Hello Friends!  Thanks so much for stopping by and visiting my blog, Stock Picks Bob's Advice!  As always, please remember that I am an amateur investor, so please remember to consult with your professional investment advisers prior to making any investment decisions based on information on this website.

As I mentioned in an earlier blog, my 'trade' in PetSmart (PETM) was intended to be a short-term affair.  I had hoped that I could be reporting a large profit from this move which did indeed initially move higher after my purchase of 180 shars on 5/21/09 at a cost of $20.3676.  However with the market acting at best erratically this morning and with PETM trading below my cost on this block, I decided to step aside from this additional over-weighted addition and sold my 180 shares at $19.9524/share.  This represented a loss of $.4152/share or multiplied by 180 shares came out to a loss of $(74.736). Percentage-wise, this was a loss of (2.03)% so the damage really wasn't significant at all.  

I still like PetSmart (PETM) and have my 90 share position which I am quite bullish on.  However, as a trader, I have always had mixed results and always subscribe to the belief that one is best minimizing losses.

Will PetSmart (PETM) turn around tomorrow and prove me wrong?  I wouldn't be surprised.  But I shall participate in that appreciation if that is the future for this stock.  Meanwhile, I have a little more cash built up once again in the account for future investments and yes, an occasional 'trade'!

If you have any comments or questions, please feel free to leave them on the blog or email me at bobsadviceforstocks@lycos.com.

Yours in investing,

Bob

Hello Friends!  Thanks so much for stopping by and visiting my blog, Stock Picks Bob's Advice!  As always, please remember that I am an amateur investor, so please remember to consult with your professional investment advisers prior to making any investment decisions based on information on this website.

I had the pleasure of putting together a new

PODCAST ON PETSMART

Please click above and listen to what I have to say about why I bought when other sold and what the outlook might be for this pet supply retailer.

Thanks for dropping by!  If you have any comments or questions, please feel free to leave them on the blog or email me at bobsadviceforstocks@lycos.com.

Yours in investing,

Bob

Hello Friends!  Thanks so much for stopping by and visiting my blog, Stock Picks Bob's Advice!  As always, please remember that I am an amateur investor, so please remember to consult with your professional investment advisers prior to making any investment decisions based on information on this website.

I wanted to let all of you blog readers to know that I managed to get off my duff and post a new

PODCAST ON MCDONALD'S

That you are all welcome to listen to.  If you have any comments or questions, please feel free to leave them here or drop me a line at bobsadviceforstocks@lycos.com.

Yours in investing,

Bob

Hello Friends!  Thanks so much for stopping by and visiting my blog, Stock Picks Bob's Advice!  As always, please remember that I am an amateur investor, so please remember to consult with your professional investment advisers prior to making any investment decisions based on information on this website.

PetSmart (PETM) is currently one of my six holdings in my 'trading portfolio'.  Up till today I owned 90 shares of PetSmart that I purchased back on November 20, 2008, at a cost basis of $15.50.  PETM closed at $20.35 today, down $(1.95) or (8.74)% so I still have a significant gain on this particular purchase.

Yesterday (5/20/09) after the close of trading PetSmart (PETM) announced 1st quarter 2009 results.  For the quarter ended May 3, 2009, the company earned $46.3 million or $.37/share on revenue of $1.33 billion, up from $41.2 million or $.32/share last year.  According to this report, Thomson Reuters analysts had been expecting a profit of $.30/share on revenue of $1.35 billion. 

Thus the company actually exceeded earnings estimates but did in fact miss revenue expectations by a small amount.  Same-store sales did increase 3.9% during the quarter.

PetSmart also went ahead and estimated profit of $.26 to $.30/share for the next quarter and raised full-year profit estimates to $1.42 to $1.52/share from prior guidance of $1.40 to $1.50/share.  The company guided expectations on revenue growth to the 'mid- to high-single digit sales'.  They also suggested that same-store sales growth is likely to continue albeit in the low-single digits. 

