Jubak’s Picks – Sells

Company	Symbol	Date Sold	Sell Price	Price Now	Today's Change	Gain/Loss Since Sale
Mead Johnson Nutrition	MJN	01/27/2012	$74.05
Update January 4, 2012: The Centers for Disease Control and the Food and Drug Administration have concluded that there is no evidence of Cronobacter contamination during the manufacture or shipping of Mead Johnson Nutrition’s... more    Read Jim's Original Sell
Titan International	TWI	01/24/2012	$24.81
On December 9 Titan International (TWI) told Wall Street to expect sales for 2011 to be around $1.4 billion (that’s slightly below the Wall Street consensus of $1.48 billion) and... more
F5 Networks	FFIV	01/20/2012	$120.13
Update October 28, 2011: When you’re a fast growing stock with a price-to-earnings ratio of 36 on trailing 12-month earnings, you’d better beat expectations. Which is exactly what F5 Networks (FFIV) did when it reported... more    Read Jim's Original Sell
Boeing	BA	01/19/2012	$74.95
Update November 18, 2011: I still like shares of Boeing (BA) even though the stock didn’t quite make my Jubak’s Picks http://jubakpicks.com/the-jubak-picks/ target price of $84 by September 2011. (It closed at $66.09... more    Read Jim's Original Sell
Coach	COH	01/11/2012	$61.04
Update April 28, 2011: As my grandmother used to say, “Build a better cookie cutter and the world will beat a path to your door.” Coach has done just that. The company developed a successful... more    Read Jim's Original Sell

Update Mead Johnson Nutrition (MJN)

January 4, 2012

The Centers for Disease Control and the Food and Drug Administration have concluded that there is no evidence of Cronobacter contamination during the manufacture or shipping of Mead Johnson Nutrition’s (MJN) Enfamil baby formula. Shortly before Christmas a baby in Missouri that had consumed the formula had died from the bacteria. The two agencies also concluded that the formula involved in the illness of another baby in Illinois was from a different batch than in Missouri. “Based on the test results to date, there is no need for a recall of the infant formula,” the agencies said in the joint statement. Wal-Mart (WMT), Supervalue (SVU) and other retailers had pulled the product from their shelves on December 22 after reports of the infant’s death. The tests by the Centers for Disease Control and the Food and Drug Administration found traces of the bacteria in the bottled water used to prepare the formula and in an opened container of the Enfamil product, but not in the sealed containers from the factory. This is about as good an outcome as possible for Mead Johnson Nutrition. The stock fell 14.6% on the news of the infant’s death and on reports that Wal-Mart and other retailers had pulled the product. Shares have since recovered but they’re still down 6.4% from the closing price on December 21 before the news. The question for investors is Now what happens to the shares? (Mead Johnson Nutrition is a member of my Jubak’s Picks portfolio http://jubakpicks.com/the-jubak-picks/.) Mead Johnson has rightly decided to launch a marketing campaign to restore consumer confidence in the brand. That’s a necessity given the understandable tendency by parents to play safe and switch brands even if the government has decided that the formula is safe. Marketing campaigns cost money, however, and that will put a small dent in earnings over the next few quarters. The company is still likely to see sales drop, however. Credit Suisse estimates that sales will fall by 1.1% in 2012 and that earnings per share will decline by the same amount. That amounts, Credit Suisse calculates, to about 3 cents a share off the top of its forecast of $3.21 a share in earnings for 2012. Three cents doesn’t seem like much, but this is a forecast based on comparison with market share and sales losses in similar incidents and with the recall last year of Abbott Laboratories (ABT) Similac formula. In other words, it's a good projection but it is by no means guaranteed. And the increase in expenses for additional marketing comes at a critical time since one of the arguments for owning Mead Johnson Nutrition now was projections that showed the company raising margins in 2012. That's less likely if the company has to pay for increased marketing. I don’t think you need to rush out and sell these shares—they should continue to recover some of the ground lost after December 22 over the next week or so. But the stock isn’t priced for much error—the consensus Wall Street estimate calls for $3.20 a share in 2012 and not the $3.18 projected by Credit Suisse—and the shares trade at better than 25 times trailing 12-month earnings. And that makes me worried about the company’s next earnings report on January 26—not so much for what the company might say about the fourth quarter of 2011 but about what it might forecast for the next quarter or two in 2012. Guidance might disappoint quite a few investors in the short-term. As of January 4, I’m cutting my target price to $74 a share from the prior $79 and I’d be looking for an exit if the stock recovers the majority of the ground between that target price and the $70.61 price as of 1:30 p.m. New York time today. Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/ , may or may not now own positions in any stock mentioned in this post. The fund did not own shares in Mead Johnson Nutrition as of the end of September. For a full list of the stocks in the fund as of the end of September see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/  

Sell Titan International (TWI)

January 24th, 2012

On December 9 Titan International (TWI) told Wall Street to expect sales for 2011 to be around $1.4 billion (that’s slightly below the Wall Street consensus of $1.48 billion) and 2012 sales of $1.7 billion to $1.9 billion (the Wall Street consensus for 2012 stood at $1.82 billion)

Nothing wrong with those numbers—or with Wall Street’s estimates of a whopping 194% increase in earnings for 2011 from 2010 or with the 59% earnings growth rate projected for 2012.

