Archive for March, 2011

  • Morning News: March 25, 2011
    , March 25th, 2011 at 7:00 am

    Portuguese Yields at Record Highs During EU Summit

    Euro Rallies Versus Dollar on Summit Views, ECB Rate Increase Speculation

    German Bonds Drop as Stocks Advance, EU Leaders Meet to Tackle Debt Crisis

    Japanese Government Bond Buying to Fund Financial Firms

    Oil Trades Near Two-Week High on Libya Conflict; JPMorgan Raises Forecast

    Gold Trades Near Record on Europe Debt Risk; Silver Reaches 31-Year Peak

    Fed’s Clash With Bank of America Raises Questions

    U.S. Stock Futures Signal Gains; Techs in Focus

    Fed Governor Duke Says Recovery May Be Slower on Households’ Caution

    S.&P. Warns About ‘Excessive’ Bank Dividends

    Research In Motion 4Q Profit Beats Forecasts; Outlook Falls Short

    Toyota, Struggling With Part Shortages, to Restart Car Lines

    G.E.’s Strategies Let It Avoid Taxes Altogether

    Paul Kedrosky: Frothy Talk in Startup Land: Groupon, Color, Y-Combinator, Etc.

    Joshua Brown: Bill Clinton, the Fee-Based Model and Me

    James Altucher: 8 Unusual Things I Learned From Warren Buffett

  • Oracle Earns 54 Cents Per Share, Ups Dividend By 20%
    , March 24th, 2011 at 4:16 pm

    Every so often, I get one right! Oracle ($ORCL) just reported earnings of 54 cents per share.

    The company also raised its teeny quarterly dividend from five cents to six cents per share (hey, that’s 20%!).

    Check out these numbers. Oracle had a great quarter.

    Oracle Corporation today announced fiscal 2011 Q3 GAAP total revenues were up 37% to $8.8 billion, while non-GAAP total revenues were up 36% to $8.8 billion. Both GAAP and non-GAAP new software license revenues were up 29% to $2.2 billion. GAAP software license updates and product support revenues were up 13% to $3.7 billion, while non-GAAP software license updates and product support revenues were up 13% to $3.8 billion. Both GAAP and non-GAAP hardware systems products revenues were $1.0 billion. GAAP operating income was up 62% to $3.0 billion, and GAAP operating margin was 34%. Non-GAAP operating income was up 35% to $3.9 billion, and non-GAAP operating margin was 44%. GAAP net income was up 78% to $2.1 billion, while non-GAAP net income was up 42% to $2.8 billion. GAAP earnings per share were $0.41, up 75% compared to last year while non-GAAP earnings per share were up 40% to $0.54. GAAP operating cash flow on a trailing twelve-month basis was $9.9 billion.

    “Strong revenue growth coupled with disciplined business management enabled an increase in non-GAAP operating margin to 44% and earnings per share to $0.54,” said Oracle President, Safra Catz. “Our hardware product gross margins increased to 55% in the quarter so we are now completely confident that we will exceed the $1.5 billion profit goal we set for the overall Sun business for the current fiscal year.”

    “Q3 performance was broad based with all geographies reporting revenue growth of 30% or higher,” said Oracle President, Mark Hurd. “The sequential revenue growth for Exadata and Exalogic was up over 50%. And we expect to see an even higher growth rate for these two game changing technologies in Q4.”

    “In Q3 we signed several large hardware and software deals with some of the biggest names in cloud computing,” said Oracle CEO, Larry Ellison. “For example, Salesforce.com’s new multi-year contract enables them to continue building virtually all of their cloud services on top of the Oracle database and Oracle middleware. Oracle is the technology that powers the cloud.”

    In addition, Oracle also announced that its Board of Directors declared a quarterly cash dividend of $0.06 per share of outstanding common stock, reflecting a 20% increase over the previous quarter’s dividend of $0.05. This increased dividend will be paid to stockholders of record as of the close of business on April 13, 2011, with a payment date of May 4, 2011.

    The stock closed that day at $32.14. It’s hard to believe this stock was below $30 last week. I expect to see a new 52-week high soon.

  • The S&P 500 Is Over Its 50-DMA
    , March 24th, 2011 at 12:04 pm

    That didn’t take long!

