Wednesday, April 8, 2009
(Cont'd from above)...

Jim (cont'd):   

Take Emerson Electric (EMR)…. EMR, for all of you home gamers… Emerson is a smoke stack industrial company.. that is right rather than just push paper to the government and back again… these guys actually make things… because they have actual products though, some of them require a lot of money to buy… it is the kind of business that usually gets killed in a recession… Emerson has its hands in everything from industrial automation to climate control or process controls, that allow companies to save conserve energy and power transmission equipment… to plain old motors, and controls used in tools and appliances.

Now, yesterday Emerson slashed its 4 year outlook… listening to them it sounded like the world was ending, or at least the world was standing still… could they please stop advertising that DVD for a moment, I mean, they didn’t like the movie in the theaters, they won’t like it anymore at home… Emerson really scared the heck out of those who genuinely believe that the sun will come up on a relatively daily basis… and in keeping with the them… I have four questions that need to be answered.

What happened to the stock… on a day when the rest of the market got pollaxed, Emerson closed flat yesterday… that is not supposed to happen is it… aren’t investors forward looking and when a company tells them that the year will be much worse than expected… should that not cause people to sell, sell, sell the stock… shouldn’t they sell it down at least 5% to 10%… I mean normally they do… but when the abnormal happens…. when a stock gets hit with just about the worse news possible… ultimate 2x4 snapped around the head and the abdomen… and it doesn’t budge… that is how you know you have a winner on your hands… the best proof that a stock has bottomed and isn’t going lower is when something truly terrible happens to it… like Emerson revising its 4 year earnings forecast to inflect an industrial apocalypse… and the stock doesn’t go down… what does that tell us… the house of pleasure… it says the people who own Emerson, the share holder base, they will not be persuaded to sell this stock at any level… if they don’t sell after just about the worst kind of news possible for a stock… then you know that they are in for long haul… until it goes higher...

Unlike so many stocks out there, especially the financials… your co-shareholders in Emerson are not fair weather friends, or Sunshine Patriots as the great T Paine, crewed about 250 some odd years ago… Thomas Paine… you also know that there are people on the sidelines who are willing to buy even after getting hit with some disastrous news… at one point Emerson was actually up yesterday… it is barely down today… what an opportunity this is… it is not because there was some hidden pearl of goodness in Emerson’s new guidance that only the pros can see… it was all bad… really bad… but even though the numbers were worse than the analysts were expecting… it seemed like the share holders were just happy to get it out of the way.

How bad was it… the company truly slashed, they slashed Jason style… its 2009 earnings guidance from between $2.70 and $2.95 down to between $2.40 and $2.60... expected to take a $1.1b hit from currency… and the CEO talked about a free fall in business… the CEO had literally thought that things could bottom out in the second half of this year and then turn up in 2010, now he thinks it won’t be a bottom until the middle of 2010... with the turn around likely not happening until maybe 2011... Emerson’s operating cash flow is only expected to decrease by about $100m though… because the company has really brought costs down… Emerson really threw in the sink… which is really saying something because they make the Insinkerator Garbage Disposal… right now I want to say, point blank, I don’t want you putting your hand in the garbage disposal… even if you drop a spoon in it… you have to fish the darn thing out another way.

Okay, they put all of the negatives out there at once and the stock did nothing… that is not a miracle… although it may feel like one if you own the stock and didn’t see this coming… it is a sign of copitulation that we need to see a bottom in this stock as already happened… copitulation is when all of the weak hands and all a lot of the stronger ones give up and sell the stock… after all of these people sell you are left with share holders who won’t… some people will say that they are brain dead… I don’t even care… they are just not selling… the selling is done… the stock is now safe to buy… pay no attention to the bearish analyst at Bernstein Research, he is digging in his heels when he should be changing mind… the guy actually thought that Emerson’s orders would fall… but the company projected that they would be flat… compared to what this guy was looking for, Emerson’s new numbers are actually better than expected.

This is the pattern that you want to look for… stocks that don’t go down on bad news… as your investing coach, someone who is looking to teach you, not collect your commissions or fees like a lot of other people that you might hear from… I am telling you that these kinds of nuclear hardened stocks make terrific buys… there is another reason that I like Emerson too… it is one of our accidentally high yields… you know, the notoriously B.I.G. juicy 6.3% yield… and I think 4.4% yield expected in 2010... because of a dividend boost not a stock slide…you know we are infatuated, not in love, remember these stocks are just pieces of paper in the end…. with accidental high yielder companies, that pay out modest dividends… used to have lower dividends but when the share prices were much higher but because of the dramatic declines in the market because of the bears… there yields have bloomed…. I can’t stress how important a good dividend is… 40% of the historical average annual return from stocks has come from the dividends… Emerson is done going down…. and it is paying to wait for it to go higher.

Here is the bottom line…

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