Thus the company announced positive earnings growth both absolutely as well as positive same-store sales growth, beat expectations on earnings, came in a little bit light on revenue and then raised guidance for the year on earnings.  Really not too shabby a result from my amateur perspective.

And yet for this the stock was punished severely. 

To be fair, an amateur is no match for a Goldman Sachs analyst who downgraded the retailer "despite its better-than-expected earnings in the first quarter."

As this article reported:

"Goldman analyst Matthew Fassler said the Phoenix-based company has "executed well," with strong sales and earnings compared to the rest of the retail sector and well-controlled costs. Its stock has outperformed the broader S&P 500 index in the past year, falling 3 percent instead of the 36 percent decline in the benchmark.

However, the company has little to drive its shares higher, given that recent same-store sales increases have been driven by food inflation and promotions, which don't add to profit margins. As inflation drops and foot traffic trends slowed in spring, he said, there's not much room for more growth in same-store sales."

The reaction seemed a bit severe.

If we review the 'point & figure' chart for PetSmart from StockCharts.com:

Hello Friends!  Thanks so much for stopping by and visiting my blog, Stock Picks Bob's Advice!  As always, please remember that I am an amateur investor, so please remember to consult with your investment advisers prior to making any investment decisions based on information on this website.

I wanted to share with all of you an interesting cake to celebrate the birthday of this blog that quietly slipped by two days ago.  This blog turned six years old and just like the average six-year-old, I feel like I am ready for first grade in investing!  But fortunately, school starts in September, so we all have the Summer to keep us entertained.

Six years ago I wrote my first entry here and decided to comment a little about St. Jude (STJ).  This is what I wrote:

May 12, 2003 St Jude Medical
This is one I picked up today. STJ is the stock symbol. I do not as I write and publish this own any shares. Am thinking about suggesting this to my stock club. Company had a great day today with a nice move on the upside. Last Quarter was good and the past five years have been steady growth. Closed at $55.30 up $2.92. So the daily momentum helped it make the list.

I still don't own any shares of St. Jude.  It is still an interesting stock that deserves a mention on this blog.  Meanwhile, Happy Birthday to Me!  Lately, my entries are a bit longer, and the intervals between them have grown.  I very much enjoy the opportunity to be a blogger, the chance at sharing with all of you a few thoughts on investing and how an amateur like me might choose to face the vagaries of the investment world.  Thank you all for your visits, your letters and comments and your encouragement.  I do not know what the future holds for me and investment blogging.   But I can tell you this: the past six years have been exciting for me as an amateur investor and writer.  I hope the next six are just as exciting, and perhaps, just a little more profitable!

Much has been written about McDonald's (MCD) being a recession-resistant stock.  You can read about it here, here, here, here, and here for example.

There is some truth to the thesis.  After all, people still need to eat, so doesn't it make sense to be eating at an affordable place like McDonald's when times are tough.  In the same manner,  Wal-Mart (WMT) has proven to be recession-resistant.  People still need to 'buy things' but instead of shopping at the more expensive retail firms, or eating out at more expensive restaurants, the McDonald's and the Wal-Marts are likely increasing their market share in these recession-ridden times.

With that in mind, I wanted to briefly look at McDonald's and see if it truly was an investment, that I personally believed, was worth considering even in today's turbulent stock market.

First of all, what about the latest quarterly result?  On April 22, 2009, McDonald's (MCD) reported 1st quarter 2009 results.  Revenue did dip to $5.08 billion from $5.61 billion the prior year.  Net income came in at $979.5 million, or $.87/share, ahead of analysts expectations of $.82/share.  However, revenue failed to meet expectations of $5.23 billion.However, same-store sales worldwide grew 4.3%.  It is difficult to know how same store sales can rise and overall sales can dip, unless factors such as currency exchange rates are affecting the total.

