Joseph Lazzaro
New York - http://
Joseph Lazzaro is a veteran financial editor with more than 10 years in financial news and financial publishing. Lazzaro served as Managing Editor of New York-based financial news web site WallStreetItalia.com / WallStreetEurope.com for four years. Lazzaro, who holds an ABD/Ph.D. in American Government and International Economics from the University of Connecticut, also served as a News Editor for the Pulitzer Prize-winning Hartford [Connecticut] Courant, prior to graduate school. He is based in New York.
Posted Oct 25th 2007 5:57PM by Joseph Lazzaro
As noted, given the current choppy/consolidating market conditions, adding a few defensive plays is a prudent strategy.
Humana Inc. (NYSE:
HUM) is an insurer worth an evaluation.
Humana's Medicare and Medicare prescription business, 50-state presence, likely substantial membership growth, and cost controls make it an "insurance company of significance." Another major positive: the currently underserved Medicare population, and an expanding Medicare demographic, the latter courtesy of the U.S. baby boom generation's retirement. HUM closed Thursday up $3.43 to $76.93.
The qualifiers? Competition on HUM's commercial business side is a hurdle, but overall, the risk/return for this stock is favorable.
[Note: Technical analysis agnostics stop reading here; all others continue.]
Technically,
Humana's chart looks strong. The stock did straddle its 50-day moving average this summer, but has since remained solidly above it, while also clearing $65-$68 resistance. With a new 52-week high recently in place and a P/E of 21, HUM is not cheap, but it's a reasonable price to pay for this safety-and-growth hybrid.
Stock Analysis: Humana is a low-risk stock. Investors with an investment horizon longer than 1 year should be rewarded from HUM's shares. A preferred entry price if one were to buy would be below $75, if the market presents that opportunity. Sell / Stop Loss: $47.
Posted Oct 25th 2007 4:30PM by Joseph Lazzaro
Filed under: International markets, Marketing and advertising, AFLAC Inc (AFL), Japan, Stocks to Buy
Continuing with our defensive stock series: given the current choppy / consolidating markets (or perhaps worse),
Aflac (NYSE:
AFL) is an insurance play that undoubtedly will add stability to your portfolio.
Efficient Aflac provides supplemental health and life insurance in Japan and the U.S. that cover special conditions.
Aflac Japan's insurance policies help pay for costs not covered under Japan's national health care system. A well-known company in Japan, Aflac's U.S. strategy mirrors its Japan operations: identify relevant products, implement a time-tested distribution system, emphasize efficiency, and build brand awareness. In the U.S., brand awareness has been built via the "Aflac duck," a successful ad campaign featuring a courageous, perseverant duck. Aflac's shares were down 88 cents to $64.88 in Thursday afternoon trading.
Continue reading Aflac (AFL) keeps doing what it does best
Posted Oct 25th 2007 3:45PM by Joseph Lazzaro
Filed under: Aetna Inc (AET)
Given the current choppy, consolidating market conditions, adding a few defensive plays is a prudent tack. Among insurers,
Aetna Inc. (NYSE:
AET) is worth a review.
Aetna's wide product offerings and comprehensive coverage is an operational strength, as is its geographic footprint. These factors, along with cost controls, should enable Aetna to maintain solid earnings growth in 2007-2009. The
Reuters F2007/F2008 EPS estimates for AET are $3.43/$3.89.
What should one not expect from Aetna? Ill-conceived, poorly-researched endeavors. Aetna is a deliberate, move-forward-cautiously operation with a corporate culture that reflects many of the values of the land of steady habits, its home state of Connecticut. Aetna's shares rose $2.08 to $54.98 in Thursday afternoon trading.
Continue reading Defensive stocks: Aetna's steady earnings
Posted Oct 25th 2007 3:26PM by Joseph Lazzaro
Filed under: International markets, Economic data, Commodities, Oil, Housing, Federal Reserve
No one ever said serving on the
U.S. Federal Reserve Board of Governors was easy. Next Wednesday's Fed meeting may provide a case study regarding just how difficult that job is.
The FOMC, led by Chairman Ben Bernanke, will be asked once again to address the health of the U.S. economy amid two contrasting views of reality. To be sure, different interpretations regarding the U.S. economy is not something the Fed has never encountered: they're the essence of the arena of ideas that flourish in a free society, and part of what makes a market "a market."