But as anyone who bought this stock when I recommended it in my Jubak’s Picks portfolio http://jubakpicks.com/the-jubak-picks/ on July 1, 2011 knows, Titan International is an extremely volatile stock that rises and falls with fear and hope about growth and earnings in the commodities sector. Since that purchase date the stock has traded as low as $13.83 on October 3 and as high as $24.81 on January 24. That’s not unexpected of a company that sells tires to the makers and users of giant earth moving equipment used in mining (as well as tires for farm equipment and construction), but it does give me pause.

Titan has galloped ahead at the head of the herd in this rally, climbing 37% from December 19 through 1:45 p.m. New York time on January 24. With the good news on sales for 2011 and 2012 hardly a secret and with analysts going gaga for the stock after the company signed a contract with Caterpillar (CAT) to supply that company with tires, I think it’s time to sell into this rally and look to buy another day. (In Jubak’s Picks I’ve got a 0.7% loss on these shares.)

It’s not like 2012 won’t offer lots of volatility and possible future entry points.

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/ , may or may not now own positions in any stock mentioned in this post. The fund did own shares of Titan International as of the end of September. For a full list of the stocks in the fund as of the end of September see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/

Update F5 Networks (FFIV)

October 28, 2011

When you’re a fast growing stock with a price-to-earnings ratio of 36 on trailing 12-month earnings, you’d better beat expectations. Which is exactly what F5 Networks (FFIV) did when it reported earnings for the fourth quarter of fiscal 2011 on October 25. Earnings of $1.06 a share were 8 cents better than the Wall Street consensus. (F5 Networks is a member of my Jubak’s Picks portfolio http://jubakpicks.com/the-jubak-picks/ ) Revenue climbed by 24% year-to-year and earnings by 40%. For the December quarter, the company issued guidance for earnings of 99 cents to $1.01 a share and revenue of $315 million to $320 million. That roughly matched Wall Street expectations for $1.01 a share in earnings and $320 million for revenue. Not bad guidance for a quarter that has led to lower projections by some technology companies. Somewhat unusually in the current economic climate, F5 Networks talked more than a quarter ahead in its conference call. The December quarter might show a little seasonal weakness but the company expects to see revenue growth accelerate in the March quarter with revenue growth of at least 20% for all of fiscal 2012. That’s better than the 18.6% estimate from Wall Street analysts. Gross margin will be near 82% during the year. That’s the number that may have caught Wall Street’s attention—well that and the company’s operating margin of 39%.  It’s all too typical for a fast growing company to lose control of costs as it expands or at least to see costs creep upwards faster than sales. That isn’t happening at F5 Networks, though. Operating expenses will increase at a lower rate than sales in fiscal 2012, Standard & Poor’s projects. Which is especially noteworthy because F5 Networks is aggressively expanding its market reach from its core business of controllers for delivering applications across networks to target the fast-growing storage virtualization and security markets. Those extensions are natural for a company whose products act to efficiently allocate resources across a network. Gaining substantial share in those markets, however, is a long-term effort with potentially substantial costs. And yet, so far, F5 Networks is handling that while keeping operating margins above 30%. Much of this quarter’s performance was originally baked into my target price of $120 for September 2012. On the surprise and the positive take on the March quarter, I’m raising my target price to $124 for April 2012. That’s roughly 17% above the October 27 close at $105.72. If you want to read this as saying that I think the stock is a good choice for an end of the year rally but likely to continue to be very volatile with any economic slowdown in 2012—remember I added these shares to the Jubak’s Picks portfolio http://jubakpicks.com/the-jubak-picks/ at $76.70 on September 28—I certainly wouldn’t call you wrong. Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/ , may or may not now own positions in any stock mentioned in this post. The fund did not own shares of F5 Networks as of the end of June. For a full list of the stocks in the fund as of the end of June see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/  

Update Boeing (BA)

