Archive for June, 2011

  • Fun With Numbers
    , June 30th, 2011 at 8:31 pm

    I was always amused by the fact that the Nasdaq closed out 2003 at 2003.37.

    Even though a market is made of millions of investors making countless decisions, these numerological events keep cropping up. Or it’s coincidence. A very eerie coincidence.

    The S&P 500 finished the first half of the year today at 1320.64. That works out to a year-to-date gain of exactly 63 points. Percentage-wise, that works out to 5.0093%.

    Hey, if you slip enough coins these things happen, right?

  • McCormick & Brown Forman
    , June 30th, 2011 at 10:15 am

    I’ve been telling investors to be wary of cyclical stocks. Here are two consumer stocks that have performed very well in recent years — McCormick & Co. ($MKC) and Brown Forman ($BF-B). The latter makes Jack Daniels which may be as counter-cyclical as you can get.

    McCormick just reported Q2 earnings of 55 cents per share which was a penny better than consensus. However, the company lowered its full-year forecast to a range of $2.74 to $2.79 per share. The Street was at $2.83 per share.

  • Share Buybacks Are Fueling the Rally
    , June 30th, 2011 at 8:52 am

    Brett Arends has an interesting article at MarketWatch noting that, according to TrimTabs, the market has been pushed higher thanks to companies buying back their own shares. During the first quarter, companies plunged $124 billion back into the stock market.

    At the same time, there’s been a dearth of share buying by corporate insiders. My only quibble with the story is the subhead which reads, “Companies are buying stock, but insiders aren’t.” I would have changed “but” to “because.” And this highlights one of the reasons I don’t like share buybacks. Too often, companies use share buybacks as an indirect way to boost the value of options grants to company executives.

    I have no problem with paying executives lots of money, assuming they’re good. But I do have a problem when we alter the cash flow statement to help these folks indirectly.

    My view is very simple: Pay excess cash to shareholders as dividends. I wish the tax code was friendlier to this strategy, but it’s not. The problem with share buybacks is that any benefit can easily be lost through the normal volatility of a stock. A cash dividend will reach its target audience. Furthermore, if shareholders want to use the dividend to buy stock, they’re free to do so.

  • Morning News: June 30, 2011
    , June 30th, 2011 at 7:04 am

    German Banks, Government Agree on Draft Greek Plan

    New Investment Strategy: Preparing for End Times

    Greece to Vote on Austerity Details

    European Consumer Prices Rose in June

    London Stock Exchange Now Seen as Takeover Target

    The German Jobs Miracle Continues

    U.S. Small Business Borrowing Surges

    Chinese Carmaker BYD Slumps as Profit of Buffett-Backed Automaker Declines

    California Online Tax Law Pressures Amazon

    Leonard Green, CVC to Buy BJ’s Wholesale for $2.8 Billion

    BofA Haunted by Countrywide Deal

    Visa, MasterCard Climb as Fed Increases Caps on Debit-Card Fees

    News Corp. Sells MySpace for $35 Million

    Lindsay Lohan Shills for Pump-and-Dump Stocks on Twitter

    Jeff Miller: Investment Profits from Understanding Government

    Howard Lindzon: Trading Is…

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  • Three Days in a Row
    , June 29th, 2011 at 6:48 pm

    Wall Street had another good day today. The S&P 500 gained 10.74 points to close at 1,307.41. That’s an advance of 0.83%. The four-day rally now totals a gain of 3.07%. A further retest of the 200-DMA is very possible, but this most recent bounce looks pretty good.

    With one day left in the first half of 2011, the S&P 500 is up nearly 5% for the year including dividends. That’s roughly inline with the long-term average.

    The most interesting market lately has been the bond market. Yields on most Treasuries have gapped higher in the past few days. Outside of very short-term rates, yields are up around 20 to 30 basis points. Last Thursday, the yield on the five-year Treasury dropped as low as 1.37% yet today it got as high as 1.73%.

