Bedell Frazier Investment Counselling, LLC

Thank God It’s Friday                                                                May 18, 2012

Welcome to Facebook Friday.  The biggest and most hyped IPO finally came to market today.

The buzz was high, and the BIG question was where the shares would actually begin trading.  The final IPO pricing was $38 Thursday night.  It opened at $42, hit a high of $45 and closed right back at the IPO price of $38.  Nearly 600 Million shares traded in its debut.  Unbelievable!  For perspective, at a $104 Billion Market Capitalization, the Facebook Company is instantly more valuable than Disney.  This is a moment in history to remember.

The business reporters failed to remind investors that one of the unique experiences of today’s IPO was the skinny sales commissions awarded brokers. FB’s management restricted the commission to 1.5% so the “little people” could participate in the future growth.  Also it’s the 100-share buyers who will tuck away the new shares for their grandchildren whereas the day traders would buy at 38 and flip the shares moments later to grab the quick trading buck.  The PLAN worked.  Management also authorized releasing thousands more shares than anticipated which gave even further distribution to the kind of investor who will hold the shares for long-term growth rather than a quick flip.

Unfortunately, the Social Media hype couldn’t help curb the slide for the Global Markets as the DOW has seen a decline in 12 of the 13 trading days in May.  It’s been a rough go, but not a complete surprise.  Europe remains quite sick.  Everyone knows the well chronicled debt issues on the European continent.  That’s not news. Greece has effectively already defaulted, but the major concern right now is its future with the European Union; will they leave on their own accord, or get kicked out?  Regardless, a Greek departure would set a dangerous precedent for this economic union that started in 1993.  Having one nation leave, would make it much easier for another, and then another.  The Market doesn’t like it.

We’ve been on guard all year hoarding substantial cash positions to cushion the blow of a market correction.  We will survive whatever comes our way, and play strong defense.  But we won’t abandon our ability to look out beyond the near-term mess, and seek sound growth investments in companies that continue to innovate.  The Facebook effect is real, and actionable.

Have a nice weekend.

By: Mike Frazier

Thank God It’s Friday           May 11, 2012

With Mother’s Day approaching, there is one special gift I’ll be asking for this year.  I’d like some FACEBOOK shares when the company goes public next week. About 1,000 shares should finance my bucket-list First Class trip around-the-world.  One problem: The shares are tough to find and tougher to price.
 
Since we pride ourselves on creative and opportunistic investing, we have indicated interest to BUY for our investors the newly-minted FB shares with dim hope of getting any.  One thing is certain: This will be the most heralded IPO ever. Fortunes will be created overnight and the lucky winners are expected to SPEND considerable sums, right out of the gate. California stands to gain a windfall from the sales tax and economic activity from this event.

Based on current expectations, Facebook will price its offering of about 337 million shares late Thursday, May 17th, with trading expected to begin on the Nasdaq Stock Market on Friday morning. The company itself is selling 180 million of those shares, with the rest being offered by selling shareholders.

We expect the deal to price between $28 and $35 per share — though that number could skyrocket on strong demand. Facebook executives have spent the last week meeting in so-called road shows with potential investors, and have more meetings scheduled for next week ahead of the pricing. You may recall the movie called “Social Network” which told the phenomenal story of Facebook’s genesis from a Harvard dorm room to world domination of social networking. History will be re-created again on Thursday when this new company goes public.

BTW: There are over 900 million members on Facebook.
We hope all you mothers enjoy Sunday celebrating your proudest achievement: your children!
    
 By: Jude Bedell 

Thank God It’s Friday!                        May 4, 2012

The most enigmatic Wall Street adage is in play this week: “Sell in May and Go Away”. It was born of the tradition that the May-to-October period is the most volatile for stocks. It is a fact that stock indexes have often wilted in the summer sunlight. However, there is smart selling and dumb selling. We espouse the smart kind!

Smart sellers are disciplined to follow rigid rules. The greatest rule of selling is to take profits in profitable companies while you got ‘em.  With today’s low commission rates, you can easily slip back into a stock once the dust settles on a correction. The secondary rule guides investors to sell the weaklings BEFORE the general market corrects. They invariably get hit the hardest when stocks begin to trade lower. Smart selling is shaped like a barbell: Sell the strongest stocks for profits and sell the weakest ones to preserve capital.

