Frontline (FRO) is a Buy!

This stock held up incredibly well during the sell-off because of the flight to safety (dividend stocks/bonds).

I think that this stock will pull back, flight from safety, as the market recovers from the beating.

The high yield and the growing transport to China makes this a must buy.

Current price = 70.60

Apple (AAPL) a Short?

The stock failed to make a new high on the iPhone 2.0 release- expectations were too high. Expectations, and how they are met, is everything in the market.

Also, RIMM's perceived disappointment will weight down AAPL.

Earnings wise, Mac sales are the bread and butter but AAPL also trades off of the growth of iPhones as a proxy for future earnings. Now, all my research shows that the iPhone is in HUGE demand over seas but there seems to be a slow down in the U.S. for all cell-phone providers. AAPL is usually price for perfection.

Evidence

Palm shares slump as loss, sales disappoint

12:22p ET June 27, 2008 (MarketWatch)

SAN FRANCISCO (MarketWatch) -- Palm Inc. shares fell as much as 11% in afternoon trading Friday after the company reported a fourth-quarter loss and a drop in sales as its popular Centro smart phone was unable to make up for declines in other areas.

Palm's gross margin fell to 25% in the fourth quarter, compared with 38% in the same period last year, a sign that Citigroup analyst Jim Suva said "was sudden and is a source for increasing concern."

Friday's biggest gaining and declining stocks

10:43a ET June 27, 2008 (MarketWatch)
SAN FRANCISCO (MarketWatch) - Shares of the following companies are among those making notable moves on the U.S. stock market Friday.

SONY Ericsson, the mobile-phone making venture of Sony and Ericsson , warned that its second-quarter pretax profit will be "about break even" on falling gross margins, due to moderating demand for mid-to-high end mobile phones and a delay in shipping new products.

Now Palm not making the numbers, can easily be passed as Palm's problem. Ericsson, is a little iffy. RIMM is a major disappointment. I do believe that many RIMM customers are waiting for the Bold/Thunder, so this may be a short term blip, but worth mentioning.

On top of all this, there is much speculation about Steve Job's health. No Jobs= No Apple. They lack a succession plan.

I believe that AAPL can bounce back to about 175-180ish with the rest of this oversold market. But now, tech doesn't look like the immune behemoth it did just 2 days ago.

Current Price: 168.50

Trade With Care

I think it is important to remind every that tomorrow is Friday. Lots of weird stuff happens.


With the markets currently being down 2+% for the day and a lot of negative attitudes carry over from the rest of the week. There may be/probably will be traders closing positions before the weekend.

Wide Scales will keep you in the game!

CSX Corp (CSX) is a BUY!

When oil raises, the railroads win.

More and more goods are being shipped by rail due but capacity cannot increase by much: you can't build much more (if any) rail road. The only available option is to build large container but the rails are being conservative with this option.

CSX Corporation transports crushed stone, sand and gravel, metal, phosphate, fertilizer, food, consumer, agricultural, paper, and chemical products. In addition, it delivers coal, coke, and iron ore to electricity generating power plants, as well as finished vehicles and auto parts.

These guys in the the hot spot. CSX can charge a larger surcharge when oil goes but has the technology to reduce oil inputs-more miles per gallon. They boast an incredible 421 miles per 1 ton of freight on 1 gallon of fuel!

CSX is trading at 62.45 with the August 65 Calls @ 2.90

Owens-Illinois (OI) Falls to 44.50

I don't want to sound like I cannot admit I am wrong- I can.

My initial call for OI was early by almost 10%-times like these require wide scales. Selling the previously mentioned called really covered a lot of this downside: the Nov 50 calls are trading now only at $2.80. Don't hate me to much yet though. My initial call was @ 47.17, only $2.67 higher than it is now and you gained about $1.20 on the calls. The market has been rough and this strategy has only cost you $1.47/share- less than 3%!

I do see how all the current fears can play into OI earnings but the current market sell off is being driven by fears.

Technically, OI is at support at the moment and just filled the gap. Never sell into a panic.

