Rudd’s MarketView Wednesday, April 26, 2017

Summary

The major domestic equity indexes fell a bit on Wednesday, following two sessions of strong gains as corporate earnings were offset by uncertainty over the feasibility of a proposed business tax cut.

The proposal from the Trump administration slashes tax rates for businesses and on overseas corporate profits returned to the country. It offered no specifics on how it would be paid for without increasing the deficit.

The expectation of a corporate tax cut was partly behind the market rally since the November election. The market stalled over the last several weeks as the administration has failed to score a major legislative victory, Republican majorities in the House and Senate notwithstanding.

The S&P 500 traded above its record closing high throughout the day, however. Some analysts say even though tax reform would be a major boost to stocks, economic and earnings growth are enough to support current market levels.

Overall profits of S&P 500 companies are estimated to have risen 11.8 percent in the first quarter, the most since 2011, according to Thomson Reuters I/B/E/S.

The tax proposal includes a cut on so-called pass-through business taxes that would deliver a windfall to investors in master limited partnerships.

United Technologies rose 1.1 percent to $118.20 and provided the largest enhancement to the Dow after reporting a quarterly earnings number that exceeded expectations, due in part to higher sales in all four of its business units.

Meanwhile, Boeing saw its share price fall about 1 percent to $181.71 after the company reported a decline in revenue.

Approximately 7.33 billion shares changed hands on the major domestic equity exchanges, as compared to the 6.44 billion share daily average over the last 20 sessions.

Rudd’s MarketView Tuesday, April 25, 2017

Rudd’s MarketView stock column for Tuesday, April 25, 2017

Dow Jones Industrial Average

20,996.12

+232.23

  +1.12% 

Dow Jones Transportation Average

9,249.42

-33.57

-0.36%

Dow Jones Utilities Average

708.42

-0.61

-0.09%

NASDAQ Composite

6,025.49

+41.67

  +0.70% 

S&P 500

2,388.61

+14.46

  +0.61% 

Summary

The Nasdaq Composite hit a record high on Tuesday, while the Dow Jones Industrial Average and the S&P 500 indexes brushed against recent peaks as strong earnings underscored the health of corporate America.

Caterpillar ended up 7.9 percent at $104.42 after earlier hitting a multi-year high of $104.89 and McDonald’s rose 5.6 percent to $141.70, after both companies exceed the Street’s earnings estimates.

The overall earnings of S&P 500 companies are estimated to have risen 11.4 percent in the first quarter, the most since 2011, according to Thomson Reuters I/B/E/S.

The Nasdaq hit a record level of 6,036.02, breaching 6,000 for the first time, powered by gains in index heavyweights Apple and Microsoft. The index first touched the 5,000 mark on March 2000 as tech stocks bubbled before tumbling nearly 80 percent through October 2002. The Russell 2000 also hit an intraday record high.

The S&P 500 touched its day’s high after the Wall Street Journal reported President Trump’s tax proposal, expected on Wednesday, would include a slash to 15 percent from 39.6 percent on many owner-operated companies.

Tuesday’s gains built on a day-earlier rally, which was driven by the victory of centrist candidate Emmanuel Macron in the first round of the French presidential election. Polls showed Macron, the market’s favorite, was likely to beat his far-right rival Marine Le Pen in a deciding vote on May 7.

Approximately 7.31 billion shares changed hands on the major domestic equity exchanges, a number that was above the 6.4 billion share daily average over the last 20 sessions.

Day’s Economic News

Consumer confidence fell from a 16-year high in April, but a rise in new home sales to an eight-month high last month suggested underlying strength in the economy despite an apparent sharp slowdown in growth in the first quarter.

The economy’s healthy fundamentals were also underscored by other data on Tuesday showing the largest year-on-year increase in house prices in 2-1/2 years during February. Though consumer confidence slipped this month, it remained at a very high level and many households expected to buy big-ticket items like cars. That would suggest an acceleration in consumer spending after a slowdown that likely helped restrain economic growth at the start of the of the year.

The Conference Board said its consumer confidence index fell to 120.3 this month from 124.9 in March, which was the highest reading since December 2000. The index in April was the second highest reading since 2000.

Consumers’ assessment of labor market conditions was slightly less favorable than in March. Still, the survey’s so-called labor market differential, derived from data about respondents who think jobs are hard to get and those who think jobs are plentiful, was the second-highest since 2001.

