John Mugarian's Dynamic Growth

Today, Alcon (ACL), the maker of eye care products, has announced this morning that Novartis was buying the remaining 52% of Alcon that was held by Nestlé. What's odd is Novartis has offered 2.8 of its shares for ACL which works out $153, a lower price than the $164.35 Alcon closed at on Friday.

Our cost basis for Alcon is $159.51, and the stock is currently trading at $159.55.

We are selling shares immediately from the Top Stock Portfolio.

The Dynamic Growth weekly newsletter briefing will be posted later this morning. To access the "Weekly Briefing", go to the "Newsletter" link at the top of the page and sign in by establishing your own username and password.

Before I get started, have you ever heard the story of the Chinese Bamboo
Tree?

Here's how it goes;

If you take a little seed of the Chinese Bamboo tree, plant it, water it,
and fertilize it for a whole year, nothing happens. In the second year, you
water it and fertilize it, and still nothing happens. The same thing happens in
the third and forth years, you water it, and fertilize it, and end up becoming very
discouraged! But by the fifth year, if you had continued to water and
fertilize that little seed, sometime during the fifth year, the Chinese bamboo
tree sprouts and grows NINETY FEET IN SIX WEEKS!

This is what we think will happen with these three stocks. Sure there will
be many discouraging moments over the next 5 years, but I believe these
three big named stocks have a better than average chance of returning to
their former positions of dominance.

Some of the biggest money made in the markets happen when the price of
very influential stocks fall to ridiculously low prices. What these 3
stocks so attractive in my eyes (besides their political influence and low
stock price), is you probably couldn't find three stocks more hated and
shunned.

There is an old saying in the investment world, "when everyone is lining
up their deck chairs on the sunny side of the boat, it may be wise to go to
the other-side of the ship because the sun will eventually come around to
you."

We all are aware of the problems surrounding CitiGroup (C), Bank of
America (BAC), and General Electric (GE). This is why the stock prices are
where they are today. I believe all three will eventually work their way
through their problems. I believe all three will have much higher stock
prices in the years ahead.

CitiGroup (C)

CitiGroup (C), if it remains independent, will probably take 10 years to
get back to its days of glory. For those of you who remember the savings
and loan crisis of the 1980s and 1990s, you may also remember that
"CitiCorp" (now CitiGroup) stock crashed, and today is nothing more than a
expanded version of the past.

Here are a few reasons why I believe CitiGroup (C) will survive, or
merge;

1) CitiGroup (C) may eventually merge with with another investment bank
like Goldman Sachs.

In October 2008, when the credit crisis was in full bloom, news broke that
Treasury Secretary Hank Paulsen, tried to get Citigroup and Goldman Sachs
to merge. What happened is Goldman Sachs CEO, Lloyd Blankfein, did indeed
call Citigroup CEO, Vikram Pandit, to discuss a merger. But the pieces were
not in place yet to allow this to happen.

The Financial Times broke a story that Blankfein and Pandit were talking
to lay the groundwork for a possible merger. But, CitiGroup and Goldman
needed to make several strategic moves to clear the way before a deal could
get done.

First, Goldman had to become a bank holding company (which they did).

Secondly, Goldman has no interest in owning a retail brokerage operation.
Oddly, Citigroup sold 51% of Smith Barney to Morgan Stanley.

Third is the connection within CitiGroup to Goldman Sachs. Former
Citigroup advisor, Robert Rubin was once a chairman at Goldman Sachs, and
also a former US Treasury Secretary. If Goldman buys CitiGroup, it would
wipe out a big competitor. I find it odd that former Goldman CEO, Hank
Paulsen, who was at the time the US Treasury Secretary, provided TARP funds
to CitiGroup and not Bear Sterns and Lehman Brothers.

Since Bear Sterns and Lehman Brothers had no former Goldman alumni guiding
their ships, was Paulsen wiping out Goldman competitors, while protecting
their alumni at CitiGroup?

In addition to the above, in August 2009, the CEO's of Citibank, N.A.,
and Latin America bought 1 million shares each at $3.41, and $3.21
respectively. Other purchases have taken place as well.