Latest numbers for the United States continue to be strong as April, 2009, 'same-store sales' grew 6.9% as reported.   The article does relate that McDonald's same-store sales grew even faster in Europe at 8.4% and came in at a 6.5% increase in Asia/Pacific.  However,  China apparently is underperforming this rate as things continue to slow there in the face of a growing economic correction.

Longer-term, reviewing the Morningstar.com '5-Yr Restated' financials on MCD, we can see that revenue has been steadily growing from $19.1 billion in 2004 to $23.5 billion in 2008. In the trailing twelve months, McDonald's has experienced a slight dip in revenue to $23.0 billion.  Earnings, except for a dip from 2007 to 2008, have grown steadily from $1.79/share in 2004 to $2.83/share in 2007--dipping to $1.98/share in 2008--and rebounding to $3.76 in 2008 and $3.83/share in the TTM.  

In addition, the companyt pays a dividend which they have rapidly and consistently increased from $.55/share in 2004 to $1.63/share in 2008 and $1.75/share in the TTM.  In terms of outstanding shares, the company had 1.27 billion shares outstanding in 2004, and has been gradually decreasing this amount to 1.146 billion in 2008 and 1.136 billion in the TTM. 

Free cash flow remains solidly positive although this has slowed slightly in the TTM.  MCD reported $2.6 billion in free cash flow in 2006, $2.93 billion in 2007, $3.78 billion in 2008 and $3.43 billion in the TTM.

Insofar as the balance sheet is concerned, Morningstar reports this company with $1.98 billion in cash and $1.47 billion in other current assets.  This total of $3.45 billion easily covers the $2.21 billion in current liabilities reported.  In terms of the current ratio, this yields a ratio of 1.56.  McDonald's also has a significant $12.9 billion in long-term liabilities on its books, but with the ample cash and current assets, the positive free cash flow, and its record of growing its revenue and earnings, this doesn't seem to be a significant burden for them.

In terms of valuation, looking at the Yahoo 'Key Statistics' on MCD, we can see that this is a large cap stock with a market capitalization of $59.3 billion.  The trailing p/e is a very reasonable 13.98 with a forward p/e of 12.86.  The PEG ratio (5 yr expected) suggests that even with this relatively low p/e, the company is a bit richly priced with a PEG of 1.56.

Using the Fidelity.com eresearch website for some additional valuation numbers, we find that the Price/Sales ratio (TTM) works out to 2.60 compared to the industry average of 1.70.  The company is also slightly less profitable than its peers when viewed from the perspective of Return on Equity (TTM) with MCD coming in at 32.35% vs. the industry average of 47.67.  However, their return on assets, and their return on investment handily outpace their peers.

Finishing up with the Yahoo information, there are 1.11 billion shares outstanding with 1.09 billion that float! As of 4/27/09 there were 13.43 million shares out short representing a short interest ratio of 1.4 days or 1.2% of the float---hardly the numbers I would look for that might cause a 'squeeze'.

Finally, with the $2.00 forward dividend rate, the company pays a significant dividend yielding 3.7%.  There appears to be good coverage for this dividend with a payout ratio of 46%.   The last stock split was a 2:1 split just about ten years ago on March 8, 1999.

What does the chart look like?

Reviewing the 'point & figure' chart on McDonald's (MCD), we can see that the company experienced a sharp rise in its stock price between May, 2005 and August, 2008, when the stock rose from $25 to $65.  The stock dipped briefly to the $45 level in October, 2008, but since then has foght back but has struggled a bit since hitting the $63 level three times in December 2008 and January, 2009.  I would have to say I am less than enthusiastic about the technical appearance of this chart--at least from my amateur perspective.

In conclusion, McDonald's (MCD) is indeed a recession-resistant company.  They are continuing to show positive same-store growth and appear to be taking a bigger market share from its competitors.  Unfortunately, the strong dollar is depressing their financial results--due to exchange rates when results are reported in dollars--and they are feeling the pressure from their multinational business as many such corporations are experiencing today.

