LINDQUIST/LEPIC
MARKET LETTER
___________________________________________________________________________________________________
___________________________________________________________________________________________________
confer with their Market Analyst, Keeter.
The
Lindquist/Lepic Market Letter - gives buy and sell recommendations on
a core portfolio of stocks.
Included features are a Stock of the Month, any sells from core portfolio
and a three year track record of
all selections, and a summary of recent overall market changes.
LINDQUIST/LEPIC MARKET LETTER
January
1, 2012 Issue 379
Monthly
Market Commentary
After the March
2009 lows, the markets rallied to reach new highs in 2011.
After
the highs, markets
fell to August 2011 lows. To date, the recovery rate from
the recent
lows for DJI
is three times the rate for NYSE. The usual year-end rally
was a
disappointment
for investors this
year.
| STOCK MARKET ACTIVITY SYNOPSIS |
Price Multiple Statuses : Evaluations are mixed. See Status Table on Page 6. |
| Market
Activity
: Money invested reached new highs in 2007.
See page 2. |
| Market
Trend
: Money invested rose from the March 2009 Lows. |
| Investor
Sentiment : Investors are Bearish
and Advisors are Bullish. |
| Probable
Price Gain :
Value Line Industrial Composite +5.7% expected by
12/31/12. |
AVERAGE CHANGES IN STOCK MARKET TRENDS
| Market Phase |
Money Invested |
Stock Price |
Time Period |
|
Change |
+142.2% avg. |
+103.4% avg. |
3/09/09 lows to 2/18/11
highs |
|
Recent Fall |
-8.4% avg. |
-6.6% avg. |
Highs in 2011 to 12/28/11 |
STOCK MARKET
ACTION
Money invested
fell to new lows on March 9, 2009. The
March lows were followed
by a rally to recent highs. Investment then generally fell an average of
-8.4%
by 12/28/11. Changes
by stock group are as follows: NYSE (-16.6%), AMEX (-1.3%),
NASDAQ (-10.4%)
and DJI (-5.4%).
Prices fell to new lows on March 9, 2009 . Prices then advanced
to February 18th 2011 recent highs.
By 12/28/11 prices fell by an average of -6.6%. Price declines by stock groups, are as
follows: NYSE (-11.6%),
AMEX (-7.0%), NASDAQ (-7.3%), DJI (-0.5%).
Institutional activity became more accumulative on December
30, 2011. Quarterly
earnings
of 59% of 847 companies reporting during the 21 trading days
ending November 30, 2011 were
higher this quarter versus the same quarter last year. The
VIX (a measure of risk and investor fear) rose
after December 23, 2011. Corporate insider activity is slightly
Bullish.
How We View The Market
We remain in a long-term Bull Market. We believe the March 2009 lows have been the
low point
in the longer term market cycle. The US market has had a major
rally. The US market was a
disappointment in December 2011. We believe better days are ahead for the US stock market.
Buy depressed stocks selectively. The stock markets in much
of the world are doing worse than
the US stock market.
Stock Participation (1) reached a new high on June 4, 2007
followed by a new low
on March 9, 2009. This low was followed by a rise to date of
+46%. Participation is increasing.
Net Investor Demand (2) reached a recent high on October 10,
2007 and a low on
March 9, 2009. This low was followed by a rise to date of +143%.
Demand is increasing.
(1) Stock Participation. Net number of stocks with daily price changes. Cumulative daily number of advances less
declines.
(2) Net Investor Demand. Net demand for stock shares. Cumulative daily advancing less declining volumes.
ANALYSIS
In 2007, money invested reached new highs in all four markets.
To date, the 2007 new highs
in NYSE, AMEX and DJI remain as all time highs. The NASDAQ
reached its
all-time high on May 10, 2011. The May 2011 NASDAQ high exceeds
its April 2007 high by +16%.
Money continues to be move out of most NYSE stocks and into dividend payers.
