My Last Post on Baldor, I think...for awhile, & More on Recession.

Cramer and Baldor CEO John McFarland on Mad Money last Friday:

http://www.cnbc.com/id/15840232?video=780431599

Because I don't have any stupid sound effects developed yet.


So yesterday I spoke about this quote from a Fortune article:

"...the Fed remains skeptical that high commodity prices will ripple through the
economy, leading to broad price hikes and big wage increases. "The committee
expects inflation to moderate later this year and next year," the Federal Open
Market Committee said in holding the fed funds rate steady at 2%, though it did
note that "uncertainty" remains high and suggested inflation concerns could
rise."

I wanted to elaborate on the subject a little more. I work for a commodity-based product company and we are in fact completely increasing our pricing due to ripple effects in costs on all of our products and passing that cost onto our customers which will then pass that problem onto the public. We are doing that right now. Also, we are expecting large wage increases next year due to an recession with inflation environment. Additionally, if Buffett is suggesting this as well, I would damn near listen, not because Buffett is the man but because Buffett knows commodities.

Buffett typically purchases companies that are simple, balance sheets make sense, products are straight forward, and they are selling at a value at the time. Those types of companies are commodity based by default, well most of the time. When Buffett goes buying these stocks, he tends to buy enough to get someone on their board of directors, or at least get access to the companies financial situation. So it can be surmised that he is seeing this type of development in most of his investments across a large swath of products and businesses and is just speaking up. Meanwhile, our Fed is holding its breathe and hoping for the best.

Snap out of it people, we are already in the recession and high inflation is occurring and rippling through the pricing right now. If companies aren't doing this yet (i.e. airlines), then their survival may be limited. Open your eyes.

Thoughts for the week: 6/29-7/4

A few links and thoughts for the week:

Remember my post a few days ago about "Recession with High Inflation", well apparently Buffett agrees and is telling it to Bernanke. And here is a quote from it that scares the crap out of me:

...the Fed remains skeptical that high commodity prices will ripple through the economy, leading to broad price hikes and big wage increases.

"The committee expects inflation to moderate later this year and next year," the Federal Open Market Committee said in holding the fed funds rate steady at 2%, though it did note that "uncertainty" remains high and suggested inflation concerns could rise.

Determined to find some good values in the market (and keep the mind sharp), I did some good old "Magic Formula" stock screening this weekend and noticed some sectors with good stock values, at least according to the screen. They are:

Airline equipment manufacturers: LMT, NOC, RTN, GD, BA
Electronic circuit equipment manufacturers: VSEA, KLAC
Furniture manufacturers: MLHR, KNL

I am currently doing research on each and may do updates this week on each identified sector and its stocks. Most of these companies are name brands for their business sector and probably have some good long term upside. I guess I will see when I go through them.

Some other good looking stocks on the screen that came up is Garmin (GRMN) which I think I may cover, and one of Mike's (w/Rational Speculation) recently covered stocks Pfizer (PFE). I like Mike's thoughts on the company, but have recently seen PFE mentioned everywhere as a value stock potential. That can be a good or bad thing.

More thorough stuff later this week...

More BEZ: Cramer catching up...

Well I was looking into buying more BEZ today (I didn't, I think it may go a little lower again), and noticed that about a week ago Baldor's was Cramer's pick. Frankly, I am flattered. Now I am going to get away from talking about Baldor for a while, but I do think that it is funny that he recommended the stock after a run from 25.68 (April 14th) to 36.46 (April 17th). It is only a dollar down from his recommendation day, but at the time I saw the run occuring and thought a correction was coming. Regardless, it's fun to be ahead of the curb for once. Even if I think Cramer is a little bit of a tool, I do think he is funny to watch (if you ever saw theknot.com episode where the bull proposed you know what I am talking about) and fairly informative for the masses.

Anyways his thoughts:

here and here

Have a nice weekend, it is going to be beautiful in KC. (Anyone notice I use a lot of parentheses?)

The big win and the big loss...

Well just a couple of weeks ago I recommended Rockwell Automation (around $54 per share at the time) and it has subsequently tanked to a level today of $43. That sucks and I was wrong, Rockwell (ROK) committed a bad no-no and dropped 2008 expected earnings. Well it's really not a no-no as much as seeing the truth hurts. That was a mistake and I will strive not to do so again.

Herman Miller (MLHR) however has just reported profits up roughly $.71 a share for its 4Q and seen a big boost in a day of bad losses (+ ~$1.50 per share). Since mid-April it is now up nearly $3 a share. That makes me happy, I am curious as far as what to do with this stock. Their furniture is for rich people and big business so they could be insulated from the market some, but I just don't see how they will keep growing in profits in this environment. I may get out and take profits.

Baldor (BEZ) is still one of my favorite companies, they simply make stuff that is needed no matter what the market is doing. It was a classic Buffett style stock, essentially undervalued, and can make a profit in a variety of climates. Today however it has fallen significantly (roughly $3 a share) and I don't know why. No real news out there other than its peers not doing so well (see ROK). However since I recommended it on 4/29 @ $32.40 (I bought it for $27.50 a week prior) it has jumped up $3.50 a share ($6.50 a share yesterday). Honestly it has been flying and needed a pull back. I still think it is a good stock, and will continue to do well and it may be a good time to pick it up at the recent pull back, although I will wait it out for a while.

