Archive for July, 2006

  • S&P 500 P/E Ratios By Sector
    , July 25th, 2006 at 6:31 pm

    Here’s a colorful chart. This is what the Price/Earnings Ratios have done for the last 18 months for the different sectors of the S&P 500:
    SP PEs.bmp
    While the overall market’s earnings multiple has fallen, it hasn’t been the same across different sectors.
    Notice how far Healthcare (the purple line) has fallen. It used be to second only to tech. Now it’s right in the middle.
    Financials, which are still very low, have remained pretty steady.

  • The Market Today
    , July 25th, 2006 at 4:47 pm

    Today was a good day for our Buy List. Fourteen of our twenty stocks rose, and the average stock climbed 0.81% compared with 0.63% for the S&P 500.
    The big star today was Brown & Brown (BRO) which jumped nearly 12%. Sheesh, it’s about time! The little insurance stock had been pulling back since the middle of April. Yesterday, BRO reported earnings of 32 cents a share, three cents more than estimates. Alistar Barr at MarkeWatch noted that BRO has benefited from the recent turmoil in the Florida insurance market.
    Medtronic (MDT) also had a good day. The stock rose $1.62 or 3.4%. I just don’t see how Medtronic can be 18% off its high.
    We had two more earnings reports after the close. AFLAC (AFL) just announced very good earnings. The company’s operating earnings came in at 75 cents a share, four cents more than estimates. The dollar/yen exchange rate nipped off two cents a share. However, the company warned that growth from Japan will be
    Also, Fiserv (FISV) reported earnings of 63 cents a share, three cents more than expectations. The company also bumped up its full-year forecast to $2.48 to $2.54 a share from the earlier range of $2.46 to $2.53 a share.

  • Lagging Small-Caps
    , July 25th, 2006 at 12:40 pm

    Small-caps are having a big day today. In fact, that’s one of few areas of the market that is convincingly higher.
    But that’s not how it’s been for the past few months. After a spectacular run, small-caps have been feeling the most pain in this market.
    This chart shows the Russell 2000 (black line) against the S&P 500 (gold line):
    This is a big change from the previous six years. It’s been one long small-cap party. From April 8, 1999 to April 19, 2006, the Russell 2000 gained 94.7% while the S&P 500 lost -2.5%.

  • Second-Quarter GDP Report
    , July 25th, 2006 at 10:24 am

    This Friday, the government will report how much GDP grew in the second quarter. I’m curious what this report will say because I think it will be far stronger than most people realize.
    The consensus on Wall Street is that the economy grew by 3% for the second three months of the year (this is after inflation). Speaking for myself, I would be surprised if GDP growth comes in any less than 3.4%.
    The economy has grown pretty impressively for the last three years. The annualized growth rate is almost exactly 4% (3.997%). That’s faster than the 3.81% growth rate from 1998 through 2000. The fourth quarter of last year was a dud, probably due to Katrina, but we’ve apparently shaken off that slowdown.
    For the first quarter, the economy grew by over 5.6%. Once the economy gets moving, it doesn’t often go off the rails so quickly. I should also mention that the GDP report will be updated twice more, and these revisions can be quite big. In fact, I wouldn’t mind seeing the Bureau of Economic Analysis ditch the early reports. I’d rather get good numbers later than bad ones early.
    The GDP report will be released this Friday at 8:30 am.

  • Brown & Brown Reported Earnings of 32 Cents a Share
    , July 24th, 2006 at 5:22 pm

    Brown & Brown (BRO) earned 32 cents a share for the second quarer compared with 27 cents last year. Sales jumped 12.7% to $220.8 million.

    J. Hyatt Brown, Chairman and CEO, noted, “We had a very good quarter. We are very pleased with the 6.8% internal growth rate of our core commissions and fees revenue. In fact, all but one of our seven business operating units showed improvement in their internal growth rates over the previous quarter. We are optimistic about the continued growth, development and strength of our company.”
    President and Chief Operating Officer Jim W. Henderson added, “We are also pleased with the performance of our Producers who have completed our in-house sales school, ‘Brown & Brown University.’ These sales professionals are contributing significantly to our organic growth and give us an encouraging glimpse of our future leadership. On the acquisition front, we have completed 12 transactions so far in 2006 with combined annualized revenue of approximately $32 million and we continue to be very positive about acquisition opportunities.”

  • Blogger Sentiment Poll
    , July 24th, 2006 at 1:04 pm

    The excellent Ticker Sense has started a Blogger Sentiment Poll. I’ve been invited to participate along with several others stock bloggers.
    Here’s the latest:
    Blogger currently have a slightly bearish outlook for the next 30 days, which seems about right.

