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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.

International Business Machine 2Q 2010 Earnings

July 21, 2010


This is a company we want to own for the long term and are buyers on weakness in price. Stock is down based on disappointing revenue number. Overall earnings slightly beat consensus. We expect the revenue number to be mixed over this sluggish period of economic growth. We are encouraged by the following positives:
1. Dividend has increased by 18%.
2. Europe and China did not slowdown.
3. Services were down in the 2Q but expect to ramp up in 3Q.
International Business Machine 2Q 2010 Earnings

2nd Quarter and Year-to-Date Performance

July 13, 2010


Since the beginning of the year we have been talking about having a bumpy stock market this year. Year to date, the S&P 500 is down 7.6% In the second quarter, we hit a pretty hard bump with the S&P 500 down 11.9%. The combination of health care reform, Greece (and the other PIIGS countries) and financial services reform sent people running from the stock market to the safety of treasuries. So much so, that the 10 year bond is now yielding 2.95% and the 2 year note is at .62%. Compare this to a 2.8% dividend yield on the Dow. We also had some hiccups in the weekly unemployment claims. It has always been our belief that the economic recovery would be driven by capital spending with a sluggish consumer. We still believe that to be true. Our philosophy of buying high quality large cap dividend paying stocks is even more appropriate in this environment. As long term investors we recognize that these stocks offer great value when compared to bonds and cash. The next few years we expect a slow growing economy and these stocks have the financial strength and flexibility to thrive in that environment.

CAIM LLC’s 2nd quarter performance was -9.66% versus -11.9% for the S&P 500. Year to date we are -4.16% versus -7.6% for the S&P 500. Our overall stock selection has been better than the market and we are continuing to hold a 6% average cash position.

Where’s the Faith?

June 30, 2010


It’s not in the equity markets, that’s for sure. Yesterday’s lack of confidence drove the 10 year bond yields to 2.96%. It’s hard to believe that anyone would lend the debt laden government money for that price.

22 names in our portfolio yield 3% or higher. All of these companies are high cash flow generators and have low levels of debt. You have to believe that 10 years from now that we, as a country have the determination to turn around this economic malaise. If that’s the case, these stocks are cheap and will reward investors over the long term. Let’s not forget that with all that cash on the balance sheet, some of it will be going to increase the dividend. Does anyone think the government will raise your interest payment on the 10 year bond?

Missed Opportunity in the Equity Markets?

June 14, 2010


Not according to Jeremy Siegel. Professor Siegel spoke to financial advisers at Pershing LLC’s national conference in Florida and delivered the following message:

“The S&P 500, now at just under 1,100, would have to rise to 1,500 – a roughly 35% increase – to return to its long-term trend line going back to 1935. From any historical standpoint, you’re not too late. You still have an excellent market to give you extraordinary returns going forward.”

According to Investment News, Jeremy Siegel thinks the current period is similar to the post-World War II era, when people expected a recession and avoided stocks. Investors then flocked to government bonds at low yields and got slaughtered over the next 30 years.

Looks to me like history will once again repeat itself. The individual investor will unfortunately wait until interest rates rise to sell their bonds at lower prices. Not to mention the issue that municipalities will face in the coming years will many individual investors who have not properly diversified their portfolios thinking that they were safe!

Barron’s Article by Michael Santoli

May 17, 2010


Barron’s article by Michael Santoli, this weekend further, supports our thesis that cash rich, dividend paying stocks should be the investment of choice for baby boomers and any individual who wants to achieve positive long term equity returns with low volatility. The article states that “corporate America is prepared to return cash to investors and to accelerate the spending, hiring, investing and acquiring that most companies curtailed stress and deep uncertainty of the financial crisis and the 2007-2009 economic contraction.” On the list of returning cash to investors is dividend increases. The article also mentions two of our favorite stocks, Intel (INTC) and International Business Machine (IBM). Our screens (CAIM LLC) have produced stocks with an average cash flow per share of $4.89, 30% debt and a dividend payout of 42%.

High quality U.S. companies are ready to come out of safety mode and regroup for growth. We are urging baby boomers to take advantage of this trend while these companies are attractively valued. These companies will be the life blood of boomer’s portfolios as they will need to out pace inflation and receive a stream of income from their investments.

Experiencing Some Turbulence

May 7, 2010


The best way to describe yesterday’s market is to liken it to hitting a major air pocket when flying. As we all know, they are not fun and they certainly can shake your sense of security. Market continues its slide this morning, even on the heels of a decent jobs report.

To put things in perspective, the Dow is now 20% off its highs and 63% above the low. This is a good time to remind ourselves that stocks do not move up in a straight line. We do not suggest that we can predict the market with any accuracy. Market timing is often a losing game. What we do is look for high quality dividend paying companies that have the ability to increase the dividend over time. We are using today as a buying opportunity for those stocks we like for the long term. In particular, we are adding to names like IBM, INTC, CVX, DOW.

Putting Things in Perspective

May 3, 2010


Barron’s this weekend had a great article about JNJ. JNJ is one of our top 5 holdings. As the article says, this stock may not have been as “peppy” as the rest of the market, but there are several standouts about this high quality company:

1. Improvement in eps growth over the next few years.
2. Strong drug and medical device pipeline.
3. Solid balance sheet (low debt, strong cash flow)
4. 3.3% dividend yield.

Stock is trading below a market multiple because of past drug patent expirations, concerns over health care reform and sluggish results in consumer products. We agree with Barron’s that this is all about to turn around. Let’s not forget, next year we enter into several potential headwinds that could slow this market down (higher taxes, higher interest rates, lack of employment). You want to keep your portfolio diversified amongst different sectors.
Just to keep things in perspective, here’s a plug for the value of long-term investing. Below are the rates of return for JNJ versus the S&P 500 over several time periods.

2 years: JNJ -5% S&P -16%

10 years: JNJ +56% S&P -18%

20 years: JNJ +808% S&P +259%
Source: Baseline.

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.

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