Where Have You Been?

In 1984 Kathy Mattea has a relatively large hit with this very touching song.  It is a very moving and emotional song.  CLICK HERE!  If you care to get a lump in your throat.  I only provide this song as I know many of you were carrying that sentiment for me as I have not posted since last Thursday.  It's OK I know you missed me even if you weren't calling and sending notes begging for my next nuggets of wisdom.

It was and is a crazy weekend and week ahead.  We had our new Viking Range red tagged because of a gas leak.  We had the installers and factory rep scheduled to come out today.  They gave us a noon to three arrival window?  We are also arranging for our audio install and realized we had to replace some components.  The real fun part was going to storage and looking for our plates, bowls, cups, and silverware.  Now you have to keep in mind that the ServePro team packed much of this stuff in the days following the flood.  Nice people at ServPro, but many of their hale have English as a second, third, or perhaps fourth language.  Many of the boxes had very cryptic messages.  Here are a few you might appreciate.

Garg Stif, Baken Stuf, Grage Shilf, Kit Stuf, Playts, Pans (we figured that one out but since we have a few pans, not real helpful), food cabnit, stuff (correctly spelled but real helpful), bdrm thigs, bookes and cook, and about 68 other helpful tips as to what were inside all 75 boxes.  Devin, my lovely wife did mark a couple.  She marked one that said #53.  I think that might have had Baken Stuf in it.  So we had to go box by box and try and find stif inde bokses.  That killed the better part of a Friday and Saturday. 

Ooops that would be a Venetian Painter.  Tiziano Vecellio if you were wondering.

Our Venetian Plaster job is complete and I have to admit it looks cool.  Prior to a few weeks ago I had never heard of the stif, sorry, stuff.  Now I have it and like it.  If you do not know what it is, and you have cable TV you are in luck.  HBO is showing Butch Cassidy and The Sundance Kid about very eleven minutes this month.  Tune if toward the end, where the amazing duo Newman and Redford are running through the Bolivian Adobe.  There in the hallway you can see Venetian Plaster.  I do not know how Venetian Plaster got into a Bolivian Adobe in 1885, but there it was and you can see it as well.  Yeah that's the stuff, a wall that looks like it needs to be painted.

What's Goin On

Marvin Gaye had the hit, but we will use the title to bring you up to date.  But first I must apologize for the past from last Wednesday Night, "Do As I Say, Not As I Do".  It scared me too.  Even I did not know I knew that much about options.  I will do my best not to get so detailed.  Perhaps too much caffeine.

The PIGS (Portugal, Italy, Greece and Spain) were taking the market down today.  It was great day to own options on the likes of AAPL, SLV, GLD. DBA, JJG and several more.  We had a good day today.  The sovereign debt issues in Greece and the debt down grade for Italy got investors here to finally say, whoa! This could be bad.  Then there was an acknowledgement of China actually slowing down, meaning the demand for certain raw materials would take hit today.  (Now if you have been paying attention, China has been tapping the brakes for about 8 months now as they have increased their capital requirements for their banks on 5 occasions.  This can have the same effect as raising a prime interest rate.  Both actions "pinch" liquididty of cash flow in the economy.)  We saw that with the likes of MCP MolyCorp take a hit today, down about three percent.  If you are patient, (12-18 months) this may be an interesting entry point.  There are some interesting target prices in the 85-91 dollar price range.  WE DO NOT OWN, but have it on a watch list.

Kickin Some Tires

We are obviously deep into a market correction so we would not recommend ANY new positions, but like a couple of weeks ago one of our readers have discovered they are the proud owners of some shares in fairly well known equities.  We volunteered our services to kick the tires on DELL and MSFT.

DELL Dell Inc. provides integrated technology solutions in the information technology (IT) industry worldwide. The company designs, develops, manufactures, markets, sells, and supports mobility products, including laptops, netbooks, tablets, and smartphones; desktops PCs; and servers and networking products. It also offers storage solutions comprising storage area networks, network-attached storage, direct-attached storage, disk and tape backup systems, and removable disk backup. In addition, the company provides third-party software products consisting of operating systems, business and office applications, anti-virus and related security software, and entertainment software; and peripherals, such as printers, televisions, notebook accessories, mice, keyboards, networking and wireless products, and digital cameras. In addition, it offers IT and business services, including transactional services, such as support, managed deployment, enterprise installation, and configuration services; outsourcing services comprising data center and systems management, network management, life cycle application development and management, and business process outsourcing services; and project-based services consisting of IT infrastructure, applications, business process, and business consulting services, as well as offers asset recovery, recycling, and applications maintenance services. Further, the company provides financial services, including originating, collecting, and servicing customer receivables related to the purchase of its products. Dell Inc. sells its products and services through its sales representatives, telephone-based sales, and online at dell.com, as well as through indirect sales channels. The company was founded in 1984 and is headquartered in Round Rock, Texas.