In November 2009, we learned that hedge fund manager John Paulson's made a
humongous purchase of CitiGroup stock. Paulson bought 300 million shares of
Citigroup, while selling all its shares in Goldman Sachs.

CitiGroup has begun returning the TARP money it received from the US
government. I believe this says a lot. Whatever happens in the months and
years ahead, I would say the statements above warrant taking a chance in
CitiGroup stock.

"You know what the news is-- in a minute, you're going to hear the rest of the story"- Paul Harvey

The weekly newsletter briefing is for members only, and was posted to the website on Monday. To access the "Weekly Briefing", go to the "Newsletter" link at the top of the page and sign in by establishing your own username and password.

Like yesterday, sellers tried to take the market down but were unable to gain any traction.

This morning a report released by ADP estimated the economy lost 84,000 jobs in December, the smallest decline since March 2008. The ISM non-manufacturing index showed that the services industry had expanded for the third time in the last four months.

Despite the rosy news, several items continue to concern us. We must see more evidence that the economy is "really" improving. Here's what's bothering us;

1) The consumer, in our opinion, is the real driver behind a sustainable recovery. We are seeing personal incomes, as well as other sources of incomes, like interest and dividends falling.

2) Unemployment is still very high, and we will have to wait and see if the temporary lift in jobs was due to hiring workers for the holiday's. Also, the labor force continues to get hit with furloughs and part-time jobs, while others are seeing their wages and salaries cut.

3) Consumers are shifting from credit cards to debit cards, and Visa reported that consumers used debit cards more frequently than credit cards for the first time ever. This shows us that a fundamental shift has taken place in the spending habits of consumers.

4) Preliminary reports show that 2009 Christmas sales rose to 3.6% from 2008’s when sales fell 3.4%. Oddly, much of 2009’s rise came from a 15.5% increase in internet sales.

5) The deleveraging of financial sector is hurting consumers access to credit. Credit card limits have been reduced or totally eliminated, auto loans have declined, and home equity lines of credit are almost a thing of the past.

6) The government has already anticipated another economic decline. Currently, the House of Representatives is working on a $154 billion jobs package. $75 billion is slated for infrastructure projects such as highways and transit, water projects, affordable housing and school construction and renovation. If the economy is truly recovering, why would they need to do this?

So, you tell me. Recovery? or temporary recovery which includes a bear market rally?

On Tuesday (January 4, 2010), I wrote a journal entry entitled "3 Stocks for the Next Decade".

Since putting together this small list, the three stocks combined, GE (+8.11%), C (+9.28%) and BAC (+12.4%), are up an average of 9.93% in just a couple of days.

These three stocks are part of 11 stocks on our Under Loved, and Under Appreciated Stock List, which is up an average of 15.73% since November 24, 2009.

With almost every investment guru promoting tech, and bashing financials, we felt very comfortable with taking a contrarian approach. I believe in the old saying, "when everyone is lining up their deck chairs on the sunny side of the boat, it may be wise to go to the other-side of the ship because the sun will eventually come around to you."

To access this portfolio, as well as our Top 10 ETF's, Top 10 Fidelity Sector Funds, and our Top Stock Portfolio (Momentum), go to the "Newsletter" link at the top of the page and sign in by establishing your own username and password.

Today, the market is resisting some selling pressure on renewed interest in the financial sector. Jeremy Siegel of the Wharton School of Business recently said “their evidence is building that the world economy is headed for a substantial recovery from the worst financial crisis since the Great Depression.”

In addition to Siegel's comments, the head of the IMF said the group is likely to increase its forecast for global growth later this month vs. its October forecast of 3.1% global growth in 2010.

The Dynamic Growth "Weekly Briefing" was posted to the Newsletter portion of the website today.

To access the "Weekly Briefing", go to the "Newsletter" link at the top of the page and sign in by establishing your own username and password.

Here are a few comments from this weeks Newsletter Briefing.

Bringing up the rear!

Okay, NASCAR fans, "start your engines."

