Daily Profit : GE

Meredith Whitney Upgrades Goldman While Geithner Assures Arabs Our Money is Good

Ian Wyatt — Mon, 13 Jul 2009 14:40:00 GMT

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Your Daily Profit

July 13, 2009

*****Strong Dollar Propaganda

*****Earnings and Economic Data

*****Blueprint for Profits

Fellow Investor,

A few weeks ago, Treasury Secretary Geithner had to go to China to assure our largest creditor that their investment in the U.S. dollar was safe. Now he’s off to Saudi Arabia and United Arab Emirates for another round of “strong dollar” propaganda.

Of course, it’s not an easy task to convince foreign governments that the U.S. wants a strong dollar when interest rates are at zero and we’re selling tens of billions in Treasury bills virtually every week. You may recall Geithner’s assurances elicited laughter from a group of Chinese college students when he made the strong dollar pledge there.

If college students know the score, you can bet everyone else does, too. But Treasury auctions have been met with plenty of demand, and that’s a good thing.

*****Fed Chief Bernanke is expected to reveal to Congress just how he plans to reverse his stimulative monetary policy next week. The Fed has expanded the money supply by about $1 trillion, cut rates to zero and doubled the assets on its balance sheet.

In normal times, this would be highly inflationary. But these aren’t normal times. Were it not for the Fed’s action, the U.S. economy would be broken even more than it already is.

Now, normal times will return. And how the Fed plans to reel in liquidity when the economy starts to grow again is critical. The potential for runaway inflation is real, and the Fed will have to be just as diligent at fighting inflation as it was fighting deflation.

*****Goldman Sachs (NYSE:GS) received an upgrade from the very same banking analyst that predicted collapse of mortgage-backed securities, Meredith Whitney.

Upgrading Goldman is easy. The bank is practically a subsidiary of the U.S. government. But the timing is interesting, given that Goldman reports earnings before the bell tomorrow.

And speaking of earnings, this is a big week for some important companies. In addition to Goldman, we get Intel (Nasdaq:INTC) after the bell tomorrow. Thursday, we’ll hear from JP Morgan (NYSE:JPM), Google (Nasdaq:GOOG) and IBM (NYSE:IBM). Then Friday, we get General Electric (NYSE:GE), Bank of America (NYSE:BAC).

Tech and financials – the anchors for the U.S. economy will be reporting this week. Investors will be watching these early earnings reports closely. Much of the rally of the past few months can be attributed to investors’ faith in companies meeting Q2 earnings, even if expectations were substantially lowered. Any bad news from these bellwether companies and the market could turn. We’ll be watching closely.

*****As if earnings weren’t enough, there’s a full slate of economic data coming out this week, too. Tuesday, it’s the Producer Price Index (PPI) along with retail sales and business inventories.

Wednesday, we get the Consumer Price Index (CPI), the Empire Manufacturing Survey from New York state, capacity utilization, industrial production, crude inventories and the minutes from the last FOMC meeting.

Thursday, it’s initial unemployment claims and the Philadelphia Fed.

And finally, on Friday, we get building permits and housing starts for June.

Whew! That’s going to be a lot of data to review.

*****On January 15, my Top Stock Insights advisory service released its Predictions 2009 special issue. This issue was our blueprint for profits with mid- and large-cap stocks as we headed into the new year.

In that issue, I outlined the case for oil, gold, commodities and biotech/healthcare stocks. And we took 51% profits on an oil stock, 25% on a gold stock, another 25% on a commodity stock and we’re still holding three biotech/healthcare double-digit winners in the portfolio.

In other words, our expectations for the year led my readers to some nice gains this year, and there’s more to come...

Now, I’m all set to release an update to that special Predictions issue that will get us through the rest of this year with more solid gains. It comes out on Wednesday, and if you’d like to get my blueprint for profits for the rest of 2009, please click here. Or go to topstockinsights.com.

*****Also, if you missed TradeMaster Daily Stock Alerts technical analyst Jason Cimpl’s weekly video chart analysis, here’s that link again.

*****As always, send me your comments, your questions and your jokes to editorial@247investor.com.

Ian Wyatt

Editor

Daily Profit

Earnings Expectations and Toxic Asset Profits

Ian Wyatt — Fri, 17 Apr 2009 17:57:00 GMT

Your Daily Profit

April 17, 2009

*****Earnings: Expectations and Reality

*****GE: Could be Worse

*****Who Profits from Toxic Assets?

Fellow investor,

Stocks have marched steadily higher since March 9. The first 10 days or so of the rally was a mad dash, which is how recovery rallies behave. But since the huge up day on March 23, stocks have settled higher. The S&P is now within spitting distance of its 2009 highs.