That measure closely correlates to the unemployment rate in the Labor Department’s employment report. The survey also indicated increases in the number of consumers planning to buy major appliances.

The dip in confidence is likely related to last month’s failed attempt by Republicans in the House of Representatives to pass legislation to repeal the Affordable Care Act, the 2010 healthcare restructuring popularly known as Obamacare. That failure stirred concerns in financial markets about the difficulties the Trump administration might have in implementing other policies, including its plan to cut taxes.

In a separate report on Tuesday, the Commerce Department reported that new home sales rose 5.8 percent to a seasonally adjusted annual rate of 621,00 units last month, the highest level since July 2016. New home sales were up 15.6 percent compared to March 2016. They have now increased for three straight months.

A tightening labor market, marked by a 4.5 percent unemployment rate, is improving employment opportunities for the young and helping to support the housing market. The strength of the housing market suggests that signs of a sharp moderation in economic growth in the first quarter are an aberration.

The Atlanta Federal Reserve is forecasting gross domestic product rising at a 0.5 percent annualized rate in the first quarter after increasing at a 2.1 percent pace in the fourth quarter. The government will publish its advance first-quarter GDP estimate on Friday.

While the inventory of new homes on the market in March increased to the highest level since July 2009, it is less than half of what it was at its peak during the housing boom in 2006.

Tight housing stock is pushing up prices. A third report on Tuesday showed the S&P CoreLogic Case-Shiller composite index of house prices in 20 metropolitan areas rose 5.9 percent in February from a year ago, the largest gain since July 2014, after advancing 5.7 percent in January.

Wall Street Is Not Las Vegas

Streetwise for Sunday, April 23, 2017

“The race is not always to the swift, but that’s the way to bet” Damon Runyon.

Let me state at the onset that I dislike analogies comparing Wall Street to Las Vegas. Investing and gambling are not the same. Yet, I can see where someone might draw the conclusion that Wall Street is one large casino where millions of Americans gather to each day to place their bets with the hope of striking it rich.

To compound the problem, if you look in the dictionary you will find that gambling is defined as “taking a risk to gain wealth.” And that is essentially the essence of investing.

But what sets investors apart from Las Vegas are the odds. The odds of winning on Wall Street result from, or should result from, past corporate data and solid mathematical forecasting. Implement proven investment strategies and over time you will very likely see a double-digit percentage increase in your wealth.

Looking back in time, the year 1962 saw mathematics professor Dr. Edward O. Thorp publish his revolutionary work “Beat the Dealer,” in which he demonstrated that the game of Blackjack can be defeated using mathematically proven card-counting strategies. Thorp wrote that the utilization of his tried and true unemotional strategy will, in the long run, make you money, a lot of money. (Note: Casinos have since changed the rules to try and defeat card counting.)

Dr. Thorp made it abundantly clear that “hunches” did not pay a role in his strategy. There was only one best play based on the history of the cards already played. However, you had to invest a considerable amount time and practice to implement the strategy successfully.

Interestingly, Thorp’s book ends with two pages dedicated to the stock market. Keep in mind that these words were penned over 53 years ago. Here is an excerpt:

ìThe greatest gambling game played on earth is the one played daily through the brokerage houses across the country…. The advantages of this gambling game are two. First, it presumably serves a social purpose by helping to finance companies…. Second, the average value of stocks has tended strongly upward over the last century so the game has an advantage, on average, for the player.î

Several studies have shown that stocks display the same mathematical randomness as characterized by the games of chance in the casinos, over the short term. However, over a period of years’ stocks have achieved a nominal average return of about 11 percent a year or about a 7 percent real return, meaning after inflation. While compelling, remember you cannot turn an average into any sort of a guarantee.

OK, assume you are now convinced that time is on your side but what about the market. There is still the argument that the market appears to be overdue for a rest. How do you solve that dilemma?

It does not matter if the market falls or rises each year, but rather the price of your investments when you cash in your chips. Keep in mind that if the equity market gains 11 percent per year on average and you invest on a regular basis, it is to your advantage if the market drops and stays low for a portion of your investment life-span.

Let’s look at an idealized example. Assume you invest $5000 initially and then $2000 per year for 10 years, totaling $25,000. With an average annual return of 11 percent, your portfolio will be worth about $51,000.

