24/7 Wall St. » Large Cap Stocks

Shareholders Shouldn’t ‘Like’ Zuckerberg’s Wedding (FB)

Administrator — Sun, 20 May 2012 23:05:57 +0000

Here is a recipe for you to consider: The biggest Internet IPO of all time, and making it a flop. Huge insider selling. Increase the price range and increase the number of shares to be sold by insiders. Have a Nasdaq trading system breakdown because of too much volume. One man still having grasp of enough votes and supershares to do whatever he wants with or without permission from the Board of Directors. And, finally, more financial media and traditional media coverage than you can stand to hear. This was the IPO for Facebook, Inc. (NASDAQ: FB).

But a CEO wedding announcement on the following day? The answer that new shareholders should be concerned with is simple: “You knew you had a founding CEO who was able to do whatever he wants, even though he is now playing with your money. Now you know he WILL do whatever he wants whenever he wants.”

Magically announcing a wedding at what was supposed to be a graduation party is one thing. But within a day of an IPO of this magnitude? Shareholders now have every reason to be concerned. Oh, and by the way, if you do not like it your only way to make a statement is to sell your shares. You have no vote in the company at all because Zuckerberg has well over 50% of the share votes either under ownership or under control.

It is hard to imagine that Zuck would go take a three-week honeymoon, but he could do that at some point and the poor Facebook shareholders would just have to sit there and take it. Again, your only vote as a shareholder is to sell your shares. Even then, do you think a guy now worth $20 billion or so really cares?

We warned you that there were 18 big risks in chasing Facebook ahead of the IPO, and all of these risks are still present. We never thought that there were two more: 19) CEO decides to distract himself with his own marriage status as just a small deal, and 20) CEO could go take a long vacation/honeymoon immediately.

Who knows what Zuckerberg’s living situation will be now and who knows if he and his now-wife will decide to go take a great vacation and honeymoon. I would if I was in his shoes, at some point, but not the weekend after an IPO. Shareholders should care what this means, but they better remember over and over that they were warned about the corporate governance here as a controlled entity (over and over, and over).

As of 6:50 PM EST on Sunday night there have been “853,293 people like this” on Zuckerberg’s Facebook status page. If any of those people are shareholders liking this, well let’s just say that they have a conflict of interest over “liking” their own money.

Barron’s wrote about the new downside risks about Facebook shares falling if underwriters choose not to support the IPO like they did on Friday at the $38.00 share price. That was without considering the CEO would sneak out and get married the same weekend.

JON C. OGG

Filed under: Corporate Governance, Cult Stock, Entertainment, Insider Activity, Internet, IPOs, Labor & Unions, Large Cap Stocks, Management Change, Mergers and Buy Outs, Rumors, Shareholder Issues Tagged: FB

Hedge Fund Stock Picks: Whale Hunting of the Kingmakers

Administrator — Wed, 16 May 2012 21:43:08 +0000

24/7 Wall St. published the full list of positions already for Warren Buffett and Berkshire Hathaway Inc. (NYSE: BRK-A). While there were some surprises out there and 24/7 Wall St. tracked some of the key additions by “whales” like Farallon, Highbridge, Paulson & Co., SAC Capital, Greenlight Capital and others. These positions were the changes seen in the first quarter and has been consolidated from our prior reports.

Apple Inc. (NASDAQ: AAPL) was a large gain by Appaloosa Management, with a gain of more than 500,000 shares up to 685,000 shares worth some $303 million. This of course was worth more in April. Farallon put up a new position of just over 192,000 worth some $116 million. Janus only lowered its stake by 0.5% and Apple is still its largest holding at over $3.8 billion, while Vanguard lifted its stake by about 5% worth over $23 billion.

Caesars Entertainment Corporation (NASDAQ: CZR) was a strange position on the surface, but easy to explain later. Paulson & Co. was shown to have lifted its stake to 12.37 million shares from NO SHARES at the end of 2011. The problem is that Paulson owned Caesars shares already before the IPO but it was not public before the end of 2011.

Computer Sciences Corporation (NYSE: CSC) was a 2.4 million share stake by Greenlight Capital (under David Einhorn) worth $72 million, and that was a new position. With an activism flare, maybe this can light some fire under what has been a dead tech-value stock. Another firm, Highbridge Capital Management LLC, added more than 1 million shares as a new position in the first quarter.

DaVita Inc. (NYSE: DVA) was a key addition of Warren Buffett’s Ted Weschler who grew his stake to 6,000,000 from almost 2.7 million shares. This was a doubling of the stake, but we would note that this stock has slid 10% since the end of the quarter. The overall position may be closer to break-even here, but this has a huge portion of the kidney dialysis market as of today.