  • Oracle’s Earnings Preview
    , March 24th, 2011 at 11:18 am

    After the closing bell, Oracle ($ORCL) is due to report its fiscal Q3 earnings. This is for the quarter that ended on February 28th.

    When the very-strong second-quarter earnings report came out in December, the company said to expect EPS for Q3 to be between 48 cents and 50 cents. Wall Street had only been expecting 44 cents per share, and a year ago Oracle released earnings of 38 cents per share. For Q3, the company said that revenue growth will be between 31% and 35%.

    Personally, I think the company is low-balling the Street which is understandable. Remember that for Q2, Oracle said to expect EPS between 46 and 48 cents. Instead, they earned 51 cents per share.

    My estimate is that Oracle will report earnings of 53 cents per share. I’ll also be curious to hear what they have to say about Q4. A year ago, Oracle earned 60 cents per share. Wall Street currently expects 66 cents per share for this year’s fourth quarter. I strongly doubt Oracle will only grow its earnings by 10%.

    Even if the company low-balls the Street again, which it will, I still think they can offer guidance of 70 cents per share. We can also expect to hear some strong words from Mr. Ellison:

    This quarter, some analysts expect brash talk about Hewlett-Packard, which under new Chief Executive Leo Apotheker is set to focus more on services and software, which will bring it directly into competition with Oracle in some core markets.

    Oracle, headed by outspoken and combative Silicon Valley billionaire Larry Ellison, is likely to shoot back on Thursday.

    “I’d be very surprised if you don’t get some very competitive talk about HP’s plans,” said Michael Yoshikami at YCMNET Advisors, noting that Oracle has a history of colorful remarks about beating its competitors, such as Germany’s SAP and International Business Machines Corp .

    Like IBM and Cisco Systems Inc , Oracle and Hewlett-Packard are aiming to provide the infrastructure for companies to move toward “cloud computing,” where data is handled remotely in datacenters rather than on premises.

    The looming battle between Oracle and Hewlett-Packard is given spice by the fact that HP’s former chief executive Mark Hurd — who left last year after a flap over inaccurate expense reports and a questionable relationship with a female contractor — now works at Oracle.

    Wall Street expects Oracle’s fiscal third-quarter profit excluding one-time items to jump to 50 cents per share, according to Thomson Reuters I/B/E/S, up from 38 cents a year ago. The company itself said in December it expected between 48 cents and 50 cents.

    Analysts have forecast $8.7 billion in revenue, up from $6.5 billion a year ago, although that quarter only included one month of hardware sales from the Sun acquisition, which closed in January 2010.

    Some analysts warn that Oracle’s new exposure to hardware, through the Sun deal, means it may suffer from supply chain problems caused by Japan’s earthquake, which has constrained production of key computer components.

    Oracle may also see some weakening of demand for its software in Japan, which accounted for 5 percent of sales last fiscal year, but analysts do not expect that to offset industry growth.

    “Unless one wants to make a more aggressive assertion that either whole companies will cease to exist or the world is headed back into another Great Recession,” said Richard Davis, an analyst at Canaccord Genuity, “we side with the view of every software company with whom we have spoken — that they do not expect a material negative impact to underlying, almost universally favorable, demand trends.”

    Here’s a look at Oracle’s stock and earnings. The stock is the blue line (left scale) and the EPS is the gold line (right scale). The two lines are scaled at a ratio of 15-to-1.

    You can see that the earnings line was barely impacted by the recession. The future part of the gold line is based on Wall Street’s consensus which I think is too low.

    If Oracle earns $2.31 for next fiscal year, which Wall Street expects, at a multiple of 16, that comes to nearly $37. If Oracle can earn $2.50, which isn’t out of the question, that’s a share price of $40.

