Hello hello. Forgive me for my 10 day hiatus, but I am now finished with finals and ready to hop back on the blogsphere. Or is it blogosphere? Anyway, it's been a pretty rough week out there for those of us who are hopeful about the prospects of the U.S./global economy. Data from the U.S. is all fairly good, and without the European crisis worsening, it would probably propel this market into bull market mode. Unfortunately, the European crisis is large and the possibility of contagion is high. I just read an article in the WSJ the other day that highlighted the complicated, interwoven web of connectedness among European banks. Banks in France have exposure to Italy, Spain, Greece, etc., while banks in Spain have exposure to Italy, Greece, France, etc., and so on between the other large European banks. What this depicts is that everyone's fears are warranted and default in one country will likely trigger a domino effect, taking down others with it.
In the U.S., jobless claims came in below consensus estimates this morning. The consensus was for 390K new claims, while the actual number was 366K. Check the article from Bloomberg here. Other good news came from the Philadelphia Fed Survey, which is an indicator of manufacturing activity in the Philadelphia Federal Reserve District. The prior number was 3.6, the consensus was 5.0, and the actual number this morning came in at 10.3. The survey is widely followed as an indicator of manufacturing sector trends. The higher the number the better, so this is good news for economic activity in the U.S. Check the full data release here. (I'm sorry if those links take you to the same site, you will have to click on the jobless claims tab for the first one under Thursday and the Phil. Fed Survey tab under Thursday for the second.)
Further dragging down markets today was a lady from the IMF who came out and said the situation in Europe could be leading to a 1930s like economic environment.
Everything taken together leaves us with quite a difficult predicament on our hands. The U.S. looks pretty good, while Europe looks horrible. Personally, I weigh more on the Europe looks horrible side of things, as this will be the factor that has a greater effect on the markets. We still don't know how much exposure U.S. banks have to European debt.
That's enough with the macro. I've finally gotten around to the analysis of companies based on the criteria Warren Buffett and I would use to analyze a company for investment.
Recall that I wanted to analyze 18 companies, 3 from 6 different sectors. Using the data compiled through research, I then wanted to choose 1 company from each different sector and compile a virtual portfolio.
Here are the sectors and companies I analyzed:
Energy: Chevron, Stone Energy, Chesapeake
Food: Chipotle, Hain Celestial, Whole Foods Market
Retail: Lululemon, Deckers, Coach
Technology: Apple, Skyworks Solutions, Arm Holdings
Agriculture: Deere & Co., Potash, Mosaic
Industrial: Boeing, Caterpillar, General Electric
After compiling the data, I have concluded that the companies to best satisfy the requirements set forth by Warren Buffett and I are Stone Energy, Chipotle, Coach, Apple, Potash, and Caterpillar.
I will post the excel file as soon as I can figure out how to do just that. I'd like you to have a look at the data yourself and draw from it any conclusions that I may have overlooked. Hopefully I can get that file up in a few minutes.
Most decisions were pretty straight forward. The only one I'm torn on is between Boeing and Caterpillar. Caterpillar has stronger fundamentals, but it is more of a long term play which would perform very well if the economy picks up, as its tractors and equipment are vital in industrial production. Boeing, on the other hand, just received an order from FedEx for 27 new 767 airplanes and 2 new 777 airplanes. It's fundamentals are not as strong as CAT but still decent. I may pick up some Boeing too based on this news.
I'm choosing Coach over Deckers because I did a DCF analysis on Deckers and came up with a $76 price target for the stock. Most analysts have a $120 price target for the stock, however, which makes me question my analysis. On the other hand, I am confident in the growth predictions projected for the Deckers and therefore am decently confident in the DCF valuation. As with the spreadsheet for the Buffett stock analyses, I will also try and post the Deckers DCF once I figure out how to do it.
Tomorrow I plan on purchasing stocks for my virtual blog portfolio, using $100,000 of fake money, of course.
I already mentioned the 6 stocks I am going to purchase for the portfolio. What I didn't mention are a few other ETFs I plan on purchasing to supplement and/or hedge the portfolio. I am contemplating buying the VIX, SLV, GLD, and MOO.
I would also short the Euro and buy the dollar if i knew more about the currency markets. I am not well versed in Forex, however, and don't want to get into something I don't understand.
That's it for now. I'll check back tomorrow with exactly what I purchase, and at what price I purchase it, for the virtual portfolio.
Cheers,
EZ
P.s.- look back for those two documents I am working on uploading.
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