Archive for July, 2012

  • Starbucks Tumbles
    , July 31st, 2012 at 3:56 pm

    In May, I listed 13 stocks to avoid. Recently, Chipotle ($CMG) got slammed and now another one on the list has been trapped by the bears. This time it’s Starbucks ($SBUX). Last week, the company’s earnings missed expectations and guidance was poor. Wall Street had been expecting 2013 EPS of $2.28. Starbucks said it will only be as high as $2.14.

    The stock got slammed for a 9% loss on Friday. It dropped another 1% yesterday and three more percent today. Starbucks is down more than 17% since I first put it on my stocks to avoid list 11 weeks ago. Netflix ($NFLX) is down more than 26% and Chipotle is off by 28%.

  • The Decline of Stock Splits
    , July 31st, 2012 at 1:20 pm

    I’m happy that there are fewer stock splits than there used to be. Ideally, a company should split 2-for-1 or 3-for-1 once a decade or so. By the way, the worst abuser was JetBlu ($JBLU) who split 3-for-2 three times in three years despite not going anywhere. There’s been talk that Apple ($AAPL) may split soon so it can be added to the Dow.

    There are lots of good factoids in this Bloomberg article:

    Dow Reshuffle

    Dow membership was last reshuffled in June 2009, when Cisco and Travelers Cos. replaced General Motors Corp., which filed for bankruptcy protection, and Citigroup Inc., the recipient of $45 billion in taxpayer aid.

    Apple and Google Inc. have been passed over for inclusion because the shares would command the biggest weightings in the index, which ranks stocks by price. With both stocks trading above $600, they would have three times the influence of IBM, which has the largest weight in the index.

    “Excluding IBM, tech’s weighting in the Dow is only 5.3 percent,” Sacconaghi said. Compared to the Standard & Poor’s 500 index, which is weighted by market value, technology stocks are underweight by 370 basis points in the Dow, he said. Apple has a 4.55 percent weighting in the S&P.

    “This disparity between tech weighting in the Dow and S&P 500 leads us to believe Dow is likely to add more tech stocks, and that Apple would be a primary candidate if the company split its stock.”

    Nine companies in the Standard & Poor’s 500 Index have announced stock splits this year and 16 did in 2011, according to S&P. That compares with an average of 35 from 2004 through 2007 and represents a fraction of the 102 in 1997, the data show. Splits are designed to attract investors by making stocks more affordable.

    Historic Splits

    While the bull market that began in March 2009 has pushed the benchmark gauge for U.S. equities within 10 percent of its record high this year, the lack of splits helped send the average price of shares in the S&P 500 to a record $58.52 apiece on April 30, more than two decades of data compiled by Bloomberg show. That’s 9.1 percent higher than when the index reached its all-time high of 1,565.15 in October 2007 and 31 percent above the index peak in 2000.

    The Dow average was devised by Charles H. Dow, co-founder of Wall Street Journal publisher Dow Jones & Co. Originally containing 12 stocks, it expanded to 20 companies in 1916 and to 30 in 1928. Members must have an “excellent” reputation, show sustained growth and “be of interest to a large number of investors,” according to the S&P Dow Jones Indices website.

    Kraft Decision

    The average’s new owners will face their first decision on how the 116-year-old gauge should be composed when Kraft Foods Inc. splits itself in two later this year. Kraft’s $70 billion market value is ranked 21th in the 30-stock gauge and will shrink with the spinoff of its of its U.S. grocery business.

    Past spinoffs have led to deletions. Altria Group Inc. was dropped in February 2008, one month before the divestiture of its overseas tobacco unit and almost one year after its spinoff of Kraft. Westinghouse Electric Corp.’s split into separate manufacturing and media companies led to its removal in 1997.

    The Dow, which began in 1896 with General Electric Co., American Tobacco and 10 other companies, was taken over in July by S&P Dow Jones Indices, a joint venture of McGraw-Hill Cos. and CME Group Inc. About $28 billion in products such as exchanged-traded funds are linked to the index, and changes prompt money managers to buy or sell stocks to match the adjustments.

    Changes in the composition of the average “are rare, and generally occur only after corporate acquisitions or other dramatic shifts in a component’s core business,” according to the S&P Dow Jones Indices website. “When such an event necessitates that one component be replaced, the entire index is reviewed,” and “multiple component changes are often implemented simultaneously.”

