Sold Off Mittal Steel, Bought McDonald's

Mittal Steel (MT) announced a $22.8 Billion takeover attempt of rival company Arcelor SA. Though this may or may not be a positive move for the company, I've decided to get out now and take away my profit. I had originally got in with a buy of 3,558 shares at $28.09, and sold today at $33.71 per share, for a net profit of $19,945.

I had also picked up some shares of McDonald's Corp. (MCD) earlier on Thursday, in anticipation of the hot new IPO of Chipotle (CMG). Unfortunately the McDonald's shares are currently down, while Chipotle shares which weren't accessible pre-IPO, were up tremendously. I now think I'll wait a bit more, perhaps until after the upcoming Fed Meeting, to get rid of McDonald's.

Going For Broke With Wrigley

I've decided to go for broke with Wrigley's (WWY) call options, and bet on that February 7th earnings date. Wrigley's averaged forward and trailing price/earnings ratio is 25.26, and historically, and as mentioned in the last post Trading Gone Mad, this stock historically trades at a price/earnings of 30.0. Currently I'm up to 18 contracts of $65 February call options priced at $1.35, and also 88 contracts of $65 March call options priced at an averaged $2.32. So basically unless something drastic changes I'll be buying up options and biding my time...

Wrigley's News

Crain's Chicago Business - "What we're counting on, as investors, is for Wrigley to turn these brands on," says Jim Burns, president of J. W. Burns & Co., a Syracuse, N.Y.-based investment firm that holds approximately 200,000 Wrigley shares.

William Blair & Company Initiates Coverage - "With the release of a comprehensive report titled "Capitalizing on the Power of Consumer Brands," William Blair & Company initiated research coverage of four branded consumer products companies -- Chattem, Inc. and Wm. Wrigley Jr. Inc. with Outperform ratings..."

The Buchan Observer - Name your top dentist: Orbit - "Dentists, hygienists or dental practices are being sought for a high profile Oscar style national awards scheme and Wrigley's Oral Healthcare in Action is offering a year's supply of Wrigley's Orbit Professional fresh mint gum to a member of the public who nominated the winner."

Trading Gone Mad

Made a whopping total of nine trades today. I found NutriSystem Inc.(NTRI) by doing a highest price/earnings stock screen over at MSN Money. NutriSystem has an incredibly high price/earnings of 98.54. I pocketed a nice profit of $4,885 by short selling on that one as the price fell 6.13% throughout the day.

For some funny reason over the weekend, I started thinking about investing in commodities futures. I had thought that I could capitalize on the beef fiasco and the troubles in Iran by playing with light sweet crude and cattle feed futures. Later in the day I realized that I really don't know very much about the fundamentals of trading commodities, so I quickly got myself out of those positions.

Wrigley's (WWY) fell again, to come very close to its 52-week low, closing at $64.39. I decided to buy up some more $65 March options, as well as some $65 February options. This stock has historically always traded at or near a price/earnings ratio of 30, and it is now trading with a price/earnings of 26.94. It's a bargain and will continue to be as long as it stays this low.

Finally, there's Equity Office Properties Trust (EOP), which is a real estate investment trust. I've chosen to short-sell this stock and hold onto it for a little while. The Federal Reserve will most likely raise the short term lending rates again this coming Monday by 25 basis points. With a price/earnings ratio of 249.84, this stock will definitely be volatile. Let's hope that the volatility trends towards a depreciating direction.

Even More Wrigley Options, and a Down Dow

Added an additional 22 contracts of $65 March Wrigley (WWY) call options priced at $2.90. As the price of Wrigley's keeps falling, I am dollar-cost-averaging the price of the options previously bought. This brings the total number of call options contracts to 38, with an average price per call option of $3.14. It's essentially a betting play. I'm virtually gambling that the price of Wrigley's stock will jump up hopefully over $70 after the February 7th earnings report.

As for the rest of the stocks, I still believe that they were relatively undervalued at the time that they were bought. However, the Dow is down about 1.68% year-to-date, and Intel's (INTC) negative news earlier in the week didn't help either.