There’s no doubt that investors have been pricing in some fairly optimistic expectations. And so far this earnings season is rewarding that optimism.

Now, I’m not saying that earnings have been great. The point is, earnings haven’t been terrible. Or at least, not as terrible as investors thought they’d be back in February.

You may recall that many analysts were saying first-quarter earnings would be when we’d really see just how bad the economy has been. It’s still early in earnings season, but we’ve heard from some important companies. I think it’s safe to say that earnings could have been much worse.

*****Take General Electric (NYSE:GE), for example. GE stock price is down 63% form its 52-week highs. It cut its dividend and lost its AAA debt rating. That’s about as bad as it gets for one of the most respected and stable companies in the world.

But the reality of today’s earnings report should put the rumors of GE’s demise to rest.

Overall, GE made money in the first quarter of this year, albeit 35% less than last year’s Q1. Even its finance arm, GE Capital, which at one time was believed to threaten the very existence of GE, made $1.12 billion in three months.

GE saw revenues rise in its energy unit and technology infrastructure division. It maintains a healthy backlog that’s actually growing. And it probably won’t need to raise any more money to maintain its capital base.

All in all, it could have been much worse for GE.

*****Yesterday, I suggested that the idea of the “Stress Test” for banks was really just a marketing ploy by the Treasury to boost confidence that the United States financial system is stable. After all the back-bending, and billions in bailout funds to avoid bank failures, do we really think the Treasury is suddenly going to declare any banks insolvent?

Highly unlikely, in my opinion.

So if the Treasury is unwilling to nail any banks, what does that mean for the Public-Private Investment Program that’s supposed to buy banks’ toxic assets? What will be the motivation for selling if there are no consequences for keeping these assets and waiting for value to return?

Well, it would appear that the Treasury is playing the “opportunity cost” card. Offer the banks a premium for these assets now that might otherwise take years to achieve.

The banks win, as they free up their balance sheets and can theoretically increase lending. The “Toxic Investors” win, as they buy potentially valuable assets with very little of their own money while the Fed and Treasury subsidize the rest. And the taxpayer wins as Fed and Treasury loans are paid back.

I don’t know about you, but that all sounds a little too perfect. Something’s bound to go wrong with this neat little win-win-win scenario. And I know who isn’t going to get shafted – the investors who partner with the Treasury to buy these assets.

That’s because they simply won’t be taking on much risk at all, and they potentially make a lot of money. If you’re interested, the latest issue of Top Stock Insights just profiled three such investment houses that are participating in the Public-Private Investment Program. And we added one of these stocks to the Top Stock Insights portfolio. I’ve included all the details in a special report called How to Profit from Uncle Sam's Toxic Asset Buy Back. Click HERE for details.

*****On Wednesday, we watched Hovnanian Enterprises (NYSE:HOV) make a powerful breakout move through resistance. Yesterday, the stock consolidated that move. And today, it’s moving higher.

Hovnanian is now up 51% since I recommended it at $1.52. And there’s virtually no resistance before $3 a share. My only concern is that the market will turn lower before Hovnanian hits $3. Now might be a good time to put in a stop-loss order protect your gains.

Also, if you bought Hovnanian, I’d love to hear from you. Even if you didn’t, my email box is always open. Drop me a line at editorial@247investor.com.

That’s it for today. Have a great weekend and I’ll talk to you on Monday.

Ian Wyatt
Editor
Daily Profit

Global Markets Up...Oil is Down

Ian Wyatt — Wed, 11 Mar 2009 12:23:00 GMT

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Your Daily Profit

March 11, 2009

*****Global Markets Up…

*****Oil Down?

*****Recovery Portfolio

Fellow investor,

Finally, early strength for stocks yesterday didn’t turn to weakness. And in fact, stocks finished the day with a flourish to close at the highs. Textbook.

Maybe even a little too perfect…

Traders have been anticipating a rally for days. The shorts are all covered. Bloomberg reports that hedge fund Paulson & Co. (unrelated to Hank or Goldman) recently took the last of its 606 million pounds in profit from downside bets on English banks…

Paulson: “Let others fight over the crumbs of profit in banking.”

& Co.: “Right you are!”

No, a rally was coming. Who’d bet against the Dow after it hit 6,440, turning the clock back to 1996? But, more importantly, who’s going to bet that the rally keeps going now?

