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« December 2006 | Main | February 2007 » January 31, 2007Rollins is Out at Dell From Bloomberg: Dell Inc. Chairman and founder Michael Dell replaced Kevin Rollins as chief executive officer and said fourth-quarter results will miss analysts' estimates. The shares rose 4.3 percent. My thoughts exactly. Posted by edelfenbein at 5:39 PM The Buy List So Far One month down, eleven to go. The Buy List had a great first half of January, followed by a blah second half. For the month, the S&P 500 was up 1.41% while our Buy List was up 1.66%. The big winners were Respironics (12.85%), Bed Bath & Beyond (10.73%) and Amphenol (9.09%). Our losers for January were Sysco (-6.01%), Nicholas Financial (-4.24%) and WR Berkley (-4.11%). Posted by edelfenbein at 5:26 PM Fiserv Earns 64 Cents a Share Fiserv (FISV) just reported fourth-quarter earnings, after charges, of 64 cents a share. This was in line with expectations. Sales were up 19%. For 2006, Fiserv earned $2.53 a share, up from $2.19 in 2005. The company is also forecasting 2007 earnings growth of 13% to 16%, which works out to earnings of $2.86 to $2.94 per share. That means that Fiserv is going for about 18 times forward earnings.
Posted by edelfenbein at 5:00 PM Today's Fed Statement For the fifth meeting in a row, the Federal Reserve does nothing: The Federal Open Market Committee decided today to keep its target for the federal funds rate at 5-1/4 percent. This is a very positive statement. The "somewhat firmer economic growth" line replaces "has slowed over the course of the year" from December. That's a big change. Also, the "substantial cooling" of the housing market is gone and has been replaced with "some tentative signs of stabilization." In the world of Fedspeak, that's a jump for joy. Core inflation has now "improved modestly," where last month it was "elevated." With Jeffrey Lacker off the committee, the vote was unanimous. Posted by edelfenbein at 2:32 PM GDP Grew By 3.5% in Q4 The economy continues to plow along. After two quarters of below-trend growth, the economy grew by 3.5% (annualized) in the fourth quarter. This happened even though residential private investment (i.e., home construction) dropped by 19%, the largest decline since 1991. Here's GDP growth since 1997:
The drop in residential private investment took 1.2% off GDP growth. Here's a look at home construction's share of the economy since 1987:
Over the last four years, the economy has grown by 27.3% (not adjusted for inflation). Posted by edelfenbein at 9:10 AM January 30, 2007AFLAC's Earnings AFLAC's (AFL) stock is getting beaten up in the after-hours market. The supplemental insurance company reported earnings of 66 cents a share (with insurers, the important number is operating earnings). This was a nice improvement over the 59 cents from last year, but it was a penny shy of expectations. The good news is that AFLAC guided higher for 2007. The company now sees EPS of $3.28 to $3.31. Posted by edelfenbein at 4:58 PM Eatin' Good Far from the Neighborhood
Michelle Leder at Footnoted.org spotted this letter from former SEC Chairman Richard C. Breeden to Campbell Soup's CEO Douglas Conant. Conant is also chairman of Applebee’s compensation committee: On 29 occasions from from April 2006 through January 2007, Applebees’s corporate aircraft flew into and out of Galveston, Texas, where former CEO Lloyd Hill happens to own a beach house. The nearest Applebees’s restaurant is more than 40 miles away. Though Mr. Hill ceased to be CEO in September 2006, company planes continue the Galveston shuttle." Daniel Gross has more on the troubling mix of CEOs and corporate jets. Posted by edelfenbein at 3:20 PM LoveLEHGirl Is Watching The Wall Street Journal profiles Yolanda Holtzee, an "Internet investigator in sweatpants." Wall Street is full of corporate gadflies, many of whom agitate for corporate-governance reform or focus on arcane bylaw changes. Ms. Holtzee, a self-styled Internet investigator in sweatpants, focuses on exposing out-of-bounds behavior and catching bad guys. And after pointing regulators in the right direction more than once, Ms. Holtzee has achieved two things every gadfly craves: attention from those she targets -- and action. Posted by edelfenbein at 1:24 PM The Biomet CD? First let me state clearly that I’m not recommending this as a fixed-income investment, but let’s consider what the market is saying about Biomet (BMET). Assuming all goes smoothly, the company is to be bought by a private equity consortium in nine months at $44 a share. Yesterday’s close was $41.90 a share. That translates to a gain of 5.01% over the next nine months. That’s not a bad return. Think of it in Dow terms—it would be like bringing the index to over 13100. On an annualized basis, the Biomet investment is about 6.7% which beats almost any CD you can find. On top of that, the stock could pay another annual dividend this summer. Last year’s was for 30 cents a share, which is another 0.7% return. I don’t see why they’ll cut out the dividend this year. Of course, the stock isn’t exactly like a bond. The deal still needs to be approved by shareholders and regulators (incidentally, I oppose the deal). But the stock is starting to behave like a fixed-income investment. If I were a CFO and I needed to park some cash for the