Friday, December 9, 2011
Mastery is always on the hunt for a security that doesn't dive 5 to 10% every other day thanks to the current volatility. Turns out beer could be the solution for all our problems.
Boston Beer Co (SAM) shares are now trading with a P/E Ratio of 23.3 and EPS of 4.36. SAM shares are trading at $101.
This week Jefferies put a "Hold" on Molson Coors (TAP) but stayed steady on their $46 price target on the stock. JPMorgan Chase & Co. also reiterated their "Neutral" rating on TAP on Tuesday (Dec 6th) and set a $45 price target.
|CO.||Current Price||Price Target||% Change|
|TAP||$ 41.04||$ 45.00||9.6%|
|TAP||$ 41.04||$ 46.00||12.1%|
from King World News:
With gold trading above $1,700 and silver over $32, today King World News interviewed John Embry, Chief Investment Strategist of the $10 billion strong Sprott Asset Management to get his take on where he sees gold, silver and the mining shares headed. When asked if there was any chance for the central planners to save the system, Embry said, “Zero. I’m a huge believer in Austrian economics, so you have to know where I’m coming from. Ludwig von Mises, the found of Austrian economics, said it best, when you have an excessive credit cycle you only have two choices.”
John Embry continues: Read More @ KingWorldNews.com
As I take a break from the Corzine testimony before the House Agricultural Committee, I'd like to briefly comment on the prospects for the precious metals vis-a-vis the U.S.D.
The first thing I notice, as someone who always looks at charts to see if price action is in line with my view of the fundamentals, is that a closed-end fund that is half gold and half silver, Central Fund of Canada (CEF) has just tipped into a bear configuration, with the 50, 150 and 200 day simple moving averages aligned so that the shortest moving averages are weaker (lower) than the longer ones. Thus if one doesn't want to differentiate between gold (still by those criteria in a bull market) and silver (clearly in a short- and intermediate-term bear configuration), and go "halvsies" by owning equal dollar amounts of each, the message of the market has begun to tilt against one.
Briefly, my record on silver has been good, probably because it has been short and with few calls, thus allowing randomness to work in my favor. I announced quite bullish sentiments in September 2010 around $20/ounce and turned bearish on silver in early May around $40. After the collapse carried it to around $33, I issued a qualified trading buy but after that reiterated that I was staying "risk off" for all commodities other than gold.
I began to raise bearish questions this spring about the trend for the price of silver based in part on the persistent high price premium of the Sprott Physical Silver Trust (PSLV). I admire the fund's construction from a tax and redemption standpoint. I also admire Mr. Sprott's investment acumen and his forthright stand in favor of transparency and soundness in monetary affairs. I have owned PSLV shares and those of other metals funds and "believe" in their value. On the other hand, I was naive enough after the bubble markets peaked in 2000 to think that some ebullience in pricing would be differentiated from bubble pricing, but irrational exuberance has returned. In my view, the continued high teens premium of PSLV to the value of the silver the trust owns (i.e., its NAV) is worrisome. Yes, the overpricing may not matter much if silver in a year or two is going to $200/ounce from the current low-$30s price. But we are in a world that if one were to buy PSLV and one year later, the value of its assets were to rise 10% after expenses, the investor in PSLV could easily lose money because the premium to NAV could shrink much more than that. By comparison, a virtually identical Sprott fund owns gold rather than silver, stock symbol PHYS. This fund has settled down from its early near-20% premium to NAV to trade in the 1-4% premium range. PSLV in my view should trade roughly in line with PHYS. That is does not do so worries me.
For some time, I have read a variety of precious metals-oriented blogs and position papers. I perceive a high degree of certitude and often very bullish price forecasts for silver that I never see for the non-monetary precious metals or a base metal such as copper. I put that confluence of circumstances together and get cautious. Thus I plan to buy PSLV or one of its relative should despair in PSLV's fans (acceptance of financial reality, in my view) become more prominent.
I'm one of those people who would rather buy at $40 on a breakout to the upside on a one-way trip (one would hope) to $70 or $100 rather than buy at $32 and bail if the price drops because I really think that $20-25 is a realistic trading target at some point next year.