Due to what appears to be brilliant management, this gigantic restaurant chain is reinventing itself, adding salads, healthier items and a coffee bar to many of its newly named 'Cafes'.

This company has been a steady grower from well before 2004 and continues to produce solid results.  However, valuation is a tad rich in terms of p/e relative to growth, Price/Sales ratios are also a bit rich relative to other companies in the same industry, and the chart appears a bit 'tired'.  Clearly, I am not the first amateur to think about buying McDonald's stock!  But regardless of all of that, I do like this company, like their ability to innovate and produce a consistent product, and like their steady revenue growth, earnings growth, dividend growth, decline in outstanding shares, and solid balance sheet.

You should do worse in a market like we have today!

By the way, McDonald's is currently trading at  $53.50, down $.069 or (.13)% on the day.  I do not own any shares of McDonald's (MCD) currently but some of my immediate family members do own small lots of shares in their own accounts.

Thanks again for visiting!  And thanks for 6 years of your interest and encouragement that has allowed me to continue to find the time and energy to blog!  Go ahead and have a slice of birthday cake---but I wouldn't eat it.  Mostly flowers.

If you have any comments or questions, please feel free to leave them on the blog or email me at bobsadviceforstocks@lycos.com.

Yours in investing,

Bob

Hello Friends!  Thanks so much for stopping by and visiting my blog, Stock Picks Bob's Advice!  As always, please remember that I am an amateur investor, so please remember to consult with your professional investment advisers prior to making any investment decisions based on information on this website.

I recently shared with you my decision to make a purchase of 150 shares of Haemonetics (HAE) as a "trade".  This was in addition to my holding of 50 shares of the stock as more of an "investment".   This is outside of my regular strategy of timing stock purchases and sales based on internal signals from my own account, and the sizing of such positions again based on the other position size.  In fact, with the purchase of these shares, my Haemonetics (HAE) holding represented approximately 50% of my entire portfolio!

The stock fortunately moved as I had hoped it would, undoing the apparently irrational price plunge in the midst of a fairly good earnings report.   Wanting to stay within my own trading strategy, I undid that purchase and sold my 150 shares a few moments ago at $51.5252 (5/8/09).  Thus, having purchased these shares on 5/4/09 at a cost basis of $48.5968, this represented a gain of $2.93 or 6.02% on this particular purchase.  While seeming like a small move to make such a sale and purchase, I again acted with my brain and not my gut to close out this 'trade' that wasn't consistent with my underlying core trading strategy.

I shall continue to reserve the right to make such trades within my account even as I try to methodically manage my holdings.

Thank you for taking the time to visit my blog!  If you have any comments or questions, please leave them right here or email me at bobsadviceforstocks@lycos.com.

Yours in investing,

Bob

Hello Friends!  Thanks so much for stopping by and visiting my blog, Stock Picks Bob's Advice!  As always, please remember that I am an amateur investor, so please remember to consult with your professional investment advisers prior to making any investment decisions based on information on this website.

Today Haemonetics (HAE), one of the six holdings in my trading account, announced 4th quarter results.  Revenue for the quarter rose 10% to $152.4 million.  Excluding items the company earned $.65/share.  Analysts had been expecting $.63/share so the company beat expectations on earnings. Analysts had been expecting $151.1 million according to Reuters estimates; thus the company beat on revenue as well.  The company went ahead and guided pretty much to expectations.  

In spite of this the stock plummeted.  Looking at the chart for the action today, we can see how the stock price hit its low today around 12:25 pm when the price high $47/share.  After that point, the price gradually closed into the close of the day. 

Like so many amateur investors, I really wasn't sure what I should be doing with this stock!  My gut was full of panic and directed me to sell quickly!  Yet my brain screamed out that this was irrational.  That the continued dip on good news was nuts and that I needed instead to buy.

I chose to use my brain and while holding my nose, picked up 150 shares of Haemonetics (HAE) at $48.60/share.  This wasn't really my 'system' at work, but there are times when stock actions defy logic and I hoped this was one of them.

