matisse capital management

• Sowood Hedge Fund loses 50% http://www.bloomberg.com/apps/news?pid=20601087&sid=aCAcZdq8yQ3M&refer=home
• China will not revise exchange rate http://www.iht.com/articles/2007/07/31/business/paulson.php
• Domino's accused of slavery  http://news.bbc.co.uk/1/hi/business/6923024.stm 

Markets Around the World

• German bank says US subprime problems threaten its stability http://www.iht.com/articles/2007/07/30/business/sub.php
• Owner of Russia's Russneft oil company says Putin forced sale - will it impact emerging market mutual funds? http://www.iht.com/articles/2007/07/30/business/ruble.php
• Market downturn delays some IPO's  http://business.timesonline.co.uk/tol/business/economics/article2163754.ece

Updated Watch List

HSC, GEF, WBK, UL, LOOP, NRIM, TRV, AYR

Also, I bought shares of JCI, Johnson Controls today at $110.63.  A 3:1 split is coming up on October 2 and the dividend yield is set to increase.

Major Share Buybacks Announced 7/26//2007

Banner - BANR
Cisco Systems - CSCO
Flow International - FLOW
Janus Capital Group - JNS
National Instruments - NATI
Provident Financial Services - PFS
Republic Services - RSG
Simon Property Group - SPG
Spartan Motors - SPAR
Steris - STE
SVB Financial Group - SIVB

Analysis Brief: ITU, Banco Itau

Largest retail bank in Brazil, based in Sao Paulo, with major operations in Argentina, Luxembourg,  and Italy and a major stake in Portugal's Banco BPI. 

P/E = 13.78; PEG = 0.81.  At current price of $44.78 (3.98x sales) the stock is slightly undervalued.  Value = $47.31 using estimated 2007 EPS of $3.25,  discounted cash flow valuation using 17% increase in earnings each of next 3 years, 3% reversion growth and 13% discount rate (probably high).  Dividend yield 1.5%, dividend paid monthly.  ROE = 22%. Long term debt = 10% of total assets.  Wall Street analyst consensus is for 22% per year income growth over the next five years, as the Brazilian economy continues to expand.  ITU also has broker-dealer offices in Hong Kong and Shanghai. The bank is one of the companies that makes up the Brazil index IBovespa (BVSP).  Below is ITU compared to the Dow and Citigroup (C) oveer the last three years.  The second chart is the IBovespa Index versus the S&P over the last two years.  This analysis is not investment advice and readers should conduct their own research before buying any stock.

Looking for Ideas? Business Week 50 Interactive Scoreboard

The Business Week 50 Interactive Scoreboard is a list of the 50 best performing companies from the S&P 500, based on profitability, sales growth, and annual return to shareholders.  I have found that this can be a good place to start looking for new buys that meet my criteria of growth potential, low level of long-term debt and a consistent, growing dividend payment.  Here are some prospects that I found on the most recent list:

SRE, Sempra Energy, 2.2% dividend yield

SHW, Sherwin-Williams Co., 1.8% dividend yield

CEG, Constellation Energy Group, 2.5% dividend yield

TJX, TJX Companies Inc., 1.1% dividend yield

EMR, Emerson Electric, 2.7% dividend yield

http://bwnt.businessweek.com/interactive_reports/bw50scoreboard/index.asp?sortCol=rank&sortOrder=ASC&pageNum=1&resultNum=25

There is also a Business Week European Scoreboard of 350 companies:

http://bwnt.businessweek.com/europe_350/2005/index.aspg

 

On Days Like Today...

With the DOW down 350+ points and no end in sight, I am reposting two quotes from Warren Buffett:

"Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it.”

"Only buy something that you'd be perfectly happy to hold if the market shut down for 10 years."

On this dip I added shares of UTX, and will remain long on everything.  But we may as well have something interesting to look at.  Below is a photo from a recent trip to Vancouver BC that captures the spirit of today's DJIA:

 

Understanding MACD

I was recently asked about MACD and why it is important, and this prompted me to do some research to back up my opinions.  MACD, or Moving Average Convergence/Divergence, is a technical term that gets thrown around a lot.  It can be a useful techinical tool to analyze a stock, and while it sounds complicated, the underlying concept is simple and really just tells you:

"What is the current trend of this stock? Is it up or down?"

"Has the stock's price trend changed directions?"

MACD is calculated by subtracting the 26-day exponential moving average (EMA) of the closing share price from the 12-day exponential moving average of the share price (don't worry about the word "exponential" for a moment).  If you hold the stock you hope that the short-term average is above the long-term average.  This would give a positive result and indicate that the near-term price trend is up.  If the short term average is lower, the result is negative and indicates a downward trend.  MACD is presented as a line around a zero axis, and even if the line is moving up, many traders do not want to buy a stock until it crosses above zero, indicating that the price trend is firmly in positive territory.  Below is a chart of the share price of BASF (BF) over the last two years, with the MACD line below; the turning points in the direction of the share price are abrupt and literally appear as peaks on the line. 

 

Mathematically, the "exponential" is calculated as follows: 2 divided by number of days in the average, e.g., for a 26 day average it would be 2/26.  The exponential average formula for any one day would then be ((Current days price - Prior days average) x exponent) - current day's price.  These averages are then compared over a 12 or 26 day period.

MACD is probably best used as a short term trading tool, an indicator of a good entry point. When there is a sharp valley and the line turns up, it may be time to buy.  But the main disadvantages of MACD are that it is a hindsight test and that it becomes less relevant over long periods of time.  For example, if BASF acquired another company, there could be a fundamental shift in its MACD rendering the past data irrelevant.

Banking on Australia for Dividends

Three of the largest banks in Australia pay dividends over 4.0%:  Australia & New Zealand Banking Group (ANZBY.PK), Westpac Banking Group (WBK) and National Australia Bank, LTD. (NABZY.PK). Dividends are paid twice a year, in November and May.  In addition to the cash return, the shares of all three have gone up considerably since the beginning of the year: NABZY +12.5%, WBK +23.0%, and ANZBY +18.0%.  And Australia is a growing market.  Below is a chart of WBK versus the S&P over the last year:

Some Major Buybacks Announced in July

Charles Schwab, SCHWB      $2.3 billion

Devon Energy, DVN      annual program

ConocoPhillips, COP      $15 billion

Johnson & Johnson, JNJ      $10 billion

Eaton Vance, EV      8 million shares

General Electric, GE      $14 billion

Amgen, AMG      $5 billion

Tidewater, TDW      $200 million