The model portfolio of Insiders Plus gains 48% last year; here, editor Jack Adamo reviews two of his portfolio holdings -- both bank stocks being accumulated by Warren Buffett's Berkshire Hathaway.
"U.S. Bancorp (NYSE: USB) reported a slight decrease in Q1 earnings of 62¢ per share versus 63¢ last year; the shares rose 2.8% the next day. Compared to the disastrous results of its peers, this small decline in earnings was a home run.
"That's a testament to the company's savvy managers. USB steered clear of the toxic problems that choked most banks. Only 2.7% of its loans are subprime.
"Warren Buffett's Berkshire-Hathaway continues to buy the stock steadily. Recent SEC filings show that in the fourth quarter of 2007 Berkshire increased its share of the Minneapolis-based bank by 3 million shares to a total of 75 million.
"This represents 4.4% of its shares outstanding, and up tremendously from its stake of 23 million shares just a few years ago. The Wizard of Omaha knows what he likes and why he likes it.
"Meanwhile, Wells Fargo & Company (NYSE: WFC) reported Q1 earnings of 60¢ per share down 9% year-over-year, but up 46% from the December quarter. Like USB, Fargo shares continue to be accumulated at Berkshire Hathaway.
"The stock is a solid long-term buy, with good prospects of steadily raising its 4.2% dividend. It has capital appreciation potential to boot, especially after the housing hangover abates."
Each day, Steven Halpern's TheStockAdvisors.com offers the latest market commentary and favorite investment ideas from the nation's leading financial newsletter advisors.
JP Morgan Chase (NYSE: JPM) May option implied volatility of 33 is below its 26-week average of 38 according to Track Data, suggesting decreasing price movement.
Wells Fargo (NYSE: WFC) May option implied volatility of 33 is below a level of 52 from April 14 and below its 26-week average of 40, suggesting decreasing price movement.
Options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com
MOST NOTEWORTHY: GFI Group, Wells Fargo and Cirrus Logic were today's noteworthy downgrades:
Goldman downgraded GFI Group Inc (NASDAQ: GFIG) to Neutral from Buy following the company's announcement that credit chief, Donal Fewer, left the company to go to a rival firm and that about two dozen brokers may defect to follow him.
Oppenheimer cut Wells Fargo & Company (NYSE: WFC) to Underperform from Perform as they believe the company is under-reserved by at least $4.5B and that there is significant room for multiple contraction.
Cirrus Logic Inc (NASDAQ: CRUS) was downgraded at Jefferies to Hold from Buy on valuation, as they believe the risk/reward is no longer favorable at current levels.
While bank stocks aren't exactly hot, they triggered yesterday's rally because when J.P. Morgan Chase & Co (NYSE: JPM) and Wells Fargo & Company (NYSE: WFC) reported, there were no unexpected surprises, according to the Wall Street Journal's "Heard on the Street". The ups and downs in the sector are expected to continue.
According to people familiar with the matter, the Wall Street Journal reported that Yahoo! Inc (NASDAQ: YHOO) may be moving closer to outsourcing its search advertising to Google Inc (NASDAQ: GOOG) after an initial test yielded what they considered to be positive results.
OTHER PAPERS:
The New York Times reported that AT&T Inc (NYSE: T) is planning today to make an announcement that they will gift $100M to improve the skills of the nation's work force and fight the problem of high school dropouts.
WEB SITES:
Celgene Corporation (NASDAQ: CELG) is best known for its blockbuster drug Revlimid which is used treat multiple myeloma, a cancer which attacks blood and bones. For patients, it can prolong their lives about 2.9 years, or longer, according to Investor's Business Daily's "The New America".
Investment Quality Trends -- one of the most respected newsletters in the advisory field -- uses a proprietary strategy that assesses historic level of stock price to yield; it's goal is to buy those stocks offering the best potential for downside protection and upside appreciation.
Here, editor Kelley Wright explains his methodology and highlights his current "Timely Ten" stocks that best match his time-tested criteria.
"Investors who wished to hold every stock in that we currently rank in the 'Undervalued and Rising Trend' categories, would need to hold one hundred twenty six stocks as of March; clearly too many positions to be practical.
"Our Timely Ten, therefore, is our reasoned expectation based on our methodology and experience for what we believe will perform best over the next five years.
"Do we believe that all 10 will go up simultaneously or immediately? Of course not. Our four decades of research and experience, however, leads us to believe that these stocks, purchased at current Undervalued levels, are well positioned for appreciation.
