Subscriber Alert

    I said in yesterday’s Morning Call that a break in the Market would prompt me to raise cash.  I am sticking with that except as I noted above I am also sticking with my technical discipline before acting.

    On the other hand, item number four in the summary of our investment strategy in each week’s Closing Bell reads: ‘I intend to maintain the use of trading stop losses at least until the economic, technical and fundamental factors impacting valuation become clearer.  These are much tighter stops [i.e. they follow the stock price up] than those determined by our Valuation Model.’ 

    Yesterday several of our stocks broke significant technical support levels, so at the Market open this morning:

    The Dividend Growth Portfolio will reduce the size of Nucor (NUE) and Sherwin Williams (SHW) holdings to one half positions.

    The High Yield Portfolio will reduce the sized of Bank of Nova Scotia (BNS) and Genuine Parts (GPC) to three quarter sized positions.

    The Aggressive Growth Portfolio will reduce the size of Blackrock (BLK) and Reliance Steel (RS) to three quarter sized positions and Selling outright the entire SEI Investments position (SEIC).

     Company Highlight
 

   Home Depot operates a chain of retail building supply/home improvement stores  in the US and Canada.  The company has grown profits and dividends at a 15-20% pace over the past 10 years earning 13%+ return on equity.  HD has experienced difficulties in the recent economic downturn; however the company has taken steps that should lead to improvement in its profitability. They are:

(1) altered its in-store focus designed to maximize profitability and to make them simpler, more customer friendly,

(2) the company’s size and dominant market position allows it to achieve economies of scale in purchasing products and to develop exclusive brands with selective suppliers giving it a competitive advantage,

(3)  re-concentrate on its core business activities.  It has exited a number of operations [EXPO, THD Design Center, Yardbirds and HD Bath] and closed underperforming stores,

(4) better inventory management policies.

Home Depot is rated A++ by Value Line, carries a 34% debt to equity ratio and its stock yields 3.3%+.

   Statistical Summary

                 Stock      Dividend         Payout      # Increases   
                 Yield      Growth Rate     Ratio       Since 1999
 
HD            3.3%           5%              56%             8*
Ind Ave      1.5             6                  34               NA  

                Debt/                         EPS Down       Net        Value Line
                 Equity         ROE      Since 1999      Margin       Rating

HD           34%            14%           3                 11%          A++
Ind Ave    27                11             NA               4             NA

      Chart

Note:  HD was in an up trend off its March low until yesterday.  It remains above the down trend off its June 2007 high (red line) and the November 2008 trading high.  The blue line near the bottom is the lower boundary of a trading range dating back to 2003.


 

http://finance.yahoo.com/q?s=HD
10/09

     News on Stocks in Our Portfolios

    BP Ltd (High Yield Portfolio) reported third quarter earnings per share of $1.60 versus expectations of $1.03 and $3.21 recorded in the similar 2008 period.

    Franklin Resources (Aggressive Growth Portfolio) reported third quarter earnings per share of $1.60 versus estimates of $1.32 and $1.26 reported in its 2008 third quarter.

    A positive write up on Alcon (Dividend Growth and Aggressive Growth Portfolios):
    http://seekingalpha.com/article/169380-alcon-delivers-moves-ever-closer-to-181

    Five dividend stocks for long term dividend growth:
    http://seekingalpha.com/article/169123-five-dividend-stocks-for-long-term-dividend-growth