Fortunately, HAE gathered strength into the close and ended up at $49.37, down $(2.67) or (5.13)% on the day.  

Where does HAE go from here?  I don't really know.  But the news released was solid and I chose to add to my small position of HAE making it now my largest holding in my portfolio.

Yours in investing,

Bob

Hello Friends!  Thanks so much for stopping by and visiting my blog, Stock Picks Bob's Advice!  As always, please remember that I am an amateur investor, so please remember to consult with your professional investment advisers prior to making any investment decisions based on information on this website.

This afternoon I received a twitter from my son Ben, who asked me about what I thought about the recent article by Jeffrey Goldberg in the Atlantic, "Why I Fired My Broker".  Goldberg laments the failure of his Merrill Lynch broker who seemingly was unable to anticipate the market implosion and he cynically visits with investment gurus from George Soros to a survivalist who tells him to buy 'things' and not have any debt. 

Mr. Goldberg suffered along with most Americans who had believed that investing for the long-term was the only way to go.  One simply had to have the appropriate balance of funds in one's 401k or IRA and then dollar-average over time.  It didn't work out well for Goldberg and even in my own retirement accounts that I have actually been doing more or less the same thing it hasn't been working out well.  It turns out this time there has been 'no place to hide' and diversification and dollar-cost-averaging hasn't protected anyone very well.

As a biology major in college,  and as an observer on the current political scene, I have been quite aware of the struggle regarding the teaching of the origin of humans on this planet.  The controversy is divided between those who believe a divine origin is key; they go by the name of Creationists or lately it has been popular to refer to them as "Intelligent Design" advocates. 

As the Intelligent Design website explains:

"The theory of intelligent design (ID) holds that certain features of the universe and of living things are best explained by an intelligent cause rather than an undirected process such as natural selection."

In opposition to this theory are those who believe in the principles best enunciated by Charles Darwin of the natural selection process or simply stated 'survival of the fittest'.  These are the Evolutionists who pit their views against the 'central planning' approach of the Creationists.

As this website explains:

"His explanation that evolution occurs as a result of natural selection implied that chance plays a major role.  He understood that it is a matter of luck whether any individuals in a population have variations that will allow them to survive and reproduce."

You might now be asking, 'What does all of this have to do with investing?'

Everything.  Intelligent Design in portfolio construction assumes a higher intelligence in building an appropriate mix of investments that can be followed long-term except for an occasional 'rebalancing.'  This approach assumes that it is impossible to time the market because one cannot know when to get in and out of equities.  In addition, it is also impossible to know what to put your money in and if per chance one of your holdings does somehow outperform the other, well you better go ahead and pull some cash off of that and allocate it to the under-performing investment.

It has been my attempt to manage my portfolio by observing the actions of the individual holdings in my account (which of course I use my own intelligence in adding them to the mix) and letting them determine their own future of either dominance or extinction as they respond to the changing financial environment they face!  This is the 'natural selection' approach to my investing.  Stocks that do well stay and are least penalized.  Those that do poorly are selected against and eliminated.

Perhaps I can suggest two popular board games that might provide another perspective on this.  Consider the two games of Battleship and Chess.  I have played both and have enjoyed the challenge.

However, in Battleship, the idea is to set up your ships in a static fashion and then to weather the onslaught from your opposing player in as good a fashion as possible.  You set up your ships and you sit there.  So with allocation in portfolios.  You set up your mix of investments, you dollar cost average, and then you sit there come what may.  And a great big old bear market may arrive and eat you up!

However in Chess, you also set up your positions in a rather standard fashion.  After that most bets are off.  Your strategy changes as your environment changes being the positioning of your opponent.

O.K. so it isn't an exact comparison!  But I am sure you get the idea.

I do know that if I am to 'time the market' I cannot rely on my own psyche at that time.  I feel the worst when the market is at the lowest and I share the problem of being the most euphoric as the market tops.  So how is an investor to respond?

