Thursday, March 18, 2010

Stocks for the Long Run? And a Gold Update . . .

FedEx reported earnings today which apparently missed a whisper number and/or the company said insufficiently upbeat things about the global economy. The stock is down a few points pre-open to about $86/share, having run up massively from its low point in the mid $30's one year ago.

Long-term FedEx holders have been well-rewarded. The stock traded in a range in 1980 with the midpoint around $5.50/share. Since its dividend yield has been near zero all this time, I compared the total return from FedEx since election day 1980 to that of a zero-coupon Treasury with today's maturity date, about 29 1/2 years.

At that time, Treasuries of that maturity yielded 12.5%. would have given about double the total return of FedEx stock, with lower volatility and less need to follow corporate events.

And FedEx has been one of the big winners over the past several decades.

Kind of makes one think.

Another big winner that by now yields over 1% dividend rate is Teva. It was announced today that Teva is acquiring a German-based generic drugs firm, Ratiopharm, in a competition with Pfizer among other bidders.

Teva is a roll-up. It keeps acquiring large generic firms at premium valuations. It has $2.5 B in tangible net worth against a market cap of $53 B. It is getting too big to acquire. Its stock has gone up for decades. Its market cap to tangible net worth ratio is more than double Merck's. Its dividend yield is one-quarter of Merck's off an estimated P/E on 2011 earnings that is higher than Merck's. It has much less proprietary technology than the brand companies.

It may well be that one of these days, the generic drugs industry will have a major price war. Or, Teva will let its costs get out of control. Or something. I am not loving the risk-reward longer-term for Teva anymore. In the same space, Watson Pharmaceuticals is the one stock I own. Even though there's no dividend, the chart is quite promising and there are numerous potential buyers for this company that now has a global footprint.

The bigger picture is that the "fear index" -- the VIX on the S&P 500, is well into bull market range at 16.77. General market timers historically are on thin ice at this level, but this is NOT a sell signal. The pattern of this recent stock market suggests that a reaction to a VIX at least at 20 will follow sooner rather than later, and if it is not overly delayed, the averages will likely be at least somewhat below today's even if the trend is up over the intermediate term.

Meanwhile, somehow simple chart measurements and comparisons to prior up-cycles in gold in the "aughties" going back to 2001 led me to blog in early December that I was selling almost all my gold ETFs and was looking for an equilibrium point of GLD at $110 +/- $3. Well, here we are at GLD $110 once again. There was a brief stock market-related dip below $107, but my suspicion is that similar factors that pushed gold up the prior decade remain in force, namely excessive money (credit) creation.

The new ETF "PHYS" has a more modest premium to net asset value than does
"GTU". It also offers large holders the guarantee that they can actually withdraw bullion. People who don't want to hold, or don't want to exclusively hold, physical ETF gold via "GLD" may want to consider PHYS.

Copyright (C) Long Lake LLC 2010

No comments:

Post a Comment