Market Indicators - Investor Sentiment

Top 874. Feb 14, 2004 6:53 AM

» Normxxx - Re: Read the Fine Print-- Low P/BV Stocks

In response to message posted by SteveT:

I don't have that data. But I suspect you can get it by finding a (free) stock selection screen that will pull up such a list.

I don't think this kind of data has much relevance for the near to intermediate term market. We have entered the euphoria phase, risk is increasing, but so is the propensity to invest. This will go on until some event triggers a substantial change in psychology-- enough to overcome the fear (greed?) of being 'left behind.'

However, most low price-to-book-value stocks are dogs. See the rest of the article below.

Read the Fine Print

Book value can point to bargains -- or to stocks that deserve their low prices

By ANDREW BARY, BARRONS | 2-09-2004

VALUE INVESTORS HUNTING FOR inexpensive stocks these days face a daunting challenge: As a result of the broad rise in the market indexes the past 11 months, stocks that are cheap based on earnings, cash flow, and book value are rare as Siberian tigers. And bagging them requires a cautious approach.

Two weeks ago, Barron's ran an article about the small number of companies in the Standard & Poor's 500, mid-cap and small-cap indexes that traded for under 10 times earnings. This week, we're seeking attractive stocks based on another yardstick: book value per share.

Book value, a measure of shareholder equity, is derived by subtracting debt and other liabilities from assets. To arrive at book value per share, divide shareholder equity by the number of shares outstanding.

Famed investors like the late Benjamin Graham used book value as a gauge of liquidation value. Buying a stock below book can provide what Graham called a "margin of safety." But stocks with price-book ratios that are decently low are scarce now -- and many of those that do qualify have problems. Within the S&P 500, only 11 stocks trade below their book value. Inside the S&P 400 mid-cap index, there are just eight .

"In the past, low price-book investing turned up appealing stocks that were being neglected or ignored by the market. Now, many of the companies have significant issues, like debt problems or weak earnings," says Michael Green, portfolio manager at Moody Aldrich Partners, a Boston investment-management company. He advises investors to tread carefully.

The perils of playing in this area were illustrated Thursday, when UnumProvident, the country's leading disability insurer, slid by $1, to 14.75, after reporting a fourth-quarter loss stemming largely from a $440 million charge to boost reserves for its disability business. One of the stock's main allures, its book value, shrunk by $4 a share last year to 24. UnumProvident looks inexpensive trading for less than 10 times projected 2004 profit of $1.70 a share -- unless, of course, there are more adverse developments.

"A price-book ratio below one is no guarantee of safety," Green adds. It's important to examine the quality of a company's assets. Many value investors focus on tangible book value, which excludes goodwill and other intangibles. LaBranche, a leading New York Stock Exchange specialist and Blockbuster, the video chain, are companies whose book values consist largely of goodwill -- an intangible asset. LaBranche recently wrote down part of its goodwill, and more writedowns are possible, given its eroding profits and the threats to the specialist business.

Green notes that just 6% of New York Stock Exchange companies now trade under book value, versus 25% in March 2000, when the major averages peaked (Green excludes closed-end and bond funds in making this calculation.) Cheap stocks actually were more plentiful during the market bubble than they are now, due to the narrow breadth of the technology-led market advance in 1999 and early 2000. Over the past 75 years, low price-book stocks on the Big Board were most abundant at the historic market bottoms of 1932 and 1975.

Still, there could be a few gems now, including Loews, Toys "R" Us, Amerada Hess, CNA Financial, Haggar and Syms.

Loews has risen 40%, to 54, since its November low, but it still trades below its book value of $57 a share. And that book value understates Loews asset value, dominated by its stakes in three public companies, CNA Financial, Diamond Offshore Drilling and Carolina Group, a tracking stock for Loews' Lorillard cigarette business. Loews' asset value is probably around $75 a share. Fans argue that the stock offers a "double discount," because CNA, Diamond and Carolina Group trade at a discount to their peers and to their own assets.