Now suppose the market loses 10 percent each year for the first 3 years. If the market’s average return for the decade remains at 11 percent, your portfolio will be worth about $15,000 more than the first scenario, or about $66,000, given the same $25,000 investment!

How does this work? Remember you are investing $2,000 per year, so you acquired stock at lower prices early on. If the market returns 11 percent on average for the decade, but loses 10 percent in each of the first three years, it will have an average gain of over 21 percent during the subsequent seven years. The money invested early on takes full advantage of those later higher returns in a manner known as dollar cost averaging.

Lauren Rudd is a financial writer and columnist. You can write to him at LVERudd@aol.com. Phone calls accepted between 9 AM and 3 PM at (941) 706-3449. For back columns please go to www.RuddReport.com.

Unfortunately Florida Is Synonymous with Shady Deals

Streetwise for Sunday, April 21, 2017

Psssst need a phony ID? A fraudulent tax refund? Insurance money from a sham car crash? Florida may have just what you’re looking for. Since the first settlers hacked their way into Florida’s mangroves, sunny South Florida has been virtually synonymous with shady deals and scams. And you thought Wall Street had uneven playing field.

In fact, the three South Florida counties Miami-Dade, Broward and Palm Beach have become less renowned for old-school Miami Vice-style drug shootouts than for scammers stealing millions by using laptops, stolen identities and fake medical procedures.

And those desiring to perpetrate fraud are endlessly creative. Bogus Jamaican lotteries, false marriages for immigration purposes, mediocre seafood marketed as better seafood, insurance rip-offs from fake accidents and fires even foreign substandard cheese passed off as domestic top-shelf are only the appetizer. The big money is in the big trio areas of fraud: Medicare, mortgage and identity-theft tax refunds.

According to the Federal Trade Commission, Florida ranks first in identity theft complaints. The number of false federal income tax returns in South Florida is 46 times the national average, according to a Treasury Department report.

And if you are a snowbird, remember that Florida does not have a monopoly on scam artists. Everyone remembers Bernie Madoff and how he relied heavily on his religion to gain entry to wealthy Jewish investors and institutions.

Shawn Merriman, aka the Mormon Madoff, was a well-respected investment broker and a lay bishop in the Church of Latter Day Saints, known more commonly as the Mormons. For 14 years, he ran a Ponzi scheme that bilked investors, including his own mother, out of more than $20 million.

Being able to discuss Scripture is neither a prerequisite for, nor an affirmation of financial acuity. Donald Nadel and Joseph Malone, operating as Renaissance Asset Fund, raised more than $16 million, largely from members of the Jehovah’s Witnesses. The pair promised risk-free returns of 10 percent to 25 percent in as little as four months. Renaissance was nothing more than a Ponzi scheme.

U.S. Mail is a great way to steal identities. The Postal Inspection Service is offering a $50,000 reward for information leading to the arrest and conviction of anyone involved in 13 recent robberies of letter carriers in South Florida. One was slain in 2010 for his mailbox key.

Since 2007, approximately 2,300 people have been charged with falsely billing Medicare for a total of $7 billion. South Florida’s share of that? More than 1,500 defendants through last September.

Since 2009, Florida has led the nation in mortgage fraud as a percentage of the number of loans originated, according to the LexisNexis research company. The company reports that a financial industry index of mortgage fraud ranks the South Florida metropolitan area No. 1 nationally, with 12.3 percent of all such fraud reports in 2013, the most recent year available.

Paul George, a Miami-Dade College history professor who specializes in South Florida, noted that the region’s reputation as a haven for schemers dates to the land speculation boom of the 1920s, when alligator-infested swampland was marketed to Northerners as a slice of tropical paradise. Today, with the area such a melting pot, it’s no wonder South Florida is also a cauldron of creative crime, he said.

Yes, I understand that greed can have a perverse effect on both the wealthy and the not so wealthy. What human trait do you think built Las Vegas? Why does virtually every State have a lottery? Everyone wants the riches of life without working for them. Please note, that is not what investing on Wall Street is all about.

Yes, you can achieve investment success. Moreover, I personally believe and as I teach my students, it is easier to make money on Wall Street than to lose it. However, you must stick to a few basic rules. The primary one of course is to only invest in tried and true blue chip companies with 10 plus years of increased earnings and dividends.