However, three game-changers in 2012 will affect markets more than the fear of May-to-October volatility.  First, this is a Presidential Election Year which favors bull markets.  History teaches us that an investor who bought and held stocks in the second half of presidential terms, and then sold on the day the presidents were inaugurated, would have made money every time, for an overall gain of more than 7,000 percent. Although the presidential cycle theory is historically accurate, it does not necessarily predict stock prices nor stock picks.  The market is subject to various forces, many of them unforeseeable, and a recognized pattern may not anticipate the next turn in the market.

Secondly, European political high jinx this weekend’s features Sarkozy of France losing his job to an anti-austerity populist. This leaves Germany ’s Merkel without her loyal comrade while facing fierce opposition from around Europe .  Lastly, globalization is opening windows when doors close on companies, to wit, American company BRINKS saw its US sales fading so turned to Brazil to fill the gap. Ten years ago, it would take a company 10 years to execute such an about face. 

So, please go out this weekend and enjoy the sweet May weather while we stay on duty analyzing when to hold ‘em and when to fold ‘em.  And don’t forget the Kentucky Derby tomorrow. I’ve got the #4 horse.                                                    

By: Jude Bedell

IBM Boosts Dividend 13%

CHEVRON raises dividend 11% for 3^rd time in 13 months

APPLE initiates its first dividend ever

EXXON hikes dividend 21%

Johnson & Johnson lifts dividend 7%

COKE splits stock 2-for-1         etc, etc, etc………………

By now, you get the point that high quality growth stocks are rewarding investors for their patience during the economic recovery which is being reflected in strong sales and earnings results as 2012 gets into full swing. This parade of dividend bumps gives credence to our 2012 focus on “incomey-growth”: safe growing dividends amidst solid earnings growth. 80% of recent Earnings reports have surpassed expectations by about 10%.

Despite this upbeat pay-out scenario, many stock investors say they are expecting a correction. It’s hard to be bearish with the flow of earnings news full of positive surprises, oil prices sagging, and the Fed committing to ZERO percent interest rates through the end of 2014.

Yesterday, Investors IntelligenceBull/Bear Ratio fell for the third straight week. This tells us that Bullish sentiment dropped over the past three weeks, while bearish sentiment was unchanged. Professional investors calling for a correction advanced for the third straight week to a nine-month high. This is a good sign since it is a contrary indicator meaning when more bears begin growling for a correction, the opposite usually prevails.

The sum of outright bears and correction bears rose to 58.1% this week, the highest since the final week of October. They are struggling to stay afloat among the waves of positive earnings reports. S&P 500 forward earnings rose to a fresh record high in April, led by Information Technology and Industrials… while Apple has certainly boosted the TECH  SECTOR earnings, so have lots of other fruitful companies in the sector, which are benefiting from the mushrooming internet Cloud.

Leave it to the Europeans to spoil the fun. However, even the no-nonsense Germans are curbing their enthusiasm for fiscal austerity measures and talking about having more fun with pro-growth policies. They have learned from theUSrecovery that promoting growth via monetary moves heals an ailing economy faster than painful austerity to reduce debts. It is the age old battle of fiscal philosophers whether to GROW a country out of recession…. Or restrict its growth in the name of fiscal responsibility.

By Jude Bedell

Thank God It’s Friday!                        April 20, 2012

“I don’t want to work; I just want to bang on the drum all day!”  This lyric is the battle cry of Baby Boomers as they near the end of their working days is appropriately written by fellow boomer Todd Rundgren!  Despite the credit crisis and its negative impact on 401ks, recent data indicates that Baby Boomers are still retiring as scheduled.  Only a small percentage of boomers continue to work past age 65 for financial reasons.  Most boomers over 65 stay on because they enjoy working or fear “getting old” if they retire. 

Unlike their parents who survived the Great Depression by pinching pennies, Baby Boomers continue to add fuel to the US economy as they spend, spend, spend!  It is projected that the boomers will spend a whopping $20 TRILLION over the next 20 years on consumer goods.  The average American buys 13 cars over a lifetime and 7 of them are bought after age 50.

What industries will thrive as the boomers boom???  The most obvious is health and wellness companies.  Think Rx drugs to keep our cholesterol low, yoga to keep our stress down and replacement body-parts when ours fail!