The Fed, it seems, is perpetually trying to sift through the arguments (and data) of those who believe inflation is too high and those who believe the U.S. economy is growing too slowly.
Further, setting the appropriate policy would be somewhat easier if the Fed knew that only domestic factors determined either economic condition. But the Fed knows that is not likely the case.
One example: The Fed lowers short-term interest rates, as it did a month ago, to begin to stimulate the slowing U.S. economy, only to find that its counterpart, and the world's second most important central bank, the
European Central Bank, is not. Of course, it's clear that the ECB is undertaking the monetary policy appropriate for the euro zone, but it's also clear that the policy hurts the U.S. economy's ability to grow at a time when the Fed is undertaking a policy to achieve that goal.
Another example: Conversely, when the Fed maintains short-term interest rates, as it did last year and early this year to control inflation, China, Asia, and most other emerging market economies continued to increase oil consumption -- a condition that helped push oil above $85 per barrel -- a major contributor to U.S. inflation. True, U.S. oil consumption is per capita the highest in the world, but few would deny that, along with U.S. demand, emerging/international market oil demand is stoking both oil's price and U.S. inflation. In other words, it hurt the Fed's inflation control effort previously, and it's hurting it today.
Fed Analysis: Given current conditions, it's likely the Fed on Wednesday will lower the federal funds rate by another quarter percentage point, to 4.50% from 4.75%. In September, the FOMC surprised most in the financial markets by lowering by one-half percentage point its key lending rate, to 4.75% from 5.25%, the first rate decrease in more than four years.
The monetary policy easing is expected to provide domestic stimulus to help recharge the U.S. economy while not re-stoking domestic inflationary pressures, qualified by the fact that international factors may hinder the Fed's goal.
Posted Oct 25th 2007 9:50AM by Joseph Lazzaro
Filed under: International markets, Cisco Systems (CSCO), Stocks to Buy
Continuing with our defensive stock series for a choppy/consolidating market: generally, one would not list a tech stock as a defensive play.
Cisco Systems (NYSE:
CSCO) is an exception.
Two fundamentals warrant the advocacy of Cisco as a defensive play: 1) the company supplies the majority of networking equipment used for the internet -- it is the world's largest supplier of computer internetworking systems, and 2) emerging market growth. So long as the internet remains intrinsic to business processes in emerging/developed markets and so long as emerging markets continue to grow, Cisco will benefit in the years ahead. Analysts project a roughly 15%-20% annual revenue growth rate for CSCO for 2007-2009. Another positive: look for CSCO's advanced technologies unit to continue to contribute impressively to the company's revenue on video system business.
Further, we'll skip for this review the debate regarding the possible "broadband shortage" and focus instead on the counterargument. Assume deteriorating conditions in the U.S., perpetually high energy prices slowing global growth, and increased protectionist sentiment. The impact on Cisco? Most likely, CSCO keeps growing, albeit at a slower rate, but it will grow, nonetheless. CSCO's shares closed Wednesday down 28 cents to $31.26.
[Note: Technical analysis agnostics stop reading here; all others continue.]
Technically,
Cisco's chart is strong. True, the stock has recently retreated from a 52-week high of around $33.60, but this came after an impressive advance from the $26-range. Cisco has dipped below its 50-day moving average for the second time in four months, but it's been above its 200-day moving average for more than a year. The p/e of 27 is elevated, but this is not an unreasonable p/e, given CSCO' s likely strong revenue growth.
Stock Analysis: Cisco (CSCO) is a moderate-risk stock not suitable for low-risk investors. Investors with an investment horizon longer than 1 year should be rewarded from CSCO's shares. Sell/Stop Loss: $22.
Posted Oct 25th 2007 8:40AM by Joseph Lazzaro
Filed under: Kellogg Co (K), Commodities, Stocks to Buy
Continuing with our defensive stock series for a choppy/consolidating market: place
Kellogg (NYSE:
K) in the "old reliable" category.
Product innovation, legendary brands, economies of scale, marketing prowess, and an impressive global geographic footprint spell good things for Kellogg in the years ahead. An improving snack business is another positive. But let there be no doubt -- the key drivers here are the brands the young (and young at heart) have come to know and love: Special K, Frosted Flakes, Rice Krispies, Fruit Loops, and Apple Jacks. Further, from a market standpoint, while it's always possible for the health/organic segment to overwhelm the mainline cold cereal segment, that day has not arrived.