Lauren Rudd is a financial writer and columnist. You can write to him at LVERudd@aol.com. Phone calls accepted between 9 AM and 3 PM at (941) 706-3449. For back columns please go to www.RuddReport.com.

Necessary Investment Documents

Streetwise for Sunday, April 16, 2017

While it is likely that the stock market will continue to conquer new heights, despite the occasional stumbles of late, careful and deliberate investment planning and analysis remain the basic rules of navigation.

Specifically, a personal investment profile and an on-going investment policy are key elements in any investment program. Without them you will find your investment decisions more difficult and your probability of success dramatically reduced.

An investment profile outlines how you want to invest. It includes your risk tolerance, liquidity requirements, whether you value income over capital appreciation or vice a versa, your tax bracket and finally your investment horizon. However, just developing an initial profile is not sufficient, you need to update it regularly.

Complementing your investment profile is your personal investment policy. In it you set price targets for every investment you have or plan to have. One target should be above your purchase price, and one below it. It also establishes the approximate amount of time you are willing to wait for results. If either price target is reached, or time runs out, you act. The targets should be flexible and adjusted to meet share price trends.

Investing is a judgment game. Therefore, your investment policy should include a pre-defined review process to re-examine a company’s current fundamentals before selling a position. If the fundamental strength has not changed adversely, you may want to sell only a portion of your holding. Keep in mind that stocks leading the market will often continue to outperform market laggards.

Benjamin Graham, legendary investor and author, extolled the virtues of a very simple portfolio policy–the purchase of high-grade bonds plus a diversified list of leading common stocks, a policy that most any investor should be able to carry out with little difficulty.

However, I must caution you regarding the bond segment. There is increasing evidence that the bond markets are headed for difficult times. The problem is the virtually certainty of two to three rate increases this year alone.

Moreover, my forecasts call for interest rates to continue to rise steadily over the next several years. The result will be a steady decline in the price of all fixed income investments. With that scenario, it would be foolish to purchase or stay with investments where falling prices are a virtual certainty.

The declining value of a bond portfolio is only part of the problem. You also must add in the hit you will receive to the future purchasing power of both your interest payments and principal repayment because of inflation. Keep in mind that the compounded annual growth rate of inflation over the past 40 years is 3.2 percent.

Meanwhile, those who follow Graham’s advice will come to realize that the art of investing has a certain unappreciated characteristic, specifically that a creditable return can be achieved with a minimum of effort and capability.

However, to improve upon this easily attainable plateau requires substantial effort and more than a trace of wisdom. Bringing a little extra knowledge and cleverness to bear upon your investment program is unlikely to produce the expected increase in performance. And having an ongoing affair with your portfolio is usually a precursor to being run over by the market.

Remember, stocks are not works of art to be collected. They are intangible objects from which you want to squeeze the greatest monetary return in as short a period as possible. Moreover, I have never met a share of stock that cared who owned it.

Yet, it always amazes me how otherwise intelligent and responsible people seem to disconnect after hearing or reading words such as “did you know,” or “I just learned that…”

Attempting to keep your investments in harmony with the endless stream of advice emanating from Wall Street’s prognosticators is futile. Their job is to get your attention; accurate analysis is secondary. Besides, your well-being is not foremost in anyone’s mind but yours.

Lauren Rudd is a financial writer and columnist. You can write to him at LVERudd@aol.com. Phone calls accepted between 9 AM and 3 PM at (941) 706-3449. For back columns please go to www.RuddReport.com.

Vetting Is Not Easy But Critical

Streetwise for Friday, April 14, 2017

There has been a lot of publicity lately over the need to check out people to whom you entrust your money. One often suggested Internet site is www.BrokerCheck.com. While not infallible, this is certainly a recommended procedure to help you avoid the mistakes made by those who failed to take such precautions.

Yet, vetting your broker or investment advisor is the easy part. Vetting corporations about the financial results disseminated each earnings season is a bit more difficult. For example, Warren Buffett, Berkshire Hathaway CEO, had some strong words on what he characterized as, “The most egregious example of how corporate executives fudge numbers to inflate profits.”

“I suggest that you ignore a portion of GAAP amortization costs,” Buffett said of some line items that were depressing Berkshire’s own reported profits. “But it is with some trepidation that I do that, knowing that it has become common for managers to tell their shareholders to ignore certain expense items that are all too real.”

