– The Stock Market Companion –

15Minute Market Update

October 26, 2011

—— Stock Market Investing since the 1980’s ——

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-Executive Summary-

  • “On” Again.  Markets Move Strongly Higher.  See below.
  • Market is in a confirmed UP Trend but is bumping up against important resistance + has traveled far, quickly (+11% for DOW).
  • Lot’s of cross-currents.  See below for details.
  • Ford Motor Co. reported earnings today before the open.  Don’t miss our detailed analysis below.
  • Ford Motor Co. = at the SMC we still view this company very favorably and are holding the shares.
  • Ford Motor Co. = We are not planning on selling our shares.  We have long term view on this investment.  Stop at entry ($10.17).
  • Freeport McMoran declares force majeure on some customer orders and expects shortfall of 100 million pounds of copper production this year.  Counter-intuitively, this may drive the share price higher as copper prices firm up on the news, in spite of a production shortfall at Co.  We don’t know yet.
  • Force Majeure defininition.
  • News out of Europe on the sovereign debt plan is unclear yet.
  • Netflix (NFLX $79.40) beginning to squeeze higher?  See below.
  • More individual stock comments – below.
  • Please click here to send us your feedback.  Let us know how we are doing – We are here to serve you. Support@Stockmarketcompanion.com

– Stock Market Companion – Current Holdings –

Nr. Co. Ticker Action Entry Date Current Gain (Loss)
1 Freeport McMoran FCX Sold Yesterday 10/4/2011 +22% Final.
2 Ford Motor Co. F Holding 10/5/2011 +17%
3 Alcoa, Inc. AA Holding 10/24/2011 -1%

Ford Motor Co. offers interesting opportunities here for someone willing to give it room to breathe.  Alcoa is also in buy range, but again a lot hinges right now on what is happening in Europe.

If the above “Current Holdings” table is empty it means that we are not holding ANY stocks at this time and that we are therefore 100% in cash.

– Markets “At a Glance” –

(Please scroll down to the end of the report to see your favorite benchmarks – Dollar, Oil, Gold … closing prices and daily direction.)

Market Price (Today’s Close) Unit of Measure Today’s Direction
SP-500 1,242 Index UP= +12.95 points
DOW-30 11,869.04 Index UP = +162.42 points
NASDAQ 2,650.67 Index UP = +12.25 points

– Market Trends –

Trend

SP-500

DJ-30

NASDAQ
Short Term UP UP UP
Intermediate UP UP UP
Long Term Lateral Lateral Lateral

*Summary of terms from Trader Vic II-Principles of Professional Speculation (pg. 140-141)
*_________* Represents a change in trend rating.

– Market Perspectives –

For your added perspective, we’ve included this chart of the broader market (Successful stock investors develop and start with a minds-eye view of the broader market and keep it clear) –

SMC SP-500 ETF Daily Chart

Please click on the chart to view it in a larger size.



– Today’s Highlights –

From time to time we use the metaphor of the turbulent meeting of the waters of Lake Huron with Lake Michigan 199 feet beneath the Mackinac Bridge – at the Straits of Mackinac near St. Ignace – to describe the characteristics of the current market place. Here’s an inspiring overview of the history and specifications of the Mackinac Bridge – The world’s 3rd longest suspension bridge. The last three trading days represent again a time of significant turbulence for the markets.

Here are some of the issues creating these immediate cross-currents –

 

– Story-Stock Investing –

This morning, Ford Motor Co. released earnings.  Before we begin our analysis, we would like to ask for your forgiveness for not having informed all of you yesterday or on Monday that earnings were coming up for Ford.  We have a “deep-drawer” perspective on Ford Motor Co shares, meaning: we hope that our recent purchase point at $10.17 is a low that will not be re-visited and we have expectations for increasing share values ahead (long term).  That being the case + the fact that Ford just completed successful negotiations of its labor contract + the fact that Ford’s debt ratings were recently upgraded + the fact that Ford announced strong investment objectives for its US operations = has placed us in a state of mind that we are not planning to micro-manage our share holdings.

Here are the details on Ford’s third quarter earnings, direct from the SOURCE = Ford Motor Co. Investor Relations.  Click Here for the Details.

Here’s our summary and take on the data =

Item Detail SMC Comments
0.46 Pre-tax operating profit 

 

 Decrease of $111 million from Q3 2010 Ford mentions that they have had 9 consecutive quarters of pre-tax operating profit.   Very good. 

We do NOT like to see a decrease in pre-tax earnings, but we think that such a minimal amount is almost with certainty built into the current share price.  We do not at this time think that this is a sign of trouble ahead.

Instead, this pre-tax operating profit DECREASE is largely due to a unfavorable HEDGE expense of $350 million taken against the risk of increasing commodity prices.  Some one at Ford guessed that commodity prices were going to increase and protected the company from such an event.  Unfortunately for Ford, weak commodity pricing was during this period of time a disadvantage due to this hedge.  CEO Alan Mulally has probably had more than one meeting with those responsible for this mistake.
0.46+0.65+0.62+0.30 = TTM Earnings = $2.03 Today’s closing share price = $11.87.  $11.87/$2.03 = P/E of 5.85 Ford’s share price is very inexpensive on a TTM Earnings basis. 

