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Don't Sell In May and Go Away

Let me be emphatic and say that I do not believe in the old wives tale of “selling in May and going away.” There will plenty of opportunities in the next 6 months. Here is some quantitative support for my opinion. The S&P500 (SPX) SPX is up on average 3.10% for the six month period of June through November since 1950. During the Presidential Election years, the SPX has risen on average 5.98% for the six month period of June through November since 1950. If you sell in May and go away then your returns might be going away as well. Be careful of people who quote this old wives tale to you because they might be the buyers on the other side.



Posted By Scott Rothbort at June 2, 2008

Be Portfolio Correct Not Politically Correct With Your Investments

It is hard to believe but May is now in the books. The S&P500 (SPX) for the month of May was up 1.07%. If you asked most people they would have bet dollars to doughnuts that after the huge pre-Memorial Day week sell-off that the SPX would have been in the red for the month. That was not the case, as May finished in the green and now we have put together two consecutive months of gains for the SPX.  This marks the longest monthly winning streak since we rose three consecutive months through October of 2007.

For the year through the end of May, the SPX is off 4.63% but was far worse at its extreme bottom, off about 14.5%. All told we have been in a fantastic environment for trading and stock picking. The buy and hold crowd have been hurt as they continue to hold laggards such as financials and retails and suffer from the psychological effects of the January and March slides.

I believe that the rest of the year will be no different. It won’t be easy. The biggest factor weighing over the markets as we head into the summer will not be housing or the consumer or the financials. It will be the election. It seems to me that the markets right now are ignoring the general election and are focused more on the Obama – Clinton fight. This issue may be a source of recent market volatility. Clearly the markets want to get Obama out of the way sooner rather than later. However that might now happen to the detriment of stock prices. Once the two major parties conclude their quadrennial conventions then we will have a much clearer picture as to who might control the White House. A McCain victory is market friendly. An Obama victory is going to be a bear’s dreams come true. Clinton is somewhere in between as she might have to concede to more centrist economic views to defeat first Obama and then McCain.

If you let your political views cloud your investing then you will miss opportunities and pitfalls in the financial markets. The markets could care less about wars and social programs. Let’s be very clear about something. The financial markets are concerned about two things – economic growth and earnings. So learn to separate your portfolio from your politics. Should you fail to do so then you might be politically correct but portfolio incorrect.



Posted By Scott Rothbort at June 3, 2008

If You Think Prices At The Pump Are High Then Take Yourself To The Ballgame

YANKEE STADIUM

I took my daughter to the Yankees – Blue Jays baseball game at Yankee Stadium last night. Before you start to complain about the price of gas let me throw some ballpark prices at you:

Hot Dog – the dirty water type - $5.00

Soda – plastic bottle version - $4.75

Beer – ice cold bottled Bud Light (BUD), not exactly the premium brew - $8.50

So a Bud and a dirty water dog will cost you $13.50. For $13.50 you can get about 3.5 gallons of regular gas. That will get you about 70 miles. As we know, a hot dog and beer generates plenty of gas. Bring your own Tums.

There is a gentleman who sells souvenirs at Yankee Stadium. You might know him – he looks like Ted Danson of Cheers fame. His stand is on the main level on the first base side. I had a chat with him when buying my 2008 Yankee Yearbook. I told him I have been buying souvenirs from him for over 20 years. He thanked me. I asked him how long he ran this particular stand – he told me since the stadium was rebuilt in the 1970s. He went on to say that he has worked at The Stadium for 45 years and it helped put his two sons through medical school. I tip my baseball cap to him.

 



Posted By Scott Rothbort at June 5, 2008

CF Industries: A Fertilizer Company That Does Not Stink

I was on Fox Business Network’s Happy Hour show last night. Co-host Cody Willard and I discussed the agricultural sector. Cody peppered me with questions about the sector, injecting his opinions that the sector may itself be overgrown.

My response was that I believe that seed companies like Monsanto (MON) are too richly valued and do not make compelling investments at this juncture. For the record, I have traded in and out of MON the past one or two years but have no positions at the current time.

On the other hand, I strongly support investing in fertilizer companies, my favorite one being CF Industries (CF). The fertilizer stocks are still trading at multiples below their growth rate. Furthermore they have tremendous pricing power. As of the taping of the show, CF was trading at 11 times full year 2008 earnings estimates. 2009 earnings growth is expected to be 33% according to analysts’ consensus estimates. Even if that growth rate is too high, CF deserves a multiple of more than 11 times earnings.

At the time of this Blog entry Scott Rothbort, his family and or clients of LakeView Asset Management, LLC were long shares of CF --- although positions can change at any time.



Posted By Scott Rothbort at June 13, 2008

Read Tracy Byrnes' Break Down Your Money

Yesterday, Fox Business Network Reporter, Tracy Byrnes released her new book Break Down Your Money which is published by John Wiley & Sons. I had the opportunity to preview the book several weeks ago and was proud to be asked to provide my endorsement on the book’s back cover. Here is what I wrote:

“As a money manager, university professor, financial writer and frequent media guest, I am constantly challenged with the objective of explaining complex concepts to an audience that is trained to focus on sound bites and instant messages. You have to boil down these complex concepts to a quick and digestible form accented by down to earth language and humor when necessary. Tracy Byrnes has accomplished these goals in Break Down Your Money and, in the process, makes learning about financial and money management more enjoyable to the reader. I wholeheartedly recommend Break Down Your Money to readers of all ages and investment skill levels.”