Instead of portfolio construction by Intelligent Design, I would suggest that we 'design intelligence' into our portfolio management systems.  My own thinking was affected by Robert Lichello and his AIM system who thought an investor should have two 'pots' of funds, one being cash and the other equities.  He mechanically prescribed a system for shifting between the two in a form of value averaging.  Furthermore, I do not want to remove the utility of identifying quality stocks for inclusion in my portfolio.  I have been influenced as well by William O'Neil and his CAN SLIM approach.  He also knew the importance of "M" or "Market" in determining one's bias.  He also has suggested that observing the actions of your own stocks might reveal the "M" in the Market.   Furthermore, there are indeed differences between stocks and consistency in financial results and reasonable valuation evaluations are not to be scoffed.

Goldberg got into trouble by taking positions in companies and blindly holding on.  He watched his investments decline and his contempt for advisers grow.  He was playing battleship and his ships were sinking.  What was missing was an 'exit and entrance strategy'.  He needed the dynamic approach in investing that a 'Bishop, Rook, or Queen' has in a chess game. That is, knowing when he could and would sell both on the upside and downside with each of his investments.  He could be able to determine when he should be in cash and when he should be in equities. 

It doesn't have to be a decision that we each individually make.  Rather, these decisions are made 'on the go' depending on the performance of the market, and the performance of our individual holdings.  We cannot control the market, the price changes of any of our stocks, but we can control our own response to those movements.  And like Darwin, with careful observation we will be able to utilize the environmental pressures acting upon our own portfolios to hopefully evolve our holdings into something much greater than what we started with.

So when examined microscopically, my 5 share sale of 3M and my subsequent purchase of Colgate stock may seem to be insignificant and devoid of significance.  But these actions are part of a greater strategy designed to produce something far more important--a rational approach to selecting holding and responding to the stock market.  I know that is a big goal for an amateur like myself, but I am up to the challenge!

Yours in investing,

Bob

Hello Friends!  Thanks so much for stopping by and visiting my blog, Stock Picks Bob's Advice!  As always, please remember that I am an amateur investor so please remember to consult with your professional investment advisers prior to making any investment decisions based on information on this website.

It has been awhile since I have been able to report to you about a sale on 'good news' which for me means one of my holdings hit an appreciation target.  If you are new to my blog and my investing technique, let me briefly point out that after an initial purchase I try to sell my holding quickly and completely should it decline 8% (or 12% if I am at my minimum of 5 holdings) and call this a sale on 'bad news'.  In these cases, I generally 'sit on my hands with the proceeds (or replace that position with a smaller position if I am at my minimum of 5 holdings).  In this fashion, my portfolio 'management system' directs me to move towards cash on these sales and out of equities.

On the other hand, if one of my holdings hits an appreciation target, that is advances in price to a predetermined level, I plan on selling a small portion of that sale and using that sale as a 'signal' that I should be moving further into equities by purchasing a new position--indeed a position larger than the average size of my remaining holdings!  Currently, I use 30, 60, 90, 120, 180, 240, 300, 360, 450% and so on appreciation targets to make these partial sale.  These 'small portions' are currently set at approximately 1/7th of my holding--small enough to allow the remaining position to grow over time in spite of these continued sales.  These sales are also useful in offsetting the many small losses that can accumulate with the quick sales on declines.

Anyhow, my 3M stock (MMM) hit an appreciation target on Friday.  As background, I had purchased a small position of 33 shares of MMM on 3/3/09, just last month, at a cost of $43.64/share.  On Friday, 4/24/09, I sold approximately 1/7th of my holding, a miniscule 5 shares, at $56.82/share, representing a gain of $13.18 or 30.2% since purchase.  This gave me a 'buy signal' and I purchased 125% of my average size holding, or approximately $2,500 worth of Colgate-Palmolive (CL), which worked out to 43 shares purchased at $59.36/share to consist of my new 6th position.

