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No content published as part of the CAIM LLC blog constitutes a recommendation that any particular investment, security, portfolio of securities, transaction or investment strategy is suitable for any specific person. To the extent any of the content published as part of the blog may be deemed to be investment advice, such information is impersonal and may not necessarily meet the objectives or needs of any specific individual or account, or be suitable advice for any particular reader. Each reader agrees and acknowledges that any specific advice or investment discussed in the blog must be independently evaluated by the reader and his or her adviser in view of the reader's investment needs and objectives.

Not Done Yet

April 28, 2010


Today we applaud IBM for raising its dividend 18%. Stock sold off last week on what some would say was mixed results. 1st quarter numbers came in $.04 above consensus at $1.97 while revenues were flat year over year. We continue to like the stock for the long term and view the sell off as a buying opportunity. Here’s what we like about IBM:
1. Margins continue to improve.
2. Revenues should show improvement as the year progresses.
3. Cash flow continues to be robust (i.e., dividend hike)
4. We believe the stock is currently undervalued. Historically, IBM has traded on average at a market multiple. Using a 15x multiple and management’s 2010e of $11.20 our target is $168.

53 Years of Shareholder Loyalty

April 22, 2010


Emerson Electric Co. (EMR)
Here’s a company that has increased its dividend for 53 consecutive years. With $2.07 in free cash flow, we expect this trend to continue. Company reports on 5/4, $.54e versus $.53. This will be the first quarter of positive year over year gains. While this company is geared more towards later cycle investments, they are thriving in a very difficult environment:
1. Strong balance sheet.
2. Excellent cost controls .
3. Positive momentum in the auto sector and climate business.

Blowout Quarter for ITW

April 21, 2010


1. On 4/20, ITW reported 1st qtr eps of .58 versus a $.21 in 2009 (from continuing operations). Consensus was looking for $.57.
2. Most importantly, revenues were up 14.6% from last year’s quarter. I was impressed to see that North America’s base revenues were up 7.1%, lending credibility to the fact that we are in a recovery phase in the U.S.
3. Operating margins increased 1050 basis points to 13.4%.
Two industries we have been talking about in our blog, autos and PCs, were strong drivers for the quarters eps. Transportation +35.6%, PC board fabrication business +89.4%!
Now, for the words we all want to hear, management is raising guidance for 2nd qtr to a range of $.74 to $.86. Full year is being guided upwards to $2.72 to $3.08.
We continue to like this stock.

Autos in the Driver’s Seat

April 20, 2010


Tyco Electronics Ltd. (TEL)
Expected to report 1Q on 4/28, $.52 versus $.14 in 2009. This company is a great proxy for the overall economy as they manufacture many goods from consumer to industrial. On a fundamental basis:
1. Strong cash flow of $2.21/sh.
2. 25% debt to total capital.
3. 14% long term eps growth (versus 10% for S &P).
4. This high quality company has been trading at a 10% discount to the market.

We believe the company will have a great year based on better than expected auto sales in the U.S. and a pickup in cap spending later in the year. Exiting low margin businesses should also help the numbers.

On the Right Track

April 19, 2010


Coca Cola (KO)
We have previously blogged about and want to reiterate the following: Stock has a 3% dividend yield (50% higher than the S&P!), over $1.00 in free cash flow/sh and only 17% debt to total cap!
1. Company focus on improving product mix like vitamin waters and healthy alternatives.
2. Attractive exposure to emerging markets.
3. Strong focus on cost controls.
Company is reporting 1st quarter numbers on 4/20. Street is expecting $.74 versus $.65. To confirm that KO is moving in the right direction, the recently announced an increase of its stake in Innocent Drinks to take a majority ownership of the U.K. based fruit and smoothie drink maker.

Triple Whammy for Intel (INTC)

April 15, 2010


INTC announced it’s 1Q earnings results. The quarter beat expectations on both a revenue and eps level. The street was looking for revenues of $9.7 billion and came in at $10.3 billion. Earnings consensus was $.38 and posted $.43. In addition, gross margins for the quarter were better than expected. at 64% versus 61%. The triple whammy for INTC! We are even more excited about the prospects for this stock as the quarter revealed the beginnings of a cyclical recovery in demand for corporate servers. Prior demand for INTC was mostly driven by consumer electronics. The company has guided annual eps up and we are increasing our target on this company to $31 or 16.5x 2010e of $1.90.

T. Row Price Group (TROW)

April 12, 2010


Cost controls + new products is the theme for this financial sector stock. The financial sector has been a difficult place for us to find companies we are comfortable with. Given the government involvement and lack of dividend security, we are underweight this sector. However, one company we like in this group is TROW. They recently raised their dividend in the 1st quarter 2010 from .25/quarter to .27/quarter. What we truly like is the future outlook for this stock. This weekend, Barron’s highlighted this company and spoke about their expansion into international mutual funds. In addition, they are adding ETFs and managemment has done a great job of containing costs. Earnings for 2010 are expected to rise 48% and then 16% into 2011. We believe this company will be a beneficiary of investors shifting out of bond funds into equity funds.

Are We in the Sweet Spot?

April 7, 2010


That was the question posed to Leon Cooperman yesterday morning on CNBC. His response was a strong yes! The sweet spot he is referring to is the perfect time to be moving out of bonds into stocks. Low interest rates, a fairly valued stock market at 15x and signs of economic growth make the timing right. So why are individual investors still hunkering down in bond funds??? Bond yields have all ready started to rise and as the yield rises, prices go down and then they are left in the same situation as when they were invested in stocks at the height of the market. The real risk now is in bonds, not stocks! I have seen it over and over in my years as a mutual fund manager. The individual investor notoriously buys at the top and sells at the bottom. I’m with Leon. I think we are in the sweet spot.
Check out this week’s newsletter abut Joe and Moe. Comes out this Friday.
Have a great day!

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