One fan of CNA is Tom Kahn, co-director of investments at Kahn Brothers, a New York investment firm that hews to Graham's principles. Tom Kahn's father, Irving, 98, worked with Graham, starting in the 1930s. "Unlike most investors, who start with the income statement, we start with the balance sheet," Kahn says. His firm owns a bevy of stocks that trade at -- or once traded at -- a discount to book value.

CNA, 91% of which is owned by Loews, has had the worst financial performance among the major property and casualty insurers, and its stock price reflects that sorry record. CNA, at about 26, trades for 78% of book value, while leading rivals like Travelers and Chubb fetch more than 1.5 times book value. CNA took a $1.8 billion charge in the third quarter to boost reserves, its second monster charge in two years. Kahn is betting that the company finally is cleaned up and that the business it has booked in recent years is quite profitable. If Kahn's right, CNA could trade into the mid-30s over the next year. CNA is expected to earn around $2.50 a share this year.

Kahn also is partial to Syms, the Secaucus, N.J.-based, off-price retailer known for its slogan: "An educated consumer is our best customer."

Syms, an also-ran in the hot, off-price-retailing sector, is probably worth more dead than alive because its results have been weak in recent years. The shares, at 7, trade for half their book value, which probably is understated because of the company's Manhattan real-estate holdings.

Syms management, led by founder Sy Syms and his daughter, CEO Marcy Syms, tried to take the company private in 1995 at $8.75 a share, but backed off following shareholders' complaints that the deal undervalued the company. The family owns more than half of the 16 million outstanding shares. Kahn believes the Syms may tire of losing money and sell or liquidate the company.

Haggar, a maker of men's pants, also appeals to Kahn, who notes that its shares, at 19.70, trade at a discount to its $24 book value.

Haggar may have a dated image, but the company has done well in a difficult period for the apparel industry. Kahn says that while Haggar "may not be an innovator like Intel," its R&D efforts have yielded such products as more comfortable pants for overweight men. Kahn cites Haggar's "Comfort Fit" pants that feature a hidden, elastic waistband. Kahn swears by them.

Moody Aldrich's Green likes Amerada Hess, the New York-based energy-exploration company and refiner that's one of the few sizable oil and gas companies trading below book value. Hess, at 57, has a book value of $60 a share.

Hess has a sizable debt burden, but has cut that load to $4 billion through asset sales. The company is valued at about four times cash flow, less than half the valuation of major oil companies. Hess owns a New Jersey refinery and a half-interest in a giant facility in the U.S. Virgin Islands. Many Street analysts rate it a Sell -- but it's not expensive, trading at 14 times projected 2004 profits.

Toys 'R' Us has rallied in the past six weeks, rising to 14 from 11, despite a weak fourth quarter, amid hope that it may be close to a restructuring that will unlock the value of its Babies 'R' Us division and sizable real-estate holdings. Toys 'R' Us may no longer be on the bargain counter, but it could rise into the high teens in the next year if it restructures or if its core U.S. toy-retailing operations improve. The bad news: Powerful Wal-Mart uses toys as a loss leader at Christmas. The good news: Rivals like KB Toys and FAO Schwarz have filed for bankruptcy.

Pathmark Stores, the Carteret, N.J.-based supermarket operator, appeals to Green because it trades at a nice discount to its book value and could be a takeover candidate in a consolidating industry. The shares, which trade just below 8, amount to "leveraged" equity because Pathmark's market value of $240 million is a fraction of its debt of $650 million. Pathmark, which emerged from bankruptcy in 2000, expects to earn about 55 cents a share in its just-concluded fiscal year and a similar amount in 2004. With 143 stores, it's one of the leading supermarket chains in the fragmented New York, New Jersey and Pennsylvania markets.

One of the most debt-laden companies on the list is Six Flags, operator of 39 amusement parks, including Six Flags Great Adventure in New Jersey and Magic Mountain near Los Angeles. Six Flags' long-term debt totals $2.3 billion -- more than seven times its projected pre-tax 2003 cash flow of $300 million. Six Flags uses most of its cash flow to pay interest and capital expenditures, leaving little for debt reduction. At 7, it trades at a discount to its $13.25 book value, but it's debatable whether it could fetch anything close to $13 if sold.

