Archive for March, 2006

  • Sorry, Folks
    , March 31st, 2006 at 12:57 pm

    It’s just too nice outside to blog about stocks. I promise I’ll have more later.
    This is the last day of the first quarter. The S&P 500 is flat, but it looks like this will be the best Q1 since 1999. The Nasdaq is holding above 2,340.
    The Buy List is looking good today, especially Respironics (RESP) and Golden West Financial (GDW).
    If anyone needs me, I’ll running around outside with my shoes off.

  • Harley in China
    , March 30th, 2006 at 12:13 pm

    Harley-Davidson (HDI) is set to open its first dealership in Beijing. They really could have used a couple of Harley’s on the Long March.

    The move into China is part of Harley’s push to take its bad-boy image global. In the U.S., the $5.3 billion motorcycle manufacturer rules the heavyweight premium-bike segment with a 48.9% share, well ahead of Japanese rivals such as Honda (HMC) and Suzuki. Overseas is a different story. Although Harley’s international deliveries grew 15% in 2005, the U.S. still represents more than 80% of the company’s sales.
    And its biggest foreign market isn’t fast-growth Asia, but Europe, where it sold about 30,000 bikes last year. Canada came next, with 11,700, followed by Japan with 11,400, according to company data. Harley groups China into an “all other countries” category of about 11,200 bikes in 2005.

  • Today’s GDP Report
    , March 30th, 2006 at 11:01 am

    The government revised GDP growth for the fourth quarter today to 1.7% from the original 1.6%. I think this was a minor slowdown for the economy. Next month, we’ll get our first look at the growth rate for the first-quarter. I think it will be over 4%, perhaps 5%. Over the last three years, the economy has grown by 10.8%.

  • James Surowiecki on the Newspaper Biz
    , March 30th, 2006 at 10:52 am

    From the current New Yorker:

    But McClatchy’s gamble depends on a simple, if often overlooked, fact: newspapers remain a surprisingly robust business and generate tremendous amounts of cash every year. Most of them have profit margins that dwarf those of the average company; McClatchy’s operating margin last year was twenty-eight per cent, while ExxonMobil’s was around sixteen per cent, and the typical supermarket’s is around four per cent. The reach of newspapers remains huge. Daily circulation is around fifty-five million (not including online readers), giving the industry more customers than any other traditional media outlet. And those customers have the kind of demographics that advertisers like; even as circulation has dropped, revenue from print ads has stayed healthy, to the tune of more than forty-seven billion dollars last year. Newspapers are classic cash cows: solidly profitable businesses in a stagnant industry.
    So why are newspapers everyone’s least favorite enterprise? One reason is that Wall Street tends to love growth stocks, and to underplay the value of steady cash generation. And no one likes to be in a business that’s losing customers.

  • Heigh-Ho Silver
    , March 29th, 2006 at 12:32 pm

    The poor man’s gold is over $11 for the first time in 23 years. The metal cracked $50 when the Hunt brothers tried to corner the market. The silver market famously crashed on Silver Thursday (26 years and two days ago), and the Hunts were wiped out. (They later become the inspiration for Mortimer and Randolph Duke in the movie Trading Places.) Barclays has been fighting to launch a silver ETF, much like the gold one (GLD).

  • UnitedHealth Not Interested in Humana
    , March 29th, 2006 at 11:49 am

    Long-time readers will note that I take a somewhat skeptical view of acquisition strategies (GAG!!). That’s why I was glad to see UnitedHealth (UNH) firmly squash any rumors that it’s about to buy Humana (HUM).
    Over the past few days, Humana’s stock has risen while UNH’s has fallen back. Today, UNH released an 8-K report which clearly said that it ain’t interested:

    From time to time in late March 2006 and the first half of April 2006, William W. McGuire, M.D., Chairman and Chief Executive Officer of UnitedHealth Group Incorporated (the “Company”), Stephen J. Hemsley, President and Chief Operating Officer of the Company, and other senior members of the Company’s management team will be meeting with investors and analysts.
    Those discussions will focus on the Company’s strategy, tactics and future outlook, and will include a reaffirmation of the Company’s publicly disclosed 2006 financial expectations, including strong revenue growth, outstanding cash generation and a very positive earnings performance. The discussions will reflect the Company’s particular focus in 2006 on organic growth, new internal initiatives and the full integration of recent business combinations. Given this agenda, the discussions will underscore that it is unlikely that the Company will pursue merger activity with any large, multi-site health benefits providers in 2006.

    UnitedHealth’s stock is up about 4% today.

