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There is a great article in today’s Wall Street Journal regarding BHP’s decision to hold on to its cash rather than waste it on vastly increased dividends.

BHP Billiton may have brushed off the recession, but investors are now grumbling at the mining giant’s reluctance to indulge them with fatter dividends and a big share buyback. But BHP boss Marius Kloppers is right to stand his ground. With the global economic recovery far from assured, maintaining a cash cushion to protect long-term capital spending and to be able to pounce on acquisition opportunities make sense.

Despite the recession, BHP reported underlying earnings down just 6% in the six months to June 30 thanks to buoyant copper prices and record iron ore and coal output. As a result, net debt is now equivalent to a little more than a third of annualized earnings before interest, taxesl depreciation and amortization, a fraction of its nearest rivals. Yet Mr. Kloppers raised the interim dividend by just two cents to $0.42. There is no plan for more share buybacks. Nor has BHP taken advantage of industry distress to make substantial acquisitions during the downturn.

I haven’t reviewed BHP for this site yet but, in general, I don’t think it is a very good investment. The reason is not because of their lack of dividends though but rather their lack of solid sustained growth in the categories that matter:

  • Sales
  • Earnings per share
  • EBIT
  • Price per Earnings

Taking profits from the corporation to give to the owners doesn’t make a better company – it makes owners happy in the short term but it doesn’t make the company better in the long-term. While I don’t begrudge a corporation the right to pay dividends, I do think that they should only do this when they have got the rest of the company in order.  In the case of BHP, they should spend some of that cash on improvements that will make BHP a Good Company.

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Company name Macy’s, Inc.
Stock ticker M
Live stock price [stckqut]M[/stckqut]
Confident Investor Rating Poor

Confident Investor comments: At this price and at this time, I do not think that a Confident Investor can confidently invest in this stock. It is not possible to confidently invest in a company that is not currently profitable.

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I just read a great interview with Doug Kass of Seabreeze Partners.  The interview is on Benzinga.com. I thought the following quote was the most relevant as it completely agrees with my basic investing philosophy as well as the philosophy of my upcoming book.

Q: What is one paradigm that aspiring traders or investors must adhere to or understand in order to find success?

A: There are five basic tenets to investing success that I would give to any trader or investor:

  1. Stop your losses and let your profits run.
  2. Don’t use leverage.
  3. Be diversified.
  4. Always remember that it is better to lose opportunity than lose capital.
  5. Don’t forget #1!

You can read the entire interview here.

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Company name Petroleo Brasileiro SA (ADR)
Stock ticker PBR
Live stock price [stckqut]PBR[/stckqut]
P/E compared to competitors Good
MANAGEMENT EXECUTION
Employee productivity Good
Sales growth Good
EPS growth Good
P/E growth Good
EBIT growth Good
ANALYSIS
Confident Investor Rating Good
Target stock price (TWCA growth scenario) $90.66
Target stock price (averages with growth) $106.9
Target stock price (averages with no growth) $59.5
Target stock price (manual assumptions) $38.25

Confident Investor comments: At this price and at this time, I think that a Confident Investor can confidently invest in this stock.

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I have heard various versions of this over the years. I am not proposing that you use this legend as a way to invest your money. In fact, quite the opposite, you should only invest best on solid analysis of the company and have some mathematically pure methods of estimating the pricing points. However, with the game today, it is fun to think about this.

I don’t know what the outcome of today’s game will truly bring. The Indianapolis Colts are one of the oldest teams in professional football as they were originally part of the NFL as the Baltimore Colts. This lineage says that they should be a NFC team but today they represent the AFC. The Saints are an expansion team and have always been in the NFC. So with the legend, they would both be considered NFC teams – so maybe the bull market is a sure thing!

I think that I know some mutual fund managers that have not predicted the market as well as this technique though!

I picked this up over at Snopes.com.  You can go there to read more about what they said.

Want to know if the bulls or bears will be rampaging through the market this year? Popular wisdom says look to the Super Bowl for the answer because a seemingly startling correlation appears to exist between who wins the big game and how the market will perform in that calendar year. According to the “Super Bowl Indicator,” a triumphant team from the old American Football League (now the American Football Conference, or AFC) foreshadows a down market, but a winner from the old NFL (now the National Football Conference, or NFC) means dust off your red cape, because the bulls are coming.

The Super Bowl Indicator (SBI) has been on the money 32 years out of 40, which represents a success rate of 80%.1 Between 1967 and 1997 it was accurate 28 times out of 31 (a better than 90% average); it then hit the skids, going 0-4 between 1998 and 2001, but rebounded by being correct 4 years out of 5 between 2002 and 2007.2

Due to league expansion, franchise moves, and conference shifts, the SBI has posed some interpretive problems in recent years as fewer and few Super Bowls pit former AFL teams against old-line NFL teams. Both the 2003 and 2004 championship games featured post-merger expansion teams (the Tampa Bay Buccaneers and Carolina Panthers) and the 2007 contest was waged between two original NFL teams (the Colts and the Bears).