Winn-Dixie Stores, the Jacksonville, Fla.-based supermarket operator, has probably been hurt more than any other major chain by Wal-Mart. The stock has fallen 3 points, to 6, since the surprising news of a sizable loss in the December quarter. Most analysts now expect Winn-Dixie to operate in the red this year.

In a recent client note, JP Morgan analyst Stephen Chick said the $6 a share in tangible book value "could support the stock" but that he's concerned about further operating losses and Winn-Dixie's debt and lease obligations.

This points up the hazards of investing in many of the stocks on the list. Ben Graham wouldn't touch most of them.

-- posted by Normxxx

Top 875. Feb 22, 2004 4:41 AM

» SteveT - 2-23-04 Sentiment

For a change the AAII poll is slightly more cautious than II, but not by much. Both are bullish and the four week moving average is very close. VIX bottomed in late January under 15, along way from the mid 30’s of March 2003 and mid 40s when the market bottomed in October 2002. Interestingly enough it was in the mid 20s while the market topped in the first Quarter of 2000. Put/Call is in the low to mid .70s as it was in March 2003 but did approach nearly 1 when the market was bottoming in October 2002. I don’t know that one can get any clear indication what the future holds but perhaps by taking a look at them cumulatively we can stay one step ahead of Mr. Market.

I am using the VTO report for the II data. http://vtoreport.com/sentiment/sentiment...
Note for clarification historic sentiment tables are for that current week and not the four-week moving average.

Investors Intelligence Bulls 59.2% Bears 17.3% Correction 23.5%
59.2/(59.2+17.3)77.39%
Four Week Average = 75.36%


A few historic dates:
7-20-98  68.42%
10-12-98 47.41%
4-3-00   67.79% 
1-1-01   64.10%
4-4-01   58.91%
9-17-01  52.0%
9-21-01  48.7%
7-19-02  47.2%
7-23-02  47.2%
10-9-02  50.0%

Sideline Money Bears + Correction =40.8%
Four Week Average = 43.05%
hairie has researched some fascinating numbers for all time high bulls readings going back to 1965. http://www.suite101.com/discussion.cfm/i...
and lows from 1965-2003 http://www.suite101.com/discussion.cfm/i...

From Barron' s 2/23/04
The American Association of Individual Investors
Bulls 56.4% Bears 22.6% Neutral 21%
56.4/(56.4+22.6)= 71.39%
Four Week Average = 74.86%

Historic dates for comparison:
7-16-98 44.3% S&P 500 Close 1186.75
10-12-98 36.76% S&P 500 Close 984.39
4-3-00 77.78% S&P 500 Close 1505.97
1-1-01 58.82% S&P 500 Close 1320.28
4-4-01 51.35% S&P 500 Close 1103.25
9-10-01 47.34% S&P 500 Close 1085.78
9-17-01 42.11% S&P 500 Close 1038.77
9-21-01 41.08% S&P 500 Close 965.80
7-19-02 32.88% S&P 500 Close 847.75
7-23-02 32.88% S&P 500 Close 797.70
10-9-02 42.36% S&P 500 Close 776.76

Sideline Money Bears + Neutral = 43.6%
Four Week Average = 44.93%
For more info on AAII check out their web site. http://www.aaii.com

As of February 20, 2004 close
The CBOE Put/Call ratio 10 day moving average is at .73. http://stockcharts.com/def/servlet/SC.we... The VIX Market Volatility Index closed Friday at 16.04. http://quote.yahoo.com/q?s=%5evix&d=t

-- posted by SteveT

Top 876. Feb 24, 2004 8:23 PM

» Normxxx - NYSE Specialists Are Bullish

NYSE Specialists Are Bullish. Trying To Fool The SEC?

From A Usually Reliable Source:
Monday, February 23rd, 2004 8:15pm EST

Long Term

A look at how NYSE specialists are acting during down weeks in the market leads to bullish conclusions.