  • The Fed Raises Rates
    , March 28th, 2006 at 2:15 pm

    For the 15th straight meeting, the Federal Reserve has raised interest rates by 0.25%. The Fed funds rate is now 4.75%.
    Here’s the statement:

    The Federal Open Market Committee decided today to raise its target for the federal funds rate by 25 basis points to 4-3/4 percent.
    The slowing of the growth of real GDP in the fourth quarter of 2005 seems largely to have reflected temporary or special factors. Economic growth has rebounded strongly in the current quarter but appears likely to moderate to a more sustainable pace. As yet, the run-up in the prices of energy and other commodities appears to have had only a modest effect on core inflation, ongoing productivity gains have helped to hold the growth of unit labor costs in check, and inflation expectations remain contained. Still, possible increases in resource utilization, in combination with the elevated prices of energy and other commodities, have the potential to add to inflation pressures.
    The Committee judges that some further policy firming may be needed to keep the risks to the attainment of both sustainable economic growth and price stability roughly in balance. In any event, the Committee will respond to changes in economic prospects as needed to foster these objectives.
    Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Susan S. Bies; Jack Guynn; Donald L. Kohn; Randall S. Kroszner; Jeffrey M. Lacker; Mark W. Olson; Sandra Pianalto; Kevin M. Warsh; and Janet L. Yellen.
    In a related action, the Board of Governors approved a 25-basis-point increase in the discount rate to 5-3/4 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Dallas, and San Francisco.

    What does “some” mean? For now, the market thinks it means at least one more rate hike. The second paragraph is new, but the third is the exact same language as last time.

  • Hansen Natural
    , March 28th, 2006 at 11:41 am

    Hansen Natural (HANS), the Monster Energy drink stock, is now just getting silly. The stock was up 333% last year, and it’s already up 55% this year. Three years ago, you could have picked up shares of HANS for less than $2. Today, it’s at $123. Wow!
    Lennar (LEN) reported good earnings this morning even though the housing market is showing some signs of weakness. The company earned $1.58 a share, three cents more than estimates.
    I was happy to see someone upgrade Fair Isaac (FIC) this morning. The stock is around $39 a share.
    The big news today is the Fed meeting in Washington. This is the first meeting with Bernanke in charge. The bank will almost certainly raise rates another 25 basis points to 4.75%. This will mark the 15h straight rate hike, and it will finally push the Fed funds rate to the same level as long-term interest rates. I just noticed that the 10-year bond is at 4.751%, so that makes for a perfectly flat yield curve.
    The Conference Board reported that consumer confidence jumped to a four-year high. That probably explains Tiffany‘s (TIF) strong earnings report. The company reported earnings of 97 cents a share, 13 cents more than expectations.

  • Apple Turns 30
    , March 27th, 2006 at 1:14 pm

    This has been a busy week for Apple Computer (AAPL), which turns 30 years old on Saturday. Not only have they gotten in a fight with France, but now they’re fighting with the Beatles. The Fab Four’s business is also called Apple, and this is the third time Apple and Apple have clashed.
    The Beatles first took Apple to court in 1978 when the computer company agreed to stay away from the music business. In 1989, the Fab Four nailed Apple when the company released a music-making program. The computer company had to shell over $26 million. Now the Beatles are taking aim at Apple’s iTunes Music store.
    The French National Assembly has also jumped into the act:

    Last week, France’s National Assembly passed an authors’-rights bill that would, among other things, require music-download stores such as Apple’s iTunes to open their proprietary “digital rights management” copy-control software to users and competitors
    The idea behind that provision of this bill, which must still be approved by France’s Senate, is to ensure that a music download can be played on any device, not just one allowed by the seller of that file.

    Kevin Hassett sums up the issue:

    Imagine if someone built a resort so beautiful that vacationers swarmed to it, and the French passed a law requiring the resort owners to let French citizens stay at the resort for free. This ruling is essentially the same thing. The French are trying to rob an American company.

    Interestingly, it was 40 years ago today that John Lennon said that the Beatles were bigger than Jesus. But are they bigger than Steve Jobs?

  • Walgreens’ Earnings
    , March 27th, 2006 at 12:44 pm

    Walgreen’s (WAG) is one of those rare companies that makes money in good times and in bad. Year after year, the company has delivered an amazing record of consistently rising profits. Today, the company reported earnings of 51 cents a share, which was decent although it was a penny below Wall Street’s expectations.

    Despite missing Wall Street’s estimates, the company’s shares rose 13 cents to $44.50 in late morning trading on the New York Stock Exchange, where they have traded in a 52-week range of $40.98 to $49.01.
    Mitchell Corwin, an analyst with Morningstar, said the flu strain was weaker this year, causing fewer doctor visits and pharmacy prescriptions. But while Walgreen sales were light, the company’s margins held up, he said.
    “Overall sales were slower, but I’m not as concerned because the company is gaining market share relative to its peers and generating strong earnings and strong cash flow,” Corwin said.
    Walgreen, which has more than 5,100 drugstores across the country, said it is on track to open about 475 new stores this year.

    This is a fantastic company, but I’m not a big fan of the stock right now. I think it’s gotten a bit too rich. The stock’s P/E ratio (before today’s earnings) is about 28 while CVS’ (CVS) is just 20. As good as Walgreen’s is, I don’t think it deserves a 40% premium to CVS. But if the P/E ratio got back down to 20, it would be a terrific buy.