Don't Believe the Hype, But...

So after the market has increased in value now for roughly 6 days, a lot of naysayers are starting to come around and say that we "may have hit the bottom". People are looking for more signs than a group of fourteen year old girls in an Ouija board. I don't believe the hype, until my friends at the paint company tell me that production is up, I am going to have a hard time believing it. There is just too many people on unemployment, too many scared to purchase more than anything besides the necessities. I won't believe it until consumer spending is up for a couple of quarters.

BUT,

The savvy investor, the contrarian, and myself know (I am the dumbest of the three) that if you wait too long you may miss the bounce. So I have begun the search for more good stocks. It is a gamble, no doubt. I have two ultimate criterion. 1] The potential company must be one that will exist when this economy has finally turned. 2] The potential company must be one that will be profitable when this economy has finally turned. Sorry GM doesn't qualify.

My favorite way to begin a stock search is through the magic formula screen. I have talked about it before, recommended buying the book, and believe in it's methodology. I won't go into full on stock research in this post, but will say that my findings turned up several good prospects including: CALM, MLHR, MSFT, PCU, PM, RIMM. Until I plow through their latest financials I won't recommend anything. Also there are a few perennial industrial powerhouse stocks that are 'relatively' cheap including LECO and EMR among others.

I will start doing the numbers because I am beginning to feel like it is a good time to start looking to buy. We will see how it goes.

A few random thoughts while out on vacation

• There are only two types of public trash cans in Manila: Recyclable or Biodegradable. That's it. No generic trash. Think about that for a minute, is everything you throw away recyclable or biodegradable?
• What if instead of pumping more money into higher wages, stay with me here, and instead make cheaper more sustainable housing. Would the value of the dollar be greater? The thought is brought to you by the hardest working employees of fast food chains that I have ever seen in Manila. To quote a friend, "I would hire these people anywhere!" They don't make much, only 250 pesos or $25 a day, but they work really hard. It is probably cultural, but that is considered okay money, so they work hard. I am taking a guess that because cheap housing is readily available, then that small peso amount can be pretty valuable in that country.
• Up yours snooty people! As the world marketplace is becoming more global with more languages trying to speak and understand one another, the more basic English is being spoken. I can go most places in the world now and say, "Where is your bathroom?" and they will know exactly what I am saying or want to do. Now try to go to those same foreign parts of the world and say, "Can you please point me into the direction of the nearest toilet?" and you may get the same look from them that your dog gives you when you make a funny noise. So all those language snobs that over the years that have corrected your imprecise speech can shove it. I frankly never cared that it is "anyway" and not "anyways" and most of the rest of the world could care less too. I can only speak basic Spanish when I really need it, just as some other nationality can barely speak English. If we are both patient with each other then we can figure it all out. I am not going to tell a vendor in the Philippines about how "frugal" I am, I will tell them that I am "cheap". They understand that and no one is embarrassed.
• I'm going to start a paper company in the Philippines. I didn't bring a laptop and am writing on some computer paper that I bought at the hotel. I bought six pieces of paper for 25 pesos. Next time I am bringing a whole gross of legal pads. I'll make millions (of pesos).
• Filipinos love the sweets. Everything here is sweet or has some sweet aftertaste. Sio Pao (pronounced shoe-pow!) is the native sandwich. It is a sweet roll with some sort of pork or chicken in the middle, very good. There is also Tusino (pronounced like casino with a T) which is a sweet cured ham that is fried and served like bacon here, also very good.
• All of the national airlines in the Philippines have the throwback hot stewardess thing going on. I would say more but I have a GF that I love.
• I just wanted to take a moment to say that I am up ~35% since I bought into Baldor (BEZ) and ~8% with Herman Miller (MLHR). I am honestly considering though to becoming a Bogle-head and start purchasing shares of VTI, VEA, and VNQ for my Roth IRA. More on the strategy later.

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...

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)

Playing with BigCharts & Justifying Herman Miller

So after a trip to see my brother during the holiday weekend, I spent some time playing with a new-to-me website called BigCharts which is a service of MarketWatch. After throwing in some stocks of mine like FTO, HMC, and a stock Grant wanted me to research IR, I got back to MLHR. See the interactive 1 year chart of Herman Miller right here. Adjust the settings to show the three to four years of trending.

My point is that here is a company that has shown increasing earnings consistently for over four years, increased it's dividend each year, consistently great earnings reports each quarter, low p/e of 10.1, and yet it is near its 52 week low on share price. Why aren't people screaming for this stock to go up? Maybe because they make furniture, I don't know. You all should take a look and tell me what I am not seeing.

(Edit later on 5/27/08): Found a good article by someone named Paul Price on Seeking Alpha about MLHR here. Also, he has me interested in Coca-Cola now.

Righting the ship...

I was waiting to say anything it until I was at least 3% into the black on my Roth IRA, but I am now officially Back in Black (by 5%)! I have had trouble the last six months finding a profitable portfolio and wanted to readjust into some safe value minded stocks and ETF's that should be good for the long run.