Dollar General Corporation (NYSE: DG) was a surprise for us considering that we thought Warren Buffett’s new manager Todd Coombs would have added to this position rather than cutting it. Maybe the valuation premium just became too much. The March 31 stake was 3.63 million shares versus the 4.497 million shares at the end of 2011.

El Paso Corporation (NYSE: EP) saw more than one move higher. Farallon Capital added another 50% or so to end with 22.49 million shares worth $235 million in the first quarter; Paulson & Co. doubled its stake in the first quarter to 8 million shares worth over $118 million.

Encana Corporation (NYSE: ECA) is a standout because it looks small, but it is a good whale watching stock. BP Capital’s T. Boone Pickens initiated a new position of more than 1.13 million shares worth some $22.3 million.

Express Scripts Holding Co. (NASDAQ: ESRX) was a very large gain by Farallon Capital, where the position rose to over 5.65 million shares as of March 31 from only 1.17 million shares at the end of 2011. Paulson & Co. also doubled its stake in the first quarter to 3.24 million shares worth over $87 million shares. With the merger now closed, others have been looking at this despite Walgreen’s issues.

General Motors Co. (NYSE: GM) was another new position of 10 million shares worth more than $250 million. Frankly, we might have guess that Ford would have been chosen. Is it possible that this was a “politically motivated or influenced” as Buffett is such a supporter of Obama? That admittedly seems like a stretch, but if we were looking for auto exposure it would have probably been with Ford.

SIRIUS XM Radio Inc. (NASDAQ: SIRI) saw SAC Capital grow from only over 3 million shares at the end of 2011 to 98.2 million shares worth almost $217 million in the first quarter, SAC wheels and deals in shares all the time, so they could have been in and out of a lot more or less shares before, during, and after that point.

Skyworks Solutions Inc. (NASDAQ: SWKS) scored a new large stake in the first quarter by Maverick Capital. The new holdings came to over 5.8 million shares worth some $161 million at the end of the quarter, likely as an “Apple play.”

United Continental Holdings (NYSE: UAL) was hard not to miss in the whale hunting as well as Appaloosa grew its position by 500% or so up to over 7.9 million shares worth over $146 million.

JON C. OGG

Filed under: Accounting, Activist Investor, Analyst Calls, Buffett, Compensation, Corporate Governance, Insider Activity, Large Cap Stocks, Management Change, Mutual Funds, Personal Finance Tagged: AAPL, BRK-A, CSC, CZR, DG, DVA, ECA, EP, ESRX, SIRI, SWKS, UAL

Sell In May And Go Away? A 2012 Primer (BAC, JPM, GE, AA, CAT, MSFT, INTC, AAPL, XOM, CVX, DD)

Administrator — Thu, 26 Apr 2012 11:08:19 +0000

It is that time of year again. It is time to ponder the theory of pricing in a summer slowdown, whether it actually happens or not. In short, is time to “Sell in May and go away?” 2012 could be different. After all, this is an election year and it is not as though the U.S. is in the same spot it was in during the 2008 election. 2012 also faces the challenges of the larger European nations, as well as very sluggish reports from the growth markets of China, India, and South America.

Many investors might actually hope that we do get a 10% correction so that they can get into stocks again. Recent reports have shown that the average investor has still shied away from stocks in favor of the safety of bonds. The DJIA peaked above 13,300 in March after having ended 2011 at 12,217.56. It is hard to imagine this, but the DJIA had a low of under 6,500 in early 2009 at the peak of the panic selling. That was back to 10,000 by October of 2009 and the market is above 13,000 at the current time. Is it possible that the DJIA has really doubled from the lows and Joe Public has not participated at all?

We want to take a look at the valuations, dividend yields, performance, and underlying trends driving some of the key industry leaders which have already reported earnings and offered guidance in order to get a better handle on what to expect for the coming summer.

Chrysler is also acting as a strong barometer for U.S. auto sales, even if the highly-volatile durable goods orders have been weak for two months. While the retail segment is marred by a couple of undercurrents right now, sales have remained positive in 2012 when some were expecting some negative overall numbers. Now we also have a fresh report calling for at least 8% dividend growth from DJIA stocks this year and the components have so far been hiking dividends above what was expected.