  • Harris Earns $1.42 Per Share
    , July 31st, 2012 at 11:02 am

    More Buy List earnings. This morning, Harris Corp. ($HRS) reported quarterly earnings of $1.42 per share which was a penny more than estimates. This was Harris’ fiscal fourth quarter and they earned $5.20 per share for the entire year.

    “Harris fourth quarter results represented a solid finish to fiscal 2012,” said William M. Brown, president and chief executive officer.

    “Both income and earnings per share from continuing operations increased compared with the prior year, driven by operating improvement in all three segments and from a lower share count. Cash flow was particularly strong in the fourth quarter, contributing to excellent full year results.

    “Although revenue declined as expected, orders in the quarter were higher than revenue and increased in all three segments with the strongest increase in Integrated Network Solutions. Our recent wins are encouraging as we enter a new fiscal year facing uncertainty in the government spending environment.”

    The most important news today is that Harris reiterated its guidance for the current fiscal year for earnings between $5.10 and $5.30 per share. The stock is currently going for eight times earnings.

  • Buy List Earnings Calendar
    , July 31st, 2012 at 10:53 am

    Company Symbol Date Estimate Earnings
    JPMorgan Chase JPM 13-Jul $0.71 $1.21
    Johnson & Johnson JNJ 17-Jul $1.29 $1.30
    Stryker SYK 18-Jul $0.99 $0.98
    Reynolds American RAI 24-Jul $0.76 $0.79
    AFLAC AFL 24-Jul $1.61 $1.61
    Hudson City HCBK 25-Jul $0.14 $0.15
    Ford F 25-Jul $0.28 $0.30
    CR Bard BCR 25-Jul $1.64 $1.62
    CA Technologies CA 26-Jul $0.61 $0.63
    Moog MOG-A 27-Jul $0.84 $0.85
    Fiserv FISV 30-Jul $1.26 $1.28
    Harris HRS 31-Jul $1.41 $1.42
    Wright Express WXS 1-Aug $0.98 $1.00
    DirecTV DTV 2-Aug $1.13 $1.09
    Nicholas Financial NICK 2-Aug n/a $0.44
    Sysco SYY 13-Aug $0.54
  • Why Is Fiserv Down Today?
    , July 31st, 2012 at 10:51 am

    Just a quick note on Fiserv ($FISV). The company had a good earnings report yesterday. The stock was trading at $75 in yesterday’s after hours market, but it’s down to $68.48 this morning. I have no idea why — perhaps it was downgraded by someone.

    The earnings call was very good. I wanted to reiterate that despite today’s pullback, there’s nothing wrong with Fiserv’s business.

    On the plus, Hudson City is up strongly today thanks to an analyst upgrade. HCBK has been as high as $6.38 this morning although I’ve grown somewhat cool on the stock recently.

  • Facebook = $22.28
    , July 31st, 2012 at 10:30 am

    As I look at Facebook ($FB), the stock is now down to $22.28. That’s more than half off the high price from the day of the IPO. I knew the stock was overpriced and I said so at the time. But I didn’t think the balloon would deflate so quickly.

    I’d say FB has a fair price of about $14 per share, but I wouldn’t be interested unless it’s going for a steep discount. I might be a buyer at $10. Remember that with investing, you should never take risks you don’t need to.

  • Repealing Glass Steagall Didn’t Cause the Crisis
    , July 31st, 2012 at 10:15 am

    Barry Ritholtz makes a very good point about the claims that repealing Glass-Steagall Act did not cause the financial crisis. Glass-Steagall was the Depression-era law that separated investment banking from commercial banking. (We can see the effects today as to comply with the law, Morgan Stanley was the investment bank spun-off from JP Morgan.)

    The claim that the repeal did not cause the crisis is formally correct; however, it misses the point. When the crisis came, the absence of Glass-Steagall made the crisis much, much worse.

    This is somewhat like people saying that the Titanic didn’t sink due to too few lifeboats. That’s true, but it obscures the issue. The Titanic did sink and the lack of lifeboats caused the deaths of hundreds, and it was entirely avoidable.