Otherwise, the market looks bad right now. Unless I find another Baldor like company I am sticking to purchasing my three ETFs (PBD, PXE, PWV) on their low days. Someone please tell me what to do with FTO. (Nevermind sold off FTO 6/27)

Tenure?!?

A question I hear quite a bit now a days is how my generation's work force (I am just shy of 30) has no company loyalty. Well here is why:

Everyday I have seen the 20-30 year veterans of the various famous US companies given plaques for their service, and soon after, shown the door. Along with them priceless knowledge of the company that you may never have available again. My generation has seen their fathers and mothers booted after years of hard work and modest increases in pay. How many of you have been a part of major moves to a new town in your childhood only to see your parents let go by that company 6 months later. When I saw that as a child, I thought, "what is the benefit?" It didn't improve them. Now that I am older, I see that the business system is a pyramid, lots of jobs at the bottom and fewer and fewer at the top. As you progress through a company it is only logical that you may have less and less likely a chance to continue with the company.

Lay-offs suck and seeing people get tossed out really makes you wonder about who you work for. Reality is that my generation will continue to look, if they are smart, every 3-5 years. I know of 3 examples of people I know that switched companies, increased pay by 20% and like their new job better. I am not saying that I condone it (I say stay long enough to keep the company matched retirement benefits and then start looking), but I definitely understand it.

To all the "early" retirees out there, good luck, it may be a difficult road ahead for you. My dad found some luck working in small towns after years in HR in the city and my mom went into work for herself, maybe that helps.

My arm is itchy...

That is all. Go here for some hysterical and historical comic genius.

"Recession with High Inflation"

A conversation with someone very important today revealed that our company is planning on the title comment. The second comment was that Dow's 20% increase on prices is doing everyone a favor.

Look the point is that everyone is holding their breathe hoping that this thing is going to turn around, and it's not. Dow finally has said enough is enough, US dollar value is down, steel is up, oil is up, copper is up, raw materials are up, and farming related products are up. So in the next two months you are going to see the ripple effects of these costs finally incorporated into everything you do and everything you buy. You can't expect that these prices are going to go down now, we've gone too far.

There is only one way to calm this economical climb now, stop buying gas, ride a bike, commute, and car pool. It's a pain but until we reduce the demand for the current oil supply loads, nothing will change. It's like we all are a bunch of smokers. Stay with me here, smokers are probably taxed more than any other group of people out there, and each time the tax goes up, they just shell out more money.

"How much for a pack, f@<* that's crap! Well Carl, see you tomorrow."

The green technology isn't quite here in the mainstream yet and will take I think a couple more years to mature nicely, so in the meantime, it's those normal simple things that will help. Things like buying a smaller car, moving closer to work, and not eating out are what will really make a difference.

So recession is here, inflation will be high, and enjoy the next two years. You heard it here 121st.

ROK looks cheap...

Market had a big fall on Friday and one huge loser was Rockwell Automation (-$3.02 per share). I spoke about them before when I revealed how I found Baldor, and I liked them then and still like them now. ROK stock value has been faultering ever since they missed analysts predicted earnings last quarter. Here is what baffles me the market reacted to analyst's predictions not the company's. If you review their last call you will quickly find out that there was siginificant revenue growth not only in every business category, but in every geographical location as well. Not many companies can say that and yet it has loss over $12 per share since the beginning of the year.

Take a quick look at the charts and it has been nearly three years since this stock has been this low and it is a better company now than it was then. Again the things I like are the good ROA, strong growth, ~2% dividend, extremely robust and strong product (Allen-Bradley Controls), and their firm commitment to the growth of that product by intelligent acquisitions. I should talk about the A-B product a little more, although I did cover it thoroughly before. It is a great product in the current economic climate, the controls are modular and are considered the best in the business. The controls are prodominately used in PLC applications in all sorts of industries from factories to oil rigs to building temperature controls. The whole world is modernizing these industries right now and the modular setup of A-B controls allows both new and old equipment to talk and work more efficiently.

Final thought, I'm buying tomorrow!

Storms in the city...

Last night in Kansas City was some rather inclimate weather, and being that the new house has a garage filled with crap, I drove down to the Country Club Plaza to protect the car. After parking the car in the garage, I walked over the the Mickie D's and proceeded to watch all of the upper crust of Kansas City handle the storms. While enjoying the double cheeseburger (hey its $0.99), some unique observations were made.