We have taken a look at the following: Bank of America Corporation (NYSE: BAC) and J.P. Morgan Chase & Co. (NYSE: JPM) in banking; General Electric Co. (NYSE: GE) as the conglomerate leader (and economic barometer); Alcoa Inc. (NYSE: AA) as a leading indicator of the metals markets; Caterpillar Inc. (NYSE: CAT) as the construction and super-heavy equipment leader; Microsoft Corporation (NASDAQ: MSFT) and Intel Corporation (NASDAQ: INTC) as the tech leaders; Apple Inc. (NASDAQ: AAPL) not as a DJIA component but as an asset class; and Exxon Mobil Corporation (NYSE: XOM) and Chevron Corporation (NYSE: CVX) as the American leaders in Big Oil. We also want to consider E. I. du Pont de Nemours and Company (NYSE: DD), or DuPont,

A Recent History of “Sell In May and Go Away”

2009 was a very different year because the market was recovering from the crash and stocks were still benefitting from that move. 2010 was a nasty start of summer as investors worried about a double-dip recession as housing prices continued to sink and unemployment was still a prime concern. We also faced that punishing event called ‘The Flash Crash.’ Another big distraction was BP PLC (NYSE: BP) for its disaster in the Gulf and America and the rest of the world was starting to consider some problems in nations called the PIIGS. The market peaked around 11,300 in late April and had sunk to a 9,800 by early May. Even around July 6 the DJIA was only around 10,200 and was only back up to almost 10,500 after the end of August around Labor Day.

2011 felt close to a repeat of 2010 with the worries not just about the PIIGS but about the possibilities of a U.S. debt rating downgrade which did ultimately come. Housing was still in the tank and employment was not yet in a full-blown recovery in America. While the end of April to the end of May did see a drop of 800 points in the DJIA from almost 12,900 in late April and early May to just above 12,000 by late May and 11,900 by late June, it was late-July and August which were the cruel months for the DJIA as companies began to suffer serious earnings concerns. The DJIA bottomed out just under 10,600 in August. By late-October the market was back above 12,000 again.

So, here we sit at the end of April in 2012 with a long road of political hate ahead of us, and an economy that is still sluggish but one which not go into recession. Right now the labor data is still choppy even though unemployment is down to 8.2% due to lower labor force participation rates. Earnings growth has slowed down and Europe remains a key concern with the stable European nations being a concern on top of the PIIGS. The good news is that equity values remain attractive and the FOMC is still pledged to a policy of maintaining an “exceptionally low rate policy” through the end of 2014.

The Leading Companies As Economic Barometers

Bank of America Corporation (NYSE: BAC) and J.P. Morgan Chase & Co. (NYSE: JPM) are the two DJIA money-center banking leaders and they are both at discounts to their respective book values. Both banks turned in earnings reports that show some stabilization even if mortgage woes remain a hangover from yesteryear. 2012 has also been a period of incredible recovery from an awful 2011. Bank of America effectively doubled from trough to peak from late 2011 to the end of the first quarter and at $8.26 it has a consensus analyst target of effectively $10 that implies upside of close to 21%. J.P. Morgan is around $43 it has risen 35% from trough to peak from late 2011 to the present time. Its dividend yield is back up to almost 3% and the price target of about $52.80 implies upside of almost 23%.

Filed under: Banking, Compensation, Conglomerates, Consumer Goods, Corporate Governance, Dividend, Earnings, Economy, Editor's Picks, Index, Infrastructure, International Markets, Labor & Unions, Large Cap Stocks, Personal Finance, Transports Tagged: AA, AAPL, BAC, BP, CAT, CVX, DD, GE, INTC, JPM, MSFT, XOM

Options Take: Pressure To Remain On Wal-Mart Woes (WMT, TGT, DG, BIG)

Administrator — Wed, 25 Apr 2012 18:56:43 +0000

Wal-Mart Stores Inc. (NYSE: WMT) is still deep in the soup. Since the news broke over the weekend over bribes in Mexico involving its current and former top-brass, Wal-Mart shares have slid and slid. The drop in late Wednesday trading is down only 0.3% to $57.60, but this was a $62.45 stock on Friday.

Wal-Mart’s stock almost never moves this much from start to finish in a 3-day period and the shares are approaching an oversold level. The problem in trusting any chart at this point is that the news flow and headline risk remains greater than the odds that the headlines will suddenly become good here.

We recently noted that options trades were betting on Wal-Mart shares going down to $56.50 os so by mid-June and ultimately to $55.50 or so by mid-September. Shares were down 4.7% to $59.50 at that time, but now they are down to the $57.60 level.