GAAP, short for generally accepted accounting principles, was designed to promote uniformity in how companies report their financial results. However, financial statements based on GAAP often do not accurately reflect the ongoing performance of a company’s underlying operations.

For example, a company may write-down an asset, restructure its operations, or contribute to an underperforming pension fund. These actions usually come with large one-time costs that distort earnings and misrepresent long-term profitability. Therefore, a company will also provide an adjusted, or non-GAAP earnings number that excludes what are arguably non-recurring items.

To be clear, Buffett also sometimes strays from GAAP in his effort to more accurately portray his company’s financial performance. However, Buffett also cautions that straying from GAAP is a slippery slope towards outright financial deception.

Although the consensus is that GAAP earnings represent a stringent yet fair measure of profitability, it’s worrisome when the breach between GAAP earnings and the larger non-GAAP number continues to widen. Unfortunately, this is exactly what is happening in corporate America today as more and more companies engage in touting non-GAAP performance.

Billionaire investor Carl Icahn warned of the perils of non-GAAP accounting in a chilling video he released some time back. “The earnings they are putting out today, I think, they are very suspect,” Icahn said.

“You have not really increased earnings for three years. GAAP earnings for the S&P 500 have stayed at around $100 a share for three years,” Icahn said.

“We are increasingly concerned with the number of companies (non-commodity) reporting earnings on an adjusted basis versus those that are stressing GAAP accounting, and find the divergence a consequence of less earnings power,” Bank of America Merrill Lynch analysts wrote last January.

Unfortunately, there is no a right answer for the GAAP versus non-GAAP debate. “Even GAAP earnings are suspect,” Icahn said. And he’s right, especially if everyone agrees that always abiding by GAAP does not offer a fair and accurate representation of profitability.

“We have always argued that the best earnings-per-share measure lies somewhere between GAAP and non-GAAP EPS,” Deutsche Bank’s David Bianco once wrote.

For investors who are concerned about any of this, one solution is to simply become more familiar with accounting and the accounting process.

“Accounting is the language of business,” Buffett said in response to a question from actress Glenn Close. “You have to be as comfortable with it as you are with your own native language to really evaluate businesses.”

“Accounting tells you a lot but unfortunately it can also be used in many ways to deceive. You saw it at Enron,” Buffett said. “But you really have to appreciate what a two-edged sword accounting is when such a methodology can give you both correct and incorrect answers [with little discrimination].”

Lauren Rudd is a financial writer and columnist. You can write to him at LVERudd@aol.com. Phone calls accepted between 9 AM and 3 PM at (941) 706-3449. For back columns please go to www.RuddReport.com.

Wall Street is Like a Spoiled Child

Streetwise for Sunday, April 9, 2017

Wall Street is like a spoiled child. Each time a piece of economic or corporate data is released that somehow does not meet its desires; the Street throws a temper tantrum and you know what happens then.

Taking advantage of the ensuing volatility, virtually every investment purveyor parrots the same party line, Utopia is just over the hill…but only they know which hill. Forget Utopia. You simply want to invest in companies with an intrinsic value above their share price and that have an excellent track record of performance in their field of endeavor.

Having your portfolio exceed the performance of one or more of the major equity indexes is known as relative performance. Yet, what really counts is absolute performance, or a minimum annual return that is over and above your original investment. Outperforming a negative index number with a less of a negative number is not acceptable.

To accomplish that goal, you need to select companies that you know and understand and whose future you, yourself, can foresee. Please note I said that you can foresee. I have deliberately left out letting a mutual fund manager decide your future, receiving ìhelpî from your friendly stock broker, or tips from Uncle Joe. They rarely work.

So, by now you are probably saying to yourself, how about an example to spring board your efforts. One company you might consider is AbbVie (ABBV). When I last wrote about the company a year ago, my 2016 earnings estimate was 5.10 per share, with an estimated 12-month share price of $71, for a capital gain of about 15 percent. So how did the company do?

Earnings came in at $4.82 per share and the shares recently closed at $64.96. Therefore, question now is whether we will once again see the $70 plus share price we saw in 2015, with a subsequent move to the upside.

Despite the disappointment on the earnings front, the company is still a reasonable contender for consideration. Its 3.94 percent dividend yield is generous and well covered by cash flow. However, at 17.9 times earnings on a trailing 12-month basis, the shares could not be called cheap.

