Archive for August, 2012

  • Still Staying Away from Dell
    , August 22nd, 2012 at 12:37 pm

    I wish I could like Dell ($DELL) more than I do. The cheap price is tempting and I wouldn’t be surprised to see the shares rally from here. The problem for me is that by buying Dell here, I’m taking on more risk than I need to. One of my fundamental rules of investing is to never take risks that I don’t need to. Last month, I said I was staying away from Dell and that’s how I feel today.

    Warren Buffett said, “I don’t look to jump over 7-foot bars: I look around for 1-foot bars that I can step over.” That’s my thought about Dell. The company just beat earnings by five cents per share. This is a good example of the quarterly earnings report not meaning much. The big news was that Dell said it expects earnings for the year of $1.70 per share which is down from the previous forecast of $2.13 per share they gave in February.

    Earnings downgrades are like cockroaches: there are usually a few more for every one you see. Companies aren’t like athletes who may go into a slump or have an “off day.” If a company lowers its guidance by a lot, there’s probably a major reason why, and that reason isn’t easily fixed.

    Dell, once the world’s top personal computer maker and a pioneer in computer supply chain management, is struggling to defend its market share against Asian rivals like Acer and Lenovo and consumers’ fast-growing adoption of tablets like Apple’s iPad in place of PCs.

    Dell forecast that its revenue would slide 2 percent to 5 percent in its fiscal third quarter from the second, to $13.8 billion to $14.2 billion. Wall Street had been expecting third-quarter revenue of $14.85 billion.

    It is predicting earnings of “at least” $1.70 a share for fiscal 2013, compared with a previous forecast for more than $2.13 a share.

    “People had already expected them to take down numbers, but I think the level to which they are taking down numbers is pretty severe compared to expectations,” said Shannon Cross, an analyst at Cross Research.

    Dell’s chief financial officer, Brian Gladden, said in an interview that the company had tempered its outlook for the fiscal third quarter partly because it expected distributors to hold off on buying new computers before the late October release of the latest version of Microsoft’s Windows operating system.

    Using $1.70 or earnings compared to the new stock price of $11.50 makes Dell appears attractive. But I’m not convinced. I just don’t see much coming out of Dell in the way of growth. Until I’m convinced that Dell can increase its earnings at a stable rate, I don’t see much value in the shares.

  • The Beatles 50 Years Ago Today
    , August 22nd, 2012 at 10:56 am

    This is the first real video of the Beatles from 50 years ago today. Ringo Starr had just replaced Peter Best as drummer. You can even hear someone shout at the very end, “We want Pete!”

  • Morning News: August 22, 2012
    , August 22nd, 2012 at 8:03 am

    Asian Stocks Decline on Japan’s Trade Deficit, Greek Bailout

    Pressures Intensify On Merkel

    Spain Deficit Goals at Risk as Cuts Consensus Fades

    China To Spend $372 Billion On Cutting Energy Use, Pollution

    China Raises Rare-Earth Export Quota

    RBS Probed Over Possible Iran Sanctions Violations

    U.S. Companies Worry About Effect of Russia Joining W.T.O.

    Dell Outlook Gloomy as PCs Slump

    Sharp Rescue Needs Precision

    Nokia’s $39 Phone Rebound Wins More Time for Comeback Bid

    Apple Breaks A Record, Facebook Breaks Its Fall

    Best Buy Net Sinks as Turmoil Builds

    Strong Revenue Boosts Toll Brothers’ Net Profit

    Jeff Carter: When Insiders Sell An IPO is it “Bad”?

    Pragmatic Capitalism: No Recession Now, But When?

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  • Medtronic’s CEO on CNBC
    , August 21st, 2012 at 2:43 pm

    Here’s Omar Ishrak, CEO of Medtronic, on CNBC earlier today.

  • Medtronic Earns 85 Cents Per Share
    , August 21st, 2012 at 11:36 am

    Not much of a surprise from Medtronic ($MDT) this morning. The company reported fiscal Q1 earnings of 85 cents per share which matched Wall Street’s forecast. I was expecting a little more but I’m not at all disappointed by these results. Revenues were up 1.6% to $4.01 billion..

    The world’s biggest medical device maker said sales of coronary and vascular devices and structural heart products all improved. Medtronic said revenue from implantable devices like pacemakers and defibrillators decreased, although it said U.S. sales of implantable defibrillators are holding steady.

    Bone graft revenue decreased in the wake of safety concerns and a shareholder lawsuit, and revenue from diabetes and surgical technology and other devices increased.

    The earnings-per-share figure got a boost thanks to 3% fewer shares outstanding.

    Medtronic said revenue from coronary products increased 11 percent to $433 million. Sales of structural heart devices like artificial valves rose 2 percent to $280 million and endovascular revenue, which includes stents, increased 12 percent to $209 million.

    Revenue from the company’s restorative therapy business, which makes surgical devices and products used to treat diabetes, nerve disorders, and other conditions rose 3 percent to $1.89 billion. Medtronic said most of its businesses reported better sales than a year ago, but sales of its Infuse bone graft shrank 19 percent to $141 million during the quarter.