next nine months, picking up shares of Biomet could be a shrewd low-risk investment. Posted by edelfenbein at 11:18 AM Davos Is for Wimps Michael Lewis nails the professional worriers who gather every year in Davos: Davos is where people with no talent for risk-taking gather to imagine what actual risk-takers might do. Davos Man needs to sit in judgment; Davos Man needs to brood. So great is this need that he will brood about virtually anything, no matter how little he knows about it. It's only January, but I'm ready to name that, the Paragraph of the Year. He’s exactly right. When analyzing the market or the economy, it’s easy to fall into the “over-worrying trap.” I’m often surprised by how many otherwise intelligent people can fall into this trap and wind up saying silly things. I mean, there’s always something to worry about. The professional worriers remind me of the Major General in HMS Pinafore who knows many “cheerful facts about the square of the hypotenuse.” They know the facts, but they can’t see them in proper context. The free market is a highly complex system. It simply has a way of working things out. Naturally there are crises which always seem to be “looming,” but people are surprisingly good about mastering them. A few years before Y2K, I remember reading a story about a power plant that ran a drill to prepare for the new millennium. The plant failed and everything went to pieces. So a quick-thinking engineer jumped in and reset all the plant’s clocks to 1972, which had the same day and date alignment of 2000 (28 years is seven days of the week times four years in a leap cycle). Presto. The plant was up and running and they had time to fix the bugs. But in the minds of the professional worriers, that scenario could never happen. They think if some problem comes along, people will never adapt. They assume market participants will run head-first into a brick wall, then pick themselves up, and do it again. Lewis writes: Thailand installs capital controls and the markets force it to reverse its policy, virtually overnight -- again with nary a ripple. The Brazilian real is now less volatile than the Swiss franc; Botswana's debt is now more highly rated than Italy's. Oil prices double, the U.S. housing market tanks -- no matter what happens, financial markets adjust quickly and without hysteria. That problem will also be solved. And the answer won't come from Davos. Posted by edelfenbein at 8:57 AM Graco 4Q Profit Rises 10 Percent From the AP: Graco Inc. (GGG), which makes pressure washers and pumps for industrial uses, on Monday said fourth-quarter profit increased 10 percent as growth in its industrial and lubrication equipment segments offset slightly lower sales of contractor products. Posted by edelfenbein at 8:44 AM January 29, 2007The Money Honey Brand Bloomberg looks at the fallout of Todd Thomson's dismissal at Citigroup (C). Journalism professors are criticizing the relationship Thomson had with Maria Bartiromo. Last year, she traveled with him to Asia on a company jet. He also approved $5 million for a show she was to co-host. The article includes this nugget: On Jan. 16, Bartiromo sought to trademark her "money honey" moniker for use on children's television shows, games, T-shirts, dishes and bookbags, according to the U.S. Patent and Trademark Office's Web site. Bookbags? The New York Post, naturally, has more. Posted by edelfenbein at 4:18 PM Milton Friedman Day Today is Milton Friedman Day. The economist died two months ago at the age of 94. Tonight, PBS (note irony) will premiere "The Power of Choice: The Life and Ideas of Milton Friedman." Check your local listings. Posted by edelfenbein at 12:35 PM Nicholas Financial's Earnings Our smallest stock on the Buy List, Nicholas Financial (NICK), reported earnings of 27 cents a share: Nicholas Financial, Inc. announced that net income increased 2% to $2,770,000 for the three months ended December 31, 2006 as compared to $2,718,000 for the three months ended December 31, 2005. Diluted earnings per share increased 4% to $0.27 for the three months ended December 31, 2006 as compared to $0.26 for the three months ended December 31, 2005. Revenue increased 6% to $11,730,000 for the three months ended December 31, 2006 as compared to $11,107,000 for the three months ended December 31, 2005. The Company has reported record same quarter increases in revenues and earnings for 66 out of the past 67 quarters.
Posted by edelfenbein at 12:29 PM Sysco Earns 38 Cents a Share That's in line with estimates: Food-services provider Sysco Corp. said Monday fiscal second-quarter net income grew 16 percent, helped by business reviews of customers. Posted by edelfenbein at 9:58 AM January 26, 2007P/E Ratios by Sector Here's a look at the P/E Ratios of the ten sectors of the S&P 500:
The P/E ratio of the overall S&P 500 is about 16.2. This is slightly distorted due to the low P/E ratio of the energy sector (9.6% of the index). Since energy stocks have been generating very healthy profits, and the market doesn’t believe the good times will last, or least, not at this pace, that gives them a low P/E ratio. That's pretty common for cyclical stocks. Ignoring energy, I see that five sectors have P/E ratios greater than 18.7. Here’s a look at each sector’s Relative P/E Ratio, which is their P/E compared with the overall S&P 500.