For the week ended February 6th (the most recent data available), specialists on the NYSE accounted for 21% of total short sales. Looked at another way, the “public”, which includes everyone except NYSE members, shorted 2.5 times as many shares as did the specialists. Both of these figures are astounding – they are the most extreme readings seen in the 61-year history of the data, except for the week immediately following 9/11. I’ve discussed these numbers many times over the past year, touching on their bullish nature, but also noting the fact that there is no question that increased convertible debt issuance has affected the numbers to some degree. Even accounting for the possible affects of more convertible debt, I believe these numbers are still extreme.

Historically, specialists decrease their short activity when the market is falling and increase it when the market is rising. Since 1950, when the S&P declined during a given week, specialists decreased their shorting 67% of the time. Likewise, on any week when the S&P rose, specialists increased their shorting 65% of the time. Over the past year, however, when the S&P declined on the week, the specialists decreased their shorting an incredible 87% of the time; when the S&P rose, the specialists increased their shorting only 54% of the time.

Let’s focus on that last sentence about specialists decreasing their shorting activity 87% of the time when the market had a down week over the last year. There have only been two other times in history when specialists were so adamant about buying a down market – 1975 and 1991. After the instance in 1975, the S&P was 19% higher one year later. Coincidentally (or perhaps not), after the instance in 1991, the S&P was also 19% higher one year later. Looking at any year in which specialists increasing their buying during at least 80% of the down weeks, the S&P was higher one year later 85% of the time, with an average return of 14%.

The readings this data are giving are truly historic. In order to try to get a better handle on what it might be saying, I have studied the data from every angle I can imagine. I have looked at absolute levels of specialist shorting, I have looked at relative levels of public vs. specialist shorting, I have looked at the shorting as a percentage of volume, I have looked at the behavior of the specialists and the public during up and down weeks, and I could go on and on. I firmly believe there are some forces at work that are “artificially” toying with this data (such as hedge fund activity), but the fact remains that NYSE specialists – who have the best information available as to the supply and demand characteristics of their stocks – are not shorting stock heavily, and are behaving in a way that has consistently lead to higher markets in the past. It is impossible to ignore the bullish implications from this.

Short to Intermediate Term

As I discussed last week, the day immediately after option expiration tends to have a definite negative bias, particularly when open interest in put contracts is so high relative to calls. That negative bias does not tend to extend much beyond the first day, however, so I don’t see much hindrance in the way of seasonality for the coming week. As I noted in the intraday comments, we have become extremely oversold in the short-term. Our ST model reached an extremely high 67% on Friday – the highest reading in over a year except for the 69% we saw at the low on January 29th of this year. The intraday cumulative TICK indicator on the Nasdaq dropped below -4000 on Friday to become the most oversold it has been since near the absolute low on October 7th, 2002. But extreme short-term oversold readings are one thing at the end of a prolonged decline – they are quite another barely a month after the market was making new highs.

My test for the market over the past eight months has been simple – if it cannot rally off short-term oversold conditions, then we know something is amiss. Up to this point, the market has done precisely what it has needed to do by rallying off these types of conditions. Now, we are dangerously close to breaking that pattern. Nasdaq-type issues should have rallied today, but I am giving it a little leeway considering that consistent post-expiration hangover. So the real test comes now, and the broader market should rally or we’ll have a good clue that there is a more substantial and longer-term decline in store. At this point, my preference is to look long, but we’re hanging by a thread here. If the market can’t get some “giddy up” going in the next day or two, I don’t want to have a whole lot of long-side exposure.

-- posted by Normxxx

Top 877. Feb 27, 2004 5:46 PM

» Normxxx - Summing Up

http://www.streetsmartreport.com/decisio...

BEING STREET SMART: THIS MARKET HAS CONFIDENCE!

by Sy Harding | February 27, 2004.

Last year consumers were doing considerable heavy lifting to prevent the economy from sliding back into a malaise.

This year it’s investors who are doing some impressive lifting, in keeping their spirits up despite a continuous string of disheartening economic news. This week continued the pattern.

Over the previous three weeks we saw unexpected declines in what would normally be far too many important economic reports. They included further bad news in the employment picture, and surprising declines in new home sales, new housing starts, existing home sales, auto sales, durable goods orders, consumer confidence numbers, the Philadelphia Fed Manufacturing Index, and a spike-up in the Consumer Price Index (which measures inflation at the consumer level).