I intend to use Break Down Your Money for my students at the Stillman School of Business at Seton Hall University and highly recommend it to novice investors.



Posted By Scott Rothbort at June 18, 2008

BB&T Talks of Dividend Increases

Today BB&T (BBT) reported that it still expects to increase its 46 cent per share quarterly dividend. The bank has raised its dividend for 36 straight years, according to Reuters. This stock has declined precipitously as the regional banks have been pummeled.  BBT has lost 33% of its value since the beginning of May. While the company has exposure to Florida, one of the worst markets hit by the housing debacle, its capital position remains strong and its earnings record is excellent. Unlike its peers, BBT has not taken dramatic write-downs on its portfolios. BBT has the problem of being the best house in a bad neighborhood. With a yield of 7% right now, I am sticking with BBT despite the recent slide which seems unwarranted.

At the time of this Blog entry Scott Rothbort, his family and or clients of LakeView Asset Management, LLC were long shares of BBT --- although positions can change at any time.

 



Posted By Scott Rothbort at June 19, 2008

Sonic - Don't Stop Keep Driving

The more I hear from Sonic (SONC) the drive-in restaurant chain the more I believe that this is a broken company. SONC reported disappointing results on Tuesday as the company earned 28 cents for its third quarter ended May.  Analysts expected SONC to earn 31 cents which was flat with the third quarter of 2007.

The company claimed that the shortfall was due to colder and wetter weather. Same store sales declined 0.4% in the quarter but there was a wide disparity between a 0.5% increase at franchised units versus a 3.9% decline at “partner” drive-in, which are primarily company owned. To the company’s credit, sales did pick up as the quarter progressed.

SONC has several problems. Weather is certainly one of those problems but it goes much further than just some rain in March. SONC has hoped to expand coast to coast and from border to border. However, so many of those geographies don’t have the year round weather to compliment the drive-in business model.

The commodity cost pressures is certainly hurting SONC. The company gets the double whammy of higher food costs which impacts its costs and the higher cost of gasoline which puts fewer drivers on the road to dine at the company’s drive-ins.

SONC has made one big mistake in the past year which is to take on a huge amount of debt to restructure its capital structure and buy back stock. Since 2q06 (February 28, 2006) SONC share count has declined from about 89 million shares (reflecting a 3 for 2 split in May 2006) to nearly 62 million shares and is down about 5 million shares in the last year. The stock has lost about 1/3 of its value in the last two years and now SONC has gone from being nearly debt free to carrying about $700 million in debt.

When you put this all together, I don’t have much confidence in SONC business model or management proficiency.



Posted By Scott Rothbort at June 26, 2008

The Euro Zone Is Still To Be Avoided

I think the ECB and particular Jean Claude Trichet does not get it. The ECB raised its base interest rate by 25 basis point citing inflationary pressures. Guess what, the ECB is causing inflation. No sooner than they raise interest rates do commodity prices rise and voila (that is a word with French etymology) we get more inflation.

Of course, the ECB has a bigger nut to crack – the unions. The ECB faces labor cost push inflation which was to a great extent ameliorated in the US thanks to Ronald Reagan’s firing of the air traffic controllers and the erosion of the US car manufacturing industry. At this point in time the UAW is nothing more than a retirement management organization. What is the UAW going to do – strike? Sure, then we make less Tahoes and Expeditions. Big deal. Then the public buys more Carollas and Maximas.

However, no European nation will dare touch their own third rail of politics – the unions. According to the AP, “Ground staff at German airline Lufthansa AG have gone on strike seeking a 9.8 percent pay increase while British public sector workers voted to strike for a 6 percent wage hike to keep pace with soaring inflation.”  So why can’t the ECB just admit that they are increasing interest rates to help justify higher union pay raises and that they don’t give a damn about global inflation?  It is easier to blame it on the hated Americans and Chinese.

You can knock Ben Bernanke and the FOMC all you want but the ECB makes the Fed look real smart sometimes. My hats off to the British, who told the ECB “No thanks” many years ago, kept their currency the pound sterling and maintained the Bank of England’s autonomy and authority.

As for my investing themes, the Euro zone has been rated an “avoid” for many years and remains so today.



Posted By Scott Rothbort at June 30, 2008

Scott Rothbort

About Me :

SCOTT ROTHBORT

THE FINANCE PROFESSOR

 

Scott Rothbort has over 20 years of experience in the financial services industry. In 2002, Rothbort founded LakeView Asset Management, LLC, a registered investment advisor based in Millburn, N.J., which offers customized individually managed separate accounts, including proprietary long/short strategies to its high net worth clientele. He also is the founder and manager of the social networking educational website TheFinanceProfessor.com and a frequent contributor the TheStreet.com where he also writes a weekly article as The Finance Professor

Immediately prior to that, Rothbort worked at Merrill Lynch for 10 years, where he was instrumental in building the global equity derivative business and managed the global equity swap business from its inception. Rothbort previously held international assignments in Tokyo, Hong Kong and London while working for Morgan Stanley and County NatWest Securities.

Rothbort holds an MBA in finance and international business from the Stern School of Business of New York University and a BS in economics and accounting from the Wharton School of Business of the University of Pennsylvania. He is a Term Professor of Finance and the Chief Market Strategist for the Stillman School of Business of Seton Hall University.

For more information about Scott Rothbort and LakeView Asset Management, LLC, visit the company's Web site at www.lakeviewasset.com.

 


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