International Speedway Corp (ISCA) has been on my radar screen since the economic decline began. I haven't pulled the trigger and bought the stock yet, but I do have some sincere interest. Why? I'm not a NASCAR enthusiast, but I am fascinated with their business, and massive following.

Rule #1 in starting a successful business is to market and sell to the masses. While NASCAR is a niche business, it does have a massive fan base.

Here's what interests me;

Living here along the "Red Neck Riviera" (Panhandle of Florida), I see NASCAR fans everywhere I go. If you are not familiar with their existence, they are the drivers you see everyday with numbers such as 8, and 24 on their back windshields. This number displayed on the car or truck is the number of a persons favorite driver. For example, number 24 is Jeff Gordon, 88 is Dale Earnhardt Jr..

Non NASCAR fans may not believe this, but car racing is no longer just a redneck sport. According to a 2004 NASCAR survey, about 75% of the fan base have attended college, over 25% own their own homes, and 36% make more than $50,000 a year.

International Speedway Corp (ISCA) founded in 1953 and is by far the biggest, and most successful car racing business in the world. They own, promote, or operate 13 race sites throughout the United States.

Here are some you might be familiar with;

* Daytona International Speedway® in Florida
* Talladega Superspeedway® in Alabama
* Michigan International Speedway® located outside Detroit
* Richmond International Raceway® in Virginia
* Auto Club Speedway of Southern CaliforniaSM, near Los Angeles
* Kansas Speedway® in Kansas City, Kansas
* Phoenix International Raceway® in Arizona
* Chicagoland Speedway® near Chicago, Illinois
* Route 66 RacewaySM, near Chicago, Illinois
* Homestead-Miami SpeedwaySM, in Florida
* Martinsville Speedway® in Virginia
* Darlington Raceway® in South Carolina
* Watkins Glen International® in New York.

International Speedway also promotes more than 100 events during the race season. The company makes a ton of money through radio, television, and merchandise sales.

In my opinion, International Speedway fits the description of a highly predictable business with a recurring, and loyal revenue base. A weak economy, and consumer spending concerns have hurt the stock price as ticket sales have slowed. But once the economy begins to show signs of life, sales will rebound.

The impressive part of ISCA's business is its growing popularity. NASCAR is the second highest rated sport on television, and corporate sponsorship has found that NASCAR fans are 3 times more likely to purchase a sponsor’s product or service than non fans.

Percentage of total revenues are fairly diverse. On first glace one may assume ticket sales are the bulk of the revenue. Here is the actual breakdown;

Television and Ancillary- 33%
Sponsorship and Hospitality- 26%
Food, Beverage and Merchandise- 10%
Admissions/ Ticket Sales- 30%
Miscellaneous- 1%

Earnings Per Share

2004- $2.46
2005- $2.99
2006- $3.24
2007- $2.85
2008- $2.80

During this economic decline, ISCA insiders have been accumulating their stock of International Speedway Corp. (ISCA) steadily through open market purchases and stock grants.

If and when the economy improves, I believe ISCA will be off to the races again. A rebound in the economy could see the share price climb back to 2007 levels of $50 per share, a gain of 75%.

The Dynamic Growth "Weekly Briefing" was posted to the Newsletter portion of the website on Sunday.

To access the "Weekly Briefing", go to the "Newsletter" link at the top of the page and sign in by establishing your own username and password.

Here are a few comments from this weeks Newsletter Briefing.

When the Congress and President began talking about stricter regulations on Wall Street and the big investment banks, I could couldn't help but laugh. After-all, who do you think controls these guys?

President Obama talked about a 10 year tax on the banks that got us into the financial crisis. Joe six pack watching the news is yelling "go get'em" while shaking his fist at the TV. What he doesn't realize is every penny of the so called tax will come directly out of his pocket. This was not a tax on the banks. This was a new tax on the consumer.

Be Careful Out There!

Stocks are getting overvalued. As we look at the Relative Strength (RSI) of a large majority of stocks, we are seeing more stocks overbought, than oversold. The RSI of every stock, and stock index has a range from 0 to 100. As a stock approaches a Relative Strength number of 70 or above, it is considered overbought, while an RSI of 30 or under suggests a stock is oversold.