On Friday, the Commerce Department revised its previous reading of economic growth in the fourth quarter of last year, saying it grew 4.1% instead of the previously reported 4.0%. But within the report was the news that consumer spending declined sharply, and both business and government spending slowed.

Also this week, Fed Chairman Alan Greenspan warned the House Budget Committee about the danger in soaring Federal budget deficits, and urged Congress to curb its spending. He agonized over the government needing increased income in the form of tax increases to help balance the budget, while the economy needs tax cuts to keep it on its feet. He surprised everyone in this election year, when he sparked a political storm by warning that the U.S. will not be able to pay the Social Security benefits currently promised to workers, recommending that benefits to future retirees be lowered, and raises to current retirees be curtailed by switching to a different method of calculating their cost of living increases.

Stir in soaring gasoline prices, currency turmoil, political uncertainties, and warnings from a growing number of analysts, even those from previously bullish Wall Street firms, that the market is in need of a correction.

Yet investors have not lost their confidence that much better times lie ahead. They didn’t indulge in much buying this month, but also didn’t engage in much selling. The stock market ended the month of February with the Dow and S&P 500 up roughly 1 % for the month, and the Nasdaq down 2 %.

That is impressive resilience in the face of such discouraging economic reports and warnings.

-- posted by Normxxx

Top 878. Feb 29, 2004 5:22 PM

» SteveT - 3-1-04 Sentiment

WOW some noticeable moves this week! Where do we start? II for the first time since last June has bulls over 60%. AAII bulls took a huge plunge to 41.6% from 56.4%. As you would suspect II ratio moved little but did AAII drop. Put/Call moved slightly but VIX dropped below 15. Is a correction upon us or do we take off to new bull market rally highs? It could be an interesting week.

I am using the VTO report for the II data. http://vtoreport.com/sentiment/sentiment...
Note for clarification historic sentiment tables are for that current week and not the four-week moving average.

Investors Intelligence Bulls 60.2% Bears 17.4% Correction 22.4%
60.2/(60.2+17.4)77.58%
Four Week Average = 76.17%


A few historic dates:
7-20-98  68.42%
10-12-98 47.41%
4-3-00   67.79% 
1-1-01   64.10%
4-4-01   58.91%
9-17-01  52.0%
9-21-01  48.7%
7-19-02  47.2%
7-23-02  47.2%
10-9-02  50.0%

Sideline Money Bears + Correction =39.8%
Four Week Average = 41.75%
hairie has researched some fascinating numbers for all time high bulls readings going back to 1965. http://www.suite101.com/discussion.cfm/i...
and lows from 1965-2003 http://www.suite101.com/discussion.cfm/i...

From Barron' s 3/1/04
The American Association of Individual Investors
Bulls 41.6% Bears 30.5% Neutral 27.9%
41.6/(41.6+30.5))= 57.7
Four Week Average = 69.61%

Sideline Money Bears + Neutral = 58.4%
Four Week Average = 48.75%
For more info on AAII check out their web site. http://www.aaii.com

As of February 27, 2004 close
The CBOE Put/Call ratio 10 day moving average is at .75. http://stockcharts.com/def/servlet/SC.we... The VIX Market Volatility Index closed Friday at 14.55. http://quote.yahoo.com/q?s=%5evix&d=t

-- posted by SteveT

Top 879. Feb 29, 2004 7:53 PM

» Normxxx - Re: 3-1-04 Sentiment

In response to message posted by SteveT:

With the VIX this low for this long, the market is set to explode, but in which direction?

-- posted by Normxxx

Top 880. Mar 1, 2004 10:54 PM

» azxcvbnm - Re: specialists shorting

In response to message posted by Kirk:

I agree that we should go above our previous yearly highs and set new highs for our current bull market. The next major test of bullishness should come in the early summer months (late April/early May). Consumer spending is up, so is personal income, savings, and manufacturing though manufacturing is slowing.

-- posted by azxcvbnm