If we use the December 2012 PUT OPTIONS today, the bets are still strong on the downside. In the DEC-2012 $55.00 PUTS we have seen 2,730 contracts trade against a listed open interest of only 219 contracts. There were also in the same month $60.00 PUTS some 5,204 contracts traded so far today against a prior open interest of only 155 contracts. This may be a hedge or a roll, but the implication is that either Wal-Mart is headed down to $52.50 or so in December. If the bet is not that the stock falls that far, then it is a synthetic long where an investor is willing to take delivery of shares at just under $52.50 just a few days before Christmas.

What is so interesting about the Wal-Mart news is that investors have not gone out and started rewarding rival Target Corporation (NYSE: TGT). The king of dollar stores is Dollar General Corporation (NYSE: DG) and it and other rivals have not been amply rewarded. Part of the blame on a negative retail sector may be on stores like Big Lots Inc. (NYSE: BIG) with its downward guidance effectively having taken shares down from $45 to $35 this week.

Maybe Wal-Mart can get saved by statutes of limitation. Maybe it can sneak its way out of this. Unfortunately, the negative pressure that Wal-Mart had been getting away from is back and this pressure is unlikely to go away in an instant. The good news is that the allegations are all in the past rather than the current corporate culture, but the bad news is that the pressure here could end up toppling management at the highest levels of the world’s largest retailer.

The long and short of the matter is that U.S. companies are expected to uphold certain ethical rules and practices. Bribes are illegal, even if companies do not get punished for the activity on the foreign soil.

The flip-side to this is that no one will really be able to address (nor really fix) the underlying issue: doing business and Mexico and in Latin America is not quite as straightforward as ‘ethics officers’ would hope. Outright bribes, gifts, donations, and other business enhancing methods are all just a small part of the business culture once you go south of Texas, News Mexico, Arizona, and California.

JON C. OGG

Filed under: Accounting, Activist Investor, Austerity, Compensation, Conglomerates, Consumer Goods, Corporate Governance, Large Cap Stocks, Law, Management Change, Options, Retail, Shareholder Issues Tagged: BIG, DG, TGT, WMT

What Happens to Warren Buffett’s Top 10 Performing Stocks of 2012? (BRK-B, BRK-A, USG, IR, MCO, AXP, WFC, V, BK, VRSK, INTC, MA, AAPL, JNJ, BAC)

Administrator — Wed, 18 Apr 2012 10:46:56 +0000

Berkshire Hathaway Inc. (NYSE: BRK-A) (NYSE: BRK-B) will be in the news quite a bit now that the world’s most famous investor, chairman Warren Buffett, has been diagnosed with prostate cancer. We already have offered a brief road map of what investors can expect in the months ahead based on the face value of the news and based on Mr. Buffett’s comments. With so many investors wondering what comes next, we wanted to take a look at Berkshire Hathaway’s best-performing stock holdings so far in 2012.

Some investors may worry that, if Buffett were to leave, the portfolio would perhaps find a large rotation out of current positions. While anything is possible, we expect almost no change whatsoever to the Berkshire Hathaway portfolio based on the cancer news. Some new stocks may still get added with two new portfolio managers inside the conglomerate. Some stocks also may get paired down further. That being said, Buffett has treated these holdings in many cases as though they are “partner companies” rather than mere stock investments that are to be bought and sold solely based on the price gain or loss at a certain time.

Buffett’s top 10 performers so far this year are significantly outperforming the broader market indexes. The DJIA is currently up about 8.1% so far in 2012, and the S&P 500 Index is outperforming the DJIA with a gain of 11.3%, due to such a high weighting and strong performance of Apple Inc. (NASDAQ: AAPL). Berkshire Hathaway Inc. (NYSE: BRK-A) is only up by 5.7% so far in 2012, and that is before the effect of Buffett’s cancer news. Only one of Berkshire Hathaway’s 30-plus common stocks is down so far in 2012, and that is Johnson & Johnson (NYSE: JNJ), with a loss of only 1.2%.

What was most interesting about the holdings noted as 2012’s 10 best performers is that the dividends are often paltry. Most have dividend yields that are well below average. We have given some color on each position, shown some trends on each, and shown the price and relative price performance on each. It is no coincidence that the financial stocks in the Berkshire Hathaway portfolio are up so much when you consider that the financial sector led the market in the first quarter and so far this year.