We shall see. I am also hoping that the language in the Fed's upcoming meeting of January 31st will help things out in the market in general, and the financial sector in particular. However, there is always the risk that positive language in the Fed's report could be balanced against the fact that this will be the last meeting for Alan Greenspan.

Three M's for 3M Company

So today I opened a position of 1,298 shares of 3M Company (MMM) at $77.01, for a value of $99,983.98. I also added to my position of Wrigley's (WWY) call options, buying up 6 more contracts for $3.30. So I now have a total of 16 call options contracts for an averaged price of $3.4875, and a market value of $5,280.00. I may even consider buying up some more, because I'm hoping/pretty confident that there will be a price spike after the February 7th news. I had first mentioned the idea of buying Wrigley's call options contracts before the February 7th earnings announcement in the post Bought Some Steel Stock, & Wrigley Options.

3M Company had actually also been mentioned previously, in the post Six Stocks for 2006. 3M has an averaged forward/trailing price/earnings ratio of 17.7. It pays out a dividend yield of 2.2%, and has a very low debt equity ratio at 0.07.

Here are Three M's to pay attention to at 3M Company:

Money

3M is among the many larger corporations these days that is flush with cash. In fact, Harry Cohen and Scott Glasser go into this in more detail during the Smith Barney Appreciation Fund (SAPCX) report of September 30th, 2005:

• "In fact, corporations are flush with cash. For example, cash as a percentage of total assets of companies in the S&P 500 Index averages around 11%, which is very high by historical standards and indicative of balance sheet strength. In addition, corporations are generating significant amounts of free cash flow with free cash flow yields at approximately 6%, also high by historical standards. With a tax structure that is generally favorable towards stock ownership and dividends, it is no surprise that corporations have recently begun to increase their payouts. For example, so far this year, we have seen dividend increases of 26% for United Technologies, 17% for 3M Corp, 13% for Kimberly-Clark, and 12% for Procter & Gamble, just to name a few."
  

Management

3M had a high last year of about $86 per share before CEO James McNerney left to take up the reins at Boeing (BA). The stock price hit a low of $70 this past October. With the selection of George Buckley as the new CEO, the stock price should have some flexibility to move back up into the $80 range as "The Market" has a chance to judge his capability. Here is a great little audio bit by the Motley Fool group, over at NPR's "Fool Flashback."

Marketing

3M has a whole bunch of innovative products in the works which should help the company hit the ground running. Among the more interesting products are: A stethoscope that can help to reduce background noise when listening to heart and lung sounds, optical films for flat panel televisions, and RFID tagging technology for product management.

Allstate Will Weather the Storm

Picked up 1,872 shares of Allstate Corp. (ALL) at $53.39, for a current value of $100,956.96. Allstate had previously been mentioned in the post on Six Stocks for 2006. Allstate has a trailing price earnings of 19.55, but a forward price earnings of 8.91. This gives an averaged price earnings value of 14.23, which is a makes this stock a bargain buy. The company has a debt/equity ratio of 0.25, and will most likely surpass its previous 52-week high of $62 per share. Allstate pays a dividend of $1.28, which gives a dividend yield ratio of 2.40%.

Interesting Allstate News:

The Street.com: A Value Investor's Plan for 2006 "Allstate is undervalued, and its pricing model is more powerful than the market thinks. "

gurufocus.com: Allstate is owned by at least four Guru Investors.

CNN Money: Solid Insurance Outlook in 2006 "At an industry conference in November, Allstate chief executive Edward Liddy said the company is targeting double-digit rate increases in areas with exposure to hurricane activity, such as Louisiana, Alabama, Virginia and Texas."

MSN Money: Analysts see another big year for insurance stocks "Lehman Brothers insurance analyst Jay Gelb expects many of the major insurers to outperform their market during the next 12 months."

CarInsurance.com: Allstate Revolutionizing Car Insurance in America "With Your Choice Auto, Allstate is offering new rewards to consumers who drive safely and enhanced protection for those not able to stay out of harm's way."

Bought Buffett's Berkshire Because it's a Bargain

Today I added a position in Warren Buffett's conglomerate company Berkshire Hathaway (BRK.B), adding 34 shares at $2,938.00 each, for a current holding of $100,062.00. Berkshire's trailing price/earnings ratio is relatively lower than the market, at 17.01.