Although Relative P/E's are far from perfect, they're a good measures of value. You can see that only the cyclical sectors like energy and industrials show any noticeable downtrend. Even though tech stocks haven’t done very well, by this metric, it doesn’t appear that tech has become any less expensive. Posted by edelfenbein at 6:09 AM January 25, 2007Today's Investing Lesson: Diversify The S&P 500 had a big up day yesterday, and a big down day today. It's almost back where it started, yet our Buy List managed to beat the index on both days. What's particularly impressive is that we were able to stay ahead of the market today even though shares of Varian Medical Systems (VAR) got a super atomic wedgie. The stock dropped 8.6% today. The 11.4% jump in Respironics (RESP) helped ease the pain. Too many investors never give a thought about diversifying across industries. Or they think diversity means owning several tech stocks. You can own only a few stocks and track the market very closely. Also, you can own hundreds of stocks and have a very low correlation to the rest of the market. Posted by edelfenbein at 4:50 PM Interest Rates Are Climbing Higher
After plunging from May to December, interest rates are rising again. The yield on the 90-day Treasury bill just peaked above 5%. The yield on the 30-year bond is also climbing fast and will probably break through 5% any day now. In fact, the yield may soon "revert" from its inverted status. In May, the yield on the 30-year was 60 basis points over the 90-day. Then in December, it was 35 points under. Now they're just about even. Posted by edelfenbein at 1:31 PM Earnings from Danaher and Respironics The bad news today is that Varian Medical Systems (VAR) is sharply lower thanks to yesterday's earnings report. The stock is currently down about 8%. But the good news is we got positive earnings from Danaher (DHR) and Respironics (RESP). Danaher earned 95 cents a share, two cents more than estimates. For the year, the company earned $3.48 a share which was up from $2.76 in the year before. The company also reaffirmed its 2007 forecast of $3.68 per share to $3.78 per share. Respironics reported earnings of 40 cents a share, which was also two cents more than expectations. The company earned 33 cents a share in last year's fourth quarter. Respironics said that it's comfortable with 2007 estimates of $1.74 to $1.77, which doesn't include 12 to 13 cents a share in stock compensation. The stock is up about 10% today (woo!), and it's close to breaking the all-time high of $43.03 reached in October 2005. Posted by edelfenbein at 10:42 AM January 24, 2007S&P 500 Hits 1,440 The S&P 500 broke through 1,440 for the first time in 75 months. The index was up 0.85% today to 1,440.13. Our Buy List also did well, rising 0.89%. The Dow closed at an all-time high of 12,621.77. Amphenol (APH) did particularly well as it added $1.44 a share. The stock is now up 8.4% on the year. Also, SEI Investments (SEIC) made a new 52-week high. After the bell, Varian Medical Systems (VAR) reported earnings of 37 cents a share for the fourth quarter, two cents more than estimates. Even though the company continues to do well, I've been surprised by the stock's sluggish performance over the past year. In the press release, Timothy Guertin, Varian's CEO said, "Net earnings should be in the range of $1.89 to $1.91 per diluted share for the year, and approach $0.46 for the second quarter." Wall Street was expecting 48 cents a share, so the stock is down sharply after hours. Also, Fair Isaac (FIC) reported earnings of 52 cents a share.The company said that expects to make approximately 48 cents a share for the March quarter, and $2.15 for FY 2007. Posted by edelfenbein at 4:25 PM A Look at Government Spending Today is the day that the Congressional Budget Office releases its big report on what the government is (ahem) supposed to spend over the next few years. One of the things I find interesting is that spending by the federal government has been much less variable than most people realize. From the sound of political debate, you'd think this was highly volatile number, but that's not the case. For the last thirty years, non-defense spending has averaged about 16.3% of GDP. When the economy does poorly, the number rises to around 17%. When the economy does well, the number falls to around 15.5%. From Carter to Reagan to Bush to Clinton to Bush, that rule has been pretty consistent. Please note that I'm saying what the government should spenf, or even what it will spend. I'm simply noting what has happened. Here's non-defense spending as a part of GDP going back to 1976:
Here's the data.