I just reviewed Colgate (CL) on this blog and have explained why I might be interested in this 'recession-resistant' stock which pays a dividend and sports a moderate p/e. 

Looking forward, my next partial sale of MMM on the upside would be at a 60% appreciation over my purchase price which would work out to a price of 1.6 x $43.64 = $69.82.  On the downside, after an initial partial sale, I move my sale price up to the cost which would be at the $43.64 level.  Insofar as Colgate (CL) is concerned, my first sale on the upside would be planned at 1.3 x $59.36 = $77.17.  On the downside, an 8% loss (with 6 positions now in my portfolio my loss tolerance decreases to 8% from 12%) works out to .92 x $59.36 = $54.61.

Thank you for stopping by and visiting my blog!  If you have any comments or questions, please feel free to leave them right here or you can email me at bobsadviceforstocks@lycos.com.

Yours in investing,

Bob 

Hello Friends!  Thanks so much for stopping by and visiting my blog, Stock Picks Bob's Advice!  As always, please remember that I am an amateur investor, so please remember to consult with your professional investment advisers prior to making any investment decisions based on information on this website.

One of the things this bear market has done to me is to change my own perspective on stocks.  I am less a momentum player and more a conservative stock picker.  That of course could change if the market indeed makes a fundamental readjustment.  

I am of course waiting for a signal from my own portfolio which would consist of one of my own stocks hitting an appreciation target and triggering a partial sale of shares.  If that should happen, and if the market rally continues it is likely, then I shall be looking for a new holding to add to my small clutch of 5 stocks (I max out at 20 positions).

Two of my favorite blue-chip type stocks are Coca-Cola (KO) and Colgate Palmolive (CL). I do not currently own shares in either of these companies.  Coca-Cola (KO) closed today (4/15/09) at $45.03, up $.82 or 1.85% on the day.  Colgate-Palmolive closed at $58.03, up $.74 or 1.29% today.

Both of these stocks are what I would call recession-resistant holdings.  (Motley Fool also likes Coca-Cola (KO)).  But which is 'better'?  Is one of these a better choice than the other in these times?

I would like to try to as simply as possible look at the latest quarter, the longer-term results, valuation, and chart on each and see if we can come to some decision about which might be the better pick for this blog (and where I might choose to park some money should the opportunity arise and I receive the appropriate 'signal'!).

Regarding the latest quarter, Coca-Cola (KO) reported 4th quarter 2008 results on February 12, 2009.  Adjusted earnings per share (removing one-time items) came in at $.64/share, an increase of 10%.  (Un-adjusted they were $.43/share but were adjusted to a "non-cash imparment charge at Coca-Cola Enterprises")  These results beat Wall Street estimates of $.61/share on revenue of $7.52 billion.  However, the company missed the same revenue estimates as they came in at $7.13 billion in revenue for the quarter. 

For me at least, this is a mixed bag of results.

What about Colgate (CL)?  On January 29, 2009, Colgate (CL) reported 4th quarter 2008 results.  Sales for the quarter increased 0.5% to $3.6 billion and unit volume increased 1%.  Net income grew 7% in the quarter to $497 million or $.94/share, up from $414.9 million or $.77/share the prior year.

Excluding restructuring charges, which analysts generally exclude as well, they came in at $1.00/share, ahead of analysts' expectations of $.98/share.  For the entire year 2008, the company, excluding the one-time restructuring charges, came in at $3.87, again beating expectations. The company indicated that it was "comfortable" with analyst' forecast of $4.23/share for the year, which would be 9% ahead of the 2008 results.

Insofar as the latest earnings are concerned, I am more impressed with the Colgate (CL) results.  Chalk one up for CL!

What about longer-term?

Reviewing the Morningstar.com "5-Yr Restated" financials on Coca-Cola, we can see a nice increase in revenue from $21.7 billion reported in 2004 to $31.9 billion in 2008.  This is about a 50% increase during that period.