Glenn Tongue and Whitney Tilson's analysis of Berkshire from November 2005 seems to be a very apt analysis of the stock's relative valuation in comparison to book value, historical price, so-called "intrinsic value", and previous comments by Warren Buffett. At the time the "B" shares were trading at a value of $2,960. Their analysis put the intrinsic value at or near $118,000 for the "A" shares, which would be approximately $3,933 for the "B" shares. In other words, if the intrinsic value were factored into the current stock price, I could realize a potential 33.8% return. Perhaps not likely, but not too shabby as a prospect either.

10 rock-solid stocks is a great little article about powerful, secure investments for 2006. Written by Jon Birger and David Stires, over at FORTUNE Magazine. They make reference to the fact that simply the Fed's recent actions of raising the short-term lending rates increases the yield that Buffett receives from the company's $46 Billion in cash.

The Superinvestors of Graham-and-Doddsville is an intriguing piece written by Warren Buffett himself, analyzing the value investing principles imparted to him by Columbia professor and later colleague, Benjamin Graham. Benjamin Graham and David Dodd collaborated on the book Security Analysis, a bible for value investors. Benjamin Graham's work The Intelligent Investor was previous recommended in a post on Some Great Financial Reads.

Here is an audio interview that Warren Buffett did with Ron Insana over at CNBC. He speaks candidly about upcoming market trending patterns, as well as his annual charitable lunch that raises money for Glide. Topics of conversation included potential acquisitions/buys by Berkshire Hathaway in the energy-utility industry, and the future depreciation of the U.S. dollar and the U.S. deficit. It's about a 5-minute long interview done over the phone (with Warren Buffett in Omaha, Nebraska) and I highly recommend everyone take the time to listen to it.

Finally, most of these references were gleaned from a great site on Warren Buffett's value investing practices and Berkshire Hathaway, aptly titled The Buffett Blog. It's put out by the Buffett Group at the University of Chicago Graduate School of Business. There are some really interesting links and commentary on Buffett in this blog. They even got to meet Buffett in May 2005!

Berkshire Hathaway has returned an average annualized 25% return to investors over the last 25 years. If the stock price appreciates even a quarter of that percentage, I will be more than satisfied.

Bought Some Steel Stock, & Wrigley Options

Today I opened a position of 3,558 shares at $28.09 in a steel holding company called Mittal Steel Company NV (MT), for a current value of $99,730. In addition, I decided to learn more about options trading, and bought 10 contracts of Wrigley (WWY) call options at $65 per share to expire on the 3rd Friday in March. I paid $3.6 per option, which are currently valued at $3,500. I am basically hoping for a very positive bump up in the stock price after the company's February 7th earnings announcement. William Wrigley Jr. Company was most recently analyzed when I opened the long position in the virtual portfolio, under the post: A Sweet Tooth for Wrigley's Stock Price.

The Mittal Steel Company buy was a value play, in part thanks to a great article in Forbes.com, written an astute money manager named Ken Fisher:

• "The world's largest steelmaker, Holland's Mittal Steel (28, MT), operates in 14 countries, producing 60 million tons a year. By ably controlling costs, it makes fat margins in a business where few do. Mittal trades at 6 times likely 2006 earnings."

Currently, Mittal Steel trades at a trailing price/earnings of 4.41, and a forward price/earnings of 6.19. It has a dividend of $0.40, which comes out to a dividend yield ratio of about 1.40%. The debt/equity ratio is lower than the industry average of 0.43, coming in at only 0.36. In addition, the company has a net profit margin of 17.7%, and an incredible income growth rate of 209.1%.

More financial news about Mittal Steel:

Morningstar.com: Why Do Stocks Get Cheap? - "...we currently have a 5-star rating on Mittal Steel, the world's largest steel firm. Steel is a tough industry, but not tough enough that a company with a fully funded pension plan, an investment-grade credit rating, and dominant market positions throughout the world can't offer an attractive return when it's priced at just 5 times earnings."

