Investments

Following my appearance on Market Call Tonight, the following are summaries of the three "Top Picks" from last night’s show.  If you missed the show, check the Library section of the Padlock website for the links to the show. Bauer Performance Sports, $8.15 In its previous incarnation as a public company, Bauer Performance Sports was known as Canstar Sports.  Canstar was acquired by Nike in 1995 and sold to a group led by the private equity firm, Kohlberg, Kravis & Roberts (KKR) in 2008.  In March 2011, Bauer once again became a public company as the group sold approximately 33% of the company to the public. Bauer is the leading hockey equipment company in the world with 39% of its sales in Canada, 36% in the United States and 25% in the rest of the world.  The recent Stanley Cup victory by the Los Angeles Kings will certainly aid Bauer’s presence in growing...

With the Greek election results behind us, markets have one less set of headlines to deal with.  The results of the election were favourable as the anti-bailout party Syriza was not victorious.  However, equity markets rallied very briefly on the news before refocusing on the next headline issues such as this week’s Federal Open Market Committee (FOMC) meeting, the G-20 summit in Mexico and the continuing problems in Spain and Italy. Underlying all of the headlines is the fact that equity markets are historically very undervalued and are still being fuelled by very accommodative monetary policy, particularly in the US.  Don Hays of Hays Advisory discusses the impact of the favourable monetary policy and current market conditions in his commentary today.  To read the article, click this link and then click "The Bottom Line is…".  Bottom line of the article is that although perhaps not out of the woods yet, markets...

The investment management business can be a very humbling one sometimes and the news on Tempur Pedic Inc. this week exemplifies one of those times. You may recall that Tempur Pedic was one of my Top Picks on Market Call on May 14th at a price of $51.03 and was discussed in The Lato Letter on that date. At that time, the stock had just been featured in Barron’s the previous weekend and had sold off after announcing its first quarter earnings on April 19th. After listening to the conference call following the earnings release and assessing the earnings, I felt that the “nervous” market had overreacted to the earnings report and that the price represented a great entry point and worthy of a “Top Pick” rating. Quoting from the issue of The Lato Letter following the appearance, “Non-coil mattresses are continuing to gain market share in the overall mattress market and...

David Milstead had a very interesting article in today’s Report on Business comparing yields on US large cap stocks to the 1.5% yield on US 10-year Treasury bonds. The article discusses the fact that 307 of the 500 stocks in the S&P 500 have yields greater than that benchmark bond.  In these turbulent markets, knowing that you hold a solid business that pays a yield greater than a 10-year fixed income investment provides some degree of comfort.  In most clients’ portfolios, I hold a basket of 12 US large cap stocks.  The average yield of those stocks, including the three stocks that don’t pay dividends, is 1.8% and eight of the twelve have yields higher than that US Treasury bond. Obviously, the yields have not prevented those stocks from declining in value during the market decline of the last two months.  The newsflow has been decidedly negative of late with continued problems...

The investment business and the confidence of investors have not been served well by the events surrounding the initial public offering (IPO) of Facebook (FB, NASDAQ). Facebook was easily the most anticipated and publicized IPO in the history of the equity markets. It is a company that has thoroughly dominated social media with worldwide users in the hundreds of millions.  Those users have translated into billions of dollars in revenues and a billion dollars in net income in the last twelve months. As I had discussed verbally with many clients, those favourable attributes of the company did not necessarily mean it would be a great investment.  The pricing of the IPO would help to determine that and when initial rumours on that pricing discussed a trailing twelve months price/earnings multiple of 75 or 80 times, the issue was being priced far too rich for my liking to be a good investment. Last week...

In a slight departure from the normal Lato Letter and in conjunction with my appearance on BNN’s Market Call Tonight, here’s a review of my “Top Picks” from tonight’s show. Apple Inc., $558.22 As long as Apple remains the most heavily weighted stock in clients’ portfolios, it will continue to be in the running as a Top Pick.  Following a spectacular rise in conjunction with its dividend announcement and outstanding second quarter earnings release, the stock is down almost 12% from its high of $644.  Not much has changed since then, other than the share price and the fact that consensus estimates continue to rise so that Apple is trading at just over 12 times Sept 30, 2012 earnings and that is before stripping out the $116 per share in cash. The new iPad has been another successful product launch and will contribute to another solid quarter, while rumours of a new iPhone...

Every year at this time, the stock market adage of “sell in May and go away” is bandied about and presents one more reason for investors to shy away from equity markets.  Historically, the performance of the S&P 500 Index shows the adage to be valid.  Since 1950, the average return on the S&P 500 from November 1st to April 30th has been 7.74% while the average return from May 1st to October 31st has been 0.60%. Unlike the previous two years, the first day of May this year certainly defied the adage with strong gains across all North American equities.  It is only one day but there are a number of differences, particularly with last year, that suggest that 2012 may be one of those years that defies the adage. I came across a piece earlier today on “Real Money.com”, written by Doug Kass, that discusses many of these differences. One of...

Okay, I couldn’t resist writing a comment on the Apple earnings from last night.  After a significant sell-off in the stock over the last two weeks (over 13%) caused by concerns of an earnings miss due to slowing iPhone sales, Apple once again “blew away” the estimates.  Revenues in the quarter were $39.2 billion compared to estimates of $36.8 billion and earnings per share were $12.30 compared to estimates of $10.04.  The company generated cash of $14.0 billion for the quarter, bringing total cash to $110 billion or $118 per share. The analysts were correct in that iPhone sales did slow in the US during the quarter but they exploded in China leading to revenues of $7.9 billion there during the quarter.  These revenues are three times greater than China’s revenues in the year ago quarter and that is without “new iPad” sales in the quarter and without China’s largest wireless...

It has been a while since I have sent out a Hays Advisory commentary but given my recent two-week trip to Argentina and the title of yesterday’s issue, “It Takes Two to Tango in This Stock Market Dance”, I couldn’t resist sending it out.  This link will take you to the Don Hays Blog which summarizes his commentaries. For the recent subscribers to The Lato Letter, Don Hays is a market strategist from Nashville, Tennessee that I have followed for over 15 years. Like all strategists and market prognosticators, Hays has been right many times but also wrong many times, but I do find his approach logical and rational and consistent with my approach to the market. He currently remains positive for the medium to longer term but expects some turbulence in the markets over the next few weeks as we digest the strong start to the year. Speaking of my trip...

Equity markets have been a little sloppier this week as investors digest the significant upward move so far this year.  Some near-term turbulence would not be a surprise but I remain constructive for equity markets for the balance of the year. Laszlo Birinyi is a market strategist and money manager who has always made a lot of sense to me.  This link is to an interview he conducted with CNN Money a couple of weeks ago.  It is definitely worth a read. I will be leaving tonight on a two-week trip to Chile and Argentina and although I expect to have internet and email access while I am away, I can’t promise that I will send out a Lato Letter.  I will be back in the office on April 9th and will be working toward the first “quarterly” version of The Lato Letter. Talk to you soon. To receive The Lato Letter by email...

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