Posted by edelfenbein at 1:46 PM Coach's Earnings
Coach (COH) is one of those rare stocks that keeps delivering. Every time you think it's over for them, Coach comes through. The company had yet another strong earnings report yesterday. Of course, given their prices, it's hard to see how they're not making a lot of money. For the fourth quarter, Coach earned 61 cents a share, which topped Wall Street's estimates by three cents a share. Sales grew by 29%. The company also raised its FY 2007 earnings forecast by eight cents to $1.71 a share. Coach has been one of the big success stories of this decade. The company had its IPO in October 2000 at $16 a share. Since then, the stock has split 2-for-1 three times, which means that the IPO price was just $2 a share. So the stock is up more than 2,000% in a little over six years. Now Business Week wonders if Coach is becoming too popular: Retail investors remember how Calvin Klein and Tommy Hilfiger lost the shine on their images when they flooded the discount market. Image is clearly an issue among upscale brands. Tiffany's (TIF), for instance, decided to increase the price on its hugely popular silver jewelry items, fearing that huge sales will tarnish its upscale image. Coach, of course, is known for quality craftsmanship and lately high design. In recent years, it has also introduced purses that are more affordable and priced under $200, and even under $100 in its factory outlets. These steps have clearly attracted a new set of middle-income buyers who previously didn't shop at Coach, and some fear the brand might lose its cachet if its reach extends too far. "There's always the danger of overextending yourself," says Passikoff. By the way, this BW article follows one of the most common formulas in business writing. Introduce your straw man ("Coach can do no wrong!"). Add in some criticisms that can apply to almost anything ("yeah...but, remember the Gap"). Then restate a watered-down version of your initial hypothesis as your conclusion. Investor's Business Daily had a better take. They noted that this was the first quarter in the company's history where gross margins declined, although operating magins increased: Overall, analysts said, Coach's high-end success fits in with the bigger market picture. Early returns indicate that luxury retailers such as Tiffany, Nordstrom and Saks all had happy holidays. Here's IBD's chart of Coach's earnings growth:
Posted by edelfenbein at 10:16 AM January 23, 2007Banker's Abrupt Exit Mystery Page 6 of the New York Post: FINANCIAL giant Citigroup was strangely mum last night on why Todd Thomson, its 45-year-old fair-haired head of wealth management, left the firm suddenly in a management shakeup yesterday. Sources close to the Wall Street giant say Thomson got on the bad side of CEO Chuck Prince by shuttling personal friends - including CNBC's anchor and "Money Honey" Maria Bartiromo - around the world on the company's corporate jet. Posted by edelfenbein at 10:44 AM January 22, 2007Survival of the Fittest Mr. Adam Monk has beaten the market for the last four years. This year, his picks include Cygne Designs (CYDS), Fresh Del Monte Produce (FDP) and West Pharmaceutical Services (WST). And yes, he's the one on the left. Posted by edelfenbein at 10:51 AM This Week's Earnings Schedule There are four more earnings reports due this week for our Buy List stocks. Fair Isaac (FIC) and Varian (VAR) both report on Wednesday. Then on Thursday, Danaher (DHR) and Respironics (RESP) are due to report. Next week, Sysco (SYY), Graco (GGG) and Fiserv (FISV) will report. Posted by edelfenbein at 9:59 AM January 21, 2007Miracle Drug
The amazing story of Aspirin: Aspirin was treated as one of the valuable prizes to be divided up by the victors of WWI. The Treaty of Versailles (1919) required Bayer to give up its aspirin trademark in the U.S., Britain, France, and Russia as part of Germany's war reparations. (Bayer's U.S. holdings had previously been confiscated and sold to the Sterling Drug Company.) For the next 80 years, Bayer aspirin sold in America was not made by Bayer. It wasn’t until 1994 that the German company bought back the right to use its own name in the United States. Posted by edelfenbein at 6:11 AM January 20, 2007John Tierney on Neuroeconomics From the New York Times: Even the most rational economists, though, realize that the shopper’s mind is more complicated. The brain’s “impartial spectator,” as Adam Smith warned, has to duel with “the passions.” Last year, after surveying shoppers’ passions, behavioral economists at Carnegie Mellon University developed what they call the Tightwad-Spendthrift scale. Posted by edelfenbein at 6:42 AM January 19, 2007James Surowiecki on CEO Pay From the latest New Yorker: For all the talk of restraining C.E.O. pay, most compensation committees remain what Warren Buffett once called them—“tail-wagging puppy dogs.” At some companies, this is simply because the C.E.O. has packed the board with cronies. But at Home Depot Nardelli did not pick the board members, and most of them were what are usually called independent directors—ones who don’t work for the company or do any business with it. Even when an independent board negotiates a C.E.O.’s contract, however, the directors are often, in a sense, negotiating with themselves. Of the ten independent members of Home Depot’s board, for instance, eight are or have been C.E.O.s. Since C.E.O. pay is often driven by comparisons between companies, directors have a certain interest in keeping executive pay high. Furthermore, the salaries keep escalating because, board members argue, there just aren’t enough good C.E.O. candidates out there. There’s no evidence that this is actually the case, but who is more likely to feel that good C.E.O.s are indispensable and rare than other C.E.O.s? I’m not so sure interlocking corporate boards is a major source of rising CEO pay. In fact, I’m not convinced that rising CEO is even a problem. Until I see hard evidence, I simply see it as a natural market adjustment. The modern CEO needs more skills to navigate his or her firm through an increasingly complex legal and regulatory environment. Posted by edelfenbein at 12:58 PM Ten Years After Intel's (INTC) stock is where it was ten years ago.