RECOMMENDATIONS
We remain
in a recovery phase of a recession with high unemployment
and relatively
low consumer
spending. The action on the upside in the US market has
been in the large-cap,
dividend
paying companies. We are probably only part way through
this recovery phase, with a
weak
rally. The stock market is at least somewhat getting used
to high unemployment
and a
low inflation rate in labor costs. Inflation in oil, food,
and hard assets will spur the economy,
but hurt
the stock and bond markets. There could be a bond market
collapse. The recent debate
on the
debt limits probably averted a collapse this year, but did
not solve the problem. We would
still
avoid large bond positions. The stocks that we like best
are health care, food and energy.
These
include oil and gas, energy distribution, electrical grid
providers. We also like some
heavy
industry dividend payers such as Dow and DuPont. It remains
a stock picker’s market.
We would
avoid most retail stores, stockbrokers, home loan companies,
mortgage brokers,
bond
funds, banks, and defense contractors. We
still have uncertain future interest rates even
with
the low levels in short term rates by the Federal Reserve.
The Federal Reserve has continued
the creation
of new money. Falling dollar value and rising raw material
prices is a greater threat
than
a deflating recession. The greatest risk on the longer term
are large cash and bond positions.
STOCK-OF-THE-MONTH
The Stock-of-the-Month
for January 2011 is Dow Chemical. This
NYSE listed
stock (Symbol DOW) is
a recommended buy at $28.80 per share.
The
company is a major dividend paying US based industrial that
is traded on the
NYSE.
It has traded in
the range of $6 to $48 over the past five years. In the
past
year, the stock has been priced between $22 and $35 per
share.
We have set a target price of $40 per share
within three years.
Dow
Chemical has annual sales of about $55 Billion and earnings
of about $2.5 Billion.
Return
on equity for the past 10 years is about 12% per year with
only one bad year which was in 2009
after
the major market melt down. They have over 52,000 employees
and hundreds of specialty
chemical
products. They purchased Union Carbide in the past decade.
They are a major exporter
of
US manufactured products
and could be part of a plan to rebalance our economy.
Along with
DuPont,
they are part of the US
“High-Technology”
Industrial base. Not all High-tech is computers
and
software.
This is a large-cap
stock with low risk. This
stock is a hedge against inflation and the
possible drop in value
and buying power of the US dollar. It pays a 3.6% cash dividend
and
is suitable for most
investors.
CORE STOCK MANAGED PORTFOLIO
Our core portfolio
was down -1.7%% during the past month, up +3.5%
in the past twelve
months, and up +608.8% since inception on 2/15/91.
We recommend
the purchase of 1000 shares of Dow Chemical (DOW)
at $28.80 per
share. We recommend the sale of 300 shares of Chevron
at $106.40 per
share. Increase cash to $5183.
| UNITS |
Company |
Average Price($) |
Initial Value($) |
Current Price($) |
Value($) |
Target Price($) |
| 500 |
Abbott Labs |
48.10 |
24050 |
$56.23 |
28115 |
90 |
| 3000 |
Alcoa |
9.60 |
28800 |
$8.65 |
25950 |
40 |
| 800 |
Ball Corp |
32.80 |
26244 |
$35.71 |
28568 |
50 |
| 1000 |
Cisco System |
17.60 |
17600 |
$18.08 |
18080 |
35 |
| 1000 |
Comcast |
21.97 |
21970 |
$23.71 |
23710 |
40 |
| 1000 |
Dow Chemical |
28.80 |
28800 |
$28.80 |
28800 |
55 |
| 500 |
DuPont |
40.67 |
20335 |
$45.78 |
22890 |
60 |
| 500 |
General Mills |
36.75 |
18375 |
$40.41 |
20205 |
50 |
| 1000 |
Intel Corp. |
21.12 |
21120 |
$24.25 |
24250 |
40
|
| 1000 |
Inter. Paper |
25.80 |
25800 |
$29.80 |
29600 |
50 |
| 800 |
Kroger Corp. |
23.75 |
19000 |
$24.22 |
19376 |
35 |
| 400 |
Pepsico |
59.62 |
23848 |
$66.35 |
26540 |
100 |
| 1000 |
Silver Trust |
31.25 |
31250 |
$26.94 |
26940 |
60 |
| 600 |
TransCanada |
41.25 |
24750 |
$43.67 |
26202 |
65 |
| CASH |
|
|
-$306142 |
|
$ 5183 |
|
| Totals |
|
|
$50,000 |
|
$354,409 |
|
Our core portfolio
went down by -1.7% in the past month, with 9 out of 14
positions being
up. We look forward to 2012 as a better year for US
industrial stocks.