Earnings have increased from $2.00 in 2004 to $2.57 in 2007 and dipped slightly to $2.49 in 2008.  The company has increased dividends steadily from $1.00/share in 2004 to $1.52/share in 2008.  During that same period, KO managed to reduce outstanding shares from 2.43 billion in 2004 to 2.34 billion in 2008.

The company has been generating oodles of free cash flow with $4.55 billion reported in 2006 increasing to $5.60 billion in 2008.  Balance-sheet-wise, the company has $4.7 billion in cash, $7.5 billion in other current assets for a total of approximately $12.2 bilion.  Compared to the $13.0 billion in current liabilities this results in a current ratio of just under 1.0.  Long-term liabilities are not insignificant at $7.06 billion.

And Colgate (CL)?

Looking at the "5-Yr Restated" financials on Colgate from Morningstar.com, we can also see the steady growth in revenue from $10.6 billion in 2004 to $15.3 billion in 2008.  Earnings have increased without interrruption from $2.33/share in 2004 to $3.66/share in 2008.  Dividends have also increased in an uninterrupted fashion from $.96/share in 2004 to $1.56/share in 2008.  Outstanding shares have also been reduced from 570 million in 2004 to 535 million in 2008.

Free cash flow has been solidly positive with $1.35 billion in 2006 increasing to $1.56 billion in 2008.  Checking the balance sheet, Colgate is reported to have $555 million in cash and $3.16 billion in other current assets.  This total of approximately $3.7 billion, when compared to the $2.95 billion in current liabilities yields a current ratio of approximately 1.25.  The company has an additional $5.1 billion in long-term liabilities according to Morningstar.

From my perspective, with the uninterrupted earnings growth and the stronger balance sheet, the edge once again goes to Colgate.

And what about valuation?

Looking at the Yahoo"Key Statistics" on KO, we see that the comapny has a trailing p/e of 18.11 with a forward p/e of 13.24 (fye 31-Dec-10).  This results in a PEG of 1.74. 

Again looking at the number on Yahoo for CL this time, we see that the trailing p/e is 15.86, with a forward p/e of 12.48 (fye 31-Dec-10).  The PEG is reported at 1.24.

Again, valuation appears a bit better with Colgate (CL) but in absolute p/e ratios as well as PEG estimates of valuation relative to growth in earnings.

What about the charts?

First the 'point & figure' chart on Coca-Cola (KO) from StockCharts.com.  Here we see that the company which peaked at $63 in January, 2008, has been trading in a relatively tight range between $38 and $47 since October, 2008.  Recently the stock broke through 'resistance' at around $45.03.

And the chart on Colgate (CL)?  Actually, checking the 'point & figure' chart on CL from StockCharts.com, I would give a slight edge to Coke with the stock also peaking at $79 in September, 2008, only to dip to a low of $55 in October, 2008, and then trade since that time between $55 and $69 til the present time where it closed at $58.03.  The stock, as noted, is trading slightly below its resistance line.

My conclusion?

It really isn't fair to compare two different companies like Coca-Cola and Colgate.  However, if one is to look at recent earnings, longer-term results, and briefly at valuation and a chart, I would be leaning towards Colgate Palmolive (CL), which had a slightly better recent earnings announcement, a steadier history of earnings and revenue growth with a stronger balance sheet.  Valuation-wise, Colgate is a bit 'cheaper' than Coke as well.  Finally, while their charts are similar, the edge may be perhaps slightly to Coca-Cola's favor.  

I am not currently an owner of either of these stocks.  But if I had the opportunity, I would be selecting Colgate as my next 'conservative' growth stock!  While Coke remains a perennial favorite of mine, and I believe is well-positioned for growth in the future, the numbers are driving my assessment.  While many things 'go better with Coke', Colgate-Palmolive (CL) offers me the Total solution :).

Thanks so much for visiting my blog.  If you have any comments or questions, please feel free to leave them on the website or email me at bobsadviceforstocks@lycos.com.

Yours in investing,

Bob