Readers should understand that these comments are trading comments. In the long run, my guess is that physical silver is a "good", sound investment at today's price, and that a great way to own silver is in a bank vault or in a basement, where the cost of storage is respectively minimal or zero. My observation though is also that silver is probably trading well above its fully-burdened cost of production, whereas I read this week that the cost of producing an ounce of platinum by one of the South African producers is slightly above the current spot price. I "get" that in a Mad Max scenario or in a hyperinflationary depression, there won't be much demand for platinum while silver may become the go-to transactional money, at least for a while. But that's not today's reality, and in the U.S., I don't think it's going to be a 2012 reality either, recession or no recession. Are the markets already reflecting the likelihood of something such as those disasters? Of course, that's possible, but that's not my expectation, and these are the sorts of interesting issues that, as they say, make markets.
Finally, while recessions and expansions (busts and booms) come and go, and given that much of Europe is now acknowledged to be in or tipping into recession, much may already be priced into the metals and other commodities markets, neither China nor the U.S. are in acknowledged recessions. If they go into recessions, then since recessions tend to be disinflationary or deflationary (price, not Austrian definition of those terms), and in this highly-leveraged world, there is just no telling how far a spike down in price any commodity might (or might not, of course) have should one or both countries be seen to be in that economic state.
In conclusion, I'd feel a lot better about the many calls that silver is finishing a major consolidation and is ready to break out to the upside in a major way if I saw stronger price trends in the non-oil general commodities markets and if I saw less inherent confidence in the pricing of such vehicles as PSLV. Note I am not making a directional "call" at all today.
As I've been saying for a while, sometimes sitting quietly in cash or other relatively stable assets and watching trends evolve with which one is comfortable may be wiser for many people than betting real money in what I view as unusually uncertain times. That's what is working for me right now, and of course nothing said here should be construed as anything other than my personal views, and should not be construed as investment advice in any way.
Betting against equities – the market – is always difficult. First, the market isn’t designed to go down. Companies provide those goods and services for one reason – to turn a profit, and hopefully, such activity can be recognized with a rising stock price. Second, our economic stewards and political leaders (wisdom?) use the stock market as a vehicle that validates all that they do. Fixing a crisis is one thing, but fixing a crisis and having the Dow confirm such actions with a 600 point move is even better. Call this headline risk to any short position because market participants are likely to shoot first and ask questions later on any rumor. When was the last time you heard some elected official say “run for the hills”? There is always the hope that they can fix the problem. For example, this week alone, we have US Treasury Secretary, Tim Geithner, in Europe for “important” meetings. That’s 3 days of headlines telling us Europe’s problems will be fixed.
Nonetheless, here we find a market hoping for a Santa Claus rally just like they were hoping for the traditional Thanksgiving lift that showed up about a week late. How did that work out for you? Thanksgiving week was the worst Thanksgiving week since 1932. Oh well.
So why am I bearish? I have 4 reasons.
The first is purely technical. See figure 1 a weekly chart of the S&P Depository Receipts (symbol: SPY). The red and black dots are key pivot points, which represent the best areas of support (buying) and resistance (selling). The SPY is at a prior key pivot point (126.89) that was support but it is now resistance. There is also resistance from the down sloping 40 week moving average. The SPY is at the upper end of its price range. How it got to this point –i.e., a rally built on poor volume and breadth — is another concern. In essence, I would rather short the market at this point because if wrong I will be shown an exit rather quickly. This would be a “meaningful” close above the aforementioned resistance levels.
Figure 1. SP500/ weekly
The second reason has to do with my belief that we are headed into a recession. This can be seen by my real time recession indicator, which is shown in figure 2 a monthly chart of the SP500. (See this article to read about the real time recession indicator.) The red price bars are those times when there is a risk of the economy going into a recession. As can be seen in this snapshot, the risk of recession seems to coincide with prices being below the simple 10 month moving average. So with the SP500 bumping up against the simple 10 month moving average and with the economy on recession watch, I am willing to say, “prove me wrong”. A close above this level would have me re-thinking my thesis. I like to think of the simple 10 month moving average as the line of hope, and in a recession, that hope keeps getting crushed. We shall see if this time is different.