  • Morning News: March 24, 2011
    , March 24th, 2011 at 6:44 am

    Euro-Zone Recovery Slows

    Portugal Yield Soars to 12-Year High as Socrates Quits; Irish Bonds Tumble

    Thai Exim Bank To Aid Exporters Hurt By Japan, Middle East Woes

    BOC Hong Kong 2010 Net Profit Up 16% At HK$16.20 Billion

    Egypt Shares Extend Drop, Led by Banks; Orascom Telecom Gains

    Greece’s Piraeus Bank Posts Loss as Provisions Rise

    Gold Steady In Asia, But Gains Likely Ahead

    R.I.P., New Home Sales

    36 South to Revive Black Swan Bet After Fund Climbs 234% on Global Events

    Colgate Buys Unilever Business for $940 Million

    Sprint Cheaper Than 99% of S&P 500 as Below-Book Signals Merger: Real M&A

    Groupon Now: Future of Mobile Marketing for Small Business

    Sales of Luxe Doomsday Bunkers Up 1,000%

    Joshua Brown: What Are Sprint’s Options?

    Paul Kedrosky: Life According to Lloyd Blankfein: We Generally Make Money

  • International Flavors & Fragrances
    , March 23rd, 2011 at 4:59 pm

    Here’s another entry in my continuing series: boring stocks but great investments. International Flavors & Fragrances ($IFF) is a $5 billion market cap company. It’s not in any of the major indexes but it’s been a strong performer over the years.

    Here’s a company description from Hoovers:

    If you’ve got a taste for the sweet and the salty, then International Flavors & Fragrances (IFF) is your kind of company. One of the world’s leading creators and manufacturers of artificial and natural aromas and flavors, IFF produces fragrances used in the manufacture of perfumes, cosmetics, soaps, and other personal care and household products. The company has about a 17% share of the world market and is among the top four companies in its industry. IFF sells its flavors principally to makers of prepared foods, dairy foods, beverages, confections, and pharmaceuticals. The company sells its fragrances and flavors in solid and liquid forms in amounts that range from a few pounds to several tons.

    International Flavors & Fragrances soundly beat the market from the early 1980s to 1995. Then in the late-1990s, IFF lagged the market.

    The company had a 39-year run of raising its dividend every year but that came to an end in 2000 when they slashed the dividend from 38 cents per share to 15 cents per share.

    Perhaps this was a smart move. Since 2000, the stock has done very well. Measuring from October 25, 2000, IFF is up nearly 300% while the S&P 500 is down over 5%.

  • The Triangle Fire—100 Years Ago
    , March 23rd, 2011 at 11:41 am

    The year 1911 was an interesting year for the American economy. This was probably the high-tide of a fast-growing American Socialist movement.

    The year saw a few important events which galvanized a lot of public opinion against capitalism. In May, the Supreme Court ruled against John D. Rockefeller’s mammoth Standard Oil trust. As a result, the company was broken up into 34 “Baby Standards.” Compare that to AT&T, which Judge Greene broke up into just seven companies.

    (The major Standard Oil company lived on as Standard Oil of New Jersey. Their filling stations were known as Esso which came from the S.O. for Standard Oil. The courts allowed them to use Esso but only in certain states in the West and in Canada. The company finally got tired of the restrictions and changed their name to Exxon.)

    Standard Oil had been on the defensive for a few years especially after Ida Tarbell wrote The History of the Standard Oil Company in 1904. Rockefeller got the last laugh. After the company was broken up, the stock prices soared and his net worth shot up to $900 million.

    Another major 1911 event happened 100 years ago this Friday. The Triangle Shirtwaist Factory fire in lower Manhattan killed 146 garment workers. Most of the victims were young immigrant women (and girls) from Europe. The public found out that the working conditions were terrible. The managers had locked the doors to the stairwells and the fire department’s ladders weren’t long enough to reach the upper floors. Many of the girls jumped out the windows similar to what happened on 9/11. The piles of bodies also made it difficult for the fire department to get close enough to the building.

    Even today, the Triangle Fire still ranks as the deadliest industrial accident in American history. The two owners were able to flee to safety. They were later tried for manslaughter and they won. They later lost a civil trial and had to pay a sum for each death.

    That sum: $75.

    The fire prompted a flurry of legislation requiring better working conditions. I highly recommend David Von Drehle’s Triangle: The Fire The Changed America.

    I say that 1911 was probably the high-tide of the socialist movement in America because a lot of the legislative reforms took the energy out of the movement. In 1912, we got the Pujo Committee and the election of Woodrow Wilson (Eugene Debs, the Socialist candidate, got nearly one million votes or 5.99%). The following year, we got the Federal Reserve Act and the 16th Amendment which allows for an income tax.

