Here are some items of interest in this weeks Barron’s:
The cover story is on the ticking time bomb that is the US budget. Forget all the problems about next week or next month, we are sitting on a budget time bomb that will destroy the economy in 25 years or so and yet no politician is even talking about it. This problem has been known since at least the early 1980s but here we are, getting closer and closer.
Paul Wick from Columbia Seligman is negative on FireEye (FEYE) and FleetMatics (FLTX). The valuations are too high. Daniel Khoshaba of KSA Capital Partners is a deep value investor and he likes OI, PNK and DAN.
We wrote about NOV on May 5 when it was $66.88. NOV closed on Friday at $78.01, up 16.64% since then. Vito Racanelli writes that the recently announced spinoff can be a catalyst for more gains.
Yale University publishes a Crash Confidence Index which measures investors confidence that there will not be a crash in the next six months. The index is about at 6 year highs right now, showing an increased level of complacency although it is still well off its highs. Something to watch.
AAPL disappointed investors at a recent meeting when it announced its new I-Phone models that got a collective yawn. AAPL added some innovative fingerprint technology but the general response was, “that was all they could think of in one year!”
AAPL also released a new OS for the I Phone, and last night, as I was with my daughter and some of her friends at IU, I heard some “wow” kind of comments when a couple of the girls were showing off the new OS including the new ITunes radio. Sometimes it is the anecdotal evidence that is best.
The Fed surprised the markets by not tapering yesterday. The equities and debt markets shot up. I think this was a bad decision. The markets had taken some hits in anticipation of the taper, and the market completely expected the taper. Had it come, there would have been little reaction. Instead, we don’t get a taper and the market shoots up. So the market will continue to be artificially manipulated and we will have to deal with the taper anticipation at some future point, again disrupting markets, maybe more than what we just experienced. We had already put in the initial pain in anticipation of the taper, so the Fed would have gotten a free pass yesterday. A bad move by the Fed not to taper.
More important than the action of the markets is the impact on the real economy. The economy needs to get back to a free market where interest rates are not manipulated. Retirees and savers continue to be strangled by artificially low rates. Everyday citizens are hurt by high commodity prices. The equity and debt markets rallied yesterday, helping investors, but commodity prices rallied by more, including the energy markets. That means regular citizens will continue to be hurt. Yes, lower rates help borrowers, but everyone else continues to be damaged by these low rate policies.
The only possible reason not to taper, assuming you believe that artificially low interest rates actually help the economy at this point, would be because of the possible government shutdown in a few weeks. I have no doubt that we are on a possible collision course in that regard.
But short of that, the Fed needs to begin to taper at a measured pace and the sooner the better. We need get back to a real economy that actually grows.
Kevin Kaiser of HedgeEye Risk Management has called out another MLP, this time KMI/KMP. He had a good call on LINE earlier in the year. Check out http://app.hedgeye.com/media/616-video-kaiser-beware-of-kinder-morgan.
The firm is also negative on MCD (see their note of 9/10/13).
Carl Icahn called AAPL a “no-brainer” as an investment. AAPL fell 5.44% today but Carl was in there buying at in the $467 area. See http://www.valuewalk.com/2013/09/carl-icahn-apple-just-brainer-bought-today-video/.
Here are some ideas from this weeks Barron’s:
Randall Forsyth mentioned in his column that a couple of CEFs that invest in India are selling at double digit discounts to NAV, they are IIF and IFN.
Kopin Tan wrote about Hormel (HRL). Hormel is a “well-run company” but the dividend yield is down to 1.6% and it selling at 22.3x earnings, which is a 15-year high.
“It’s the Shareholders, Stupid” is an article written by Andrew Bary that points out the MSFT continues to be undervalued at 12x June 2014 EPS and net cash of $8 per share along with a 2.9% yield. The Nokia acquisition may not be a great decision but a new shareholder friendly director might be able to shake things up.
Jacqueline Doherty highlighted industrials in “Laggards, But Not for Long”. She wrote about JOY, TXT, DE, CAT and GE.
Barron’s interviewed 10 strategists and the consensus view is for a 4% rise to 1700 by year end for the SP500. Looking for 2013 earnings of $107.85 and $116.50 next year. They like technology and industrial stocks, which should have good profit growth in 2014. Bond-like equities will continue to underperform. However, Tobias Levkovich of Citi says utility stock valuations are “compelling.”
Three of the ten expect a decline to about 1600.
David Kostin of GS likes AMXN, NFLX, R, RHI and LUV. Thomas Lee of JPM likes DIS, TWX, PCLN and MA.
An article touts Carmike Cinemas. A “follow-up” on RUTH, currently at $11.82, can get to $15 in the next couple of years.
Allstate (ALL) at $47 can gain 50% over the next few years, according to Ken Crawford at Argent Capital. The stocks is at 1.1x book value and 9.3x estimated 2014 EPS. Those multiples are below the market. The yield is 2.1% and there is a $1b+ share repurchase program.
Newcastle Investment (NCT) is a REIT is going to focus on senior living, which is primarily mom-and-pop owners. NCT is targeting a 20% ROE.