You can gauge the RSI by using this simple to use tool from Bloomberg.

I would also be careful of the cheer-leading on the financial channels as the stock market becomes more overbought. This morning I laughed when CNBC's Erin Burnett was reading off the teleprompter. She called Iran's, "Republican Guard", an "elite" military unit, and very dangerous.

The last time I heard how tough or dangerous the "Republican Guard" was, was just prior to the US invasion of Iraq. Shortly after the bombing started, the "elite" military unit was waving white flags, and surrendering to crews from FOX news, and CNN.

Here is an example of the media getting you to buy stocks at the top. Once again, Erin Burnett was reading off the teleprompter-Video- on January 31, 2007, saying "Goldilocks move aside, we have Economic Nirvana." Jim Cramer on February 25, 2007 was saying the economy would be fantastic.

All I can say is...Be Careful Out There!

The Dynamic Growth "Weekly Briefing" was posted to the Newsletter portion of the website on Sunday.

To access the "Weekly Briefing", go to the "Newsletter" link at the top of the page and sign in by establishing your own username and password.

Today, President Obama called for a semi return to Glass Steagal Act. I have criticized law makers for repealing the Act since it was first abolished in 1999. But, the President failed to lay blame for who was really responsible for the repeal. During today's announcement he should have turned to the Senators behind him, and said, "The collapse of the entire banking system was the fault of the Congress, and President Clinton, for repealing Glass Steagal back in 1999".

Here's how it happened.

Senator Phil Gramm (Republican of Texas who's now hiding under a rug) and Representative Jim Leach (R-Iowa) introduced the legislation. The final bill passed by a 90–8 margin in the Senate, and 362–57 in the House. President Bill Clinton signed the legislation into law on November 12, 1999.

I'm sure the banks lobbied heavily for the legislation, but if these politicians were truly working for people like you and I, it would have never passed.

If the semi-reintroduction of Glass Steagal is done properly, banks will no longer be allowed to own and operate brokerage businesses. This means shareholders of stocks like Bank of America (BAC) will reap a windfall if the company eventually spins off Merrill Lynch.

As a standalone bank, I believe BAC is worth $45 a share. This of course is assuming sometime over the next 5 years the economy stabilizes, or returns to it's normal growth. Merrill Lynch, prior to the financial meltdown hit as high as $90/ share, and was bought by BAC for under $30.

In all honesty, Ken Lewis (former CEO of BAC) really didn't want to buy Merrill, but was forced to do so by former Treasury Secretary Hank Paulsen, and Fed Chairman Ben Bernanke. I don't think Bank of America will have any reservations if they are forced to spin-off Merrill Lynch.

But, let's get real here. The chances of President Obama's announcement passing, and severely impacting the banks, is slim and none. A lot of what we heard this morning was political grandstanding in light of the democrats stunning defeat in Massachusetts. Sure, there will be some reforms, kind of like the "Chinese Wall" farce they came up with in 2001 after the investment banks and brokers had conflict of interest problems during the dot-com craze.

Anyway you cut it, stocks like Bank of America (BAC), and Wells Fargo (WFC) (both own brokerage operations) should be worth 2 or 3 times what they are currently trading at 5-10 years down the road.

The Dynamic Growth "Weekly Briefing" was posted to the Newsletter portion of the website on Sunday.

To access the "Weekly Briefing", go to the "Newsletter" link at the top of the page and sign in by establishing your own Username and Password.

Is the Fed Propping up the Market?

There are some very influential market guru's suggesting that the huge market rally we have witnessed since March 2009 was due to government intervention. The most notable was Charles Biderman of TrimTabs, suggesting that the "Plunge Protection Team" may be involved.

The "Plunge Protection Team" is also know as the "Presidents Working Group on Opening Markets".

Here is a video of Biderman suggesting this may be the case.