USG Corporation (NYSE: USG) is Warren Buffett’s single best stock performer so far in 2012, as Americans continue to look for ways to play a coming housing recovery. The latest NAHB confidence dip may be a concern, but perhaps a remodel housing economy can be enough to return a turnaround here. What is interesting is that Thomson Reuters is currently looking for a loss of $1.30 per share in 2012 and a loss of $0.52 in 2013, despite what it expects to be rising sales. Unlike most of Buffett’s top stocks, USG pays no common dividend. The $16.89 share price compares too a 52-week trading range of $5.75 to $19.44.

Ingersoll-Rand Plc (NYSE: IR) turned out to be Buffett’s second-best common stock in 2012, with a gain of 32%. The company makes tools, compressed air systems, ARO fluid products and lifting and material handling products, among other products and services. The dividend yield here is roughly 1.6%. At $40.06, its 52-week trading range is $25.86 to $52.33.

Filed under: Activist Investor, Banking, Buffett, Conglomerates, Dividend, Editor's Picks, Financial Stocks, Insider Activity, Large Cap Stocks, Mutual Funds, Shareholder Issues Tagged: AAPL, AXP, BAC, BK, BRK-A, BRK-B, INTC, IR, JNJ, MA, MCO, USG, V, VRSK, WFC

Lopsided Overseas Package Delivery Battle (FDX, UPS)

Paul Ausick — Tue, 17 Apr 2012 15:28:55 +0000

The country’s second-largest package delivery firm, FedEx Corp. (NYSE: FDX) has revealed that it is in discussions to acquire French express company TATEX. The French firm carriers about 19 million packages annually and turns over about €150 million a year.

Earlier this month Fedex acquired a Polish express company, Opek Sp.z o.o. — an even smaller package delivery company — in a rear-guard action following competitor United Parcel Service Inc.’s (NYSE: UPS) $6.8 billion acquisition of Dutch firm TNT Express NV. German-listed DHL, with a market cap of more than double TNT’s, is probably too big for FedEx to swallow, so the company is forced to make small pickups where it can to try to keep up.

Shares of FedEx are up about 2% at $89.89 in a 52-week range of $64.07-$98.66.

Filed under: International Markets, Large Cap Stocks, Mergers and Buy Outs Tagged: FDX, UPS

The Case for DJIA 14,000… Or 15,000 (JPM, BAC, IBM, XOM, CVX, CAT, AAPL, MSFT, INTC, GE)

Administrator — Fri, 16 Mar 2012 10:43:59 +0000

2012 has been a great year for stocks. We have recently seen the NASDAQ return to 3,000 for the first time in a decade. The S&P 500 Index has also now reached 1,400 again for the first time since June of 2008. With the Dow Jones Industrial Average back above 13,250, we cannot help but wonder about the calls for DJIA 14,000… or even DJIA 15,000. We don’t want to get carried away in the market hype when the market is getting very overbought and due for a correction even if on price alone. Still, there are many positives still driving the market.

Earlier in the year we came up with an implied DJIA price target using the same methodology of the prior two years (each came within about 1% of the target), and our target for the DJIA was an implied peak of 13,678. Admittedly, it seemed too rosy at the time with Europe teetering on the brink of collapse and with so many still worried that America was headed back into recession. But with the DJIA now back at 13,252 that target of 13,678 is barely 400 points away.

So, what are the catalysts now? Growth and technology have replaced dividends and utilities as the top sectors. Many stocks are hitting new multi-year or all-time highs. Even the financials are back and no longer the whipping boy of the market. We have glanced over many sectors here, and thrown in the risks and caveats.

When we did the 13,678 DJIA target, that was assuming no participation from the banks because they were so miserable at the time. We noted on January 3, 2012, “If we included the target using our methodology with just J.P. Morgan Chase & Co. (NYSE: JPM) shares, we would get an expected gain of 12.9% to 13,793; but if we also include the large upside targets to Bank of America Corporation (NYSE: BAC), then the DJIA target would be 14,035 for a gain of 14.88%.” And now we have Andy Schnorack as a manager under Covestor calling for perhaps a multi-year period for financials to return to growth. The banks are starting to return to the dividend trends again too.

International Business Machines Corporation (NYSE: IBM) may be headed to $230.00 as was recently noted. It is the largest DJIA component of them all, so its price-weighting could help drive the DJIA even if the other DJIA stocks just manage to perform mildly.

With oil remaining so high, the analysts still see upside in shares of Exxon Mobil Corporation (NYSE: XOM) and Chevron Corporation (NYSE: CVX). The implied upside there on average is about 10% and each of these have a heavy weighting in the DJIA. Even Caterpillar, Inc. (NYSE: CAT) is trying to hit new highs again while the growth rates in Brazil and China have been slowing. By our take it has rallied too much just on a price basis, but in fairness it trades at just under 12-times expected 2012 earnings.

