02/19/2010 Trades and News:
BUCY reported excellent earnings. See the table on our home page. Nevertheless, we sold our entire position. Its price is up to $61 from where we bought it a $47, and its P/E is up to 15. It is getting a little rich for us.

01/28/2010 Trades and News:
A number of companies reported earnings. See the table. We purchased BMY, DLX and NE which now represent about 2.2%, 2.1% and 2.7% of our portfolio.

01/21/2010 Trades and News:
Goldman Sachs (GS) reported excellent quarterly earnings of $8.20 compared to $5.20 expected by analysts, an a loss of $4.97 for the year ago quarter.

We were already long GS, and purchased more. It now represents about 11% of our portfolio.

12/16/2009:
Apogee Enterprises Inc. reported earnings of $0.39 compared to $0.21 expected by analysts, and $0.63 for the year ago quarter.

If you tender your Bristol Myers (BMY) stock for Mead Johnson (MJN), you could receive a 5% premium for your shares ($25.74 * 5% = $1.31). Does this mean that if you do not tender you shares, you will lose 5% of your investment? Are you forced to tender?

The Deal

Here is the final deal as announced on 12/15/2009: If you tender BMY shares, you will receive .6313 shares of MJN for each BMY tendered. A maximum of 269M shares of BMY will be exchanged for 170M shares of MJN. Any shares of BMY tendered in excess of 269M will be returned.

The Logic

We postulate that when BMY issues the 170M shares of MJN, the total value of BMY is reduced by the value of the shares MJN shares. In addition, the number of outstanding BMY shares is reduced by 170M / 0.6313 = 269M shares. By definition, the price of a share of BMY is equal to its total value divided by the number of shares outstanding. Here is our calculation of the expected price of BMY (PriceAfter), based on the closing prices of BMY ($25.74) and MJN ($42.85):

From the prices and shares:

ValueBefore = $25.74 * 51,000M = $1,312,740M
ValueAfter = PriceAfter * (51,000 - 269)M
ValueAfter = PriceAfter * 50,731M

ValueBefore - ValueAfter = $1,312,740M - PriceAfter * 50,731M

From the exchange of shares:

ValueBefore - ValueAfter = $42.85 * 170M
ValueBefore - ValueAfter = $7,285M

Combining the 2 calculations above:

But ValueBefore - ValueAfter calculated from the prices and from the exchange of shares, must be the same. Therefore,

$7,285M = $1,312,740M - PriceAfter * 50,731M
PriceAfter * 50,731M = $1,312,740M - $7,284M

PriceAfter = $25.73

Conclusion

So, if you do not tender your shares of BMY for MJN, you can expect your BMY shares to drop by just $0.01. If you do tender them, you could make $25.74 * .05 = $1.31 per share, but that potential profit will be reduced if more than 269M shares of BMY are tendered. If all 51,000M shares of BMY are tendered, you will make just $0.01.

We expect that arbitrageurs will tender many shares, but not all shares will be tendered. Consequently, the profit from tendering will be much less than $1.31 per share, but much more than $.01. If you do not tender your shares, you will probably lose only $.01 per share.

The Post-Mortem

Come back here for the post-mortem. We will let you know how many shares were tendered, and how much you could have made if you tendered.

12-21-2009 Post-Mortem

BMY announced that 500.5M shares were tendered. It will accept 269.3M, or 53.8%. Consequently, if you purchased shares of BMY at $25.74, and tendered all of them, you would receive back the following for each share tendered:

BMY (1.0 - 0.538) = 0.46 shares
MJN 0.538 * 0.6313 = 0.34 shares

If you sold at the open today, you would have received:

BMY $25.89 * 0.46 = $11.91
MJN $41.40 * 0.34 = $14.08

Total = $25.99
Profit before commissions = $25.99 - $24.74 = $0.25

The full was not realized because both stocks dropped between the time the tender ratio (0.6313) was finalized, and the time the percentage of tendered shares which would be accepted was announced. You could have theoretically locked in a profit if you shorted shorted 0.46 shares of BMY, and 0.34 shares of MJN for each share of BMY you tendered. Unfortunately, we had no way of knowing what the ratio would be.

The profit you could have locked in if you knew the exchange ratio, and sold short the appropriate amount of BMY and MJN was:

BMY $25.74 * 0.46 = $11.84
MJN $42.85 * 0.34 = $14.57

Total = $26.41
Profit before commissions = $26.41 - $25.74 = $0.67

YMMV.