Biderman makes a compelling arguement since;

- Small Investors have withdrawn $32 billion out of U.S. stock funds over the past year.
- Small Investors have withdrawn $18 billion out of U.S. ETFs over the past year.
- Corporate stock buybacks are at their lowest levels over the past 10 years.
- Insiders Selling.

Even CNBC contributor, and professional futures trader Larry Levin (Video) went to record to say "the Visible and Invisible Hand is Everywhere."

Week in Review

The Dow closed down 216 points on Friday, the third straight triple-digit loss on the week. The Financials were weaker on news that Fed Chairman Ben Bernanke may be facing trouble being reconfirmed.

The S&P 500 lost 24 points to 1091. The Nasdaq was down 60 points at 2205. Declining issues beat advancers by 9-2 on the NYSE and by 5-2 on the Nasdaq. The 10-year Treasury note was down 2/32 to yield 3.59%. For the week, the Dow dropped 437 points, or 4.1%. The S&P 500 lost 44 points, or 3.9% and the Nasdaq was down 82 points, or 3.6%."

President Obama is trying to save face after the democrats were dealt a stunning defeat in Massachusetts. He attacked the financial institutions on Thursday, saying if they got too big, he would break them up, and proposed prohibiting and/or taxing the proprietary trading.

Dow component General Electric (GE) held up well after reporting earnings that beat analyst forecasts. GE was up 0.6% at 16.11.

American Express shares fell 8.5% to 38.59 despite announcing that profits beat forecasts.

I added a new stock to the Under Loved, and Under Appreciated Stock List this week. We added Yahoo with a Buy Limit of $18.

I've had my eye on Yahoo ever since Microsoft offered to buy the company at $33 a share. Personally, I love to use Yahoo Finance over Google Finance, and even Bloomberg. Yahoo fits all the descriptions of an "Under Loved, and Under Appreciated Stock", and has been the redheaded step-child of the internet search engine space. Microsoft saw something it liked, and we do too.

Even after last week's sell-off, the Under Loved, and Under Appreciated Stock portfolio is up +13% since late November.

My top 2 blue chips in the UL & UA stock portfolio are General Electric (GE), and Bank of America (BAC). Both companies are vital players in our nation, and Valueline says there are tremendous gains to be had over the next 3-5 years. The key is patience.

The Dynamic Growth "Weekly Briefing" was posted to the Newsletter portion of the website on Sunday.

To access the "Weekly Briefing", go to the "Newsletter" link at the top of the page and sign in by establishing your own username and password.

The Dynamic Growth "Weekly Briefing" can be accessed through the Newsletter portion of the website.

To access the "Weekly Briefing", go to the "Newsletter" link at the top of the page and sign in by establishing your own Username and Password.

After last week's initial "Shock and Awe" sell-off, many are beginning to learn that the stock market doesn't go straight up. In fact, after an initial burst up from the March 2009 lows, stock prices have caught up, or surpassed the current earnings abilities of most companies.

At least in the short run (3-6 months), it's going to be difficult for companies to continue to growth their earnings in light of the macro environment.

Going forward, in order to grow earnings, the unemployment picture must dramatically improve. I don't think that will be the case over the short run. To make money in a market that stalls, or is range bound takes creativity.

The strategy I like to use in a sideways, range bound market is one of generating cash flow. I do this buy selling options.

Here's the strategy;

Becoming a Cash Flow Machine

One of the biggest fallacies about Warren Buffett is his slow and steady long-term approach to investing. Let me tell you something, there is nothing slow about Warren Buffett. Steady yes, slow, not a chance.

Investors think when Warren Buffett buys a stock that he’s in for the long haul. Well, that’s only partly true. He’s in for the long haul on only a handful of stocks. The others are actively added, reduced or eliminated like middle managers.

Most investors are so wrapped up in Warren’s stock picking strategy that they fail to see the real secret to his success. Brokers, and armchair investment gurus have been shouting "“Invest like Buffett”" for years now. They also yell “"Buy, Hold and forget about it".” Well, let me tell you my investing sports fans; you’re only hearing part of the story. The other part…… of the story is...CASH FLOW.

