Trading update – part II

SCOTUS rules on ObamaCare within the next hour or two. We are only long pharma, and some AMGN.

Google needs to run towards $600 here. Filled a gap at $559 which has held the last two weeks. Current Google eps estimates for 2012 and 2013 are $43.24 and $50.36 leaving GOOG trading at 13(x) and 11(x) forward earnings for expected 15% growth next year. (Long GOOG for a trade)

Natural gas looks to have bottomed. My friend Gary Morrow, a very good technician who writes for www.thestreet.com thought UNG put in a decent bottom in mid-June. We are long Encana as a play on natural gas. This is a longer-term position. (Long ECA)

McDonald’s – long CNBC interview with outgoing CEO Jim Skinner yesterday. I think the stock may be topping. MCD has had a monster run since the bottom in March ’03. A Peter Lynch 10-bagger, from under $10 to $100. What has fascinated me, and gives you some idea of the payout and cash-flow generation, is that as the stock has risen from $10 to $100 the last 9 years, the dividend yield has INCREASED. MCD’s annual dividend has increased from $0.21 in 2003 to $2.80 currently. At 18(x) cash – flow (enterprise value) i think MCD’s is too expensive. Some technicians think $84 is a good buy point. (Long smaller low-cost basis position in MCD’s)

Ford – auto’s – June sales are expected to be so-so, but according to a note out of DeutscheBank (DB), pricing “remains strong”. DB is looking for 13.8 ml in light vehicle SAAR. DB thinks Ford pricing “looks extremely strong” per the June 24th report. The Big 3 will release June auto sales next Monday or Tuesday, July 2nd or 3rd. Full year eps estimates for Ford are $1.48 for 2012 and $1.71 for 2013, leaving Ford trading at 7(x) and 5(x) this and next year’s eps estimates. Ford is the only automaker we own. I still think Ford is about North American pre-tax auto margins, which i believe are still close to a record high. Europe isnt helping. Under $10, Ford gets interesting, with a dividend now no less, and the improving balance sheet (from a credit perspective). (Long F)

Boeing’s big European airshows are July 10th. Sometimes the stock can get a lift into the event. The recent resignation of Boeing’s CEO has some a little worried. What intrigues us here is, just as the Dreamliner is starting to ramp production, Boeing Defense (BDS) expectations probably can’t get more subdued. Boeing (BA) Commercial’s (airplane) division is about 2/3rd’s of revenue and operating income for the giant manufacturer. (Long BA)

Alcoa (AA) – could be forming a triple-bottom near $8.45, the point of the October ’11 and late December ’11 lows. AA needs to hole these levels. Remember, tangible book value is $10.61 per share, so the stock is trading at an 20% discount to TANGIBLE book value right now. However, it is hard for the stock to ramp when smelter capacity still being mothballed thanks to China. Yikes-a-bee. (Long AA)

Toll Brothers vs. Lennar – think TOL could be a better tradable value here. LEN had big volume and a big day yesterday on solid earnings. Watch LEN around $30, the point of the double-top in late May. Would buy both names on another pull-back to low $20’s. The thing we are trying to get our arms around is “normalized earnings” for these uber-cyclical stocks. We’ll blog more about it later. (Long smaller positions in TOL and LEN – reduced positions earlier in the spring.)

Thanks for reading.

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