Posted by edelfenbein at 7:56 AM January 18, 2007Earnings from HOG and UNH This morning, Harley-Davidson (HOG) reported earnings of 97 cents a share, one penny better than expectations. The Hogs are particularly popular overseas: Worldwide retail sales of Harley-Davidson motorcycles grew 6.4 percent for the quarter. Shipments grew 6 percent to 92,848 units. Domestically, sales were up only 0.3 percent, but Harley estimated the overall heavyweight motorcycle market was down 1.7 percent for the quarter. Overseas, sales of the iconic bikes were up 29.4 percent, with Canada seeing an increase of 37.4 percent and Europe, an increase of 31.2 percent for the quarter. UnitedHealth Group (UNH) reported earnings of $1.2 billion. The company didn't release an earnings-per-share figure because it's still trying to untangle the stock options mess. As I've said before, most of these problems are over. The only impact is that we don't know exactly what the historical results were. This will probably hang over the stock, but it has zero impact on current operations. The company is doing very well. I think it's very likely that UNH will make as much as $3.50 a share this year, which means that it's going for less than 16 times earnings. That's a good price. Posted by edelfenbein at 8:51 AM January 17, 2007Buy List to Date I'm happy to report that the Buy List has gotten the year off to a good start. In just ten days of trading, the 20 stocks on the Buy List are up an average of 2.73% compared with 0.87% for the S&P 500. Here's how the 20 stocks have done:
Posted by edelfenbein at 10:33 PM Crossing Wall Street Now Being Studied at Wharton Seriously. Under "What Not to Do." This is just a little after the course refresher note. I was just doing my web due diligence and I saw a piece at SeekingAlpha that offered some quantitative analysis of the bonds versus stocks for the last months of 2006. The analysis is comically flawed. Have fun with it, and rest assured that no (not even one!) Stat 434 student could make such fundamental, logical errors. Were not talking fancy details here, just stone cold stupidity (mixed with a nice dose of ignorance). Professor Michael Steele calls my analysis "comically flawed" because I did a regression of prices instead of price changes. ROFLMAO OK, maybe it's not that comical. Well, I'll never make that mistake again. In any event, the point I was trying to make was that the stock and bond markets had been rising together until about one month ago. Since then, the two markets have parted ways. Here lookie:
The S&P 500 is the blue (left scale). The American Century Target 2025 fund (BTTRX), which I used as a bond proxy, is the red (right scale). Note that even the recent up-and-down move in the BTTRX is mirrored by an opposite move in the S&P 500. Posted by edelfenbein at 9:57 AM Amphenol's Earnings Report Amphenol (APH) reported earnings this morning of 83 cents a share, two cents more than Wall Street was expecting. This was a 40% increase over last year's total. Sales rose 30% to $659.4 million. The company also laid out its future guidance: For the first quarter, the company expects earnings between 80 cents and 82 cents per share on sales between $635 million to $645 million. Analysts are looking for earnings of 80 cents per share on sales of $647.7 million. Going by yesterday's close, Amphenol is selling for about 18 times 2007's earnings. The company also annouced a 2-for-1 stock split for late-March. Posted by edelfenbein at 9:26 AM January 16, 2007Ameritrade: Keeping It Real
Ugh! Ameritrade (AMTD) is one of those stocks that I kick myself over. It was an obvious buy 18 months ago and I missed it. (The blue line is the price on the left scale, the yellow is the EPS on the right scale.) In October, the company won my "Earnings Guidance for the Year" award when it changed its FY07 EPS range to $0.98 - $1.22 from $0.99 - $1.21. Glad they cleared that up. It was only a few months ago that the online brokers took a beating when Bank of America (BAC) announced its free online trading offer (30 trades a month for accounts over $25,000). This morning, Ameritrade reported earnings of 28 cents a share, six cents better than estimates. Profits grew by 69%. The stock is up big in today's trading. Posted by edelfenbein at 2:17 PM NASDAQ 2500! I nearly forgot to mention this. On Friday, the NASDAQ Composite (^IXIC) broke 2500. Since I've blocked out much of late-1990s, I think this is a new all-time high. It may have gone higher, I don't remember. Anyway, here's a long-term chart:
Yep, that's an all-time high baby! Posted by edelfenbein at 11:59 AM Bed Bath & Beyond Makes New 52-Week High Shares of Bed Bath & Beyond (BBBY) hit a new 52-week high this morning. Lower gas prices basically act like a tax cut for consumers. FactSet (FDS) and SEI Investments (SEIC) are also at new highs. Posted by edelfenbein at 10:25 AM January 11, 2007The Buy List So Far I'm happy to report that our Buy List is off to a good start for 2007. As of mid-day today, we're up about 1.36% compared with 0.39% for the S&P 500. Of course, this is only the seventh day of trading, so a lot can change, but it's nice to get a fresh start out of the gate. Our biggest winner so far is Joe Bank (JOSB), which is one of our new stocks for this year. It's up 8.9%. Our second-best stock is Bed Bath & Beyond (BBBY) which is up 7.2%. SEI Investments (SEIC) was our biggest winner from last year, and it made a new 52-week high this morning. Posted by edelfenbein at 10:58 AM January 10, 2007Long-Term Performance By Market Cap Over the last eighty years, small-cap stocks have been the best-performing size category of stocks. I got this data from Professor Ken French's Web site. He divided the market into ten "size deciles." What's interesting is that it's almost perfectly rank-ordered--the largest stocks did the worst, the smallest did the best.