Figure 2. SP500/ monthly
The third reason has to do with trading models that characterize the current trends in the Dollar and Treasury as being bullish. Last summer, when the Fed announced QE2, equities really didn’t take off until the Dollar Index sank and Treasury yields started moving higher. The current situation is completely opposite to the Summer of 2010, and every market watcher knows that there are only two trades in this market: the Dollar and Treasury bonds (risk off) or everything else (risk on). Figure 3, a weekly chart of the SP500, shows this graphically. In the middle panel is an analogue chart of the Dollar trend which is currently up. The lower panel shows an analogue chart for the trend in Treasury bonds, and this is up to. The vertical black line is August, 2010, and we note that equities took off when these two trends reversed.
Figure 3. SP500/ weekly
The final reason has to do with market sentiment. Currently, market sentiment is neither bullish nor bearish, and this presents a problem for the bulls for several reasons. If there were more bears, I could make the argument that this is bullish. (This is the traditional interpretation.) If and when the market turns higher, there will be plenty of short covering to fuel any rally, and there will be plenty of investors willing to chase prices higher as they are on the sidelines wanting in. If too many bears is a good thing (and it usually is about 80% of the time), then too many bulls must be bad. But that really isn’t the case. Why? At important market junctures, like market bottoms in 2003 and 2009, too many bulls was a good thing. In essence, it took bulls to make a bull market. But in the current market environment, we have neither bulls nor bears. There are no bears to provide short covering fuel for a rally and the bulls don’t seem to be particularly interested for anything but a trade.
So let’s put it all together. Prices are at resistance. There is risk of recession. There are intermarket headwinds. And investors aren’t committed either way. I think this skews the dynamic to the downside even if there is headline risk.
How will I know if I am wrong? As silly as it sounds, higher prices on bullish news. And the appearance of bullish sentiment as investors truly embrace that news and get their speculative mojo back. Until that happens, I am willing to say, “prove me wrong”.
America's love affair with the car continues. Sonic Automotive, Inc. (SAH) saw both new and used car sales up double digits in the third quarter. This Zacks #1 Rank (strong buy) is an attractive value stock with a forward P/E of 11.4.
Sonic Automotive is one of the largest auto retailers in the United States. It operates 100 dealerships in 15 states and offers 30 different car brands.
The company also provides car repair services.
Sonic Beat for the 5th Quarter in a Row
On Oct 25, Sonic reported its third quarter results and surprised on the Zacks Consensus by 6.5%. Earnings per share were 33 cents compared to the consensus of 31 cents. The company only made 25 cents in the year ago quarter.
Revenue jumped 13% as both new vehicle and used vehicle sales remained strong. New vehicle revenue rose 13% as volume jumped 8%. Used vehicle revenue climbed 17% as volume gained 16%.
It was the 10th consecutive quarter of double-digit growth.
The parts and services segment also saw sales rise 5%.
Raised Full Year Guidance
Given yet another strong quarter, Sonic raised its full year guidance to a range between $1.33 to $1.37 from the July guidance of $1.18 to $1.28.
The analysts also revised their estimates. The 2011 Zacks Consensus Estimate jumped to $1.35 from $1.28 in the last 2 months.
That is earnings growth of 36.2%.
Double digit earnings growth is expected to continue in 2012 as the Zacks Consensus Estimates climbed to $1.57 from $1.48 in the prior 60 days. That is further earnings growth of 16.5%.
Strong Value Credentials
Like most other companies, Sonic's shares sold off last summer but have since rebounded.
In addition to a P/E under 15, which is what I use as a cut-off for value stocks, Sonic also has other value characteristics.
It has a price-to-book ratio of 1.6. A P/B ratio under 3.0 usually indicates value.
The company also has a low price-to-sales ratio of just 0.1. A P/S ratio under 1.0 can indicate a company is undervalued. Sonic's P/S ratio is well below that cut-off level.
Additionally, investors are rewarded with a dividend currently yielding 0.6%.
If you're looking for a play on the rebound in auto sales, Sonic has both double digit earnings growth and value.