The Federal Reserve
continues to accommodate the US market, but
much of the added
cash is being held on the books of major banks and
corporations.
Inflation remains an extreme problem for the future. Stock
prices usually
fall as material costs rise. Holding large cash positions
or
large bond positions
are likely to be losing strategies.
COMMENTS
ON PREVIOUS STOCK-OF-THE-MONTH RECOMMENDATIONS
We recommend that Chevron
Corp. be sold.
| Date Selected |
Stock |
Symbol |
Price Recommend |
Current or Last Price |
% Change |
Sold /Open |
| 1/1/09 |
United Tech |
UTX |
53.60 |
74.95 |
+39.8% |
5/1/10 |
| 2/2/09 |
Gen Elect |
GE |
11.62 |
11.78 |
+1.4% |
7/1/09 |
| 3/2/09 |
Kraft Foods |
KFT |
21.94 |
23,49 |
+7.1% |
5/1/09 |
| 4/1/09 |
Sysco Corp |
SYY |
22.65 |
24.48 |
+8.1% |
10/1/09 |
| 5/1/09 |
Kroger |
KR |
21.97 |
22.23 |
+1.2% |
5/1/10 |
| 6/1/09 |
Conoco |
COP |
45.64 |
77.47 |
+69.0% |
5/2/11 |
| 7/1/09 |
Walgreen |
WAG |
29.34 |
26.70 |
-9.0% |
7/1/10 |
| 8/1/09 |
Campbell |
CPB |
30.90 |
35.90 |
+16.2% |
8/1/10 |
| 9/1/09 |
Ball Corp. |
BLL |
47.81 |
54.26 |
+13.5% |
4/1/10 |
| 10/1/09 |
CVS Carem |
CVS |
35.88 |
31.18 |
-13.1% |
12/1/09 |
| 11/1/09 |
Gen. Mills |
GIS |
66.00 |
71.38 |
+8.2% |
4/1/10 |
| 12/1/09 |
Smuckers |
SJM |
59.55 |
55.76 |
-6.4% |
6/2/10l |
| 1/1/10 |
Chevron |
CVX |
77.10 |
103.72 |
+34.5% |
Sell |
| 2/1/10 |
Pepsi Cola |
PEP |
59.62 |
66.35 |
+11.3% |
Open |
| 3/1/10 |
Merck |
MRK |
37.27 |
33.82 |
-9.3% |
2/4/11 |
| 4/1/10 |
Ormat |
ORA |
28.75 |
27.82 |
-3.2% |
8/1/10 |
| 5/1/10 |
Pfizer |
PFE |
16.76 |
20.75 |
+23.8% |
7/2/11 |
| 6/2/10 |
Nabors |
NBR |
19.81 |
17.83 |
-13.3% |
10/2/10 |
| 7/1/10 |
Raser Tech |
RZ |
0.51 |
.23 |
-44.9% |
10/2/10 |
| 8/1/10 |
DuPont |
DD |
40.67 |
45.78 |
+12.6% |
Open |
| 9/2/10 |
Manulife |
MFC |
12.50 |
16.78 |
+34.2% |
6/3/11 |
| 10/2/10 |
Ormat |
ORA |
29.20 |
27.38 |
-8.3% |
12/2/10 |
| 11/4/10 |
Ball Corp. |
BLL |
32.80 |
35.71 |
+8.9% |
Open |
| 12/2/10 |
Gen Elect |
GE |
16.80 |
16.40 |
-2.4% |
12/5/11 |
| 1/1/11 |
Comcast |
CMCSA |
21.97 |
23.71 |
+7.9% |
Open |
| 2/1/11 |
Packaging |
PKG |
28.46 |
26.57 |
-6.5% |
8/2/11 |
| 3/1/11 |
Abbott Lab |
ABT |
48.10 |
56.23 |
+16.9% |
Open |
| 4/4/11 |
Kroger |
KR |
23.75 |
24.22 |
+2.0% |
Open |
| 5/2/11 |
Cisco Sys. |
CSCO |
17.50 |
18.08 |
+3.3% |
Open |
| 6/3/11 |
P & G |
PG |
62.25 |
62.86 |
+1.0% |
11/2/11 |
| 7/2/11 |
Suncor En. |
SU |
39.64 |
31.10 |
-21.5% |
12/5/11 |
| 8/2/11 |
Gen. Mills |
GIS |
36.75 |
40.41 |
+9.9% |
Open |
| 9/2/11 |
Intl. Paper |
IP |
25.80 |
29.60 |
+14.7% |
Open |
| 10/2/11 |
Alcoa |
AA |
9.60 |
8.65 |
-9.9% |
Open |
| 11/2/11 |
TransCanada |