The qualifiers: Rising commodity costs could further cut into earnings, as would more-broadbased acceptance of generic cereals. Kellogg's shares closed Wednesday up 10 cents to $54.34.
Technically,
Kellogg's chart looks good. Trading around $54, the stock is currently just below its 50-day moving average of $54.85, but the stock has been above its 200-day moving average -- the toughest average to break -- for more than 18 months. Further, Kellogg's chart displays a healthy advance, minor correction pattern.
Stock Analysis: Kellogg is a moderate-risk stock not suitable for low-risk investors. Investors with an investment horizon longer than 1 year should be rewarded from K's shares. Sell/Stop Loss: $43.
Posted Oct 24th 2007 5:15PM by Joseph Lazzaro
Filed under: International markets, Stocks to Buy
Continuing with our defensive stock series: given the current choppy / consolidating markets (or perhaps worse),
Tupperware (NYSE:
TUP) doesn't strictly-fit the defensive stock definition, as it's in the consumer / discretionary segment. Still, given TUP's potential, it warrants a review by investors.
Tupperware's signature product is the food storage container that carries the company's patented seal. One could make the case that U.S. shoppers will buy fewer of these containers as the U.S. economy slows, as they are, strictly speaking, a discretionary purchase. Still, we know from previous belt-tightening periods Americans tend to cut back on dining out. Undoubtedly that means more home prepared meals, and leftovers, which need containers -- a positive trend for Tupperware.
Further, with sales in more than 100 countries, Tupperware is adequately-positioned to benefit from continued good-to-excellent GDP growth in emerging markets. The
Reuters F2007/2008 revenue consensus estimates for TUP are $1.91 billion / $1.99 billion. Tupperware's shares fell $1.83 to $33.63 in Wednesday afternoon trading.
Continue reading Tupperware (TUP) really benefits from home cooking
Posted Oct 24th 2007 5:11PM by Joseph Lazzaro
Filed under: Wal-Mart (WMT), Stocks to Buy
Energizer (NYSE:
ENR) is a defensive stock that may end up posting growth stock-quality results in the immediate years ahead.
Again, Energizer is not a defensive play, strictly speaking, as one could argue that batteries are a discretionary purchase -- an option consumers can cut back on during tougher economic times.
Still, powerful cultural and secular trends belie the above thesis. Think: MP3 players, iPods, iPhones, the text messaging generation, cameras, and remotes for almost everything. The net result: More portable energy use, globally, in the years ahead, which means more revenue for Energizer.
Energizer has revenue streams in the alkaline, carbon, zinc, miniature and specialty battery lines, with an impressive +35% U.S. market share. The company sells batteries in more than 150 countries, a more-than-decent defense against U.S. economic doldrums. ENR's shares fell $1.15 to $110.86 in Wednesday afternoon trading.
The qualifiers? Intensifying competition, and a high concentration of sales, 18%, to its largest customer,
Wal-Mart (NYSE:
WMT). But so long as teenagers and downloads exist, and
Apple (NYSE:
AAPL)'s Steve Jobs is thinking of something new/portable/cool, these two negatives can be overlooked.
Technically,
Energizer's chart is strong. With a P/E of 23 ENR is not cheap, but projected near-20% annual EPS gains account for that.
Stock Analysis: Energizer is a moderate-risk stock not suitable for low-risk investors. Investors with an investment horizon longer than one year should be rewarded from ENR's shares.
Posted Oct 23rd 2007 7:50PM by Joseph Lazzaro
Filed under: Competitive strategy, CVS Corp (CVS), Stocks to Buy
Continuing with our defensive stock series.... With the markets in a choppy /consolidation mode (or perhaps worse), the drug store chain sector has appeal as a defensive strategy, and
CVS Caremark (NYSE:
CVS) is a superior performer in the aforementioned sector.
CVS has used acquisition (1,100 Eckerd drugs stores acquired in 2004, 700 Albertson's drugs stores acquired in 2006) and a super-rigorous, systematic store opening plan to create the drug store world's equivalent of a lien, mean, fighting machine: more than 6,200 stores in 43 states.