  • Brain Teaser
    , July 24th, 2006 at 12:56 pm

    Here’s a fun puzzle I found at Cafe Hayek, via The Stalwart:

    An American tourist goes to a remote island for a vacation. The natives live by a barter system-they have no money. When the tourist tries to pay for his lodging with a check, the owner laughs at first, but then decides that the design on the check is quite attractive and agrees to accept the check in return for lodging. This happens again when the tourist pays for food and some native artwork. The checks are never cashed. They begin to circulate on the island as money, replacing the barter system that had existed before.
    If the checks are never cashed, who pays for the vacation of the tourist? Or is it free?

    What do you think? My thoughts after the jump….


  • Media Star
    , July 24th, 2006 at 6:46 am

    If you caught Kudlow & Company on Friday, no, that wasn’t an imposter. It was really me! Thanks for all the e-mails. I was nervous, but once it started, it was a lot of fun.
    Here are some interesting numbers that I wanted to pass along. Right now, a one-year Treasury note is yielding 5.18%. That means you can “lock in” the equivalent of 563 Dow points for the next 12 months. The important point is, while doing this, you’re greatly reducing your market risk.
    Think about it. You can walk away from stocks right now, and say “enough of you.” You wouldn’t have to worry about oil prices or Hezbollah or elections, or any icky stuff like that. Those 563 points are locked in and it translates to a future Dow of over 11,430.
    Don’t worry. I’m not saying that investors ought to pull up stakes and head for the hills, but I want to show you how the markets work. There’s a constant battle going on between the stock and bond markets for your money. When bond yields creep up, and earnings growth slows, investors rotate out of stocks and gobble up bonds. When the opposite happens, investors drive stocks higher.
    Earnings growth has been impressive, and I think it will continue to be strong. But Price/Earnings ratios have been compressed. In fact, they’ve compressed and compressed, and compressed some more.
    That’s a rough environment for stock investing. It’s like a runner trying to fight a strong headwind. Even very profitable companies have seen their stocks flat line. But the reason I still like stocks is that earnings are projected to grow by 14.1% for this year, and 10.5% for next year. Plus, that 10.5% number seems a little low. This means that the Dow could advance by, say, 7% and P/E ratios would still have compressed.
    It’s never safe to expect earnings multiples to expand, but even if P/E ratios continue to fall, stocks can still beat bonds. The next thing to watch for is earnings guidance from companies for the third quarter.
    This week, six more Buy List stocks report earnings. Brown & Brown (BRO) reports later today. AFLAC (AFL) and Fiserv (FISV) are up tomorrow. Fair Isaac (FIC) and Varian Medical (VAR) follow on Wednesday. Then Respironics (RESP) on Thursday.

  • Private Equity Strikes Again
    , July 24th, 2006 at 6:36 am

    The HCA (HCA) deal is on again! I guess no one wants to be on the stock market anymore.
    Last week, the WSJ reported that the deal fell apart at the last minute. Now it looks like Bain, KKR and Merrill Lynch will offer $21 billion for HCA.
    The company is the largest hospital operator in the country. It was started by Bill Frist’s father and brother, although the senator no longer owns any HCA stock.
    Private equity is up 77% this year, and I think it will continue. Companies are sitting on huge amounts of cash. Microsoft (MSFT) currently has about $34 billion in the bank, and ExxonMobil (XOM) has $36 billion.

  • Dell Delivers Another Profit Warning
    , July 21st, 2006 at 12:06 pm

    From Reuters:

    Dell Inc. slashed its outlook on Friday, warning that quarterly earnings would fall about 30 percent short of forecasts because of a slowdown in the computer market, driving its stock to nearly five-year lows.
    Shares of the world’s biggest personal computer maker fell 12 percent after it issued the disappointing outlook, which it blamed on discounting in a softening market for computers. The result, it said, would be second-quarter earnings of 21 cents to 23 cents a share on revenue of about $14 billion.
    The company, whose sales have slowed in recent quarters amid tough competition from Hewlett-Packard Co. and complaints about poor after-sale services, had been expected to earn 32 cents a share on revenue of $14.2 billion, according to analysts polled by Reuters Estimates.
    “Dell, they are having problems because internally they are in disarray,” said Eric Ross, an analyst at ThinkEquity Partner, who has a “sell” rating on the stock.
    “Dell has done an amazing job of growing, but they don’t know how to retrench very well. Inside Dell, they don’t know where to turn,” he said.
    Rather than its own problems, Dell pointed to broader industry challenges as the reason for its earnings warning. Analysts said those issues could indeed bite rivals like HP, whose stock fell 3.5 percent.
    But they also said any industry troubles would hurt Dell more than others, exacerbating problems that have already caused the company to post disappointing revenue in four straight quarters.