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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.

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.





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!





Cash Is King

March 31, 2010

 

Yes, cash is king, but it certainly does no good under the mattress! One of the most cash rich sectors out their are the industrial. This is an over-weighted sector for us and one of our favorite names is Illinois Tool Works (ITW). In addition to it’s 2.6% dividend yield, this cash rich company ($2.53 free cash flow/sh)has been a master at cutting costs in the downturn and is on it’s way to positive revenue growth in 2010. Even though companies have been keeping lean inventories, at some point they will have to do restocking. GM has recently reported a sales increase of 11.5% in February with some new products selling out! ITW will benefit from all of this. Even if interest rates do move up and cramp economic growth, you have a cash rich company paying you a dividend while you wait. As long term investors, our minimum time horizon is 12-18 months. Our target price is 15x 2012e of $4 or $60. that’s a 20% upside plus the 2.6% dividend yield.





On Thin Ice

March 26, 2010

 

Not surprised by Ben Bernanke’s comments yesterday that the economy is fragile and will keep interest rates low for an indefinite period of time. I have to say that “indefinite period of time” phrase is a little spooky to me. Interesting that it took the market a few hours to figure out that low interest may not be a good thing in this case if the economy is still struggling. This confirms our thesis that the economy and hence markets will be choppy this year. Futures are up this morning, but my guess is it’s more of a reaction to some resolution of the debacle in Greece.

How do we play this market? We suggest a mix of stocks (dividend paying, of course!) in different sectors. We like KO (Coca-Cola) and INTC (Intel)to balance out the portfolio. You will find that on days when the market is strong, INTC will perform better than KO and the opposite is true on weak days. Dividends are important to us, but we also want to see future catalysts for growth in our investments.

KO – 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.

INTC – 2.8% dividend yield, 5% debt to total cap, 13.4x 2010 est versus 14.8x for the S&P 500.
1. Strong demand for consumer items like computers, digital tv and cell phones continues even in a moderately growing economy.
2. Operating margins moving back to previous high levels.
3. As economy recovers, we can potentially see an increase in eps growth rate.





 
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