That’s right! Tons and tons of cash. If Warren Buffett is a “Buy, hold, forget about it” type guy, then where does he come up with the cash to buy more stock...Cash flow! Very rarely, if ever, do you hear Warren Buffett talk about cash flow. You hear him say, “Our problem is we have too much cash and very few places to put it.”

"You know what the news is-- in a minute, you're going to hear the rest of the story"- Paul Harvey

The Dynamic Growth "Weekly Briefing" can be accessed through the Newsletter portion of the website.

To access the "Weekly Briefing", go to the "Newsletter" link at the top of the page and sign in by establishing your own username and password.

In Monday's newsletter briefing, we sold our two oil refiners, Valero Energy (VLO) for a +16.3% gain, and Sunoco (SUN) for a +6.07% gain. Both stocks were in the Under Loved, and Under Appreciated Stock portfolio on the website.

Our rationale was simple. Both companies are losing money, and we felt that one or both would be forced to cut their dividends. In light of tighter environmental regulations, both companies are losing money. This is a repeat of what we saw during the Clinton years which lead to tighter gasoline supplies due to lack of refined goods. It's just a matter of time before the consumer is once again choking on extremely high gas prices.

Yesterday, Valero posted a $0.28/share loss in the 4th-Q09, and cut the annual dividend from $0.60/share to $0.20/share.

The real concern going forward are the eventual effects from Goldman Sachs concocted carbon credit scheme. This scheme forces companies who produce greenhouse gas to buy carbon credits if the produce carbon dioxide. This is a major expense for oil refiners, so instead of losing money they close refineries. This eventually jacks up gasoline prices.

Goldman Sachs is not alone in the rush to profit from the bogus carbon credit market. Many of the big investment banks like Barclay's, Citigroup, and Bank of America's Merrill Lynch are rushing in to get a piece of the pie.

Despite Mr. (Community Organizer) Obama's speech last night, you can clearly see, as was the case with George W. Bush, Bill Clinton, and George H.W. Bush, they don't work for you and I. These politicians, and many in congress answer to a higher power. And this higher power is not God.

Despite all the bank bashing, we believe that the financial sector is poised for a major rebound over the next 3-5 years. We are buyers of Bank of America (BAC) at current levels. We are also buyers of General Electric (GE) since the company's stock price has suffered because of its financial arm. I believe these two "Blue Chip" company's will be great stocks to own over the next decade.

On a more speculative note, I also like CitiGroup (C).

Predicting the potential rebound of a quality Blue Chip stock is pretty easy to do. You don’t need to be an analyst with a CFA designation to figure them out. In fact, all you really need to look at is the company’s track record, and have a boatload of common sense. This is why I Like GE.

Let’s take a look at the company through the eyes of someone with common sense. Track record will tell you a lot since great companies almost always seem to find their way out of a tough situation. The advantage that a major Blue Chip has is…Predictability!

When you look at a company’s track record is you can see how they have performed in good economic times, bad economic times, and how they have rebounded or languished after a recession.

When Warren Buffett evaluates a company, he looks at the big picture. As an example, are earnings, dividends, and return on equity “generally” rising, or falling. It’s only natural to assume a company’s numbers will contract during recessionary periods, but it’s the general trend overtime tells the real quality of a company.

GE’s problems have been well documented, but I feel they have addressed the key issues, and are managing them effectively.

Recently, the company announced quarterly earnings of 0.28 per share, 7.3% above the consensus estimate of.26. As the recession continues into 2010, the company will continue to work its way through the issues at GE Finance, but we feel these problems are only temporary.

While earnings could be flat to slightly up for 2010, we are taking a longer term view of 3-5 years. With the problems of NBC Universal off its back, the company can now focus on its key businesses.

1998-2009 Earnings per Share

Earnings: .93, 1.07 1.29 1.41 1.51 1.55 1.61 1.72 1.99, 2.20, 1.78, .95

The average Earnings per Share over the past 12 years = $1.31

My 3-5 year Prediction: GE earnings will once again reach $1.31/ share, or possibly higher. The last time GE had earnings of around $1.31/ share, the stock was trading in a range of $28 to $60.