CVS has the resources, economies of scale, and, arguably, most importantly, the store site selection experience to continue to drive impressive revenue/EPS gains. Further, recent improvements in inventory processes and cost management support the above, and the acquisition of Caremark should add new clients/customers. True, back-store (pharmacy) margins may be pressured by generic competitors, but the front-store (everything else) should make up for it in 2007-2009. CVS's shares closed Tuesday up 39 cents to $40.11.
Continue reading CVS (CVS): Methodical and efficient, if not idyllic
Posted Oct 23rd 2007 4:45PM by Joseph Lazzaro
Filed under: International markets, Good news, Competitive strategy, Colgate-Palmolive (CL)
As discussed, with the markets in a choppy/consolidation mode (or perhaps worse), the consumer product sector has appeal as a defensive strategy, and
Colgate-Palmolive (NYSE:
CL) is worth a review.
Colgate's restructuring is working, and Wall Street expects 2007/2008 results to show it. In late 2004, CL initiated a 4-year cost reduction program including a +10% workforce reduction, new product roll-outs, an emphasis on larger-growth markets, and the more-adept deployment of marketing resources.
The results to-date? The CL train is on-time, with analysts generally seeing low-double-digit annual revenue growth through at least 2008, and probably longer. An eye-opening stat -- Colgate is an enhanced, consumer products defensive play: 65% of CL's revenue stems from personal, oral and home care sales outside North America. Hence, even if U.S. consumer goods sales slump badly (which is not likely) CL can look for international consumer product operations to support results. The
Reuters F2007/F2008 revenue consensus estimates for CL are $13.5 billion / $14.4 billion. Colgate's shares Tuesday afternoon traded 23 cents higher to $73.18
Continue reading Colgate's (CL) restructuring is producing results
Posted Oct 23rd 2007 3:38PM by Joseph Lazzaro
Filed under: International markets, Forecasts, Commodities, Oil
Insights summarizes an idea or business official making financial news, and emphasizes the impact on the typical investor.Oil industry expert T. Boone Pickens has made news again, and also generated some chatter in Wall Street circles, but this time not for an oil price prediction.
Earlier, Pickens predicted that crude oil, which Tuesday traded around $85 per barrel, would hit $100 -- perhaps as early as Q4 2007.
This time Pickens made headlines by stating to
Bloomberg News that global oil production has already peaked at 85 million barrels per day. In other words, "peak oil" has already arrived. Pickens, chairman of BP Capital LLC, spoke at a conference sponsored by the
Association for the Study of Peak Oil & Gas, a non-profit research group.
Continue reading Insights: Pickens says global oil production has peaked
Posted Oct 23rd 2007 2:51PM by Joseph Lazzaro
Filed under: Earnings reports, Bad news, Walgreen Co (WAG), Technical Analysis
Continuing with our defensive stock series, with the markets in a choppy/consolidation mode (or perhaps worse), the drug store chain sector has appeal as a defensive strategy. Typically,
Walgreen (NYSE:
WAG) would fit the bill, but recent results have generated caution signals, and a Don't Buy, pending additional performance statistics.
On Oct. 1, Walgreen reported Q4 EPS of 40 cents, down from 41 cents Q4 a year ago, and 7 cents below the consensus estimate. Wall Street did not respond favorably, taking shares down more than 16% to about $40 from $48 that day. The shares have since deteriorated further, and closed around $38.25 Tuesday.
Prior to this quarter, Walgreen had recorded double-digit earnings growth in six of the last seven quarters, and many analysts had seen F2008 revenue advancing about 10%, including a 5% front store revenue gain. Nevertheless, those projections could not prevent the stock from incurring a large hit -- a sell-off symptomatic of today's market. Miss an EPS consensus estimate in a normal market, and the stock drops 5%. Miss an EPS consensus estimate in the current skittish market, and the Street takes your stock down 10%, or more. Did Wall Street's response constitute an overreaction? Probably.
That last point was reinforced on Monday when Morgan Stanley analyst Mark Wiltamuth raised his rating on the drug store chain to "Overweight," or "Buy," from "Equal-Weight," with a $45 target, arguing the notion that generics will cut deeply into 6,000-store WAG's margins has been overplayed.
[Note: Technical analysis agnostics stop reading here; all others continue.]