TRP |
41.25 |
43.87 |
+5.9% |
Open |
| 12/5/11 |
Silver Trust |
SLV |
31.25 |
26.94 |
-13.8% |
Open |
|
|
36 Months |
|
Winners |
Losers |
Total |
%Winners |
|
|
Closed Out |
|
13 |
11 |
24 |
54 |
|
|
Still Open |
|
9 |
3 |
12 |
75 |
|
|
Totals |
|
22 |
14 |
36 |
61 |
SPECIAL FEATURES SECTION
The Value Line
average price gain by 2015, for over 900 industrial stocks,
is a rise of about +37%. Price
outliers are
stocks whose price to present worth ratio is outside the
central area under the distribution
curve. At present, 2400 stocks are under-priced outliers
and 1200 stocks are near fair evaluation.
See Stock Group
data on the last page.
The annual earnings
of 59% of reporting companies rose during November 2011,
compared with 67%
in the prior
month. The markets are generally in a trading range between
the October 2007 highs and
the March 2009
lows. See the table below.
MONEY
INVESTED IN MAJOR MARKET STOCKS
Investment Levels NYSE SUMS NASDAQ SUMS DJI SUMS AMEX SUMS(#) TIME PERIOD
Peaks,
All-Time 39.5 318.1 17.5 2007 HIGHS
Peak,
All-Time
230.2 5/10/2011
Trough 16.6
81.8
83.1 14.6 2008-2009 LOWS
Current 27.5 207.5
239.2 17.0 12/28/2011
Up
From Trough +66% +154% 187% 16% 12/28/2011
# SUMS are quantitative measures proportional to dollars invested.
SPIDERS
IN THE RASPBERRY PATCH AND OTHER ETFs
The
raspberry patch has been a feature of our market letter
for more than twenty
years,
where negative or Bearish ideas have been presented. In
1997, we introduced
the
concept of trading SPY units either long or short in a feature
called Spider Watch.
Starting on June
1, 2005, we are combining the two concepts into a new managed
portfolio, which
will hold the best positions, either long or short out of
a family of 30
Exchange Traded
Funds.
| Market
Letter Spider Patch Review |
1/1/2012 |
|
|
|
|
|
||||
| ETF |
Long or Short |
UNITS |
Initial Price |
Initial Value |
Open or Close Date |
Current Price 1/1/12 |
Current Value |
Value Change |
Change |
|
| EWC |
LONG |
1500 |
33.80 |
50700 |
5/2/2011 |
26.60 |
39900 |
-10800 |
-21.30% |
|
| EWC |
LONG |
3000 |
29.25 |
87750 |
9/2/2011 |
26.60
|
79800 |
-7950 |
-9.05%
|
|
| EWA |
LONG |
1000 |
23.20 |
23200 |
11/2/2011 |
21.50
|
21500 |
-1700 |
-7.33% |
|
| SLV |
LONG |
1000 |
31.25
|
31250 |
12/5/2011 |
26.94 |
26940 |
-4310 |
-13.79% |
|
| CASH |
|
|
|
|
|
|
30006 |
|
|
|
| TOTAL |
|
|
|
50,000 |
|
|
198146 |
148146 |
+296.29% |
|
| ACTION |
1/1/12
|
HOLD |
SLV , shoIIndia |
EWC,EWA,
|
CASH |
30006 |
|
|
||
In
our January 1st survey of 30 ETFs, we found four to be in
short term up trends, fourteen to
be
in a down trend, and twelve to be essentially flat or uncertain.