11/23/2009, Trades:
This morning we purchased enough GLD to start a position at about 2.08% of our portfolio. GLD is an ETF which follows the price of Gold. We continue to be concerned that the current recovery will flatten out or reverse into a second recessionary dip. Last week, in an interview with Fox News's Major Garret, President Obama indicated that he wanted to make sure the country did not have double dip recession. This is a sure sign that his economic advisors are warning him that the recession may have a second dip. He is lowering expectations.

11/19/2009:
Buckle Inc. (BKE) issued a fair earnings report of $0.71 compared to $0.70 expected by analysts and $0.62 for the year ago quarter. We will continue to watch it.

11/16/2009, Trades:
After further reviewing the balance sheet of WTW, we decided that the investment was too risky even though the company has good earnings. It has negative net worth, and negative current assets less current liabilities. So ... we sold 100% of our WTW.

11/10/2009 and 11/11/2009, Trades:
After the close, Weight Watchers International (WTW) issued a good earnings report of $0.68 compared to $0.64 expected by analysts and $0.67 for the year ago quarter.

At the 11/11 open, we purchased enough WTW at $27.32 to start it at about 1.23% of our portfolio.

11/03/2009:
Rockwell Collins (COL) issued a fair earnings report of $0.84 compared to $0.87 expected by analysts and $1.13 for the year ago quarter. We did not buy any yet.

After the close, World Fuel Services Corp (INT) issued an excellent earnings report of $1.04 compared to $0.81 expected by analysts and $1.37 for the year ago quarter. On the plus side, the earnings were much higher than analyst's expectations. On the minus side, earnings were much less than the year ago quarter, and the P/E is up to 13 or so. We decided not to buy.

10/29/2009:
SnapOn Tools (SNA) issued an good earnings report of $0.44 compared to $0.28 expected by analysts and $0.94 for the year ago quarter. We continue to hold SNA. We did not buy more because it P/E is around 13, and it already represents about 3% of our portfolio.

10/23/2009, Trades:
Based on a good earnings report and a P/E of about 12, we purchased enough Bucyrus (BUCY) at $47.18 to start it at about 3.3% of our portfolio. The P/E is a little high, but the positive earnings surprise was big.

10/22/2009, Trades:
Based on a good earnings report and a low P/E, we purchased enough Noble Corp. (NE) to start a position at 2% of our portfolio. We also sold our entire position (about 4% of our portfolio) in Tupperware Brands (TUP) because its P/E has increased to around 17, and that is too rich for us. We bought TUP at about $25 in May, and sold it today at about $43. We still love TUP, and hope to buy it back some time at a lower P/E.

10/22/2009:
Noble Corp. (NE) issued a good earnings report of $1.63 compared to $1.54 expected by analysts and $1.42 for the year ago quarter. We bought. See above. DO, RX, BMY, CSH and DLX also reported earnings around expectations. See the tables at the right. We are not buying DO or RX. We continue to hold BMY, CSH and DLX.

Bucryus International (BUCY) issued a large positive surprise earnings report of $1.21 compared to $0.86 expected by analysts, and $0.85 for the year ago quarter.

10/21/2009:
Tupperware (TUP) issued a quarterly earnings report of $0.55 compared to $0.42 expected by analysts and $0.43 for the year ago quarter. TUP is up a whopping 87% to $48 from where we bought it at $25.68. We continued to hold it, but did not buy more on its great earnings report, TUP's P/E is now up to 17, so we are watching it closely, and may have to sell soon.

10/20/2009:
Pfizer (PFE) issued a quarterly earnings report of $0.51 compared to $0.48 expected by analysts and $0.63 for the year ago quarter.

10/19/2009, Trade:
We put an additional 1.7% of our portfolio into GS, increasing our total holdings to 4.19% of our portfolio.

10/15/2009:
Goldman Sachs (GS) issued a great quarterly earnings report of $5.25 compared to $4.25 expected by analysts and $1.18 for the year ago quarter. We currently have about 2.3% of our portfolio in GS and are considering buying more.

We have posted a new group of stocks which we will be watching for for the next set of earnings reports for 2009 Q3 in mid to late October. Look here.

08/06/2009:
Windstream Corp. issued a fair quarterly earnings report of $0.21 compared to $0.32 expected by analysts and $0.23 for the year ago quarter.

