Friday, July 27, 2007
Wednesday, July 25, 2007
Tuesday, July 24, 2007
Monday, July 23, 2007
2. A 7%-9% hike would indicate that the real estate business is wounded, but the bottom is in sight.
3. A hike above 9% would mean that the bottom in real estate is not only in sight, but WFC is taking market share.
We will have an analysis of WFC's decision after their announcement. We will also run a number of banks through our Dividend Valuation Models over the next few weeks and share the results.
Thursday, July 19, 2007
The 787 Dreamliner is a show stopper. It is the world's first mostly composite commercial airplane. It will not only use 20 percent less fuel per passenger than similarly sized airplanes, but also produce fewer carbon emissions, and yet offer quieter takeoffs and landings.
The Dreamliner has been so successful in its advance orders that Airbus, its European rival, has suffered some order cancellations for some of its new products.
As Boeing's success with the Dreamliner has become more apparent, the stock has begun to rise. Indeed, it has tripled over the past 4 years. Recently, I have seen many analysts say that Boeing has come too far too fast. I do not agree. Our Dividend Valuation Model for BA shows why.
The Chart shows BA's actual annual prices (blue line) and our model's predicted values( green bars) over the last 20 years. You can see that over the last four years, BA's prices and predicted values have been almost a perfect fit. Therefore the current price of the stock is fully substantiated by the recent dividend growth of the company.
The striped bar to the right is the predicted value of BA based on my year-ahead dividend growth and interest rate predictions. That price is near $120 per share. That would be nearly a 20% increase from the current price of $102.40.
My guess is the Dreamliner will be an even bigger success than the market now believes, and thus, my year ahead prediction may be low. You know I can't see the future and the airline business is a treacherous business, so success is not assured. Having said that I want you to think about Boeing in a little different way.
There are only two major airplane manufacturers in the world, Boeing and Airbus. With the growing global economy, these two companies have what amounts to a toll road connecting every continent of the world. If you want to go to China, you will go on a plane made by Boeing or Airbus. The same for Europe, Japan, and South America. The only way a human being can reasonably travel long distances in on aircraft made by these two companies.
The airline business may continue to be a cutthroat business, but the aircraft manufacturing business is a duopoly. Unless these companies are run by fools they both have a very bright future, especially when the world is clamoring for more fuel efficient planes. Boeing is certainly not run by a fool. James McNerney has a proven track record of turning businesses around and maximizing profits.
There are all kinds of reasons why my optimism might not come to fruition, but I believe there are many more that say it will.
The stock is owned in our Capital Builder investment style.
Sunday, July 15, 2007
By Greg Donaldson and Mike Hull
As we write the Dow Jones Industrial Average and the S&P 500 are hitting new all-time highs. These new highs are coming a little faster than we thought they would, but then our guess on timing is no better than the next guy's -- it's just a guess. However in our June 4th blog we said that, on balance, the primary forces driving the market were likely to push prices higher in the coming year.
We cited the drivers of higher stocks prices would be:
- Solid earnings and dividend growth
- The market was undervalued according to our Dividend Valuation Model.
- Sub-par economic growth
- Investor Sentiment was too bearish
But we suspect one of the main reasons stocks have pushed higher in the face of lots of worries about oil, terrorism, and the sub-prime mortgage mess, was the very bearish tone of investment advisors in late May. In our June 4th blog, we showed the following chart of Tickersense.com's sentiment poll.
Among investment bloggers, many of whom are professional investment advisors, nearly 47% were bearish at the end of May.
We have found, over the years, that such a high rate of bearishness has usually been a positive sign for the market.
High rates of bearishness are often associated with high rates of short sales. A short sale is accomplished by borrowing stock from a broker and then selling it. The hoped for result is that the stock will fall and then can be repurchased at the lower price, thus producing a profit.
But if the short seller is wrong and stocks go higher, to avoid big losses, he or she must buy back the stock to cover or close out the short. The problem is as these short sellers cover their shorts they are doing so in the face of rising stock prices and their purchases provide additional momentum to rising prices.
This will be a big week for the markets. Fed Chairman Bernanke will be giving his semi-annual economic and inflation report to Congress, many companies will be releasing second quarter earnings, and we will getting a fresh look at the Consumer Price Index.
Finally, we are also getting into the season where many important companies will be reporting dividend hikes. We will be detailing some of the surprises here.
The bottom line on all of the balls we have thrown up in the air here, is that we still believe the primary drivers of stock prices are pointing north.