The Economic Times, India: Mittal Steel ropes in SAIL - "DELHI: Mittal Steel today announced the appointment of Sanak Mishra as CEO of Mittal Steel’s 12-million tonne per annum Jharkhand greenfield project."

nwitimes.com: U.S. Steel a takeover target? - "U.S. Steel Corp. could be the takeover target of foreign steelmakers wanting to enter the U.S. automotive steel market, analysts are speculating."

A Smalller, Better Bank

First Niagara Financial Group Inc. (FNFG) was added to the virtual portfolio today. I bought 6,690 shares at $14.94 for a current value of $100,350. First Niagara Financial Group, Inc. owns First Niagara Bank and operates about 115 branches in Upstate New York. They've had an incredible growth rate over the past 5 years, handily beating out all of the market indices with a cumulative gain of 250%! They also have some pretty solid fundamentals. Their trailing & forward p/e averaged is 17.14. They have a debt/equity ratio of 0.53.

First Niagara's stock price should see some upward movement after the January 31st Fed meeting, as mentioned in my previous posts: I'm Banking on Bank of America Corp. , and A Bullish Start for the New Year!

First Niagara Financial News:

Press Release Newswire: First Niagara Financial Group to Announce 4th Quarter 2005 Results on January 18

timesunion.com: This is an article about a failed hostile takeover of Ballston Spa National Bank by TrustCo Bank Corp NY. However, at the end of the article there is mention of a possible aquisition by First Niagara.

Buffalo News:

• "First Niagara Financial Group continued its growth strategy in 2005, completing three major purchases. In January, the Lockport- based bank completed the deal for Hudson River Bancorp, giving it 50 branches in eastern New York state.
  In August, First Niagara bought the Hatch Leonard Naples insurance agency to create the largest insurance agency in Rochester and Buffalo. And in September, it bought employee benefits and compensation consulting firm Burke Group of Honeoye Falls. Those deals continued the company's move into non-banking services, like insurance and financial services. The strategy has showed success: third-quarter profits were up 81 percent, to $24.4 million. It now has 117 branches across upstate New York, with $8 billion in assets."

I'm Banking on Bank of America Corp.

Added the finance sector to the virtual portfolio, by buying up 2,173 shares of Bank of America Corp. (BAC) at $45.98, for a total current position size of $100,175.30. Yes, Bank of America is trading near its 52-week high of 47.44. However, the stock does have a lot of positive statistical valuations on its side. Its trailing price/earnings per share is only 11.1, and its forward price/earnings per share is only 10.48. It pays out a healthy dividend of $2.00, which when factored into the current stock-price gives a dividend yield ratio of about 4.30%. It has a current debt/equity ratio of only 0.99, and an income growth rate of 27.4%.

Encouraging financial news regarding Bank of America Corp. :

CNNMoney.com: "Two banks allowed to start commercial developments."

New York Daily News: "Finding dividends in 2006."

finanzen.net: "Bank of America Business Capital Provides Euro 200 Million Asset-Based Loan to Waterford Wedgwood plc."

TheStreet.com: "The Curious Lethargy of Bank Stocks." (Subscription Needed) In the section readable without a subscription, there is a great quote by an Alan Farley: "Bank stocks have another week or two to make their move. Foreign banks listed on the NYSE are rising strongly."

Banking Business review: "Bank of America expands online security feature."

The financial sector and the banking sector in particular will most likely move higher after the January 31st Fed meeting mentioned in the post: A Bullish Start for the New Year! The market will further realize that the Fed will soon cease its gradual raising of the short term lending rates. This should improve overall profit margins for banks like Bank of America.

Intel Added, to Tech-up the Portfolio

Today I added a position of Intel Corp. (INTC) to the virtual portfolio, picking up 3,811 shares at $26.23 each, for a current total position value of $99,542.94. I had previously mentioned Intel in my post A Bullish Start for the New Year! There has really been quite a good deal of exciting news about Intel lately.

Though the trailing price/earnings is 19.58, the forward price/earnings is only 16.02. In addition, their debt/equity ratio is only 0.019, and their net profit margin is 21.8%. When compared side-by-side with Advanced Micro Devices Inc. (AMD), one can clearly see that AMD's fundamentals simply do not measure up to Intel's. Plus, it just seems silly to invest in a company that has a trailing price earnings of 513!