Still, technically Walgreen's stock is struggling with near
three-year support levels around $38. If WAG fails to hold that support, a drop to the next major support level, $30, is possible. Further, the stock is now substantially below both the 50-day and the 200-day moving averages -- two indicators of stock strength/weakness.
Stock Analysis: Walgreen is a moderate-risk stock not suitable for low-risk investors. Further, the prudent strategy with WAG is Don't Buy, and wait to see if the stock can both hold the $38 support level, and close back above $43 in the quarter ahead. We'll re-evaluate WAG at that time.
Posted Oct 22nd 2007 8:00PM by Joseph Lazzaro
Filed under: Consumer experience, Competitive strategy, Procter and Gamble (PG), Stocks to Buy
This post continues a series on defensive stock-picking strategies.
With the equity markets in a choppy, consolidation mode (or perhaps worse), the consumer products sector has appeal. One consumer products name worth a look: Procter & Gamble (NYSE: PG).
If General Electric (NYSE: GE) is 'the mutual fund in one company,' then Procter & Gamble is the 'consumer products aisle' in one company. Pick a brand, any brand. PG has about 300, including names you know well like Crest toothpaste, Folgers coffee, Bounty paper towels, Tide detergent, Gillette shavers. PG's core product line contains brands that are entrenched in U.S. culture, and in U.S. consumer buying patterns.
Procter & Gamble says its mission is "to provide superior quality and value to the world's consumers," and both revenue and consumer satisfaction suggest it's "on message," to borrow a political campaign strategy phrase. To be sure, in the kaleidoscopic consumer products market, one can always find a designer/niche product -- a salon-based shampoo, for example -- that argues that it's better, for a price, than PG's product. But PG has moved forward, first domestically and now globally, confident that its products will offer more than adequate value for the typical person. That strategy has been working for, oh, about 170 years.
Continue reading Procter & Gamble (PG): Playing defense via consumer products
Posted Oct 22nd 2007 4:45PM by Joseph Lazzaro
Filed under: Chevron Corp (CVX), Commodities, Oil, Stocks to Buy
As noted, with the markets in a choppy/consolidation mode (or perhaps worse), the integrated oil sector has appeal as a defensive strategy. An oil company worth a review:
Chevron Corp. (NYSE:
CVX).
Chevron's organic reserve replacement, excluding Canadian oil sands, is sub-par, but just about every other dimension of CVX's operation rates good-to-strong. The most compelling fundamental: 20 fuel refineries, to go along with an asphalt plant, for a total refining capacity of 2.21 million barrels per day. Almost half of that fuel refining is based in the United States. The significance? As noted, gasoline consumption continues to rise - despite near-record prices - while refining capacity is not, and that bodes very well for gasoline refiners, and Chevron is well-positioned in this vital commodity business.
The risks? The usual qualifications apply here -- including a U.S. recession, breakthrough alternative fuel, or a seismic public policy action -- but don't look for any of those to appear soon.
Continue reading Chevron (CVX): Well-positioned in the gasoline segment
Posted Oct 22nd 2007 11:36AM by Joseph Lazzaro
Filed under: Commodities, Oil
Among oil companies
Sunoco Inc. (NYSE:
SUN) represents a riskier play because SUN meets its crude oil requirement via purchases from third parties, as opposed to company owned operations.
A major strength is Sunoco's strong presence in the U.S.'s East Coast and Midwest markets, which provides considerable earnings stability. However, analysts' 2007-2008 projections for Sunoco's gasoline and petrochemical production are not outstanding. Further, look for refinery maintenance and repairs to hurt refinery production somewhat in 2007, but full refinery production should return in 2008. Sunoco has also been hindered by an emphasis on light sweet crude, which has restricted its ability to take advantage of larger refining margins for sour crude.
The big question is, why is Sunoco worth an investor's attention? Answer: Analysts could be a tad low regarding revenue growth for 2008, particularly given crude oil's persistently high price. Oil, which closed Friday around $89 per barrel, is likely to remain above $70 per barrel for the foreseeable future, and if $100 per barrel is in oil's near future, those 2008 revenue estimates for SUN will prove to be conservative. Further, SUN, which closed Friday at $71.10, has a PE ratio of about 8 -- which makes it a very cheap stock.
Continue reading Sunoco (SUN): A riskier oil play
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The Fed's job isn't getting any easier
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