A key concern is AbbVie’s ability to diversify away from Humira before its patents expire. In the past, AbbVie has undertaken a few small acquisitions in addition to some organic growth in the arena of new drug development. Yes, AbbVie does have an impressive portfolio of ‘de-risked’ pharmaceutical assets, meaning assets in ‘Stage 3’ or later in the FDA approval process.

As a result, the company should be able to plug the gap of Humira coming off patent by 2020, and maintain and possibly even grow revenue after that. These new drugs include Imbruvica, Venclexta, Rova-T and ABT-494, Abbott’s Jak-1 inhibitor.

Although there is a bit of a leap of faith in the company’s ability to diversify itself and continue to grow, in the past AbbVie has had far fewer things in its pipeline than it does now.

Meanwhile, AbbVieís 2017 guidance is good. Midpoint earnings per share (EPS) guidance calls for a 13.9 percent growth, with top line revenue set to increase another 10 percent. Last year’s results were also reasonable with EPS increasing by 12.4 percent, while revenue grew 13.3 percent.

Yes, the increase was led by Humira, which increased worldwide sales by over 16 percent. Nevertheless, AbbVie generates considerable excess cash flow, and the dividend is just a little over 50 percent of trailing free cash flow.

The company’s prospects for the future and its prospects for plugging the gap that will occur when Humira comes off patent remain reasonable. However, you will also have a degree of confidence in CEO Rick Gonzalez and the rest of the management team.

To be sure, AbbVie has had its share of setbacks since it was spun off from Abbott Laboratories in 2013, including the failed attempt to buy drug maker Shire and soft sales for its hepatitis C drug Viekira Pak.

The intrinsic value of the shares using a free cash flow to the firm model is $67. My earnings estimate for 2017 is $5.50 per share with a projected 12-month share price of $71, for a 10 percent capital gain, plus the 3.94 percent dividend yield.

Lauren Rudd is a financial writer and columnist. You can write to him at LVERudd@aol.com. Phone calls accepted between 9 AM and 3 PM at (941) 706-3449. For back columns please go to www.RuddReport.com.

Be Careful When Following the Masses

Streetwise for Friday, April 7, 2017

As I was driving home from a dinner engagement, thinking about what I was going to write about this week, I happened to notice the following in a marquee outside of a local restaurant: “Be careful about following the masses for sometimes the letter m is silent.”

Those words could not have been any truer in describing that days trading activity on Wall Street. It was a day that saw the Dow Jones industrial average gained nearly 200 points before lunch, only to lose it all and about another 50 points to the downside on top of the 200.

Yet, let me ask you a question, do you think any of companies that make of the Dow did anything radically different during the trading day? Or could it be a lack of rationality on the part of investors.

Lets look at the issue from a more macro perspective. Every time there is a strong market rally the Chicken Little syndrome plays out as every financial Paul Revere shouts, the correction is coming, the correction is coming. The fear of impending doom is simply a promulgation of indefensible assumptions based on questionable data.

Regardless of the veracity of a rising stock market, having a combination of patience and fortitude when you invest remains a necessity. Moreover, financial prophets do not exist. If you utilize the recommendations of prognosticators who appear in print or on television, remember they are not going to keep you abreast of current developments.

One major investment house was given to state that it is delusional to think you can expect to increase your wealth by investing long term. Such comments are often followed by an incorrectly sourced quotation from John Maynard Keynes, ìIn the long run we are all dead.î

Thanks to the First Amendment you can, without recrimination, go off half-cocked blathering prose that is tantamount to carrying a sign saying, ìRepent now, the world is coming to an end, or worse be blatantly wrong in your comments to those who trust your expertise.

This was clear in past comments by Niall Ferguson, the distinguished historian whose brand of conservative punditry colors his rhetoric on historic events. For example, Ferguson once commented that Keynes’ famous long run statement stemmed from the fact that he was gay, had no intention of having children and was thus blinded to the importance of long-run considerations.