    That’s a big move for such a short period. Rather than representing a shift in sentiment, it seems that the unusual trading previously due to Greece is slowly unwinding. For example, shares of AFLAC ($AFL) have slowly recovered and they dipped their heads just above $46 today. JPMorgan ($JPM) also had a good day today. The stock gained 2.3%.

    Oracle ($ORCL) got as high as $32.68 today, which just makes me laugh. There hasn’t been one important piece of information that should have changed anyone’s mind on this stock since earnings came out. Not one! The market is simply coming to its senses.

    Medtronic ($MDT) lost 2.36% today due to the bad news I mentioned earlier. After the market close, Fiserv ($FISV) announced it is buying CashEdge for $465 million and that the transaction won’t impact this year’s earnings-per-share.

    I’ve said before that this is a slow week. Except for tomorrow being the last day of the quarter, not much is going on. I will be curious to see this Friday’s ISM report. The last report (the one for May) was much worse than I expected. It will be interesting to see if this is a trend.

  • The StockTwits Edge
    , June 29th, 2011 at 11:39 am

    I’m very happy to announce that StockTwits has written a book: The StockTwits Edge: 40 Actionable Trade Set-Ups from Real Market Pros which is available now through Amazon.

    I have to congratulate Howard Lindzon, Phil “Doctor Phil” Pearlman and Ivaylo Ivanhoff for making the book a reality. The book is divided into 46 chapters all written by StockTwits contributors. The chapters cover several different topics from trend-following to options to forex trading.

    Your humble blogger contributed Chapter Nine, “Dividend Don’t Lie.” If you want to see what StockTwits is all about, I recommend getting the book. (And if you enjoy it, please give it a good review on Amazon.)

  • AFLAC Prices 50 Billion Yen of Senior Notes
    , June 29th, 2011 at 10:40 am

    Borrowing at low rates isn’t always a bad thing:

    Aflac Incorporated announced today that it has priced yen-denominated (Samurai) bonds totaling 50 billion yen (par value), or approximately $625 million at the current yen/dollar exchange rate. The issuance consists of 28.7 billion yen ($359 million) of three-year fixed-rate notes with a coupon of 1.47%; 15.8 billion yen ($197 million) of five-year fixed-rate notes with a coupon of 1.84%; and 5.5 billion yen ($69 million) of three-year floating-rate notes with a coupon of three-month Japanese yen Libor plus 1.15%. The company anticipates using the proceeds from this issuance primarily for debt repayment and general corporate purposes. The bonds will be issued in Japan under a previously announced shelf registration filed with Japanese regulatory authorities. This issuance is the first issuance from the November 2009 shelf registration.

    Commenting on the pricing of the debt issue, Aflac Incorporated President and Chief Financial Officer Kriss Cloninger III commented: “This debt issuance will facilitate our repayment of approximately 35 billion yen of Uridashi notes that mature in September 2011, and further strengthens our liquidity position.”

    The yen’s impact on 2011′s operating earnings is pretty straightforward. At an exchange rate of 87.69 yen per dollar, the earnings will grow by 8% to $5.97 per share for 2011. Every one point below that adds roughly five cents per share to AFL’s bottom line.

  • Another Blow for Medtronic
    , June 29th, 2011 at 10:15 am

    Like the company hasn’t had enough bad press. The New York Times reports:

    Spine Experts Repudiate Medtronic Studies

    In an extraordinary move, a group of spine specialists are publicly repudiating the research of other experts that has backed the widespread use of a Medtronic bone growth product. In a series of reports published in a medical journal on Tuesday, the specialists called the research misleading and biased.

    The repudiation, appearing in a full issue of The Spine Journal devoted to the topic, represents a watershed in the long-running debate over conflicts of interest for the sponsorship of scientific studies by makers of drugs and medical devices. It is extremely rare for researchers to publicly chastise colleagues, and editors of leading medical journals said they could not recall an instance in which a publication had dedicated an entire issue for such a singular purpose.

    Medtronic, the nation’s biggest maker of medical devices, has been facing intensifying scrutiny over its promotion of Infuse, the bone growth product at the center of the controversy. The bioengineered material is used primarily in spinal fusions, a procedure in which spinal vertebrae are joined to reduce back pain.