And what about elsewhere technology? Apple Inc. (NASDAQ: AAPL) is getting all the media attention for the i-everything daily, but there are also Microsoft Corporation (NASDAQ: MSFT) and Intel Corporation (NASDAQ: INTC) hitting multi-year highs as well in ‘old-tech.’ In conglomerates we even have General Electric Co. (NYSE: GE) back above $20.00 since it has raised and raised its dividends, and analysts see the stock going up almost another 10% from here.

There are of course some caveats and risks. Earnings season is already one month out. That means the earnings warnings should start hitting in the next week or two. Europe is not out of the soup yet and China and Brazil are slowing down. Gold is losing its luster, for now at least. And that pesky Volatility Index, or the VIX, is so darned low now that any bad news could allow short sellers to come swooping back in to knock down the bull. There is also the risks around who wins the elections later this year.

If you think DJIA 13,678 or 14,000 sounds too rosy, what about a recent take from Laszlo Birinyi? His call, S&P 500 goes to 1,700. Will the market correct before the bulls take it up there? Maybe, very possibly. If you have missed the run up entirely so far, remember that history has shown over and over that major runs higher often run into big waves of profit taking.

JON C. OGG

Filed under: 24/7 Wall St. Wire, Banking, Brokerage Firms, Compensation, Conglomerates, Corporate Governance, Dividend, Earnings, Economy, Editor's Picks, Financial Stocks, Index, Large Cap Stocks, Mutual Funds, Oil & Gas, Personal Finance, Technology Companies, Value Investing Tagged: AAPL, BAC, CAT, CVX, GE, IBM, INTC, JPM, MSFT, XOM

Warren Buffett’s Annual Letter Names His Successor, Sort Of (BRK.A, BAC, IBM, AXP, KO, WFC)

Administrator — Sat, 25 Feb 2012 16:15:55 +0000

The annual letter for Berkshire Hathaway Inc. (NYSE: BRK-A) is out and the discussion immediately jumps in about who will succeed Warren Buffett, book value, buybacks, and the portfolio. Berkshire Hathaway’s book value per share rose 4.6% in 2011 versus 2.1% for the S&P 500 Index. The formal book value was $99,860 per share and the closing price for 2011 was $114,755. Friday’s closing price was $120,000.

Warren Buffett again has not disclosed exactly who will run Berkshire Hathaway when he retires, but he did disclose that the board of directors knows its selection (anticipated as seemless), and the hint is that it is not the new portfolio managers Todd Combs nor Ted Weschler. The hint of two back-up candidates might imply them, but they are said to each manage a few billion dollars in 2012. Regarding those two Buffett noted, “but they have the brains, judgment and character to manage our entire portfolio when Charlie and I are no longer running Berkshire.”

Buffett claimed that his five largest non-insurance companies (BNSF, Iscar, Lubrizol, Marmon Group and MidAmerican Energy) delivered record operating earnings in 2012 with more than $9 billion in cumulative pre-tax income in 2011.

We already had the public holdings of Berkshire (FULL HOLDINGS HERE) but the following were the big investments and stakes named:

a $5 billion 6% preferred stock of Bank of America Corporation (NYSE: BAC) which came with warrants to buy 700 million common shares at $7.14 per share any time before September 2, 2021;

63.9 million shares of International Business Machines Corporation (NYSE: IBM) at a cost of $10.9 billion (roughly $170.57 per share) for a 5.5% stake;

Counting the IBM stake, Team Buffett now has large ownership interests in three other companies: a 13.0% stake of American Express Company (NYSE: AXP); an 8.8% stake of The Coca-Cola Company (NYSE: KO); and a 7.6% stake of Wells Fargo & Company (NYSE: WFC). On those stakes: “We view these holdings as partnership interests in wonderful businesses, not as marketable securities to be bought or sold based on their near-term prospects.”

Berkshire Hathaway’s 110% of book value share repurchases only lasted a few days and the company was able to only repurchase $67 million worth of its shares. Buffett’s logic is that 110% of book value is at a discount to intrinsic value, although he said that would be impossible to calculate.

As far as which person will run the company ahead, the thought of 24/7 Wall St. is that Ajit Jain will be in charge. Our prior coverage of the 2010 annual letter showed Warren Buffet saying of Jain, “If Charlie, I and Ajit are ever in a sinking boat – and you can only save one of us – swim to Ajit.” If that is not the world’s greatest praise, what is?

The full annual report from Berkshire Hathaway is here.