MOST NOTEWORTHY: Apple, Novartis and Infineon were today's noteworthy downgrades:
Morgan Keegan downgraded Apple (NASDAQ: AAPL) to Underperform from Market Perform citing increased evidence of broad-based weakness in consumer technology spending in the U.S. and Europe. Additionally, the firm expects challenges in the company's education vertical due to state and local budget issues, which could lead to decelerating growth over the next 2-3 quarters.
Bear Stearns downgraded Novartis(NYSE: NVS) to Peer Perform from Outperform following the acquisition of Alcon (NYSE: ACL), as they find the deal expensive.
Credit Suisse cut Infineon (NYSE: IFX) to Neutral from Outperform to reflect weakness in the U.S. dollar.
OTHER DOWNGRADES:
Goldman downgraded Wells Fargo (NYSE: WFC) and Zions Bancorp (ZION) to Neutral from Buy.
Keefe Bruyette cut Washington Mutual (NYSE: WM) to Underperform from Market Perform.
Baird downgraded Flowserve (NYSE: FLS) to Neutral from Outperform.
TheStreet.com's Jim Cramer wonders -- can we handle this giant's failure?
As always, it is Citigroup (NYSE: C) (Cramer's Take). My smartest guys tell me that Citigroup has billions in assets it can sell, that there is ample opportunity for the company to reliquify, that Vikram Pandit has things under control and the slow bleed cuts are going to work to get costs down.
Now I have total confidence in Treasury, particularly in Bob Steel, to take care of the shorts and to create brilliant shotgun marriages that reward the rich banks and punish the poor.
BUT, I have no faith in Citigroup, which because of the moronic acquisitions and bizarre off-balance-sheet liabilities may technically be insolvent. When you consider it is too big to fail, you have to begin to wonder -- what's the plan if it can't make it? How far can forbearance go? Will we tolerate this bank being majority-owned by the sheiks or the communist Chinese? Seems far-fetched, but when I read Meredith Whitney's words this morning over at OPCO I know that the losses are going to be too big for the current base of capital.
According to the article: "I would not be averse to a Fed-assisted transaction," Stumpf said, adding that any deal would have to meet the company's traditional acquisition targets and benefit the bank's acquired customers. Wells has built a reputation as a disciplined buyer over the years, focusing on deals that generate at least a 15% internal rate of return and contribute to the bottom line within three years.
"Fixer-uppers don't bother us," he added.
Who wouldn't want to be part of a deal like this? It's become pretty obvious that JP Morgan Chase got an amazing deal to buy Bear Stearns, and now Wells Fargo wants to join the party.
I have friends who work at Bear Stearns (NYSE: BSC) and one of them in a very senior capacity. Believe me, they are not laughing and this is actually quite a sad moment for them and their colleagues. Bear Stearns had an 85-year history having come through the Great Depression and several recessions. Bear was a proud trading house and took great pride in its trading prowess. Sure, the naysayers will argue that Bear bit off more than it could chew and that Bear was a greedy Wall Street firm. But there is more to the story and it should be told.
Bear Stearns was the second-largest packager of mortgage backed securities only surpassed by Lehman Brothers (NYSE: LEH). As we saw these past couple of years, the quality scale on mortgage-backed securities slid down to lousy, risky sub-prime mortgages. But keep in mind that the $400 billion worth of securities that Bear Stearns underwrote and managed were not all lousy credit risks. The biggest part, more than $300 billion worth were of the highest quality. Bear Stearns facilitated a market that needed facilitating!
In the old days, only major banks underwrote mortgages and they typically kept and serviced the loans. But as the American population and economy expanded these past 20 years, mortgage companies were formed and needed to "sell the loans off" as they did not possess the capital base of say a Bank of America (NYSE: BAC) or a Wells Fargo (NYSE: WFC). Firms like Bear Stearns became adept at packaging these loans and re-selling them to major pension funds and hedge funds globally.
Earlier in the week I posted about finding the market bottom using that age-old handheld calculator, a white paper napkin. So, unfortunately it looks like I may be right again. Not exactly something I was hoping for, but if it has to be, it has to be. I wonder if my old napkin can outperform Wall Street super computers?
Is this an auction to the bottom? Are investors bidding things down instead of up? Looks like it from all the negative sentiment. Consumer sentiment is down, and short sellers are all excited, increasing their negative positions to new highs every day.
And here is the all-telling sign of capitulation: the ever-lying overly optimistic government is starting to admit how bad things are and throwing hundreds of billions of dollars at the problem. When does the turnaround come?