    Infuse is used in about a quarter of the estimated 432,000 spinal fusions performed in this country each year. The articles published on Tuesday charge that researchers with financial ties to Medtronic overstated Infuse’s benefits and vastly understated its risks by claiming there were none.

    The shares are currently down 66 cents to $38.35 which is a loss of 1.7%.

  • Morning News: June 29, 2011
    , June 29th, 2011 at 7:07 am

    In a Greek Default, Higher Risk for Money Market Funds

    ECB President Trichet Urges New Vision for Europe

    France to Name New Finance Minister After Lagarde Chosen to Head IMF

    Automakers Lead Jump in Japanese Factory Output

    Billionaires Team Up to Back Carrefour in Brazil

    Deutsche Boerse Asks EU to Approve NYSE Euronext Takeover Bid

    $8.5 Billion Deal Near in Suit on Bank Mortgage Debt

    Home Prices Increase, for a Change

    Madoff Judge Approves Trustees $212 Million Settlement With Feeder Funds

    Morgan Stanley Said to Suffer Trading Loss

    Zynga IPO Could Raise $2 Billion, File Wednesday

    Campbell Soup To Exit Russia

    Natural Gas Bidding War Puts Spotlight on a Billionaire

    Brian Shannon: Stock Analysis & Trading Ideas for 6/29/11

    Stone Street: Some Perspective on YOKU’s Warner Brothers Deal

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  • Market Update: June 28, 2011
    , June 28th, 2011 at 8:58 pm

    I have to apologize for the lack of posting today but honestly, there’s not much going on.

    The good news is that the stock market continues to recover. For now, it looks like the second bounce off the 200-DMA was a good one. The S&P 500 closed today at its highest level since June 3.

    Bespoke notes that we’ve just completed our best two-day gain in nearly five months. But I should caution you that the big gainers over the last two days have been cyclical stocks and I’m suspicious that they can lead the market for long.

    Remember how Oracle ($ORCL) fell after its “poor” earnings report? Perhaps Wall Street is starting to realize that this was a very good earnings report. The stock has recovered nearly everything it lost. Today Oracle closed at $32.34 which is just 12 cents below Thursday’s close. Imagine that! Patience FTW!

    Shares of Nicholas Financial ($NICK) have also stabilized after being knocked around after being added to the Russell 2000.

    Reynolds American ($RAI) fell along with the entire tobacco sector after the FDA said it was going to do an independent review of menthol cigarettes. This is a great stock and it carries a nice 5.7% yield.

    Bed Bath & Beyond ($BBBY) is still rising after its great earnings report. The stock broke $58 per share today. The stock is an 18% winner on the year for us. I really like it when good companies are rewarded.

    The one sector that’s been left behind by this market is the financial sector. It appears that investors are worried about exposure to Greece (or Portugal or Ireland or Iceland or ….). The earnings estimates for the major Wall Street banks are getting slashed in a big way.

    Three months ago, the Street saw Goldman ($GS) earning $16.41 per share for this year. Now that’s down to $14.01. Banks like Citigroup ($C) and Bank of America ($BAC) continue to be disaster areas.

    The sole exception, and not to my surprise, is JPMorgan Chase ($JPM). The last several earnings reports have come in much better than expectations. The bank is currently going for just eight times this year’s estimate. The stock, however, has suffered along with the rest of the banks.

    What I would really like to see is another dividend increase, but that will take permission from the Fed. JPM already increased their quarterly dividend from five cents per share to 25 cents. At the current price, that gives the stock a yield of 2.52%. I wouldn’t mind seeing them double that. That’s probably unrealistic, but JPM could do it if they wanted to and had Fed approval.

    Along with other financial stocks, AFLAC ($AFL) is still suffering. Wall Street is just being silly here. The company has made it abundantly clear that they’re not overly exposed to Europe. Plus, they keep delivering solid results. I don’t believe it’s a smart idea to bet against AFLAC.