RIO Started at Overweight by Lehman Brothers!

The market is bringing the stock down marginally, even with the upgrade. Still a buy!

Brazil Vale Started At Overweight By Lehman Brothers

Last update: 6/26/2008 7:48:13 AM

SAO PAULO (Dow Jones)--Lehman Brothers initiated the coverage of shares of Brazilian mining giant Companhia Vale do Rio Doce's (RIO) with an overweight recommendation, the investment house said Thursday in a research report for its clients.

"Vale is very well-positioned to benefit from the ongoing mining super-cycle, and we recommend that investors purchase Vale common shares at current levels," said Lehman Brothers.

In addition, the investment house set a 12-month price target for Vale's American Depositary Receipts, or ADRs, at $45. On Wednesday, the company's share closed quoted at $36.68 in New York.

Lehman Brothers said it is expecting that Vale will earn $3.02 per share in 2008 and $3.96 per share in 2009. By comparison, last year the company reported a profit of $2.41 per share.

"Vale should have significant earnings growth from 2007 to 2008 due to iron ore contract price increases (starting April 1, 2008) of 65% for its medium quality standard fines, 71% for its high quality Carajas fines, and 86.7% for its direct reduction and blast furnace pellets," said the investment house.

-By Rogerio Jelmayer, Dow Jones Newswires; 5511-6847-4521; rogerio.jelmayer@dowjones.com

AGCO is trading at $50.70

AG is down about $3.50 since I've gotten bullish on it. Still am.

The Nov 55 Calls are down $2.00 to $5.30- not bad. Scale in and sell the NOV 55 again.

I see no reason to state that this is a trend reversal instead of just a pullback.

Here is an interview with the CEO. He doesn't see anything slowing down anytime soon.

http://www.thestreet.com/_yahoo/video/strategysession/10422424.html?cm_ven=YAHOOV&cm_cat=FREE&cm_ite=NA#10422424

How to Play Housing

WASHINGTON (MarketWatch) - Sales of new U.S. homes tumbled 2.5% in May to a seasonally adjusted annual rate of 512,000 as sales in the West fell to a 26-year low, the government said Wednesday. The decline nearly matched economists' expectations. It was the lowest since the 501,000 rate in March. New-home sales were down 40.3% compared with a year earlier. The median sales price in May was $231,000, down 5.7% from a year earlier. The number of homes on the market fell to a three-year low of 453,000, representing a 10.9-month supply.

If I were to tell you that the housing market is being killed by the banks not lowering lending (mortgage) rates you might think I'm stating the obvious. However, I have not heard that housing will rebound with the banks supply of money. Everyone is circulating this idea but not harping on it directly.

The above quote, shows us that inventory is HIGH (we know this), BUT only in relative terms. Relative to the rate of sales. Think of it this way, 450,000 is not a lot for our economy to swallow given the large fall in home price. The market is no longer irrationally inflated. Demand for home is not longer being choked off by the price of the property but the price of the money!

This rate of sales is being choked by the lack of liquidity of the banks: mortgage applications are hitting low for 2008 even while the Fed has been cutting rates. This discrepancy is irregular.
http://money.cnn.com/2008/06/18/news/economy/mortgage_applications.ap/index.htm

To sum up, play the housing stock- if you're brave enough - inversely to mortgage rates.

I cannot believe that one has pointed out this inverse relationship between homebuilders and the 10 year note over the last 6 months!

Home Improvement is Growing

I am posting this little later than I would have wanted but it only confirms what I have been harping on since my first post.

Paul Raines, Home Depot executive vice president for U.S. stores, also said during a presentation at the 18th Annual Wachovia Securities Nantucket Equity Conference, monitored by webcast, that the retailer was seeing "a tremendous shift toward repair-remodel categories" as the slumping housing market leads consumers to curb big-ticket renovation projects.