As boomers age, they become less concerned with buying “things” (except cars!) and more interested in consuming experiences. Therefore, both the travel and dining industries should cash-in on this demographic trend. Most boomers list “CRUISE” on their bucket lists because cruises to exotic ports are budget-a-ble and certainly more hassle-free than running through airports and self-planning the tours.

The retiring army of baby boomers puts a new face on the consumer, once pictured as a harried housewife. The stock market is regaining its old reputation as being an all-knowing precursor of the future by rewarding consumer stocks in spades. This sector has significantly outperformed all the other ones during recent bull market run that started on March 9, 2009. This happened despite all that talk about how consumers would have to retrench while they de-leveraged their balance sheets.

So let’s join the baby boomers and plan a fun holiday, not the boring ole restful ones we planned while still in the workforce. 

By: Jude Bedell

152 years ago the communications industry got a major kick start, literally.  Paper messages left a small town inMissouri,Californiabound.  They traveled 2,000 miles at the speed of a horse.  It was a 10-day trip.  Much cooler than texting or tweeting, this was the PONY EXPRESS. 

Our young nation was captivated by its existence.  It was celebrated, it was glamorized, it lasted less than 18 months.  This piece of American folklore was retired for the ages.  “High tech” replaced “low tech”, and in came the telegraph.  Electronic communication came to life.

Today, information travels at the speed of light and spans the globe.  Planet earth is more connected than it’s ever been before.  Last night I was parsing through Google’s earnings report, monitoring the impact of the Korean rocket launch, while anxiously anticipatingChina’s first quarter GDP report.  I could see how Asia was trading, how Europe would awaken, and track USfutures as an indicator of what Friday might bring. This of course took place after my 3 girls were asleep. 

Today’s Market is always awake.  Global events have great impact on investments.  Today’s Market acts and reacts; it anticipates, discounts expected events, and moves forward.  For much of the last 9 months, theUShas been the biggest driver for global markets.  And after a stellar start to the year, stocks were ripe for a “sell the news” event with earnings reports.  We saw evidence of it this week, with the DOW and S&P logging their worst 5-day session on the year. 

But some important events transpired that should lay the foundation for better days ahead.  Despite the fact thatChina’s economic report missed expectations, digging through the data suggests that things bottomed out in February and started re-accelerating in March. China’s stock market has been in a Bear Market since 2010.  That could be coming to an end.  The other event was natural gas prices broke below $2.  It hasn’t seen this level since 2001, and adjusting for inflation, it’s the lowest it has ever been.  We finally have the ability to reduce our dependence on foreign energy supplies, which we spend over $1 Billion per day.  This is a really big deal.  Everyone is talking about natural gas these days, and the Free Market is finally doing something about it.  Many trucking fleets have begun switching over to natural gas powered engines. Buses and taxicabs are already there.  The seeds have been planted for this energy renaissance, and we are seeing some blooms.

Technology makes things happen today, better and faster than we ever imagined.  And there’s just no stopping it.  But at times it comes at the expense of patience, because we collectively have become used to immediate results.  10 days can seem like forever today, but it was light speed to the pony.

Have a nice weekend.  We’re here, and we’re on it.

By: Mike Frazier

Good Friday is a traditional market holiday, so we are writing a day early. We wish you and yours a holy Easter Tridium and Happy Passover. When we return to work on Monday, two market-moving events will follow: corporate earnings releases covering the first calendar quarter of the year and countdown to Tax Day.

On Good Friday, a market holiday, the release of the March new jobs report is likely to be full of good news. The same thing is true for corporate earnings which begin to be publicized next week. We expect to see 2 to 4% improvements each quarter of 2012 with allowance for seasonal aberrations.

Unfortunately, there’s nothing we can do to slow down the tax train which is decidedly coming down the track. But we can help you fund last minute IRA contributions for 2011 which are due APRIL 17th. We can also help fund your 2012 IRA contributions to get a leg-up on next year’s tax task.

Closing on a happy note, baseball is back in the Bay Area. It’s my personal favorite way to spend a sunny spring afternoon. So forget the tax man. Go out to the ballpark and have some old fashioned American fun. You deserve it!

By: Jude Bedell