JON C. OGG

Filed under: 24/7 Wall St. Wire, Activist Investor, Annual Report, Banking, Buffett, Compensation, Conglomerates, Corporate Governance, Defensive Stocks, Earnings, Economy, Editor's Picks, Financial Stocks, Infrastructure, Insider Activity, Large Cap Stocks, Management Change, Mergers and Buy Outs, Mutual Funds, Personal Finance, Private Equity, Stock Buybacks Tagged: AXP, BAC, BRK-A, IBM, KO, WFC

Apple Stock Still Looks Cheap At All-Time Highs (AAPL, XOM, MSFT)

Administrator — Tue, 07 Feb 2012 22:26:38 +0000

Yet another all-time high for shares of Apple Inc. (NASDAQ: AAPL). Whether it is iPhone, Mac, iPad, or the chatter of the coming AppleTV… The run here has been amazing when you consider how the run came after the earnings blow out seen last month. This is not even happening on record volume and it may even be not on active volume at all.

Let’s just call it a seller’s strike. You can’t find anyone selling Apple. In the ten trading sessions since earnings, the days with gains have been on seven of the ten days but the days with losses have been only negligible.

Apple jumped to $446.66 after earnings, up from $420.41 at the close on the day of its earnings. Now shares have closed up 1% at $468.83 for a new all-time high closing price and Apple’s market cap is now at a staggering $437 billion.

And to think… Apple is trading at only 11-times the implied 2012 earnings estimates. By now it has more than $100 billion in cash on the books. One day this run will end, but who knows when… James Altucher gave a $1,000 Apple call last night on CNBC. The consensus target is now $562.96 and some analysts see $650 as a target.

This stock is now much larger than Exxon Mobil Corporation (NYSE: XOM) and about its only care about Microsoft Corporation (NASDAQ: MSFT) is now just remembering that there is supposed to be a rivalry.

JON C. OGG

Filed under: 24/7 Wall St. Wire, Consumer Electronics, HI/LOW, Large Cap Stocks, PC Companies, Trading Alert Tagged: AAPL, MSFT, XOM

DJIA 2012: Best Targets Imply DJIA 13,678 (BAC, JPM, VZ, IBM, CVX, MCD, CSCO, XOM, GE, HPQ, INTC, MRK, PFE, PG, WMT, DIA)

Administrator — Tue, 03 Jan 2012 11:40:28 +0000

As each new year replaces the prior year, 24/7 Wall St. looks at the individual targets on all 30 Dow Jones Industrial Average price targets from Wall Street analysts to come up with a peak price for the DJIA in the year ahead. It turns out that when you blend the targets of the 30 DJIA stocks equally, the target prices have come within about 1% in each of the past two years.

In 2010, the methodology called for a target of 11,455 and the DJIA closed out at 11,577.51 for the year. In 2011, the methodology called for a blended peak consensus of 13,042.06. While the DJIA closed 2011 up 5.5% at 12,217.56 for the year, the peak 2011 DJIA price was 12,928.50. Using stock market projections often feels like a game of horseshoes, or a bit like throwing hand grenades, because being close enough is generally all that matters. The blended DJIA price target peak for 2012, using the 24/7 Wall St. methodology is 13,678, or a gain of 11.96%.

Amazingly enough, this year’s projected figure may actually be understated because this removes the wild card performances of Bank of America Corporation (NYSE: BAC) and J.P. Morgan Chase & Co. (NYSE: JPM). Bank analysts have price targets that are still much higher than current prices and these have a low weighting in the actual share price weighting of the DJIA methodology. For that reason, the 13,678 is based upon 28 components. If we included the target using our methodology with just J.P. Morgan Chase & Co. (NYSE: JPM) shares, we would get an expected gain of 12.9% to 13,793; but if we also include the large upside targets to Bank of America Corporation (NYSE: BAC), then the DJIA target would be 14,035 for a gain of 14.88%.

There are caveats that have to be considered, particularly for a projected gain of almost 12% in 2012. The first is that analysts as a group are often too bullish, and the second is that this is intended to represent a peak level of 2012 rather than a year-end call. Only one of the 30 DJIA components, Verizon Communications Inc. (NYSE: VZ), is trading above its consensus price target from Thomson Reuters due to fresh highs in the stock. Many DJIA stocks closed well under their 52-week highs, but most consensus price targets on the 30 DJIA components would actually hit new 52-week highs in 2012 if the analysts are correct. A solid fourth quarter for U.S. stocks is part of why the analysts are still excited on individual stocks in 2012.