    I don’t claim to know a good way of avoiding future credit crises. The nearest thing I have to a coherent opinion is to realize that these events happen and regulation is often a step behind. Therefore, we ought to avoid the temptation of trying to make a system that’s impossible to break, but instead make one that’s easy to fix. That’s why I lean towards favoring “big dumb rules” like breaking up large banks, instead of smart, smaller rules like the Volcker Rule.

    Think of a speed limit on a highway. It’s a good example of a big, dumb rule that governs a complex system (traffic). The speed limit applies to everyone and is easily understood. The problem on the highways isn’t specifically the speed of drivers, but how careful they are. The reason why speed limits work is that by limiting speed, drivers are more careful. It’s not perfect, but it works well enough.

  • Morning News: July 31, 2012
    , July 31st, 2012 at 6:31 am

    Singh’s $400 Billion Power Plan Gains Urgency as Grid Collapses

    India Holds Key Rate, Skirting Global Easing on Inflation

    Taiwan GDP Shrinks As Slowdown Seen From Japan To Korea

    China to Step Up Policy Fine-Tuning in Second Half: Wen

    China’s Energy Grab Is About Know-How, Not Resources

    Bond Gains Prop Up Japan Banks Amid Weak Loan Growth

    Fed Seen Forgoing Next Round of Asset Purchases Until September

    Manchester United Seeks Up to $333 Million in IPO

    UBS Hit by Loss on Facebook IPO

    BP Reports Loss on U.S. Asset Writedowns, Production Slump

    Panasonic Reaps Profit Gain, Set To Streamline Further

    Alibaba Is Said to Be Close to Raising $8 Billion

    Social Media Are Giving a Voice to Taste Buds

    Roger Nusbaum: Trust Your Gear

    Credit Writedowns: Did Draghi Act On His Own?

    Be sure to follow me on Twitter.

  • Fiserv Earns $1.28 Per Share
    , July 30th, 2012 at 4:11 pm

    Fiserv‘s ($FISV) Q2 earnings are out and the company made $1.28 per share for the second three months of the year. This was two cents more than Wall Street’s forecast. All across the board, these were solid results:

    GAAP revenue in the second quarter was $1.10 billion compared with $1.07 billion in the second quarter of 2011. Adjusted revenue was $1.03 billion in the second quarter compared with $1.00 billion in 2011, an increase of 3 percent. For the first six months of 2012, GAAP revenue was $2.21 billion compared with $2.11 billion in 2011, and adjusted revenue was $2.06 billion compared with $1.99 billion in 2011, an increase of 4 percent.

    GAAP earnings per share from continuing operations for the second quarter was $1.18 compared with $0.67 in 2011, which included a loss from early debt extinguishment of $0.26 per share. GAAP earnings per share from continuing operations for the first six months of 2012 was $2.13 compared with $1.45 in 2011, which included a loss from early debt extinguishment of $0.26 per share.

    Adjusted earnings per share from continuing operations in the second quarter increased 13 percent to $1.28 compared with $1.13 in 2011. Adjusted earnings per share from continuing operations for the first six months of 2012 was up 15 percent to $2.48 compared with $2.15 in 2011.

    “We achieved strong earnings and sales performance in the quarter consistent with our full year expectations,” said Jeffery Yabuki, President and Chief Executive Officer of Fiserv. “The continuing strength in the sales of our leading channel, payment and account processing solutions is providing strong forward momentum.”

    As I suspected this morning, Fiserv raised the lower-end of its full-year forecast by four cents per share. The new range is $5.08 to $5.20 per share. At $72, this is a good deal.

  • Moog Earns 85 Cents Per Share
    , July 30th, 2012 at 1:09 pm

    I neglected to mention Moog’s ($MOG-A) earnings report from Friday. Moog isn’t a well-known company but it ought to be; they make flight control systems for commercial and military aircraft. Even though defense budgets have come under the knife in the U.S. and Europe, Moog is still doing well.

    The company earned 85 cents per share for its fiscal third quarter which was a penny ahead of estimates. Moog had earned 73 cents per share in the same quarter one year ago. On the bad side, the company cut its 2012 revenue estimate just slightly from $2.47 billion to $2.45 billion. For 2013, they see full-year earnings ranging between $3.50 and $3.70.

    If they hit $3.70 per share, that would be a very strong number. That means the stock is going for just under 10 times forward earnings. The stock is up about 2.5% today.