Dell has been smacked around overe the last couple of weeks and that is because even the good analysts are still associating the company with personal PC business which is under pressure from the likes of iPad and iPad wannabees.  It just had a nice quarter and had operating income growth of 67% and a margin improvement of 23.4 %.  Let's take a look at the fundamentals.

Their forward looking P/E (that would be the future 12 month earnings per share divided into the current price of the stock) is a very low affordable 8.2%.  By comparison the overall market (S&P500) is at 14.3% making look relative affordable.  According to the recent (last Tuesday Sec Filings) revenues are back at pace with 2008 levels.  As mentioned margins are very healthy because of the shift to enterprise solutions.  The are trying to compete with the likes of IBM and Hewlett Packard.  Their free cash flow is continuing to improve and their ROE is a very impressive 39%.  That basically mean that management is doing a respectable job of deploying resources.  All in all the price seems to generate a nice market of safety.  Trading at $15.49 there are target prices of 18-20 dollars a share and those could be successful.

Since our reader just acquired these shares and has no historical baseline, we would suggest holding them.  In fact given the circumstances we would suggest looking for a slight market improvement and consider adding to the position.  We would suggest doing some homework into the long term debt which seems a little high but manageable.  In a nutsheel hold on to DELL put a stop order in at $13.95 in case the wheel fall of the trolley.  Look for a 20, by years end or Q1 2012.

MSFT Microsoft Corporation develops, manufactures, licenses, and supports a range of software products and services for various computing devices worldwide. The company's Windows & Windows Live Division segment offers Windows operating system, Windows Live, and Internet Explorer. It offers Windows operating system, which include Windows 7, Windows Vista, and Windows XP Home, as well as Windows Live suite of applications and Web services. Microsoft's Server and Tools segment provides Windows Server operating systems, Windows Azure, Microsoft SQL Server, SQL Azure, Visual Studio, Silverlight, System Center products, Biz Talk server, Microsoft consulting services, and product support services. This segment also provides enterprise consulting and product support services; and training and certification to developers and information technology professionals, as well as builds standalone and software development lifecycle tools for software architects, developers, testers, and project managers. The company's Online Services Division segment offers online information products, such as Bing, MSN portals, and channels; and an online advertising platform for publishers and advertisers. Microsoft's Microsoft Business Division segment offers Microsoft Office, Microsoft SharePoint, and Microsoft Dynamics ERP and CRM, as well as Microsoft Office Web Apps. The company's Entertainment and Devices Division segment develops, produces, and markets the Xbox 360 platform; PC software games; online games and services; Mediaroom, an Internet protocol television software; Windows Phone and Windows Embedded device platforms; the Zune digital music and entertainment platform; and application software for Apple's Macintosh computers, Microsoft PC hardware products, and other devices. This segment also involves in retail and marketing of packaged versions of the Microsoft Office system and the Windows operating systems. Microsoft was founded in 1975 and is headquartered in Redmond, Washington.

MSFT is cheap.  With an 8.6% P/E ratio it is cheap.  Now it hard to tell if its cheap for a reason.  We are thinking that its cheap just because it is misunderstood.  They are doing some great stuff shifting from a PC platform to the cloud platform.  IT spending by corporations are going to be a good thing for MSFT because we are not ready to abandon our love with Internet Explorer or MS Word, or Excel or MS Exchange no matter how cool our iPad or iPod is.  Lets look at the fundamentals.

They have a ton of cash.  They keep making more of it and Balmer got spanked for issuing 2 billion in debt last year.  He is brilliant.  He floated 2 billion in 30 years cheap money instead of repatriating 2 billion from all corners of the Microsoft World and paying gobs of taxes when those profits hit Redmond Washington.  Way to go Steve.  He is sharing the wealth by issuing and dividend. Currently the yield is 2.65% which is great.  Hell the 10 Year yield on US treasuries was 3.1%.

Their Return on Equity is better than DELLs at 44.1%.  We like anything above 25%, so these are stellar.  Again our reader has no historical baggage with the stock as they just acquired it.  Our suggestion again would be to hold on to it. 

Put a stop order in at 22.50 and look for 28-29 by years end.

That all we got for you tonight.  I'm Back!

Salve Lucrum