Friday, May 2, 2008

More about Surgical Decoupling (as opposed to "Generic" Decoupling) Theory

Read this:

May 2 (Bloomberg) -- Orders to U.S. factories rose more than
forecast in March, indicating rising demand from overseas may be
helping American manufacturers weather a decline in sales at home.
The 1.4 percent jump followed a 0.9 percent decline in
February, ...


and this from Clorox news yesterday:

May 1 (Bloomberg) -- Clorox Co., the maker of Glad trash
bags and its namesake bleach, rose the most in eight years in
New York trading after it forecast annual sales and profit
gains that were higher than some analysts predicted.
``Beneath the input-cost rubble is a solid brand owner
investing in innovation to drive growth and expand
categories,'' William Schmitz, a New York-based analyst with
Deutsche Bank Securities Inc., said in a report today. He
recommends holding the shares.
International sales rose 14 percent, led by a 20 percent
increase from Latin America, U.S. sales were ``a bit soft,''
Knauss said.

Find other names in the space. I already have DHR (and added DCI more recently) for some weeks. There will be similar news out of JNJ soon, but I predict P&G is fully priced in if you let me use that much-misused term. But you know what I mean.

I think there is a reasonable chance the right "neutral" trade is to pair these with something like COF - local "financier" with only US exposure and no collateral behind the loan, and dependent upon securitization. Have you heard anything so far from "uncollateralized lending" folks other than "we got massive subordination, etc etc"? Right. So who owns the "massive" subordination or in fact is that not what you call earnings? :D

My thinking is more on picking the timing on the short side for the pair trade. Could COF make it to $60-65? That's forward 12x P/E+.

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