Interestingly, Keynes’ statement appears not in his meteoric work, ìThe General Theory of Employment, Interest and Money,î as many mistakenly state but rather in his 1923’s ìTract on Monetary Reform.î Discussing the fallacy of returning to a gold standard, Keynes wrote, ì…the long run is a misleading guide to current affairs. In the long run we are all dead.î

And speaking of dead, I can remember when much of the world had pretty much given Apple up for dead. In 1968, Stan Dolberg of Forrester Research wrote, “Whether they stand alone or are acquired, Apple, as we know it is cooked.” (Article found through David Pogue’s column “The Desktop Critic: Reality Check 2000” in Macworld Magazine, where the quote still resides)

Apple has been pronounced dead 68 times to be exact since 1995, according to the Mac Observer commenting on The Apple Death Knell Counter indicator.

With nauseating frequency journalists, analysts, pundits, business executives and the like, loudly proclaim, “Apple is dead,” “Apple will soon be dead,” or “Apple will be dead if they don’t…,” despite having been proven wrong time and again.

A little over a year ago when I was writing about the future of Apple, I read that the German investment firm Berenberg predicted doom for Apple, setting a price target for its stock at $60. Berenberg believed that Apple’s financial model was too reliant on the iPhone, and has predicted that the company’s shares would plummet more than 50 percent. See what I mean about diviners of Wall Street.

As you read Apple’s financials, and I will analyze them in an upcoming column, keep in mind that the strong dollar is a problem for any company doing business abroad.

Lauren Rudd is a financial writer and columnist. You can write to him at LVERudd@aol.com. Phone calls accepted between 9 AM and 3 PM at (941) 706-3449. For back columns please go to www.RuddReport.com.

In Days of Old

Streetwise for Friday, March 17, 2017

There was once, in the dear dead days beyond recall, an out of town visitor who was being shown the wonders of the New York financial district. Upon arrival at the Battery, his guide pointed out some handsome ships riding at anchor. The guide said, “Look, those are the bankers and brokers yachts.”

“Where are the customers’ yachts,” asked the naive visitor?

The plain truth of the matter is that most people who casually invest in stocks do not have yachts, or even rowboats for that matter. And one reason is that their attention is too easily shifted away from what should be their main objective, finding bargains among quality stocks that can be held for years.

Individual stocks go through cycles of strength and weakness. Sometimes these fluctuations will coincide with overall market trends. At other times, there will be absolutely no correlation.

Yet, whenever the financial markets undergo a degree of volatility, investors often find themselves faced with a dilemma. The dilemma is whether to hold the stocks in which they have profits; or sell and maybe invest in market laggards; or perhaps move to the sidelines to await further developments?

As Fred Schwed, Jr., pointed out in his book, “Where are the Customers’ Yachts,” published in 1940, investors have an unfortunate habit of asking about the financial future. He wrote that if you do someone the honor of asking a difficult question, you may be assured that you will receive back a detailed answer. Unfortunately, it will rarely be the most difficult answer of all, ìI don’t know.î

While there is no ready-made solution to this age-old problem, it never hurts to take some profits, particularly if you have identified alternative investments. However, keep in mind that leading issues will often continue to outperform market laggards. Moreover, a sell decision followed by a buy decision means two opportunities for error, not just one.

Schwed said there was no denying that the more financial predictions prognosticators make, regardless of how ridiculous, the more business they are likely to do with the resultant increase in commissions or fees, not to mention the increased notoriety. Nothing has changed.

Schwed’s book shows that as far back as 1940, the foretelling of price moves had become key to Wall Street’s business. And it still is. So, Schwed’s advice is that when you hear market predictions you might want to ask yourself the following: Are they good; are they slightly good; are they any damn good at all; how do they compare with tomorrow’s weather forecast; how do they compare with tipster horse-race services?

In his book, “Investment for Appreciation,” published in 1936, L.L.B. Angas wrote about prognosticators, pointing out that their theories, particularly about chart forecasting, ìAre true part of the time and none of them all of the time. They are, therefore, dangerous, though occasionally useful.î

The same could be said of the practice of flipping a coin to determine whether one should buy or sell ñ all except the word “useful,” which does not seem to be admissible in either case.

Remember Kermit Long’s story of the two men who were walking along a crowded sidewalk in a down-town business area. Suddenly one exclaimed, listen to the lovely sound of that cricket. But the other commented that he did not hear anything. He asked his companion how he could detect the sound of a cricket amid the din of people and traffic.

The first man, who was a zoologist, had trained himself to listen to the voice of nature. But he didn’t explain. He simply took a coin out of his pocket and dropped it to the sidewalk, whereupon a dozen people began to look around. “We hear,” he said, “what we listen for.”