    In 2011, a medical journal said Medtronic understated the risks of Infuse and did not disclose payments to the authors of studies on the product. In March 2012, Medtronic agreed to pay $85 million to resolve a federal lawsuit brought by shareholders. The U.S. government closed an investigation into Infuse in May. The product contains a genetically engineered protein that can stimulate bone growth. It is approved for use in spinal, oral and dental graft procedures, and it was frequently used in neck surgeries and other procedures.

    The most important news is that Medtronic is reaffirming its full-year earnings forecast of $3.62 to $3.70 per share. Earlier today, the shares got to a new 52-week high.

  • Apple’s Gained 1% a Week, On Average, for 10 Years
    , August 21st, 2012 at 10:57 am

    Shares of Apple ($AAPL) are up again today making the company not only the most valuable company in the world, but also the company valuable company that’s ever been.

    A few days ago, I tweeted that Apple has gained an average of 1% a week for the last ten years. The key word here is on “average.”

    Let’s check the math. On April 17, 2003, Apple closed at $13.12. Adjusted for splits, that comes to $6.56. Tomorrow will mark 488 weeks which is roughly nine years and four months.

    Going by today’s high of $674.88, Apple is up over 102-fold since April 17, 2003. Compounded per week, that works out to 0.954%. That also doesn’t include the dividend which Apple recently instituted.

  • Is Your Credit-Card Company Secretly Screwing You Over?
    , August 21st, 2012 at 9:23 am

    Most credit-card holders don’t realize this, but there’s an easy way to lower your card’s interest rate:

    Just ask your provider to do it.

    No joke. Just call them up and say in your nicest voice that you’d like your APR lowered. Don’t be rash and threaten to leave or exhibit any histrionics like that. Just say that you’ve been a cardholder for such-and-such period and you’d like to have a lower rate. If you’ve been a good customer, they won’t want you to go.

    Surprising? Well, if you’re like most American consumers, and even many financial professionals, there’s a lot about credit cards you don’t know. And it’s exactly this lack of knowledge that has allowed the banks who are in the card business to siphon money out of your pockets for the purpose of lining their own.

    Of the approximately 120 million households in the U.S. today, some 47% carry a monthly card balance. On average, that balance totals $14,517—which is actually a significant drop from the five-year high of nearly $18,000 back in 2008. So let’s do the math. Assuming an APR of 20% (which for many cardholders is generously low), after one year that balance is up to $17,420. After another year, it’s at $20,904. Twelve months later, it’s at a whopping $25,084.

    If only the S&P index funds performed like that.

    So what can you do to avoid getting gutted by the purveyors of plastic? The list is quite simple:

    • The best advice is the most obvious: Don’t carry a balance in the first place. The credit-card companies have a name for customers like this: bums. These people are basically getting a service—the convenience of not having to carry cash—for free. Plus your credit score goes up if you consistently pay off your cards in full. Put the cards to work for you.
    • Be very, very suspicious of rewards programs. Those bonus points and free air miles that look so appealing in the card company’s brochures frequently don’t add up to much; many of them have hidden fees and blackout dates, and often the range of merchandise you can redeem them for is very limited. If the bargain-hunter in you is too strong and you just can’t resist enrolling, be sure to check the program’s online reviews beforehand, as well as the websites of the airlines you plan on using.
    • If you don’t like something, say so. If you’re a customer in good standing and one of your payments arrives a few days late, or your interest rate is too high, most likely you can get the bank to work with you. The intensity of the competition means the banks are eager to keep valued clients. Frequently they will forgive late charges, remove late-payment records from your credit history, drop annual fees, or lower your APR if you’ve shown them you’re a solid customer. Of course, normal rules of courtesy apply. Be polite, but firm.
    • Do not, repeat, do not, exceed your credit limit. Oftentimes, when banks lower your limit, they set it at just a few dollars above the balance you’re currently carrying. Sneaky. If you then go over that magic number, not only will you have to pay a hefty over-the-limit fee, but your credit score will drop. Remember, your credit score depends in part on the percentage of your available credit that you use. Use it all, and you’ll be seen as a potential credit hazard by the good people at TRW, Experian, and the like.
    • Avoid consumer-protection plans like the plague. These plans offer no benefits whatsoever to customers; if you find yourself out of a job, they freeze your account and charge you an interest rate on your outstanding balance, typically 1%. That’s on top of the ludicrous fees they charge you for this “service” in the first place.
    • Be on the lookout for “overseas” charges. When the federal government tightened its credit-card regulations after the 2008 financial debacle, many banks raised their foreign-transaction fees to make up for lost revenue. Many of these rates now hover around 3%, and frequently they apply even when you, the customer, are not overseas. That is, they can be assessed even if you order from a foreign company from within the States, so check your statements carefully.
    • Call out the banks on bogus charges. A friend of mine once was car shopping and noticed the abbreviation “ADM” on the list of features for a particular vehicle. When he asked the salesman about it, the latter smugly said it stood for “additional dealer markup.” Incredible, but most people would have been content to pay it, and banks are not above pulling the same scam. Many have teaser rates that suddenly go up at a mystery date that is buried in the cardholder agreement’s fine print, while others charge fees if your card doesn’t show a certain amount of activity per year. (The latter is a way of reinstating inactivity fees, which were technically outlawed by the CARD Act of 2009. Which is to say, the banks want you to pay something for nothing.) Also to be avoided are so-called “upfront processing fees,” which are frequently applied to low-credit-limit cards to get you closer to (and hopefully, over) that credit limit. Thereby incurring more fees, and…well, you get the idea.