*****After all, the stock market was just led higher by Citigroup, of all companies. If only it could have been U.S. Steel (NYSE:X) telling us that orders were up. Why couldn’t General Electric (NYSE:GE) have said that credit card debt wasn’t so bad?

Sadly, it was dollar-a-year CEO Vikram Pandit reporting that his Citigroup was having the best year since 2007. Isn’t that when the housing market collapse spread to the banks?

Again, I suppose if you get billions in taxpayer money, you should be able to put it to work in loan modifications and loan principle “adjustments.” I’m not so sure that’s worth a 38% one-day jump in your stock price.

*****I hate to sound a sour tone. And I’m painfully aware that investment wisdom states that the weakest among them, the financials, must lead. But I have a hard time believing that other investors will believe that things are improving for banks and the entire lending market just because Citigroup said it had a good couple of months. They’ve been wrong before…

In other words, it’s not that I don’t think the financial sector is getting better…maybe it is, maybe it isn’t (and between you and me, this is definitely something I’ll be keeping a close eye on.) It’s just that I wonder how many will take Turnaround Tuesday seriously over the next few days?

*****Europe’s biggest bank, HSBC, got in on the action and said it doesn’t need anymore government loans. Asian markets certainly seemed to love Citigroup’s news during overnight trading, too. Japan’s biggest bank, Mitsubishi Financial Group was up 6%. Never mind that machinery orders in Japan fell for the 4^th straight month, however less than expected.

And ignore the surprise 45% drop in exports in January while you’re at it.

*****The one thing that’s missing is oil. Why, why, in the face of such a clear demonstration of the return of the global economy, did oil prices trade lower?

Fixed asset investments in China rose 25% in January and February. Surely a possible return to double digit growth in China, the world’s second biggest oil consumer, would light at least a spark under oil prices? Nope, the U.S. Oil Trust (USO) fell 2.86%. Probably the only asset in the world that lost money Tuesday.

Strange times we live in…

*****I bring all this up for a reason. I’ve recommended a few stocks here in the Daily Profit And my SmallCapInvestor PRO subscription advisory letter is sitting on a 25% gain from a biotech stock we recommended last Monday, March 2.

I realize SXC Health Solutions (Nasdaq:SXCI), Graham Corp (AMEX:GHM), CardioNet (Nasdaq:BEAT) and Emergent Biosciences (NYSE:EBS) aren’t up 25%, but you could have some gains to protect. And I won’t be at all surprised if you could buy them all back 10%-15% cheaper in the next few days.

So let’s take advantage of any strength in prices today and get out of these stocks with an eye to re-enter, say, Monday.

*****As for the biotech stock, it’s called Arena Pharmaceuticals (Nasdaq:ARNA). It’s expected to release Phase III trial results for its obesity drug. Two other companies, Vivus (Nasdaq:VVUS) and Orexigen (Nasdaq:OREX) have already released less than stellar results. That leaves Arena carrying the easy weight-loss banner.

I have no plans to hold this stock into the trial results. That’s a recipe for disaster. But if the stock drops, there might be another 25% gain to be had in the next couple pf weeks. And if the results are good, there could be significant gains coming for this stock.

For more on SmallCapInvestor PRO, click HERE.

*****Finally, the Recovery Portfolio video conference went great last night. We’re entering a trade that offers is highly likely to net 24%, and gives you 17% downside protection. You can view a replay of this even HERE

*****That’s it for today.

Ian Wyatt

Editor

Daily Profit

Buffett's Annual Letter: So Easy a Caveman Could Do It

Ian Wyatt — Mon, 02 Mar 2009 18:54:00 GMT

    ***Buffett's Annual Letter
    ***A Caveman Could Do It
    ***Buy These Stocks

Fellow Investor,

Washington D.C. is blanketed in snow. I have a few of my staff in “work at home” mode. And that’s great. A good snowstorm has been a rarity these last few years. I’m going to encourage the parents of my group to get out and do a little sledding with their kids.

*****Warren Buffett’s annual report for Berkshire Hathaway was released over the weekend. His letter to his shareholders is one of the most widely read investment documents there is. Buffett’s down home charm, inviting sense of humor and investment savvy are always a great read.

Perhaps the biggest surprise was that the net asset value of Berkshire Hathaway dropped by $11.5 billion. Buffett was not immune to the market’s drop. Despite well-publicized investments in General Electric (NYSE:GE) and Goldman Sachs (NYSE:GS) that are down considerably, the lion’s share of balance sheet loss has come from derivatives, what Buffett has called “financial weapons of mass destruction.”