My stock alert was triggered for Wells Fargo Corp (NYSE: WFC) at $28 per share, two days ago. I did not buy any shares. I would like to own some stock but I'm still hoping for one more dip before I jump in. Having been burned by financial stocks this past year, like many investors, I'm proceeding with caution. It closed yesterday at $28.98.
I suppose I do own some fractional interest indirectly through Berkshire Hathaway (NYSE: BRK.A) and the Vanguard Group Inc., the largest (8.8%) and fourth largest (3%) shareholders in Wells Fargo respectively. By the way, insiders own less than 1% of the company so although "my pal Warren" prefers companies where managers have some skin in the game, this one contradicts that philosophy. The respected Chairman CEO, Richard M. Kovacevich, has actually been the largest seller of the stock, which he does through a planned process almost every two months.
Wells 52-week high / low range is $37.00 / $24.38. Although I did not buy any shares yet, I do get the feeling that Wells Fargo may look like a steal in 12 months. It is the fifth-largest bank in the United States. Regular readers of the column know I missed another stock Anglo American.
Perhaps it was childish not buying WFC on Tuesday, but financial stocks and commodities are two very different things right now...
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money.Disclosure: I own shares of AAUK.
If something is happening along these lines, it is all happening quietly behind closed doors. More than one reader suggested that no deal is possible because the Washington Mutual CEO, Kerry Kilinger, does not want to give up his throne and has too high an opinion of himself and the value of the company.
From my perspective this is a deal that has to get done, and if the CEO stands in the way of shareholder, employee, and customer interests he has to go. Time to bring in the corporate raiders -- you listening Carl Icahn; can a deal be done Norman Peltz?Hey Eddie, maybe you could make back the money you lost on Citigroup (NYE: C)! If there were ever a great opportunity this seems like it. The raiders do serve a market purpose.
There are potential buyers waiting in the wings so the raiders could move in friendly like, or do it the hard way, buying in at depressed stock prices, forcing Killinger into submission and doing a quick flip. I think even 'my pal Warren' of Berkshire Hathaway (NYSE: BRK.A), a major investor in Wells Fargo, must be doing some heavy duty pondering on the subject.
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: I own shares of BRK.B and WM.
Giving this further thought and drawing on some of how this could play out from yesterday's post I am wondering why this possible deal is not turning to frenzy. Perhaps all the parties are just playing hard to get. Maybe JPM and WFC have proved to be better navigators than most other large financial companies and that they fear being shipwrecked on the rocks of a Washington Mutual.
If I am Chase management, this deal makes too much sense to let pass. Adding WaMu's west coast footprint advances Chase goals in a fraction of the time it would take to build out a comparable branch network and at great savings. Add in the customers base and service operations minus all the overlapping departments and this is a winner. All that needs to be done is get to the bottom line and do the deal. Bankers should understand the time value of money and get on with it.
The opportunity for Chase is very clear. Wells on the other hand may feel that more organic growth and more methodical steps is the prudent path to continued success. That is perfectly understandable, but might be overly cautious in a very competitive environment. You either move forward or backward, you cannot stay in the same place.
I'm sure the downtrodden stock market has brought sadness to many people. As someone looking long term I am trying to put the current market into perspective. 'My pal Warren' always says that truly astute investors should actually be happy when the market is down because they are able to buy things on sale. I agree, so what to buy?
Three of the stocks I have been following fall into very different arenas. One is being severely affected by the housing market and familiar to the average consumer. The second might be a familiar name but not a daily haunt by the average consumer. The third falls into the middle ground and is a solid company and favored by Warren Buffett who owns shares through Berkshire Hathaway (NYSE: BRK.A).
It's been a while since I wrote about The Home Depot, Inc. (NYSE: HD). My optimism last year about the company proved misguided as the stock tread water most of the year and then took a dive as earnings reports deteriorated. When I originally commented on HD 14 months ago it was trading at $39.73, finishing the year at $26.27 for a loss of 33.88%. It started with a 2.31% yield .
JP Morgan Chase
.gif){kind=logo}
In an article in the
I have friends who work at 
Earlier in the week I posted about 
My stock alert was triggered for 
Many readers have been intrigued by my recent posts (
Wells Fargo
Oil hits record $127.43 on supply concerns, raised Goldman forecast
Icahn's 'shock and awe' on Yahoo -- a gutsy play
Housing starts surprisingly rise in April on apartment construction