• Running has the most obsessive group of people, all over town I saw huge lightening bolts and nickel-sized hail. Meanwhile some runner is cruising with no jacket along a roaring Brush Creek, or dragging their dog through the puddles of the Plaza. I feel extremely sorry for the dogs.
• Ladies, blouses are not the best thing to wear on a stormy day, but I thank you none the less.
• Your teenagers are out driving around in this crap, buying clothes, and generally spending your money. Hope you don't mind hail damage on your Lexus while your daughter is shopping in a lightening storm.
• When coming in from the rain it is appropriate to state the obvious. Comments like, "Man, I'm drenched!", "That's a lot of rain!", or "Boy it's coming down!" is fine but it must always be proceeded by a Ric Flair "WHOAO!" For Example, "WHOAO, it's raining cats and dogs out there!" If you are by yourself then at least "WHOAO!" has to be said, it's the law.
• I am officially an adult, Urban Outfitters has nothing for me.
• When heavy rains are coming down its best to run as fast as you can in it, because maybe you can out run it. Looking both ways to cross the street is optional.

Special Request Stock Lookup: Ingersoll-Rand (IR)

Grant over at The Corner Office Blog asked me to look into a stock last week, namely Ingersoll-Rand (IR). This stock has had some recent interest by many investors due to the big purchase by the Big P.O.P.P.A. (Pimp Oracle of Potential Plays in omahA, aka Mr. Buffet). If you haven't read much about IR over the past two years, it has gotten rid of most of its industrial units including its most famous, Bobcat. What's left is a mishmash of industrial tool, refrigeration, and security units making up a roughly 9.5 billion dollar company. None of these businesses I find particularly exciting, although it should be said that their brands in each of their markets are either the leaders or top 2 companies in the industry. For example Schlage security and locks compete closely with Stanley security and locks. On paper, they look as if they have made each of their industries rather efficient and profitable.

The future for IR is the purchase of Trane, in my opinion, the foremost supplier of key HVAC components for business and commercial markets. IR claims that they would like to get into less cyclical market places and with their freed up capital, Trane looked like a good fit. Trane too has had its own set of splits over the last two years. Formerly American Standard, Trane was the result of a three way split of the former company. The new Trane is roughly a 9.5 billion dollar commercial and industrial HVAC company. Trane has an excellent company mix of products and services that is compromised of the markets highest efficiency residential HVAC units, commercial HVAC units, commercial chiller systems, and excellent technical services. This focus on high efficiency equipment will keep the company firmly planted for current and future commerce due to many companies needs for costs savings and government tax credits on energy saving projects. Trane is also known in the contract engineering world as the “go to” company for assistance in spec'ing components on new projects due to their own extensive technical support group. That status obviously pushes contracts towards utilizing Trane equipment. I should know I purchased a new chiller last year and found that the engineering companies in the Midwest area all work with Trane engineers first before drawing out the specifications for a project. Trane has seen some softness in it's residential market (roughly ~24% of the business) and plans on seeing more ahead, but in its most recent annual report believes that it's commercial unit has and will more than cover that loss for now. One other fact though, is much like the rest of IR's porfolio, is that Trane is a very competitive company in a very competitive market, competing with other good players Carrier, York, McQuay, and Danfoss.*

Much like my report on Baldor. Trane has products for the commercial market that will consistently need replacement. Industrial HVAC and chiller systems are always being replaced due to new more higher efficient machines or for old equipment failure. Their service department does most of the installations as well, so somewhere in the range of 65-75% of its revenue is tied up with the commercial contract dealings. From my contacts in the industry, this is a stable, profitable place to be.*

Upon further examinations I found the Trane annual report informative and helpful in formulating a position on the companies current financial status. However, IR's report was not very revealing of the companies current financial status. So I next searched the basics. IR has a absurdly low P/E of 3.2 and Trane's rather high P/E of 52.6, neither of which I don't really think is reliable. IR is particularly good at their profit margin at 44% compared to Trane's 2.37% and Return on Assets roughly the same at IR (5.33%) and Trane (7.19%). Although I am unsure how clear this data is affected by IR's sale of Bobcat and Trane's split from Amercian Standard. So I am uncomfortable with this analysis.**

Research of products from both companies fruited some good products including Trane's CenTraVac Chillers, Trane's CleanEffects air cleaning system, Trane's residential XV Furnaces, and IR's lightweight pneumatic tools. The Trane CenTraVac Chillers could be big money makers.

I do feel that when IR finalizes its purchase of Trane, it should provide some stabilization to each of the companies due to the amount of splitting, selling, and purchasing that each has experienced over the last two years. But again, my opinion though is that IR brings less to the table than Trane. Trane's infrastructure is mature and set in its ways, but like any large business purchase or merger, IR will want to put their imprint on the business. If they are not to careful, IR could really screw up a great company, but the great company looks as if it needs to cut costs (especially if the ROA is accurate for Trane). After seeing mergers from the inside out, it will take roughly six months to a year for the two companies to properly integrate into one another and see potential synergy savings. After that both companies might be able to flourish.

Official opinion: Wait on IR for now. I think the stock will dip back below $42.50 or lower and then start looking to buy. If it were my money though, I would wait four months from today and reevaluate. There is just too much unknown and too much competition to make me feel good about this right now.

Grant its your turn, my stock Petrobras (PZE).

Also, if anyone else wants me to look at a stock for them and give an opinion, I'm up to it. My expertise are industrials, green energy, and raven-haired ladies. The only expectation is that you do the same for me.

*Stats from Trane's 2007 Annual Report and IR' s 2007 Annual Reports

**Stats from Yahoo's Finance coverage for IR and TT