2011 was a very volatile year. The United States lost its prized Triple-A rating by S&P, emerging markets cooled off, the European Union went into meltdown mode, and all the while the big American companies managed to grow earnings, buy back stock at a feverish pace and even managed to grow their dividends. The last quarter for the DJIA was actually up about 12% versus 5.5% for the year. The broader market of the S&P 500 was up 11% in the fourth quarter but managed to close out the year literally 0.04 points lower than a year earlier.

The best of the 30 DJIA stocks was McDonald’s Corporation (NYSE: MCD) with a gain of about 31%. It rose so much that analysts now only see about 3% upside, based on year-end price target objectives. The three highest price components helped the DJIA gain as follows: International Business Machines Corporation (NYSE: IBM) rose about 27%, Chevron Corporation (NYSE: CVX) rose almost 20%, and McDonald’s Corporation (NYSE: MCD) rose over 30%. Warren Buffett even bought about $10 billion worth of IBM shares.

There were also many big losers out of the 30 DJIA components. A 58% drop in Bank of America Corporation (NYSE: BAC) shares made it the worst performer of the 30 DJIA stocks. Other big losers were Alcoa, Inc. (NYSE: AA) at -43%, Hewlett-Packard Co. (NYSE: HPQ) at -38%, and even J.P. Morgan Chase & Co. (NYSE: JPM) was dragged lower by almost 20% as the bank stocks slid. A couple of key components were barely changed. General Electric Co. (NYSE: GE) managed a small gain of almost 1.4% and Caterpillar Inc. (NYSE: CAT) closed down 1.5%.

The DJIA projection methodology has come within about 1% in each of the past two years. Does it seem too good to be true for 2012? With how sensitive the economy is today, it feels like it may be too good to be true. 2011 was so volatile and the DJIA performance of 5.5% compared to basically a total wash on the S&P 500 performance. Is it fair to question a methodology that worked for the past two years? If the DJIA hits 13,678 in 2012, that would compare to a high of 12,928.50 over the past year.

There are at least some things that could drive such a bullish projection. 2012 is an election year and that has often helped stocks. Will the gridlock of today interrupt 2012? The recession is now two and a half years in the rear-view mirror. The problems at the end of 2011 are likely to act as continued headwinds in 2012. Europe is still on the border of crisis. China is not posting the blazing growth needed to drive mature economies. Many segments of the manufacturing sector have excess capacity and moderate demand. Still, traditional valuations of stocks today are very low by historic standards. Companies are still raising dividends and still repurchasing stocks.

The Dogs of the Dow have a yield of roughly 4% for 2012. The 10-Year Treasury yield closed out 2011 at only 1.87% and the 30-Year Treasury Bond closed out 2011 with a yield of only 2.89%. After a rough glance, it looks like 24 of the 30 DJIA stocks have a higher yield than the 10-Year Treasury Note, and 13 of 30 even outyield the 30-Year Treasury Bond. This sets up a scenario where income-oriented and yield-hungry investors may use the DJIA and other established dividend players as competition for income rather than buying Treasuries.

Will Ben Bernanke’s promise to keep interest rates exceptionally low through mid-2013 hold true? Even if it does hold true, by the end of 2012 that promise will have only six months or so left to it. Are not markets supposed to be price exploration mechanisms for the months and year ahead?

Of the other 30 DJIA stocks, there are some good things to look forward to and some headwinds at the same time. Cisco Systems, Inc. (NASDAQ: CSCO) is trying to turn itself around. Intel Corporation (NASDAQ: INTC) recently gave a big revenue warning, and that may hold back more interest in Microsoft Corporation (NASDAQ: MSFT). Pfizer Inc. (NYSE: PFE) and Merck & Co. (NYSE: MRK) both made good gains in 2011 despite a patent expiration cliff and less-than-exciting drug pipelines. And Wal-Mart Stores Inc. (NYSE: WMT) is entering 2012 after a near 14% gain and is acting like it wants to surge to new multiyear highs.

If the implied gains of almost 12% do somehow manage to come true in 2012, the implied peak target on the SPDR Dow Jones Industrial Average (NYSE: DIA) would be roughly $136.47, if the performance of the ETF matches the index performance tick for tick.

Filed under: 24/7 Wall St. Wire, Analyst Calls, Economy, Editor's Picks, Index, Large Cap Stocks, Special Report Tagged: AA, BAC, CAT, CSCO, CVX, DIA, GE, HD, HPQ, IBM, INTC, JPM, MCD, MRK, MSFT, PFE, PG, VZ, WMT, XOM