November 18, 2011

I still like shares of Boeing (BA) even though the stock didn’t quite make my Jubak’s Picks http://jubakpicks.com/the-jubak-picks/ target price of $84 by September 2011. (It closed at $66.09 on November 17.) Short of a global depression I think developing economy airlines are going to add planes as air travel in those economies expands with income, and in developed economies airlines have a huge backlog of older planes (especially among U.S. airlines) that need to be replaced with newer more fuel efficient planes with up to date passenger amenities such as seat-back, multi-channel in-flight entertainment. Yesterday brought evidence of exactly that sort with a $21.7 billion order from Indonesia’s Lion Air for 21 737-900s and 201 of Boeing’s announced-but-yet-to-be produced 737 Max (production scheduled for 2017.) But why the big disappointment on the stock’s target price? Two reasons for this, I think. First, the stagnation of the general market since I picked these shares on September 30, 2010. At day the Standard & Poor’s 500 Stock Index was at 1141. On November 17 it closed at 1216. That’s a very modest 6.6% gain in 13 and a half months. Of course, Boeing hasn’t even matched that number. The shares are down 0.09% since I picked them. Which brings me to… Second, this has become a very tough stock to value. Because so much time went by in developing the 787 Dreamliner and so many deadlines were missed and so many delivery penalties were incurred, now that Boeing is finally producing and delivering planes, it is not making any money on the planes currently rolling off its assembly line according to GAAP standards. (GAAP stands for general accepted accounting practices. It’s the low-trick way to report earnings.) Which creates an interesting problem for an investor. Boeing is pretty clearly making money on these planes on a cash basis—but it won’t make show GAAP earnings on them until the company has delivered hundreds and hundreds of them. An estimated 1,000 in fact. Good thing the company has an order book of about 1100 at the moment. By GAAP standards 2011 earnings will be $4.41 a share, Credit Suisse calculates, and $4.70 in 2012. But cash earnings per share will be $7.06 in 2012, according to Credit Suisse. Why do you care? Well, the costs that GAAP accounting considers are certainly real costs—the company did spend all that money on research and development for the 787 and it did incur all those penalties. But while those costs are being spread over the life of the 787s still to come for accounting purposes—which is why Boeing didn’t show an ocean of red ink when it was spending that money but not producing any planes—in actual cash terms that money is spent and gone and Boeing will harvest cash from each sale that isn’t reduced by that accounting treatment. And when it comes to things like buying back stock (Boeing is likely to resume buybacks in 2013) or paying dividends (current yield is 2.5%) or investing in the next line of more fuel-efficient narrow-body 737s, it’s cash that counts. But you do see how unlike the usual PE times earnings per share calculation of a target price this is. And how many difficult issues valuing a company with this kind of long tail of cash flow might be. For example, Boeing’s 787 backlog amounts to about 10 years worth of production. How certain are you of continued demand over that period—airlines can cancel orders if there’s a more attractive alternative, for example? How about costs over that long a time? If you use cash earnings per share and the average 10-year average multiple of 12—the method that Credit Suisse uses to get its target price—you come up with a 12-month target price of $85 a share. (Standard & Poor’s uses a different method but comes up with a very similar 12-month target price of $86 a share.) I’d trim that a bit because of uncertainties surrounding the speed with which Boeing can accelerate production on the 787 (remember that Boeing has had problems with the big percentage of outsourced content on this plane) and because of Boeing’s exposure to the current uncertainties of the defense budget. I’d set my target at $82 a share by November 2012. That’s roughly a 24% potential gain from the November 17 close—plus that 2.5% dividend yield. Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/ , may or may not now own positions in any stock mentioned in this post. The fund did own shares of Boeing as of the end of September. For a full list of the stocks in the fund as of the end of September see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/  

Update Coach (COH)

April 28, 2011

As my grandmother used to say, “Build a better cookie cutter and the world will beat a path to your door.” Coach has done just that. The company developed a successful strategy for going overseas when it built a business in Japan from its U.S. base. Coach now holds a 16% share of a market that counts for 40% of the global market for luxury handbags. (Coach has 20% of the U.S. market, Standard & Poor’s estimates.) And now the company is applying the same strategy to China. S&P estimates that the company holds about 4% of the Chinese market for luxury handbags. I think you can see where the company thinks this story is headed. As of the end of the fiscal third quarter that ended on April 2, 2011, Coach had 344 retail and 134 factory stores in North America, 174 stores in Japan, and 55 in China. Of course, a company still has to execute that strategy. For the fiscal third quarter, announced on April 26, Coach reported earnings of 62 cents a share, 2 cents a share above the Wall Street forecast. (Coach estimated that the Japanese earthquake and tsunami cut roughly 2 cents to three cents off earnings. Seven of the company’s Japanese stores were still closed at the end of the quarter.) Revenue climbed 14.4% from the third quarter of fiscal 2010 to $951 million. That was slightly above Wall Street projections of $947 million. Operating margin came to 29.4% versus 30% in the year-ago quarter. And the future? Coach says it will open 30 new stores in China in 2011 and 2012. Standard & Poor’s estimates that company sales will climb by 15% in fiscal 2011 and 11% in fiscal 2012. Coach’s board of directors seems to think that growth is likely. It voted to raise the dividend by 50% to an annual 90 cents a share effective with the dividend to be paid in July. The stock isn’t especially expensive, given that story, trading at 20.6 times trailing 12-month earnings per share. Wall Street is projecting earnings growth of 23%. As of April 29, I’m raising my target price to $68 a share by December 2011 from my earlier target of $64 by September. Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund, may or may not now own positions in any stock mentioned in this post. The fund did own shares of Coach as of the end of March. For a full list of the stocks in the fund as of the end of March see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/