The data covers from mid-1926 through November 2006. Here's the annualized return by decile: Lowest.....................13.588% Here's the same chart, but I divided all deciles by the largest decile (which is the flat line).
You can see that small-cap outperformance is very cyclical with the last “up” cycle starting seven years ago. Posted by edelfenbein at 12:30 PM Hollywood & Hedge Funds Many hedge funds have taken a beating this year, but Stark Investments got whacked due to its bomb at the box office: When news broke that Benjamin Waisbren had been fired as Hollywood frontman for Stark Investments, moviedom shuddered. Posted by edelfenbein at 10:31 AM January 9, 2007Computer is So '06 First Dell drops "Computer" from its name. Now Apple Computer is just Apple. Nobody wants to be seen as "just" a computer stock anymore. Posted by edelfenbein at 4:44 PM Earnings Season Over the next few weeks, several of our Buy List stocks will report earnings. Fourteen of our 20 stocks have quarters that ended on December 31. Here they are with their earnings dates and EPS estimates: Ticker...................Date................EPS Estimate Posted by edelfenbein at 12:51 PM Skies May Darken for Insurers The Wall Street Journal sees problems ahead for insurance stocks: Last year's sky-high profits were mainly driven by the soaring cost of coastal natural-catastrophe coverage after Hurricane Katrina in 2005 and the dearth of major storms in 2006. While premiums charged for that coverage are still high, competition is steadily lowering rates in other important lines of coverage, like corporate directors' and officers' liability policies or workers' compensation.
Posted by edelfenbein at 12:28 PM Mills Corp. I’ve followed Mills Corp. (MLS) for many years. The company is a real estate investment trust that owns several gigantic mall complexes. To show you what a dramatic impact the tech bubble had, investment money was being drawn away from conservative investments. In December 1999, Mills Corp.’s stock got down to $15.31 a share, even though it was paying $0.503 a share in dividends. That comes to 13.8%. But as the tech market fizzled, the real estate market took off. By mid-2005, Mills Corp. broke $60 a share. Today, the company is facing bankruptcy. An internal investigation has revealed accounting errors and executive misconduct. Accounting mistakes included a failure to record a foreign currency gain, miscalculations of executive bonuses and a mix-up between Mills revenue and revenue generated by joint ventures, the company said. The stock is down about 15% today.
Posted by edelfenbein at 10:59 AM A Look at Real Estate Here's a graph showing private residential investment as a percentage of GDP. It's a good gauge of how well the real estate market is doing. The number averages about 4.7%, with a standard deviation of about 0.7%. Last year, it got up to 6.3% which was the highest level in over 50 years. Since then, it's started to plunge. And as you can see, historically, the downtrends are pretty severe.