07/31/2009:
Snap-on (SNA) issued a good quarterly earnings report of $0.65 compared to $0.58 expected by analysts and $1.15 for the year ago quarter. We hold about 3.2% of our portfolio in SNA. We did not buy more. Too bad. It was up over $2.00 on a flat day for the market. SNA's P/E is holding around 10, but it will head up if earnings do not improve soon.

Chevron (CVX) issued a poor quarterly earnings report of $0.87 compared to $0.95 expected by analysts and $2.90 for the year ago quarter.

07/24/2009 trade:
Purchased enough Delux Corp (DLX) at $16.53 to start it at about 1.65% of our portfolio. For a $100,000 portfolio, that would be about $1,650 or 100 shares. For a $1,000,000 portfolio, that would be about $16,500 or about 1000 shares. DLX's consistently good earnings performance have outweighed our concern over their high Debt/Equity ratio, and our fears of a bad economy.

07/23/2009:
Leftovers anyone? Tupperware (TUP) issued a delectable earnings report of $0.86 per share compared to $0.75 a year ago, and $0.61 expected by analysts. We would love to buy more, but the stock was up around $2 before we could pull the trigger. Perhaps we should have puled the trigger anyhow since the stock is up almost $4 as of 10AM. Well, we do have about 3% of our portfolio in TUP, so we will just have to be satisfied with that for now.

Goodrich (GR) reported good quarterly earnings of $1.15 compared to $1.44 for the year ago quarter, and $1.11 expected by analysts. Considering their 9.2 P/E and 2% dividend yield. We are probably not a buyer right now.

07/23/2009 trade:
We put an additional 1.2% of our portfolio into Cash America International (CSH). They issued a decent quarterly earnings report of $0.52 per share compared to $0.67 a year ago, and $0.52 expected by analysts. We now hold about 3.7% of our portfolio in CSH.

07/23/2009:
Deluxe Corp (DLX) reported earnings of $0.57 compared to $0.56 for the corresponding year ago quarter, and $0.55 expected by anaylsts. We are thinking about buying some. However, we suffer anguish due to its large amount of debt in this potentially bad economy. We will listen to their conference call on the web. Stay tuned we may yet pull the trigger.

07/22/2009:
Pfizer (PFE) came out with a decent earnings report of $0.48, compared to $0.55 for the year ago quarter, and compared to $0.47 which analysts were expecting. We are holding a substantial position in PFE (about 6.6% of our portfolio), and continue to hold it for now.

07/14 and 07/15 /2009 trade:
We purchased a small amount (about 2.3% of our portfolio) of Goldman Sachs (GS) for an average price of $151.69. Based on a total portfolio of $100,000, we would have purchased about 15 shares for about $2,334. Based on a total portfolio of $1,000,000, we would have purchased about 150 shares for about $23,340.

07/14/2009:
Goldman Sachs (GS) reported excellent quarterly earnings of $4.93 compared to $4.58 for the year ago quarter, and $3.30 expected by anaylsts.

The economy is bad, and we think it may get worse, but we played this one by the numbers and bought a small amount of about $2334 or 15 shares for a portfolio of $100,000. If we had more faith in the economy, we would have bought a pile more.

GS does not have a low P/E based on its TTM (trailing 12 months) earnings of only $5.16. However, that includes a loss of $4.97 two months ago. If GS continues to earn $4.58 per quarter, its TTM earnings will be $4.58 * 4 = $18.32, giving it a P/E of about $150 / 18.32 = 8.1 in 2 more quarters. We think GS will do at least that well, so we are starting to jump in now. We generally like to buy with P/Es less than 10.

We have had fun with GS before, buying it at $160, riding it up to about $260, and all the way back down to $160 where we sold it for basically no gain or loss. That sale was on a Friday, one day before Lehman went bankrupt. GS opened down to about $100 on the following Monday.

Hope to do better this time.

Academic studies show that the average rate of return for no load mutual funds is about equal to that of loaded mutual funds before subtracting the sales load which can run 4% to 10%. Consequently, we never buy a fund with a sales load. We always buy no load mutual funds. We don't care how nice the salesman talks. He is not getting 4% of our money up front.

Right now, contrary to our general philosophy of not trying to time the market, our mutual fund portfolio is mostly in Intermediate Term Treasury Notes. We are scared of the current economy and policies which may prolong or deepen the recession. As of 05/15/2009, we are projecting a double dip recession, or a single dip (the current one) followed by a slow recovery. Consequently, we are either in a Bear market rally, or a Bull market which will stagnate and flatten out for an extended period. Or, we are wrong.

See our current mutual fund portfolio.