Thursday, July 06, 2006

Mo Rules

Our title tonight refers to the Company Altria, symbol MO, which owns Philip Morris the cigarette company. In today’s news, the tobacco industry got a drag on some fresh air as the Florida Supreme Court upheld a ruling tossing out the $145 billion verdict. With this news, as you might imagine, tobacco stocks were smokin’. MO itself was up a nice 6%, trading to an all time high on the back of that news during the day.

We only bring this up because when we were asked back in early 2000 what to buy, we said MO. It was trading at 19 or so and had a 48 cent quarterly dividend for a cool 10%. This was during the time of the initial ruling. Six years later this stock pays an 80 cent quarterly dividend for $3.20 a year, about 17% on the original purchase price, and sells for 77.

I don’t want to debate the “social responsibility” of the stock because I know there are good reasons for people to shy away from this type of company. I am simply trying to point out the contrarian play that was available to you when the stock market was going down in the first few years of this century. MO was responsible for about half of the Dow’s gains on Thursday.

The Dow did do a little bouncing back on Thursday helped much by MO. Looking at the broader averages, there was a mixed bag. Our favorite index, the NASDAQ 100, was actually down on the day.

This sets us up for Friday’s jobs report. The market seems like it wants to go up on the early news. We would like this as it would set up a perfect reversal from any highs that might develop. Here’s the analysis: The stock market has anticipated a big number of jobs based on the ADP report that said that nonfarm payrolls grew 368K last month. The estimate currently floating around is 175K for Friday morning. So the news on ADP Wednesday pushed the market down, why?, because the Fed may have to keep raising interest rates. If the 175K estimate is high and the number comes in lower than that, the market might be inclined to make up for the hole it dug on Wednesday. Twisted logic.

Last week, the Update turned bullish for the time frame from the Fed’s announcement to Thursday at 10 o’clock (we meant to say Friday at 10 o’clock due to the jobs report, but we didn’t say that). Anyway, with the tobacco news on Thursday pushing up the Dow right at 10 o’clock, we saw a 200 point rally in those few days with the peak right at 10 o’clock. But, it is possible that Friday’s high could be higher than that. Either way, we have seen good opportunities for you to unload some of your stocks in these days.

We were advised of an article in the July 5th WSJ's Mutual Fund Quarterly Review entitled "Surviving a Real-Estate Slowdown". The WSJ interviewed Kenneth Heebner, the manager of a very successful real estate mutual fund, on his thoughts about the current real estate environment. His comments should be credible, although he does not completely line up with our thoughts. See if you can find a copy to read (page B1).

By the way, this contrarian would tell you to sell MO right now particularly if you had purchased it back in early 2000. Anyway, it’s my birthday on Friday so today’s post was just a lot of fun stuff to reflect the fact that I made it another year.

Be careful out there.

Dow Industrials: 11,225.30 +73.48
RYVNX: 22.19
RYAIX: 24.27
TLT: 83.75
BEGBX: 13.40

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