He also added that while some suppliers were pressing the Atlanta-based chain for price rises, some vendors were willing to forgo such increases in order to gain sales volume.

http://www.reuters.com/article/marketsNews/idINN2441185420080624?rpc=44

Home Depot = Home Improvement

Food for thought: If demand is strong enough, which Paul Raines words support, HD will not need to put their inventory on sale, thereby maintaining margins.

Vale (RIO) is a BUY!

This is the cheapest and, arguably, the best mineral company in the world.

For those of you who have never heard of Vale (RIO - not to be confused with Rio Tinto), its one of the world's largest iron ore producers and based in one of the world's strongest economies: Brazil.

The company recently offered ~$15B in stock and diluted some of the shareholders, which is why it is lagging the other steel/mineral plays. The company did this to fuel future growth.

I played this company before from ~$32 to $38. Finally pulled back enough for me to harp on it.

RIO is a buy.

OI is down 5+% to 46.60

Yesterday, OI was upgraded by Banc of America and almost reach $50.00.
http://finance.yahoo.com/q/ud?s=OI

Today, it was taken off of Goldman Sach's Conviction Buy List.

Make up your own mind because listening to recommendations from the big banks will give you vertigo!

Small Excerpt"

"Owens-Illinois is seeing big global profits in glass containers as sales grew 16.4% in the first quarter. The company has surprised on estimates each of the last four quarters by an average of 66.17%. O-I's forward P/E is only 9.33."

On Apr 30, Owens-Illinois reported first quarter estimates that surprised on estimates by 35.71%, or 29 cents per share. First quarter earnings increased 215% to $174 million, or $1.08 per share, compared to $55.3 million, or 31 cents per share in the year-ago period, excluding a one-time restructure charge of $9.7 million, or 6 cents per share.

The company attributed the earnings rise to improvement in price and product sales mix. Higher energy costs and raw materials, as well as transportation costs, ate into the improvement gains however.

Sales rose 16.4% to $1.961 billion from $1.684 billion in the first quarter of 2007. Favorable currency exchange added $187 million and increased price and product sales racked up another $119 million.

The company said rising energy and raw material costs are going to make 2008 a challenge.

"But I remain confident in the capabilities and dedication of O-I employees to ensure that the strategies we've put into place will deliver solid results," said Al Stroucken, Chairman and Chief Executive Officer.

"Going forward, we will continue to identify opportunities to expand our footprint in attractive geographies and to work with our customers to develop innovative glass packaging that will help distinguish their brands in the marketplace," he said.

http://seekingalpha.com/article/82471-owens-illinois-continues-to-grow

Glass has class and I am still bullish on Owens-Illinois!

Scale into HD @ 25.14

I'm an not trying to call the bottom but if you believe in my home improvement thesis, as I still do, then this 4.5% decline is another gift (read: buying opportunity)

For more downside protection, it is a touch choice between selling the Nov 25 Calls ($2.45) or shorting the SPY.

SPY allows for more downside protection, after all, we should be on the cusp on a large move. Although, carries more risk if HD does not outperform the SP500. This large movement is also an argument against selling calls because increased VOL means more expensive options (you may need to buy back).

To make a decision, I will always be a favor of selling time and Vol over just Vol. The passing of time is inevitable.

AGCO (AG) is a BUY!!

Current price: $54.35

A couple days ago this stock made a huge more on an analyst upgrade. Now, it have it all back.

I completely agree with the theory of margin expansion. John Deere (DE), has a profit margin of almost 2x of AG- clearly, there is room for growth.

Please SELL the Nov 55 Call for $7.30. These calls are really pumped up: like taking candy from a baby.

Owens-Illinois (OI) Is a BUY!!

Time to scale in to OI at $47.17

Again, for downside protection, I recommend SELLING the NOV 50 Calls for about $4.00.

With oil prices surging, plastics are getting REALLY expensive. DD raised prices 20% because of raw material costs.

Glass will become the cheaper and classier alternative.

More analysis to come.

Scale into HD @ 26.38

Market has been weak last couple of days and is presenting a buying opportunity for HD.