Posted by edelfenbein at 10:26 AM January 8, 2007UnitedHealth Reaffirms Outlook UnitedHealth reaffirmed its outlook for next year. I pay close attention to these "reaffirm" announcements, and I think too many investors overlook them. For me, it's nice to see a company give guidance at some point, but I'm impressed to see them back it up a few weeks later. In fact, I'm often surprised by how many good stocks are hidden in plain site. The company is clearly telling us how well things are going: The company previously estimated 2006 earnings in a range of $4.14 billion to $4.16 billion on revenue of $71.5 billion. For 2007, UnitedHealth forecast earnings of $4.7 billion to $4.75 billion on about $79.5 billion in revenue. I'm not sure why they didn't give an EPS estimate. If we assume UNH will have 1.35 billion shares, that translates to a range of $3.48 to $3.52 a share. That means that the stock is going for just over 15 times 2007's earnings. Posted by edelfenbein at 12:00 PM Barron's Gives Thumbs Up to Bed Bath & Beyond A conservative company forecast, inexpensive valuation and its potential as a leveraged buyout target could have shares of home goods retailer Bed Bath & Beyond (BBBY) poised for significant climb, according to a report in Barron's. Posted by edelfenbein at 7:39 AM January 7, 2007Effective Income Tax Rates I thought this was interesting. This graph shows effective income tax rates for different income percentiles going back to 1979:
Source: Congressional Budget Office Posted by edelfenbein at 4:10 PM January 6, 2007Fifty Years Ago Posted by edelfenbein at 4:36 PM The Quants Have Landed In Vegas The WSJ profiles Dr. Bob: Though he makes a living handicapping college and pro football and basketball, Mr. Stoll rarely visits Las Vegas. He's never placed a bet in one of the city's sports books and hasn't attended an NFL game since he was 9. He does not make a habit of watching sports on TV. "Your eyes can only fool you," he says. Put him in a different setting and he might be running a hedge fund, developing office towers or monitoring the currency markets. Posted by edelfenbein at 8:08 AM January 5, 2007Billy Beane Joins the Board of NetSuite Here's an interesting story. Billy Beane, the GM of the Oakland A's, has joined the board of directors of NetSuite. Bean was the star of Michael Lewis' Moneyball, which detailed how he used sabermetrics to run his team almost like a quant fund: The Beane appointment represents a public-relations coup for NetSuite, an Internet-based maker of business management software preparing for an initial public offering of stock later this year. Posted by edelfenbein at 3:42 PM It's a Small-Cap World From 1994 to 1999, the Russell 2000 (^RUT) badly lagged the market. But since then, the little guys have left the rest of the market in the dust:
Posted by edelfenbein at 12:02 PM Today's Employment Report
The economy created 167,000 jobs last month. This was more than the Street was looking for, but it's still pretty tepid growth.
The unemployment rate stayed the same at 4.5%. Posted by edelfenbein at 9:19 AM January 4, 2007Theme for the Year
Oh Seven is not being kind to energy stocks. In just two days, the Dow Oil & Gas Index (^DJUSEN) has dropped 5.7% while the S&P 500 is flat. Well, it's really up 0.04 points which is 0.0028%, so let's just say it's flat. Crude oil is down 8.9% in the last two days, and oil is now at its lowest price since June 15, 2005. Since the July 14 high of $78.40, oil is down 29%. Even in euros, oil is down! I'm pleased to report that our new Buy List had a very good day. Fifteen of the 20 stocks went up. The Buy List rose 0.72% compared with the S&P 500's 0.12%. The big winner was Amphenol (APH), which rose 3.2%. Joe Banks (JOSB) also had a good day, rising 2.6%. The company reported that same-store sales increased 1.4% in December. Our insurance stocks were the laggards today. Both AFLAC (AFL) and WR Berkley (BER) dropped 0.5%. Naturally, this is one of the many reasons why I'm crazy. By any reasonable standard, we had a very good day today, yet I'm still upset about the few stocks that didn't do well. I'm sorry, I need help. The good news is that it doesn't seem specific to either company. The culprit was probably a story from the WSJ on falling insurance premiums. Posted by edelfenbein at 4:23 PM An Inconvenient Truth Means Very Convient Weather It's another balmy day here in our nation's capital. The Post said it's going to get up to 63 today. Here's a cherry blossom from my back yard:
They're about three months ahead of schedule. Warm weather is bursting out all across the East Coast. Barry Ritholtz said that he rolled top down the other day. The warm weather is also having a big impact on the financial markets. Oil is down again today. The latest quote shows oil off $2.73 to $55.59 a barrel. (By the way, whatever happened to the Goldman/Paulson/Oil plot to lower gas prices before the election? I thought that prices were supposed to go right back up.) Here's the February contract for light sweet crude:
Posted by edelfenbein at 11:40 AM Gretchen Mails It In Gretchen Morgenson on Nardelli: Even though the board gave him $20 million that was not a part of his employment contract, perhaps smoothing his way out the door, the departure seemed to be a watershed. No longer can executives demand — and directors happily grant — contracts worth hundreds of millions of dollars without at least some shareholders uttering a peep. How much would you bet that she went back and forth between "watershed" and "wake-up call"? This is what I wrote over the summer on HD. Oh for the love of carbs, people. This Home Depot (HD) nonsense is getting out of control. I can’t believe what I’m seeing. The stock’s popularity is somewhere between Hamas and Diptheria, and it’s getting worse. In the less than three months, shares of HD have plunged over 20%. And the stock made another 52-week low today. Posted by edelfenbein at 11:02 AM January 3, 2007Reversify