Are you listening for the right sounds? The Street’s wiliest can make even the hardiest investor’s eyes glass over. But all you are hearing are the coins falling. Listen for the cricket and the cricket is a company’s fundamentals.

Always remember Wall Street is a street with a river at one end and a graveyard at the other. What is left out is that there is a kindergarten in the middle.

Lauren Rudd is a financial writer and columnist. You can write to him at LVERudd@aol.com. Phone calls accepted between 9 AM and 3 PM at (941) 706-3449. For back columns please go to www.RuddReport.com.

The Big Green Tractor (DE)

Streetwise for Sunday, March 12, 2017

The Street’s recent volatility should not be an impediment to your search for investment bargains. Even with annually increased dividends, a stock can still be undervalued. Price is absolute, but value is relative.

Nonetheless, dividends continue to be an excellent indication of value, the premise being that rising dividends are a direct result of rising earnings, which in turn directly influences share price. Furthermore, any dividend yield above the 10-year Treasury rate, currently 2.57 percent, means that you are being well rewarded to wait for price appreciation.

A good example of a company whose shares are on sale, while at the same time having the honor of once being the central theme of a number one song on the country music charts, is none other than Deere & Company (DE). The song of course is “Big Green Tractor,” written by Jim Collins and David Lee Murphy and recorded by Jason Aldean.

Deere is the world’s largest manufacturer of farm machinery. And for the eleventh straight year, Deere is also among Ethisphere Institute’s list of most ethical companies.

When I wrote about the company a year ago, my 2016 earnings estimate for Deere was $4.25 with a projected 12-month share price of $89, yielding a capital gain of about 10 percent, plus an indicated dividend yield of 2.89 percent. So how did the company do? Earnings came in at $4.81 per share, while the shares recently closed at $110.84.

You must hand it to Deere’s management. Not much has gone right with farm receipts declining since 2014, meaning farmers are taking a pass on buying new equipment, particularly the high-margin large agricultural machinery that is Deere’s bread and butter. However, the company’s management continues to defy the doubters.

Nonetheless, Deere is rarely mentioned on any financial news network because farm machinery is boring; unlike electric cars or social media. However, boring can be lucrative.

Deere is a cyclical company driven in part by farm income. And in the past thirty-five years’ farm income has fallen on six separate occasions, with the average decline being 32 percent. However, in the past when farm income has fallen precipitously, it has snapped back the following year by an average of 51 percent.

Meanwhile, the recent pain in the agriculture sector is no secret. However, Deere has been reducing costs aggressively and that will make for a lean, mean fighting machine once agriculture’s fortunes turn around.

So, let’s see how successful Deere has been at tackling its marketplace. On Feb 17, Deere reported fiscal first quarter earnings of $0.61 per share, versus a Street consensus of $0.50. Despite the weakness in the agriculture sector, the company has not missed on delivering earnings since 2013. That’s an impressive streak.

Sales in the quarter fell 1 percent. However, equipment sales in the US and Canada decreased 8 percent. Outside of the US, sales rose 11 percent, with a favorable currency-translation effect of 1 percent.

For the year, Deere forecasts agriculture and turf equipment sales to rise by about 3 percent, while agriculture equipment in the US and Canada are forecast to be down 5 to 10 percent for the year as crop prices remain weak.

And it appears that 2017 could be the bottom of the current agricultural cycle. Meanwhile, construction & forestry is where optimism reigns. Deere sees worldwide sales up about 7 percent, reflecting moderate economic growth worldwide.

Deere’s intrinsic value, using the ValuePro.net discounted free cash flow to the firm model, after updating certain parameters such as revenues, shares outstanding, and operating profit margin, along with a risk-free rate of 4 percent, is $225.

My earnings estimate for Deere in FY 2017 is $5.20 with a projected 12-month share price of $121, yielding a capital gain of about 10 percent, plus the indicated dividend yield of 2.17 percent.

If you are looking for a play on the rebound in the agriculture sector, plus a play on the possible infrastructure build-out in the United States, Deere might be one to keep on the short list.

Lauren Rudd is a financial writer and columnist. You can write to him at LVERudd@aol.com. Phone calls accepted between 9 AM and 3 PM at (941) 706-3449. For back columns please go to www.RuddReport.com.