Events to keep in mind:

The Home Depot®, the world's largest home improvement retailer, announced that Craig Menear, executive vice president, Merchandising, will present at the William Blair & Company 28th Annual Growth Stock Conference in Chicago, IL. The presentation will begin at 11:50 a.m. CT on June 18, 2008.
http://biz.yahoo.com/prnews/080617/cltu087.html?.v=101

There was more insider buying was reported yesterday- 250,000 shares @ 27.23.
http://www.insider-monitor.com/reports/insider-buys-sortby-value-20080617.html

HD is trading now almost a dollar below his basis.

For downside protection, I recommend SELLING the 27.50 Nov Calls for about $2.00. If HD breaks the 52 week low, 23.77, get out.

Home Depot (HD) is a BUY!

I have been saying that HD is a buy for the last 2 weeks. Wall Street is throwing it in the same ugly bucket as home builders and that is WRONG! It is true that Home builders (TOL, HOV, LEN, CTX) and Home Depot have been both beaten down by the housing slump but there is more to the story.

We can all agree that the HUGE inventory is what is killing the home builder. High supply= no pricing power for them. To be more specific, only locations where house prices have fallen 30+% are where buyers have showed up. This is a business you don't want to be in!

In contrast, Home Depot doesn't fully depend on new homes being built. Home improvement will be the new new thing (again). Let me explain: I see the next big trend developing to be home improvement. During the boom, the game plan was to sell your house and buy a new one. There was little incentive to renovate because your old house will most likely be bought as a tear down. It was too easy to get a big enough offer to pay off your mortgage and upgrade. That possibility is dead. In the post-boom summer rebate checks define the playing field.
There still is plenty of homeowners that don't own sub prime loans and have stable enough income to pay off their mortgage. Rebate checks will be spent towards home improvement, such as lawn care and insulation. The CEO of Owens Corning estimates that there are about 60 million homes under-insulated. When you think home improvement think Home Depot. A beautiful lawn may be one of the simplest, and to some the funnest, way to improve home value: curb appeal. Moreover, winter is coming and natural gas is hitting new high on a daily basis. Consumers will need to protect their wallets by lowering their heating bills. What's smarter than buying some Pink Panther and insulating your roof?
More on insulation and natural gas plays later.

Last week my theory was affirmed. Surprisingly strong May retail numbers came out with "eye-popping" 2.4% sales growth in home improvement retailers and furniture stores when compared to April.

Home Depot has a lot more going for it. Firstly, it beat last quarter estimates by $0.04 (0.41 vs 0.37) but the stock fell due to lack of guidance. Wall Street is exaggerating the weakness in Home Depot as evidenced by the Quarter beat. Moreover, I do see guidance. Ever since the HD reported, insiders have been purchasing plenty of shares. About 7 million shares ($190mm) have been bought in the last 3 weeks. http://www.insider-monitor.com/trading/cik354950.html

Lastly, I want to touch upon leadership. Talking to a former district manager of Home Depot, I heard first had how poor of a retail leader Robert Nardelli was. I recently read an interview with the new CEO, Frank Blake, in the WSJ. I was very impressed. He is a man not afraid to create change and very aware of the weakness Nardelli created. I recommend the interview as a read.

HD is a Buy
1. Growing trend towards home improvement
2. Insider buying shares
3. Good leadership who are aware of the problems and doing something about it

Risk Management will be updated soon

What Is This About?

Stocks. Research. Analysis. Risk Management.

The pursuit of Alpha: outperforming the market.

This blog will be the blow horn for all my investing ideas and serve as a judge, jury, and executioner for my oversights and errors.

I am the market's apprentice. While investing in the stock market over the last 8 years, I made a lot of mistakes and I learned from all of them.

Hence the name "Alpha Apprentice." I am still a student of the market learning the rules of the game on how to earn Alpha.

I want to track my thoughts, successes, failures and be criticized for my errors, so I created this blog.

Stay tuned: I promise to bring my battle with the market to you.

Blood, guts, fears, triumphs, and greed.