    The Socialist party also lost a lot of its popularity when it came out against America’s entry in World War I. It even got Debs arrested and he ran in the 1920 president election from his prison cell. Interestingly, all the Socialist parties in Europe voted for war. This was directly opposed to prevailing Socialist doctrine (“the proletariat has no fatherland”). A young Italian fascist, Benito Mussolini took note and decided it was better to organize workers by race instead of class.

    What I find interesting is that before the Russian Revolution, socialism wasn’t seen as being in any way un-American. In fact, the areas where Socialists were the strongest are today some of the reddest states in the Union. The Socialist newspaper, An Appeal to Reason, was published in Girard, Kansas.

    The most left-wing state of all was probably Oklahoma! The state gave Debs 16% of its vote in 1912. The mayor of Oklahoma City was a socialist and the state sent six Socialists to the state legislature. How times have changed! Oklahoma was McCain’s single-best state in 2008.

    On one final note, ExxonMobil ($XOM) was formed in 1999 when Exxon merged with Mobil. Both companies were Baby Standards.

  • BofA’s Dividend Plan Shot Down
    , March 23rd, 2011 at 9:56 am

    The Federal Reserve recently gave the all-clear sign for banks to raise their dividends. Well, not totally all-clear. The dividend increases still need to be approved by the Fed. After all, you can’t have public money being shoveled right to shareholders. The government wants them to make a profit first. So I was happy to see that JPMorgan Chase ($JPM), a member of our Buy List, was allowed to raise its dividend from five cents per share to 25 cents per share.

    Yesterday we learned that Citigroup ($C) was allowed to pay a teeny, tiny 0.1-cent dividend meaning a 1-cent dividend after 1-for-10 reverse stock split.

    I thought the Fed was going to be pretty liberal. Apparently not because Bank of America’s ($BAC) dividend plan just got shot down. In the regulatory filing, BAC didn’t say how much the increase was outside of being a “modest” one.

    So if Citi was allowed an extremely minor dividend increase, what does the Fed think of BAC?

  • Morning News: March 23, 2011
    , March 23rd, 2011 at 6:43 am

    Europe’s Banks Would Need $355 Billion in S&P Stress Scenario

    Egyptian Shares Plunge

    Disruption in Japan Slows Rise in Oil Price

    Japan’s Quake Damage May Swell to $309 Billion, Four Katrinas

    F.D.A. Bans Some Food Imports From Japan

    Bank of England Voted 6-3 to Hold Rate to Assess Impact of Increase in Oil

    Reinsuring Giant Munich Re Falls After Scrapping Profit Target on Japan Claims

    Coal Leases in Wyoming May Raise $21.3 Billion, U.S. Says

    Crude Futures Flat; Mideast Turmoil in Focus

    Fed Profit Rose Sharply To $82 Billion Last Year

    Judge Rejects Google’s Deal to Digitize Books

    Buffett, India’s Insurance Salesman

    Aflac Seeks New Voice For Its Duck

    Paul Kedrosky: U.S. vs World Gas Prices

    Joshua Brown: Just What Exactly Is Google?

    Howard Lindzon: Does Your Startup Need to be Massive?

  • The Fed Publishes Its Annual Financial Statements
    , March 22nd, 2011 at 11:52 am

    From the central bank itself:

    Total Reserve Bank assets as of December 31, 2010, were $2.428 trillion, which represents an increase of $193 billion from the previous year. The composition of the balance sheet changed notably. Holdings of U.S. Treasury securities increased $261 billion and holdings of federal agency and government-sponsored enterprise (GSE) mortgage-backed securities (MBS) increased $86 billion. These increases were partly offset by a $96 billion decrease in loans to depository institutions and a $23 billion decrease in loans extended under the Term Asset-Backed Securities Loan Facility, largely due to early repayments by borrowers.

    The Reserve Banks’ comprehensive income increased $28 billion over the previous year to $82 billion for the year ended December 31, 2010. The increase was primarily attributable to an increase of $24 billion in interest earnings on the federal agency and GSE MBS holdings.

    The Reserve Banks transferred $79 billion of their $82 billion in comprehensive income to the U.S. Treasury in 2010, a $32 billion increase from the amount transferred in 2009.