After an early rally, the market reversed course this afternoon to close down 0.12%. The new Buy List lost 0.19%. Ironically, I just threw Home Depot (HD) overboard and it was up over 2.2% today thanks to Bob Nardelli’s resignation. Oh well, I told you I’m not much of a market timer. The good news is that two of my new buys, Amphenol (APH) and Jos. A Bank (JOSB), had good days. APH was up 2.7 and JOSB was up 2.9%. Sysco (SYY), which is one of the most stable stocks on the Buy List, was hurt by a downgrade from JP Morgan. The stock dropped 1.3%. Also, Fiserv (FISV) was downgraded by AG Edwards. FISV lost 1.6%. The most surprising activity came from the energy sector. The Dow Energy Index (^DJUSEN) closed down 3.8%. For the record, I’ve been expecting energy stocks to crack for over a year. Yesterday, oil had its biggest fall in 20 months. Posted by edelfenbein at 4:48 PM The S&P 500 Total Return Index The market is starting 2007 just how it finished 2006. For the year, the S&P 500 was up 15.80% including dividends. How's how the Total Return Index has done since 1996:
Here's the sector breakdown for 2006: Telecom....................................32.13% Posted by edelfenbein at 1:43 PM Mark Cuban: The Stock Market Is for Suckers Exactly one year ago, Mark Cuban wrote on his blog that the stock market is for suckers: The concept that you own "your share" of the company is a joke. You are completely at the whim of the CEO and board who will dilute you on a daily basis with stock options, then try to buy back stock to cover it up and push up the price, rewarding the shareholders who get out, rather than those that continue to hold the shares. Meaning you. Cuban's post was a response to a comment from Thomas Hawk. Yesterday, Hawk followed up: So here we are a year later (much too short a time horizon to matter by the way) -- where would you be if you took $100,000 and followed Mark Cuban's advice vs. mine? Posted by edelfenbein at 10:31 AM Nardelli Quits Home Depot And he's taking his money with him. Vice Chairman Frank Blake, 57, will replace Nardelli, effective immediately, Home Depot said in a statement today. Nardelli, 58, will receive $210 million in severance payments, the company said. In the press release, the company stated exactly what Nardelli is going to get. Nardelli and the Company have agreed in principle to the terms of a separation agreement which would provide for payment of the amounts he is entitled to receive under his pre-existing employment contract entered into in 2000. Under this agreement, Nardelli will receive consideration currently valued at approximately $210 million (including amounts which have previously been earned or vested). This consideration will include a cash severance payment of $20 million, the acceleration of unvested deferred stock awards currently valued at approximately $77 million and unvested options with an intrinsic value of approximately $7 million, the payment of earned bonuses and long-term incentive awards of approximately $9 million, the payment of account balances under the Company's 401(k) plan and other benefit programs currently valued at approximately $2 million, the payment of previously earned and vested deferred shares with an approximate value of $44 million, the payment of the present value of retirement benefits currently valued at approximately $32 million and the payment of $18 million for other entitlements under his contract which will be paid over a four year period and will be forfeited if he does not honor his contractual obligations. Posted by edelfenbein at 10:03 AM January 2, 2007World War II Ends The Brits pay off their war debt to us. Under the arrangement, the US handed a financial lifeline to Britain, allowing it to secure oil, food, arms and other military equipment on credit to help the war effort. Though other countries also benefited under the programme — a $48 billion project — Britain received the largest chunk of aid. Still, I was kinda hoping we could send over a couple repo guys. Nothing big. Maybe a few castles. Posted by edelfenbein at 3:32 PM The Do Something Congress Andrew Roth of the Club for Growth ran the numbers on 2006. When Congress was in session, the S&P 500 went up 2.25%. On days when it wasn't it session, it went up 11.56%. So you're probably asking yourself, "Was this just coincidental?" The cynics out there would say no. And the cynics would be right. Long term empirical evidence says that correlation does, in fact, mean causation. According to two economists, Mike Ferguson of the University of Cincinnati and Hugh Douglas Witte of the University of Missouri at Columbia, if you had invested $1 in the Dow Jones Industrial Average back in 1897 when the index first started and conducted the In/Out Session schemes until the year 2000, here's how much money you would have: Posted by edelfenbein at 1:26 PM "Cautiously Optimistic" One of my favorite media phrases is "cautiously optimistic." It means nothing while it sounds important. Can you think of a situation where it wouldn't apply? (Apocalypse to Strike Earth, Experts Cautiously Optimistic). See! You can't go wrong. A few years ago, Neil Westergaard wrote: What a great all-purpose, meaningless qualifier to keep from looking stupid. It's much better than just saying "I don't know." It implies that that the person really does know something important, but is being conservative and careful in the distribution of information, holding back the unverifiable facts for the good of the republic. Which brings me to today's New York Times: Economists Cautiously Optimistic About 2007 I hope they're right. Posted by edelfenbein at 11:12 AM How Will the Dow do in 2007? The new-and-improved Wall Street Journal asks its reader how will the Dow do in 2007? Here are the results as of 11 a.m.: Up more than 10%.......................24% Posted by edelfenbein at 10:58 AM January 1, 2007Happy New Year! 818,304 visitors for 2006. Thank you all! Posted by edelfenbein at 12:08 AM |
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