Let’s say that Ford could only muster $0.30/share for the foreseeable future – that would still be annual earnings of $1.20.   $11.87/1.20 = P/E of 9.89.  Still, inexpensive.
Total Company Revenue = $33.1 billion for the quarter UP +4.1 billion from last year’s 3rd quarter Very Good, considering the overall difficult economic climate.
$1.3 billion in net debt reductions Ford Automotive now has $8.1 billion of gross cash, once all debt ($12.7 billion) is subtracted. Ford has aggressively paid down their debt.  They have done a great job.  They did it without going into bankruptcy.  Anyone purchasing a new car or truck in the USA should consider carefully the idea that Ford has done an excellent job without the help of the government.    Unfortunately, Ford is probably no longer getting much of a benefit of the “not taking government bail-out” idea with the consumer.
Total Automotive Liquidity = $31 billion. This is cash + line of credits. Ford has the financial horsepower to withstand rough economic conditions.
Market Share in US and Europe Increased! Excellent.
Best Selling brand in US Very good.
Market Share in Asia Pacific and Africa Increased. Great.
Credit Ratings Upgraded. Excellent.
4 Yr UAW Agreement Ratified Excellent.  Ford say’s that this improves their competitiveness in USA.
New Vehicles Launched Focus in Russia 

Fiesta in India

 Very good.
New Engine in USA 2.0 Liter engine now available in USA Excellent.
OUTLOOK Strong From Ford’s Summary = 

OUTLOOK
Ford remains focused on delivering the key aspects of the One Ford plan, which are unchanged:

  • Aggressively restructuring to operate profitably at the current demand and changing model mix
  • Accelerating the development of new products that customers want and value
  • Financing the plan and improving the balance sheet
  • Working together effectively as one team, leveraging Ford’s global assets

They have the right idea.

We are holding Ford Motor Co. shares.  When you think about the other automotive manufacturers, Ford is the ONLY US car company with a CEO who is recognized as a real leader.  Others may emerge, but Alan Mulally is simply an excellent CEO.

For those investors who can allow for a some turbulence, Netflix (NFLX $79.40) received an upgrade this morning.  The shares are beginning to squeeze higher now.  This is not every investors cup of tea, but may benefit those who can set a wide stop and see if the stock can gain +20% or so from here.

Triquint Semiconductors (TQNT $7.17) announced positive earnings after the close BUT decreased revenue (gross sales).  The stock is down now a little over a dollar at $5.99/share in after hours trading.  Two weeks ago, we reported that TQNT landed 2 products in the iPhone.  That’s good, but not enough to help the share price currently.  We are glad that we took a wait and see approach.

Cirrus Logic (CRUS $16.27) is up big today after it was released that their CEO and a director purchased approx. $2.3 million worth of the company’s shares on the open market.  CRUS also supplies components to Apple, Inc.

Alcoa = We continue to view favorably.

 

– Benchmarks “At a Glance” –

US Dollar

1.3869 USD = 1 Euro

USD / EUR

Dollar = UP

Gold

$1,718.80

Ounce

Gold = Up strongly

Oil

$90.78

Barrel (West Texas Crude)

Oil = Down a bit.

30 Yr. Fixed Mortgage

4.33%

Percent

Down

10 Yr. Bond Yield

2.21

Percent

Flat

1 Yr. CD

1.16

Percent

Flat

–Data Source : Financial Visualizations Inc.

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Signing-Off for Today,

Your -Stock Market Companion

** Stock Market Companion Disclaimer **

The Stock Market Companion (SMC) Market Update and Watchlist are published documents to subscribers that show how we (SMC) are viewing the markets and what we are watching, investing in or selling today.  This information is for a wide readership and is not intended for any particular individual,  and under no circumstances should this Market Update or Watchlist be considered an investment recommendation or plan for any specific individual.  By accessing this material, you agree that the Stock Market Companion will not be held liable for any actions taken by a subscriber or other parties.  You understand that the Stock Market Companion holds positions in the above mentioned securities.  Based on market related or personal events these positions may change without notice.

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  • The markets were AGAIN divergent today, just as yesterday revealing further weakness in the technology sector while the broader market (S&P 500) and the DOW (DJ-30) held POSITIVE.
  • Research in Motion (Ticker: RIMM $27.75) reported earnings last night that were a major disappointment.  We go through the details below.  The company received 2 broker upgrades going into earnings.  The stock then lost -21.45% from yesterday’s close into today.  We go through our steps in handling our brief investment in the stock this last week – AND WHY, below.
  • Crude oil continued to descend today, reflecting a drop in value of the U.S. dollar – BUT also  concern of future demand as the global economy slows down.
  • The S&P 500 is finding support at its 200 day exponential moving average.  If the broader market doesn’t find strength here and begins to sink further, the next near point of support is the low it plumbed during the recent nuclear crisis in Japan.  If it fails that point, then the intermediate term trend will be DOWN.
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