Some promising financial news about Intel:

Forbes.com: Intel's Leap Ahead Could Enable Double-Digit Earnings Growth - "Thornhill said Intel’s new branding strategy to broaden its PC user base could enable sustained double-digit EPS growth. "

washingtonpost.com: Apple introduces first Intel-based computers - "The new Apple iMacs are based on Intel Core Duo microchips and are set to begin shipping on Tuesday, the company said."

TheStreet.com: Apple Puts Intel Inside - "The new Intel-based systems come some five months before Apple had promised."

Also, as an aside and followup to a post about Wrigley's, here is an article about Wrigley making it to the '100 Best Comapanies to Work For' list in FORTUNE Magazine.

Liquor Stocks and Hair of the Dog

Hair of the Dog is an old folk remedy for a hangover. Simply put, if you have bad symptoms from a hangover, going back and having a little bit of the particular drink that "bit you" the night before, will cure your hangover.
Hair of the Dog also happens to be the name of an awesome Irish folk band, and it was at a Hair of the Dog concert that I had my first pint of Guinness Beer.
So I got to thinking over the weekend about beer and liquor companies, and took a look at the fundamentals of the parent company of Guinness, which happens to be Diageo plc (DEO). After some analyis of the news and fundamentals, I picked up 1,668 shares of Diageo at $59.97 per share ($100,029.96) for the virtual portfolio.

Here are some of the financial highlights/news that I found on Diageo:

According to a recent article in BusinessWeek online, Warren Buffett bought 15 million shares of Diageo this past August.

In a Stock Research Wizard comparison with MSN Money comparing Diageo to Anheuser-Busch Companies Inc. (BUD) and Molson Coors Brewing Company (TAP), Diageo had the lowest price/earnings ratio, the highest net profit margin, and the largest total sales and largest total income.

Dow Jones: "Booze Business Bites Back At Lawsuits."

PR Newswire: "Diageo Delivers Holiday Cheer to the Norwalk Emergency Shelter."

"Unscrambling Diageo Plc.", is a great article over at chickslayingnesteggs.com. The writer advocates buying what you know, and the fact that most festivities will feature one or more Diageo products.

Diageo is up over 5% from last year, beating out the Dow and the S&P 500. It also pays a dividend of $2.69, which is equal to a dividend yield ratio of 4.50%.

Here's hoping all the fans drink lots of Guinness and other Diageo drinks at this year's Superbowl!

Pfizer Makes Great Portfolio Medication

So today I bought 4,011 shares of Pfizer (PFE) at market price, and the transaction went through at $24.91 per share. The Wrigley's (WWY) transaction that I had put through after market close yesterday went through at $68.0 per share. So currently I have positions of $100,224.60 in Wrigley's, and $99,673.35 in Pfizer. This leaves a current virtual portfolio equity value of $1,000,056.13. The Stock-Trak virtual portfolio platform allows an account to have twice the buying power of its original cash value. What I'll probably do is buy up 10 equity positions to aim to hold for the full 10-week analysis period, and use the margin buying power for shorter term swing trades and speculative investing.

Pfizer - Thoughts, Analysis and News:

Pfizer had previously been discussed briefly in both the Six Stocks for 2006 post, and the post on the 2005 Dogs of the Dow. I mentioned that Pfizer had a high dividend yield ratio of 3.90% which is promising, but also a higher price/earnings ratio of currently 22.65. However, when averaged with Pfizer's forward p/e of 12.24, we come up with an averaged (forward p/e + trailing p/e)/2 = of 17.4, which suddenly makes Pfizer seem more attractive even after today's jump up of 1.10%.

newratings.com: "Analyst John Boris of Bear Stearns reiterates his "outperform" rating on Pfizer Inc. The target price is set to $30."

Dow Jones: "Pfizer Inc. has begun to ship Viagra as its first product in the U.S. containing counterfeit deterrent radio frequency identification tags on drug packaging."

Yahoo! Finance: "The internal race to succeed Pfizer Inc. Chief Executive Henry McKinnell has created "some tension," he said, but investors should be reassured that the drug giant has three or four strong internal candidates for the top spot."

