Friday, July 9, 2010
Over the last 13 weeks the broad market, as represented by the SPDR S&P 500 (NYSE:SPY), is down by more than 14%. Despite this, there are a handful of companies that have not only outperformed the index but have gained in value and are still posting some very impressive fundamentals.
Serving Up Electrifying Returns
First up is Public Service Enterprise Group (NYSE:PEG), a company that generates and sells electricity and markets natural gas to customers up and down the Atlantic seaboard. The company's shares have climbed 6% since April 1, and still offer a handsome 4.3% dividend yield. Against the utilities sector as a whole, the shares have shown stalwart qualities, besting the Utilities SPDR ETF (NYSE:XLU), which lost more than 5% over the same period.
In its most recent earnings report, PEG posted EPS numbers that handily beat Wall Street estimates. Where the street had been expecting net income of 65 cents a share, management delivered 84 cents.
Public Service shares trade with a price/earnings ratio of 9.7, have a market cap in excess of $15 billion and are mostly institutionally owned (61.4%). (more)
Deflationary concerns and a flight to quality have combined to produce terrific returns for long-term government bond funds. The 30-year U.S. Treasury bond's yield has fallen from 4.64% at the beginning of the year to 3.99% as of July 8, 2010. The long bond last traded under 4% in May 2009, when deflation was at the forefront of investor concerns. This quick, sharp drop in yield has upped the returns of bond prices and long-term government bond funds.
The category's 14.94% year-to-date gain through July 7 is the best of all fund groups at mid-year. That's not close to the long-term government funds' 52.3% average 2008 gain, but it is far better than the 44.1% the typical fund in the category lost last year. (more)
Analysts at UBS brought residential REITs into focus on Thursday, upgrading a handful of apartment plays. The firm conceded that REITs aren't "table-pounding cheap," but noted the sector is in fair value territory following a pullback over the last few months. A look at the Residential REITs Index's three-month performance shows that half of the Index's 17 have posted gains since early-April, and only three are in negative territory on a six-month basis. Still, the positive sentiment is worth noting, and it will be interesting to see how the firm's upgrades play out.
UBS upgraded the apartment REITs segment to Market Weight boosted AvalonBay Communities (NYSE: AVB - News), Essex Property Trust (NYSE: ESS - News), and Post Properties (NYSE: PPS - News) to Neutral from Sell. All three yield over 3% based on current values and payouts made over the past year, and the trio is leading the sector higher with respective gains of 4% or more over the past five sessions. (more)
In a note, Shields said the rating change came as "our weak macroeconomic outlook implies poor [2010 second-half] earnings."
"We think declining consumer confidence will slow consumer spending, as employment very slowly recovers," he wrote. Shields said that "a shrinking appetite for increased public spending" should limit the size of any future economic stimulus packages, while a potential increase in oil prices above $85 a barrel could further affect consumers' discretionary expenditures.
Apart from its operating units' exposure to economic weakness, its shares face a "double whammy," Shields said, as its equity portfolio and derivative positions expose it to additional pressure on its book value. "Investors' focus on Berkshire's book value for valuation [implies] that its shares could outpace broader market's declines," he wrote. (more)
The Gold Report: In 2002, you turned a little more than $5,000 into a portfolio worth close to $1 million in 2010. I am sure many people ask how you did that. Do you think you could repeat that success again in the current market conditions?
Chen Lin: It's one of the many accounts I am managing; in general, the accounts I manage have had similar performances; some more, some less. The results of my wife's IRA are published on miningstocks.com. There you can see it's pretty much consistent—about 100% a year average in the past seven or eight years. There are down years, like 2008; I was down by 5%; but in 2009, I was up 500%, so it was a very big year. The average is still at about 100%, maybe a little more. (more)
The Australian Bureau of Statistics said the economy had created 45,900 jobs in June, enabling unemployment to hold steady at 5.1 percent and matching May's rate, which was revised down from 5.2 percent.
The number of new jobs far outstripped economists' forecasts of 15,000 and pushed the total to the highest on record, a far cry from ongoing employment woes in other advanced nations.
Employment Minister Simon Crean said resource-rich Australia's economy had produced employment which was the "envy" of many rival countries. (more)
He cites several companies with a 25 percent return on equity last year and debt of less than 10 percent of equity.
The largest companies meeting those prerequisites are Apple, MasterCard, and Gap, says Dorfman, who also is chairman of Thunderstorm Capital.
Of those, he likes Gap best, because it has the lowest price-to-earnings ratio – 12, compared to 23 for Apple and 18 for Mastercard.
But Dorfman prefers several smaller stocks: Western Digital, Seagate Technology, Wet Seal, Loral Space & Communications, and Sturm Ruger. (more)
GLD has fallen as anticipated and come close to our downside target of 115 sooner than we expected. There are layers of support between 114 and 115 GLD. We expect these to be tested.
We note that weekly stochastics remain overbought in spite of this decline, and also note that the long-term trend remains up. This suggests that more consolidation, and not necessarily downside pressure, is needed before the next significant up move in Gold.
Over the longer-term, we continue to like Gold but expect to see choppiness over the next month or so. However, realize there is risk here -- Gold has outperformed commodities in recent weeks due to currency and market related fears, and could fall more if these fears abate.(more)
Stephen Green, the bank's China economist, said a glut of newly built homes were hitting the market just as buyers are restrained by higher down-payments and curbs on speculation. "We believe developers will be forced to cut prices," he said.
Kenneth Rogoff, ex-chief economist for the IMF, told Bloomberg Television in Hong Kong that the denouement could prove abrupt after such a torrid boom. "You're starting to see that collapse in property and it's going to hit the banking system," he said.