Stocks Update: Not Time Yet to put Pfizer on Ice--It's Still Not at its Pinnacle

Here is what I bought today:

06/11/2008 Bought 100 PNK @ 12.46
06/11/2008 Bought 17 ICE @ 118.67
06/11/2008 Bought 2000 PFE @ 17.65

Let's take these one at a time--

PNK is Pinnacle Entertainment Inc. Although their HQ is in Las Vegas, they don't own casinos there. The six casinos they own are in Louisiana, Indiana, Missouri and Reno, NV; in addition, they operate casinos in the Bahamas and Argentina. This is a fairly small company--its market cap is still under 1 billion. Why choose this stock over WYNN, LVS, or MGM?

I watched a PBS documentary on Vegas recently, and let me tell you, Steve Wynn and his vivacity are a hoot to watch. The documentary reminded me of how cool Vegas used to be, starting with the Mafia and the Rat Pack, moving to JFK/RFK and Howard Hughes coming in to clean it up, and then ending with shareholders and Wall Street finishing the job. What struck me most during the documentary is that Vegas seems like it's all out of gimmicks. The old Sands, where the Rat Pack used to play, is gone. Steve Wynn's Mirage is no longer the epitome of cool. By focusing so much on the future and demolishing anything older than a decade, Vegas has neglected to preserve its history, which would have been a tourist draw (who wouldn't want to walk on the same stage that Sammy Davis Jr. danced on?).

To be fair, when I went to the new Wynn hotel in Vegas, I was impressed. I wasn't impressed in the sense that this hotel was something wild, something fun--but it was a darn nice hotel and casino, and the no-smoking sports book didn't hurt (of course, it's impossible to find a seat). Would I fly out from California to Vegas just to see the Wynn hotel? That's the million dollar question, isn't it? I wouldn't--and if I did, there's nothing in that particular hotel that I couldn't get by staying at another hotel nearby and, say, walking over to view the Wynn's Ferrari display. The problem with sinking so much money into these hotels is that it's based on the hope that the high rollers will come to you and make up for the initial costs. But other than Charles Barkley, it's unclear why an international client would fly to the Wynn rather than another more exclusive resort, say, in Macau.

The next stage for Vegas hotels is to do what the Hard Rock Hotel has done--make each room unique so that customers are paying for the inside of their room, not the outside. I genuinely look forward to staying at any Hard Rock Hotel (HRH), because you don't know ahead of time which rock star your room will be based on. The problem with the HRH is that they don't have good locations (the one in Vegas is off the strip), and it's harder for them to expand in a saturated nationwide market. But Vegas as a whole doesn't seem too much different than it was ten years ago, and so far, other than making its hotels more lavish, there's no new major attraction. With a looming recession, people might go to Reno or a cheaper hotel instead. Even I will be going to Reno in a few weeks rather than Vegas because 5 dollar blackjack tables are easier to find in Reno, and I am tired of the Vegas crowds and not being able to find a good seat at the sports book.

What does any of this have to do with why I bought PNK? Simple. PNK is building casinos in areas where they are a unique, new attraction. It's like a Walmart coming to a tiny town--even if it's not fancy, even if it's just downright ordinary, the lack of competing attractions will still allow a steady stream of business.

Also, labor costs are cheaper in Indiana, Missouri, Louisiana, etc. A major cost of any Vegas casino is their unionized workforce and sheer number of employees needed to run all the attractions (or did you think the lions at the MGM fed themselves all day?). Especially in a slower economy like Indiana, casinos won't have as hard of a time finding cheaper labor and good employees. That's good news for the Midwestern and Southern-based casinos.

Today, the St. Louis Business Journal confirmed that PNK's Missouri branch was doing well: "Admissions at Lumiere Place grew almost 22 percent from 510,448 in April to 622,088 in May. Revenue in May was $15.3 million, a 17 percent increase from April's revenue of $13.1 million."

I didn't buy much of PNK--but I definitely like it better than MGM or LVS shares. (I don't include WYNN in the previous sentence because its shares seem to hold up better on down days.)

ICE is InterContinental Exchange, Inc. It's basically a trading forum for commodities. It has enjoyed a spectacular run-up to 194 dollars per share because of the rise in commodity prices, which forced many companies to use futures contracts and take more of an interest in managing their cost of materials. But it's now trading at 118 dollars, probably because of the fear that commodities themselves are in a bubble and the Dems will regulate traders/speculators out of existence. It's a tough call between buying this company or CME Group, Inc. (CME). As you can see, I did not buy much of this stock, either. It's just a small hedge, and I expect to lose money on it in the near term, because it is so volatile. This is a long term hold--if I could just erase it from my screen until five years from now, I'd probably save myself some gray hairs.

Finally, we are back to Pfizer (PFE). Why buy over 35,000 dollars worth of this stock? Two reasons: one, this company is still a blue-chip in a business with excellent margins. If I have to hold onto it for the next five years, I don't mind, especially not with a 7% dividend. Second, the Wall Street Journal is showing that it has the fourth highest money flow of all traded stocks on June 11, 2008. Either someone knows something we don't, or it's possible this stock has finally hit the bottom. I will look to flip soon, because I still have 700+ shares in a different account.

Stocks Update

For some reason, I have always tried to highlight the bad news rather than the good. I suppose it keeps me humble, but really, I do it to ensure a sufficient amount of fear. Mark Cuban, owner of the Mavs, was once asked why, after making billions, he kept going. His answer: "Fear." In that vein, I am going to provide a "stocks update" on a day when the Dow and Nasdaq went down over 3%:

Open Positions
CNB = 0
EQ = 0
EWM = (slightly negative; 150 shares)
GE = 0 (slightly negative; 179 shares)
IF = -2.1
PFE = -6.4
PPS = +0.1
WYE = -2.6

Total: losing/negative 2.75%

I am not worried. Except for IF, these are all good dividend plays (meaning, they have enough cash flow or cash to pay their dividend over the next year). Even if Pfizer (PFE) has to "repatriate" (bring some money to its U.S. operations from abroad, thereby taking a tax hit) some cash to pay its dividend, I am guessing it will still do whatever it takes to pay the dividend.

Here is what my friend, who is a tax lawyer, said about repatriation--and it sounds like good news, rather than the bad news the general media is making about the possibility of repatriation:

I took international tax in law school but I am fuzzy on the subject not having reviewed it in awhile. The only thing I remember about repatriation is that foreign earnings of controlled foreign corporations were not subject to tax until they were brought back into the U.S. When the funds were brought back to the U.S., or repatriated, a corporation could then file some sort of election to exclude up to 80 - 90 percent of the repatriated funds from income.

I would guess that PFE would try and take advantage of that generous tax break on repatriated earnings if they did not want to risk cutting their dividend to U.S. shareholders.

If the tax hit is only 10 to 20%, that isn't so terrible. My hunch is that Pfizer's board sees its stock as a "widows and orphans" stock and won't cut the dividend for another year a half at least.

(Today, I bought 100 GE @ 30 and change; also, on June 9, I bought 29 more shares of GE at around 30.)

Overall, I am down about 1400 dollars since I sold off almost all of my holdings earlier. Most of the 1400 dollar loss is because of my recent large buy of Pfizer. My prediction last month or so was correct; i.e., that the market would suffer a large hit. For the most part, I heeded my own advice; otherwise, the damage would have been more severe.

Closed Positions:
Daytrades: PFE (0.5%)

MMM (0.5%), MRK (0.1%), SCUR (15%) (held less than seven days; record in this category is a 5.2% average gain)

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