Key sales: STP, PBD, PNCL, Polaris Global Value Fund

• STP and the entire solar market started to fall after a big markup; I wanted to keep this for the long term but selling at this time still allowed for me to collect some profits. I still think Suntech is the Toyota of the solar market and along with Sunpower are the best of breed if you are looking to find a long term solar investment.
• PBD fell based on that same big solar put back. I got out at $27.45 a share, but later I got back in $25.62 a share (now at $29.70 a share). I know that this ETF is getting lumped in with the other solar stocks in investors minds, but as I have stated before in my first evaluation of this ETF, it is the best of all available alternative energy technologies in the world not just the US. The best technologies being windmills. This is great long term ETF that is in my opinion the best and safest alternative energy play.
• PNCL may be a good play some time, even right now, but I am out. It is a suggestion out of a magazine that I thought, "Hey, this makes sense" and bought shares without my usual research. Pinnacle is basically a small airline partnered with Northwest Airlines and others to take care of some of the lesser puddle jumping locations in the states. It made sense until one day I remembered this is one of the industries that tied to gasoline charges and then they made a purchase of another small airline that, low and behold, has a lot of unforeseen debt. Bad call by me.
• The Polaris Global Value Fund is a formerly well liked, low expense mutual fund that typically invests in global value rated small cap businesses. Historically small cap value businesses don't do well in rough economies and then takes off when the economy turns back into a bull market. Well I bought this fund in a bull market and then it has slowly been leaking profits ever sense. I may purchase this again, but my money is currently better stored in PWV.

Key purchases: BEZ, PXE, PWV, PBD

• BEZ was written up in this post a few weeks back and has already helped my portfolio greatly. I still like this company in this economy and for the longterm for the same Buffet'esce reasons as I have listed before and feel that is still in a "buy" stage. Wait for another couple of pull back days; it has been on a tear again. I would buy anything below the $34 range.
• PXE is a stock that I have owned for over a year now and I decided to add more. It is the Powershares Dynamic Energy Exploration & Production Portfolio and it makes a whole lot of sense to just keep adding more and more of this ETF. I am a firm believer in alternative energy and fuels, but currently gas is what makes the world go round. Spend some time in checking this ETF's top five stocks and you will see several of the price explosion stocks over the past year. This ETF is going to continue to keep growing for at least the next three years, so at almost any price it will continue to gain value. I am going to keep purchasing it on bad days for some time.
• PWV is Powershares Dynamic Large Cap Value Portfolio and Lipper just loves it. It has a five star rating over the past three year in four categories and a four star rating for the expense category. It is built up of value minded large cap companies, so it should be tough enough to weather and grow in this economy. Oh, and it has been cheap recently, shares a fairly good dividend at 2.44%, and in a growing economy should take off. If it follows its past three years of data it will beat the S&P's growth by 5% to 10%. It is safer than a mutual fund and has a much better potential upside. I am buying as long as it is below $21 a share.
• PBD for the same reasons listed above.

We will see: MLHR, FTO

• MLHR is a great stock, has a bunch of cash on hand, caters to upscale customers, P/E of 10, 1.5% yield, and is consistently showing increasing profits in quarterly reports. Herman Miller furniture is high quality and a good product, but everyone seems to be staying away from it. I have amassed a lot of this stock as I think it is still a great company in bad times. It is one Kramer or SmartMoney recommendation away from taking off I think, but for now I am holding my breath.
• FTO is another great stock that I don't understand. It's stock performance is closely tie to the overall refinery market, but Frontier keeps recording record profit, P/E of 6.5, lots of cash on hand, and well seems cheap. I may buy a little bit more because I think this is ready to explode soon.

What I do well at in my opinion is doing research and finding value minded stocks and ETF's and my current Roth portfolio reflects this. I suck at selling at times when my stocks are still profitable. I need to start adhering by some rules of when to get out, but need some ideas. When I figure out my plan, I will share it some more here, but I tell you what it feels great to be back in black, especially in this economy.

Last thought: Buy PXE on off days. Oil is king for some time.

Short and Sweet...Stock Market Down...

Stock Market is pretty crazy right now, I have pulled back my cash on PBD, STP, and NSC. I made money on STP and lost on PBD and NSC. STP and PBD, I will probably look to put money back into once the market fall out is complete. Both are green plays. NSC is still a profitable company, I am going to keep a watchful eye on them.

Alternatively I have identified a new crop of stocks that I am going to do research on. Two good ones seem to be Herman Miller (MLHR) and Frontier Oil (FTO). Frontier Oil showed up on a couple of screens that I run and Herman Miller on another.

My method for stock picking is a little odd. I enjoy running screens, reading various magazines, and predict new trends. In each I research the hell out of my findings. So on this blog I will try to write it all out but you will probably see my stock picks come in two posts. The first post will identify my group of stocks that I am researching, and maybe why. The second will show my pick(s), why I picked it, and the price I am willing to pay for it.