A Sweet Tooth for Wrigley's Stock Price

I made my first trade today, submitting an after-hours market price buy request for 1,478 shares of William Wrigley Jr. Co. (WWY), which last traded at about $67.72. (By the way, I am using Stocktrak for my virtual Million Dollar Portfolio analysis.) This would give me approximately $99,967.36 of an equity position in Wrigley's. I like to try and hold each equity position as close to $100,000 as possible. This way, I can look down my list of equities and know quickly what my unrealized gain/loss is in each position. This may not hold true for my short positions, which I will explain further in another post.

I had last analyzed Wrigley's in my post on my Six Stocks for 2006.
Here are some more web references which support my optimistic view on Wrigley's:

Forbes.com recently ranked Wrigley's among "The 400 Best Big Companies". They have been on the list for the past 8 years.

Nathan Parmelee over at The Motley Fool discusses the "traits that have made Starbucks, United Technologies and Wrigley fantastic winners over the past 10 years."

BusinessWeek online featured an article describing Standard & Poor's "PowerPicks Portfolio 2006". Stephen Biggar and Robert Gold stated:

• "We believe that the recently acquired Kraft confectionary brands -- which include Altoids and Lifesavers -- will contribute to strong top and bottom line growth in 2006 and beyond. We believe the shares are attractive given our view of the company's relatively high and improving operating profitability, strong balance sheet, dominant and growing market share, and impressive global distribution infrastructure."

Finally, I must reference again Wrigley's amazing long term performance charts. Over at the Wrigley's website, there are some great investor tools, including an Investment Calculator. Here you can see that $10,000 invested on January 5, 1970 in Wrigley's stock would today be worth $910,026.17, for a total cumulative return of 9,000.26%!

Ford as a Potential Value Play

The share price of Ford Motor Co. (F) has fallen 43% in the past year to 8.01, from 14.14 as of January 3rd 2005. It is quite possible that "Mr. Market" (as Benjamin Graham affectionately anthropormophizes the overall stock market forces) , has underestimtated Ford's resiliency.

Ford is by no means out of the water yet, and a survey of top auto executives released today showed that 76% of auto executives polled believe that at least one major auto-related company will file for bankrupty in the next year.

However, Bill Ford is an industrious and innovative individual. Analysts believe that there is an as yet unannounced facet to his turnaround plan that has been in the works since 2003. Ford Motor Co. will announce some of the details of these restructuring plans which include layoffs and plant closures, on January 23rd.

There is already some positive news about Ford to be gleaned from the financial wires, as well as from some close analysis of the stock's statistics and balance sheets. Ford has increased year-over-year car sales for the first time since 1999, by focusing on new models such as the Ford Fusion, Mercury Milan and Lincoln Zephyr.

Statistically, there should be an existential floor to the stock price at or near the stock's current value. The cash per share value stands at 8.09, while the book value per share is currently 7.53. Interestingly enough, Ford's 52-week low price was most recently 7.57, a mere 4 cents above its book value per share. If Ford were a member of the Dow Jones Industrial Average, it would definitely qualify as one of the Dogs of the Dow stocks, with a current dividend yield ratio of an 4.70%.

If Bill Ford can pull this company through with some bold new restructuring campaign, then this stock would definitely be on my watch list if it drops any further at all, and once more nears its book value of 7.53.

A Bullish Start for the New Year!

On the first day of trading of 2006, the Dow closed up 130 , and the Nasdaq was up 38. This spike was mostly due to the release of the December 13th minutes from the last Federal Reserve meeting.

Some dates to keep in mind regarding the Federal Reserve:

• January 31st - Alan Greenspan retires as Fed Chair, most likely a rate bump up.
• March 28th - first Fed meeting led by new Fed Chair Ben Bernanke, possibly last Fed rate hike for the time being.

Other financial news of interest:

• Manufacturing in December grew at a slower pace than November. Though this is by nature bearish news, it was to be expected. Manufacturing peaked in November due to hurricane rebuilding efforts, and is now leveling off at a new plateau.
• Intel Corp. (INTC) is beginning an aggressive marketing campaign to kick off its focus on a new Core processor, and a drive to immerse its chips into smaller digital devices.
• Viacom Inc. (VIA-B) split from CBS Corp. (CBS) and began trading under its own ticker today. Some analysts are worried that CBS Corp. will become sluggish, without a handhold in the new types of media markets. However, if CBS Corp.'s stock price decreases enough in value, it could become a potential takeover opportunity at some point for another media company.

