PM, EnigmaDude (51.62) wrote:

"Ituran seems like a decent value especially below $12, and it and SODA have been hurt by the perception that Israel and Iran might have a little war."

Interesting observation. I hold 2 Israeli stocks in my RL portfolio (CKSW and TISA) and I have been wondering about the volatility and whether that has increased due to general market volatility or due to increasing concerns about Iran.  Probably both.  But both are long-term holds for me so I am adding to my positions when the price drops substantially (like CKSW did this week when they hinted that revenues in Q1 will be down a bit).

Good post and in general I am in agreement. I do think that you should consider adding some shares of GE if you don't already have some. I'm planning to buy more if the price drops below $18.

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#11) On April 10, 2012 at 2:02 PM, TheDumbMoney (79.22) wrote:

March gains for the S&P now gone.  It is February 21st again.  Do I hear 1343?  1312?  (Important numbers for the S&P, for the technical folks.) 

If you look at the timing, the catalyst for this drop over the past five days was the release of FOMC minutes showing doubt about likelihood of QE3.  That got people talking about the parade of horribles that is still out there.  Not really any truly horrible news.

Just ruminating.

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#12) On April 10, 2012 at 5:51 PM, awallejr (33.35) wrote:

Well I think it has more to do with finally correcting after a basically parobolic run up.  People are now selling in April instead of waiting for May.  I've been adding to my holdings.

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#13) On April 11, 2012 at 11:28 AM, valuemoney (< 20) wrote:

I bought BRK.B recently. I would also say TSCDY is at a discount to the market. And I know you are a fan of dividend paying stocks. This equity should be on your radar.

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