Word is that Buffett sold a few billion in S&P 500 puts. Mark to market accounting forces him to show the loss. But that’s not going to give an accurate picture of his company’s true health. For one, those put options can come back to life and even enter the profit zone. And two, we don’t know what he did with the money. If the premiums he received from the options sales are used wisely, he’ll compound his returns.

*****Some of the more interesting tidbits from Buffett’s letter to shareholders:

We’re certain, for example, that the economy will be in shambles throughout 2009 – and, for that matter, probably well beyond…

*****Buffett said one of his goals for 2008 was “…widening the ‘moats’ around our operating businesses that give them durable competitive advantages…”

You may have noticed that “widening the moat” has meant that approximately 1 out of 5 commercials on TV these days is from Geico, a Buffett company. And the results?

“…the insurance group delivered an underwriting gain for the sixth consecutive year. This means that our $58.5 billion of insurance ‘float’ – money that doesn’t belong to us but that we hold and invest for our own benefit – cost us less than zero. In fact, we were paid $2.8 billion to hold our float during 2008. Charlie and I find this enjoyable.”

Paid to make money. He could have thrown that “float” money in a money-market account and been profitable. It’s so easy, even a caveman could do it.

*****Did you know that Buffett is investing in alternative energy? He said “…when we purchased PacifiCorp in 2006, we moved aggressively to expand wind generation. Wind capacity was then 33 megawatts. It’s now 794, with more coming.... today the company is number one in the nation among regulated utilities in ownership of wind capacity.”

****”I bought a large amount of ConocoPhillips stock when oil and gas prices were near their peak. I in no way anticipated the dramatic fall in energy prices that occurred in the last half of the year. I still believe the odds are good that oil sells far higher in the future than the current $40-$50 price.”

Buffett makes mistakes. Unthinkable! But his contention that oil prices will be higher in the future should be noted. At current levels, oil assets should be good investments.

*****”Economic medicine that was previously meted out by the cupful has recently been dispensed by the barrel. These once-unthinkable dosages will almost certainly bring on unwelcome aftereffects. Their precise nature is anyone’s guess, though one likely consequence is an onslaught of inflation.” And “…the U.S. Treasury bond bubble of late 2008 may be regarded as almost equally extraordinary.”

Like I’m fond of saying, I feel better about my short Treasury bond investment in Recovery Portfolio every day. For more about the upcoming video conference, click HERE. The event is free, but you do need to sign up.

*****Of course, Buffett also sounds a pro-America refrain “…never forget that our country has faced far worse travails in the past. In the 20th Century alone, we dealt with two great wars (one of which we initially appeared to be losing); a dozen or so panics and recessions; virulent inflation that led to a 211⁄2% prime rate in 1980; and the Great Depression of the 1930s, when unemployment ranged between 15% and 25% for many years. America has had no shortage of challenges.

Without fail, however, we’ve overcome them. In the face of those obstacles – and many others – the real standard of living for Americans improved nearly seven-fold during the 1900s, while the Dow Jones Industrials rose from 66 to 11,497. Compare the record of this period with the dozens of centuries during which humans secured only tiny gains, if any, in how they lived. Though the path has not been smooth, our economic system has worked extraordinarily well over time. It has unleashed human potential as no other system has, and it will continue to do so. America ’s best days lie ahead.”

It’s worth noting that, despite Buffett’s optimism, he hasn’t exactly gone hog wild buying stocks. He continues to prefer the preferred – stocks that pay a dividend.

And who can blame him? In these cash-lean days, his ability to inject liquidity is getting him favorable rates.

***** ”…the market value of the bonds and stocks that we continue to hold suffered a significant decline along with the general market. This does not bother Charlie and me. Indeed, we enjoy such price declines

if we have funds available to increase our positions. Long ago, Ben Graham taught me that “Price is what you pay; value is what you get.” Whether we’re talking about socks or stocks, I like buying quality merchandise

when it is marked down.”

Stocks are on sale, according to the Oracle. Buy them. My lead analyst Jason Cimpl has had his eye on the 715 range as a short-term bottom on the S&P 500.

I’m not going to tell you to load up on stocks. But you should buy something. Past Daily Profit issues have recommended: Graham Corp (AMEX: GHM ), CardioNet (Nasdaq:BEAT), SXC Health Solutions (Nasdaq:SXCI) and Emergent BioSolutions (NYSE:EBS).

That's it for today...

Best regards,

Ian Wyatt
Editor
Daily Profit