    Like so many financial organizations, the banks count on you to be ignorant, obedient, and passive. But at the end of the day, remember: they’re there for you, not you for them. There’s no reason for you to pay money you don’t have for services you don’t need to please people you’ve never met.

    To paraphrase Gordon Gekko, getting back on track, credit-card-wise, will cure what ails not just your individual bank balance, but the balance sheet of that great malfunctioning financial-services provider that is the U.S.A.

  • Nike Is a Strong Sell
    , August 21st, 2012 at 8:01 am

    As far as its business goes, I like Nike ($NKE) a lot. In my mind, it’s a $70 stock. I wouldn’t mind buying it if it were at $60. Fifty dollars would be even better.

    The problem is the stock’s at $95.

    The normally solid company is also starting to show some cracks, and they may soon get much bigger. The last earnings report was a complete disaster. Revenue plunged 12% and Nike missed earnings by 20 cents per share.

    Nike’s profit margins are getting squeezed, so their response is to raise prices even more. I think that’s a big mistake.

    We’re going learn a lot more about this approach soon when Nike unveils its newest LeBron shoe which will retail for over $300.

    Just to make this clear, that’s three hundred dollars of legal U.S. currency for a basketball shoe. Actually, the sneakerati thinks it will be $315.

    I think this is emblematic of some of the larger forces at work in the broader economy. Companies have pushed their margins as far as they can go. Some feel the need to raise prices even more but their customer base is tapped out. It’s like a rubber band that’s been stretched to its breaking point. Something has to give.

    It’s hard to imagine what you can do to a shoe to justify $315 dollars. By the way, did I mention the built-in electronics?

    The coming $315 LeBron X Nike Plus, due in the fall, is expected to come embedded with motion sensors that can measure how high players jump. The LeBron 9 PS Elite basketball shoes, which currently retail for $250, feature Nike’s signature swoosh in metallic gold.

    Nike, based in Beaverton, Ore., says it is passing along price increases because many key materials, such as cotton, have risen in price over the past 18 months. Prices did moderate somewhat in the past quarter.

    Nike is also faces rising labor costs in China, where it manufactures a third of its products.

    Are electronics really needed for this? How about the old school approach—try to touch this rim? If you can, then that’s pretty good. If you can’t, then keep working at it. No electronics needed.

    I think Nike is making a big mistake here. I wouldn’t be surprised to see the LeBron fall way short of expectations. You can tell when an industry is tired—there’s no real innovation, just larger tailfins. That’s what’s going on now.

    I don’t see how Nike can come close to being worth $95. Avoid this stock.

  • Morning News: August 21, 2012
    , August 21st, 2012 at 7:58 am

    German Bunds Fall as Portuguese, Irish Debt Rallies

    Correlation Analysis Suggests Losses for Euro

    China Oil Company Cuts Dividend After First-Half Profit Falls 20%

    Iraqis Wait To See Gains From Country’s Oil Boom

    Tianjin Sets $236 Billion Investment Target as China Slows

    Wall Street Leaderless in Rules Fight as Dimon Diminished

    Samsung to Spend $4 Billion to Boost Texas Chip Output

    UBS Seeing Moat of Secrecy Run Dry Vows Results

    Facebook’s Ambition Collides With Harsh Market

    What Does Groupon’s Collapse Mean for Tech Stocks? How About: Nothing

    Shell Plans At Least $1 Billion A Year China Shale Gas Investment

    KKR Buys Into Novo, Bets On China Youth Apparel Market

    Soros Reveals Stake In Manchester United

    Roger Nusbaum: Trade Executed

    Joshua Brown: The Silliness Ceiling Officially Breached

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  • What If the Stock Market Turned Out to Be Lower in 2042 than It Is Today?
    , August 20th, 2012 at 11:10 am

    What if I told you that the stock market would be lower 30 years from today? It’s sounds implausible but that’s what happened 100 years ago.

    The Dow Jones had been rallying during the summer of 1912. The Olympics had just been held in Stockholm, and the Democrats were preparing to retake the White House for the first time in 20 years.

    The Dow Jones Industrial Average peaked at 94.15 on September 30, 1912. That was the highest point the market had been in two-and-a-half years. It was also to be the highest point the market would be for another three years. The onset of World War I was not good for stocks.

    But what I find most interesting, and most frightening, is a fact that all investors need to understand: The Dow didn’t finally shake its 1912 high until 1942. That’s right, thirty years later. On April 28, 1942, the Dow bottomed out at 92.92.

    Dividends, of course, helped out a lot. But remember that the “stocks for the long run” thesis is based on several decades worth of data.