Bristol-Myers Squibb (NYSE:BMY) — This leading drugmaker with a strong emphasis on cardiovascular and anti-infective and anti-cancer therapeutics just raised its dividend. The company has a long history of regular increases, and the latest brings its yield to 4.03%.
Earnings are expected to increase to $2.30 this year versus $1.79 in 2010. BMY has a strong pipeline of drugs that should sustain its growth for many years.
The consensus price objective for 2012 is $39.12, but technically the break from a base in September, and then again this week, yields a price objective of $42. Buy BMY at market.
from King World News:
With growing fears about the stability of the financial system, today King World News interviewed legendary Jim Sinclair. When asked about the ongoing crisis, Sinclair stated, “Well the story this morning is we have it but we’re not going to spend it. We are not going to buy our own bonds, we’re not going to cap the rates, but we have it and we might use it. It’s like that every day. Those guys can’t get their story together for more than fifteen minutes.
The ECB has the availability of funds for some activities in the euro bond market. They will use it, they didn’t get it to look at. Gold was up into the $1,760s, $1,755 (to) $1,760 has been a technical area to be challenged. It was a fortuitous statement by Draghi that, ‘We might not use it,’ after which gold (traded) $1,709. It’s something to watch.”
Jim Sinclair continues: Read More @ KingWorldNews.com
I think that buying silver today is like buying gold for $554 an ounce. Let me explain: As I am writing, silver is currently trading at about 65.2% (32.6/50) of its 1980 high. If gold was trading at 65.2% of its 1980 high, it would be trading at $554 (0.652*850).
Now, I really like gold, even at today’s price of $1 738, but why should I pay $1 738, if I can get it for $554 by buying silver and then exchanging it for gold when the gold/silver ratio is at an extreme (in favour of silver). The reason for this logic comes from the fundamental relationship between gold and silver as explained in my previous article.
For my argument to be valid, silver has to outperform gold over my investment period, and at least equal gold’s performance relative to its 1980 high. That is, for example, if gold reaches five multiples of its 1980 high ($4250), then silver should do the same ($250), in this example, giving us a gold/silver ratio of 17.
Now, if silver outperforms gold, then that means that the gold/silver ratio should decline over my investment term. In my previous article called: Why Silver for a Monetary Collapse, I analysed the gold/silver ratio from a very long perspective (200 years). Here I would like to take a slightly more short-term view (40 years).
Below, is a long +/- 40 year chart of the gold/silver ratio:
On the chart, I have identified two fractals, which I have both marked with points 1 to 3. The two patterns are visually very similar. I have indicated two option of where we could be currently (on the current pattern), compared to the 70s pattern. The ratio appears to be at a major crossroads, ready to make a big move, up or down. This could means that a massive move in the gold and silver price is due shortly.
Based on the patterns, if it moves up, it would likely signal the end of the precious metals bull market, similar to January 1980. A move down would be an acceleration of the current bull market in gold and silver, similar to August/September 1979.
The question is therefore: Do you think the bull market in precious metals is over? Before you answer that, first consider the following:
On the above graphic, the top chart is the current gold bull market from 1999 to date, compared to the bull market of the 60s and 70s, the bottom chart. The previous bull market in gold was about 14 years long, from a peak in the Dow/gold ratio to the bottom in Dow/gold ratio. The current bull market is 12 year old, from the peak in the Dow/gold ratio to date.
The previous bull market ended with a parabolic move in gold (on the above scale). The current bull market has not made a parabolic move (on the above scale); in fact, it has been rising steadily over the last 12 years.
To me, these two charts suggest that we are more likely to have a parabolic rise in the gold price, than being at the end of this bull market. Therefore, it also suggests that price action for gold and silver, and the gold/silver ratio is likely to be more like 1978/1979 than like January 1980.So, back to my argument of buying silver, in order to get gold at $554: I certainly think that silver will outperform gold over the remaining part of this bull market in precious metals, as well as, at least equal gold’s performance relative to its 1980 high. I can certainly see how gold could be at $4250 with silver being at $250, or at higher prices, with the gold/silver ratio being at 17 or less.