This indicates that the world
outlook
has turned BEARISH. Our
new ETF portfolio has increased at an annual rate of +20.1%
since
inception
on 6/1/05. Hold Canadian ETF, Australian ETF, and silver
ETF. Our ETF portfolio continues to out-perform our purely
corporate stock portfolio on page three. Current commodity
positions are
currently
losers and will be reviewed this month.
STATUS OF STOCK GROUPS
| Stock
Market Statistic & Stock Group |
Status of Stock Groups |
Calculation Basis for Stock Group Status |
| Earnings Ratio Value Line Industrial
Composite
|
Projected 6% Under-price |
Earnings
Estimate (12/31/12) Divided By Earnings (12/31/11) |
| Stock Group More Than 1200 Stocks Price Outliers:
2400 Stocks |
At Present 28% At-Price 57%Under-Price |
Number
Stocks in Group Divided by Total Number of Stocks |
|
Price-to-Present
Worth More than 4000 stocks
|
At Present 16%Under-Price
|
Present Price Divided by Discounted Future Worth |
| Price-to-Earnings Ratio Adj. (2) Value Line – 1700
stocks S & P 500 stocks
DJI stocks-Future EPS |
Vs Mid-Range 1% Under-price 5%Under-price 3% Over-price |
Present Adjusted P/E Ratio Versus Past Mid-Range
(1) Adj. P/E Ratio |
(1) THE MID-RANGE STOCK
GROUP P/E RATIO IS THE BASIS FOR DETERMINING
WHETHER THE PRESENT
STOCK GROUP IS UNDER PRICED OR OVER PRICED.
THE P/E RATIO STATUS
FOR A STOCK GROUP LOCATES THE RELATIVE POSITION OF ITS
PRESENT P/E RATIO WITHIN
ITS HISTORIC LONG-TERM RANGE.
(1) P/E RATIO THAT IS
TOLERATED BY INVESTORS VARIES AS INVESTOR EXPECTATIONS
CHANGE FOR A STOCK GROUP.
EXTREME OPTIMISM LEADS TO A P/E MAXIMUM AND
EXTREME PESSIMISM TO
A P/E MINIMUM. VALUES
BETWEEN THE TWO EXTREMES ARE THE
P/E RANGE.
(2) RAW P/E RATIOS ARE
ADJUSTED BY INCORPORATING ONLY THE
PREVAILING DIVIDEND
AND BOND YIELDS, GROWTH RATES OF EARNINGS
AND THE EXPECTED OUTLOOK
FOR THE ECONOMY.
WE USE AN IMPORTANT FEW OF MANY POSSIBLE MARKET
STATISTICS.
THE RESULTS ARE ROUGH
STATUS ESTIMATES.
THE STATUS DOES NOT PREDICT THE ONSET OF SHORT-TERM CHANGES
IN PRICE.
IT IS NOT THE INTENTION OF THIS PUBLICATION TO STATE THAT THE
USE OF
ANY CHARTS, INDICES OR TECHNICAL OR FUNDAMENTAL ANALYSIS WILL
GUARANTEE PROFITS. EVERY
EFFORT IS MADE TO CAREFULLY REPORT, IN
THIS PUBLICATION, INFORMATION RECEIVED FROM OTHER SOURCES,
BUT WE
CANNOT GUARANTEE ITS ACCURACY, NOR COMPLETENESS, BEYOND REASONABLE
LIMITS. PRINCIPALS
OF THE MARKET LETTER MAY NOW, OR HAVE
IN THE FUTURE, POSITIONS IN STOCKS AND COMMODITIES MENTIONED
HEREIN.
LINDQUIST/LEPIC
MARKET LETTER
OWNED AND PUBLISHED
BY THE FOLLOWING EDITORS:
LARRY E. LINDQUIST,
ROBERT E. LEPIC, AND MEL FENSON
ANNUAL SUBSCRIPTION
RATE - $179 (12 MONTHLY ISSUES)
FOR INFORMATION
CALL 303-759-8471 OR 303-751-2174
JANUARY
1, 2012