Seeing the Forest for the Trees

There seems to be a slightly larger chorus of bears creeping into financial commentaries of late, with negative predictions for the year ahead.
However, I believe that we will have at the very least, net positive growth in the indices for 2006.

Over at MSN Money, Melissa Lee polled seven Wall Street firms on their 2006 predictions. Five out of the seven had resoundlingly positive expectations for the S&P 500.

The folks over at Forbes.com seem to think that growth, innovation, and the positive stature of large corporations will drive productivity.

Even Jeremy Siegel, Ph.D. over at Yahoo! Finance believes that there is undervaluation to be found in the market, stating that:
"Earnings growth rates have maintained double-digit increases for a record 13 consecutive quarters, yet stock prices have crept up much more slowly. This has compressed the price/earnings ratios of stocks, that all important measure of stock valuation. "

So what's the bottom line?

Yes, there are still stocks that are extremely overvalued, and it is rare that I would consider any stock with a price/earnings ratio higher that 20. But on the flipside, 2005 marked a time of record stock buyback programs from companies that are flush with cash, and these buyback programs are still ongoing. The Fed will most likely cease raising short term lending rates at or near 4.5%.

So how do I feel?
At the moment I would say that I am cautiously optimistic.

Let's see where the financial news of the first week of 2006 brings us.

Six Stocks for 2006

~ Happy New Year! ~

David Gardner and Motley Fool analyst Seth Jayson spoke on NPR about their six stock recommendations that they believe will beat the market in 2006. This program ran on December 23, 2005, and you can listen to it here.

Continuing on that theme, here are six stock picks that I believe have a good chance at beating the market in 2006. I will keep these picks in mind for my virtual million dollar portfolio when I begin trading on January 5th, 2006:

Pfizer Inc. (PFE) - Mentioned in the previous post, Pfizer took a beating last year, partly due to the Vioxx troubles associated with Merck. Pfizer's price/earnings ratio is still a little high at 21, but its dividend yield ratio is 3.80%. Pfizer is one of the Dogs of the Dow stocks of 2005.

Verizon Communications (VZ) - Verizon is another stock that appears on MSN Moneycentral's Dogs of the Dow list from 2005. Verizon is currently priced relatively cheap, with a price/earnings ratio of only 10.21. Its dividend yield ratio is 5.10%.

William Wrigley Jr. Co. (WWY) - This stock does have a higher price/earnings ratio than others on the list, coming in at 27.82. However, Wrigley's traditionally trades at a p/e of about 30, so this is a relatively cheaper price. Plus, Wrigley's higher price/earnings can be overlooked for the longer term investor, when compared to their astounding long range performance.

Allstate Corp. (ALL) - Allstate has a reasonable price/earnings ratio of 19.6. Their stock price was hit hard by the hurricane season last year, with the price dropping to 52 dollars per share in September and November. However, Allstate is in the business of insuring against these types of disasters. In fact, recently the company has announced premium price increases. This has provoked little fanfare from the public, which would seem to point out that Allstate is now spending publicity capital garnered from the hurricanes.

3M Company (MMM) - Also reasonably priced, with a price/earnings ratio of 19.2. In April of last year, 3M Company was trading at a value of 84 dollars per share. This dropped off to finally rest at 70 dollars per share in November. With the announcement of new CEO George Buckley and a debt/equity ratio of only 0.07, 3M Company should be a safe bet.

Bank of America Corporation (BAC) - Bank of America has a low price earnings ratio of 11.12. They just finished their acqusition of MBNA, which makes them "the nation's No. 1 card issuer when measured by balances." Their price/book ratio is only 1.84, and their debt/equity ratio is 0.99. Bank of America should also be buoyed by the likely stoppage of the Federal Reserve's increases in the short-term lending rates.

Though these are indeed all relatively attractive stocks at the moment, I will of course reevaluate based on changes in the market conditions when I begin trading with the virtual million dollar portfolio on January 5th.

~ Have a happy and a healthy new year,

and may only good things come to you! ~