Archive for December, 2005

  • Bed Bath & Beyond Earnings
    , December 21st, 2005 at 12:29 pm

    Bed Bath & Beyond (BBBY) is set to report earnings after today’s close. The stock has basically traded around $40 a share for the last 2-1/2 years. The current earnings estimate is for 45 cents a share.
    To give you an idea of how reliable the company is, there are 25 analyst estimates and the highest is for 46 cents, the lowest is for 45 cents. Talk about a narrow range! Last year, BBBY earned 40 cents a share. I don’t believe the company has ever missed its earnings estimate in 13 years as a publicly traded stock.
    The shares are rallying today:
    bbby5day.bmp

  • The Morning Market
    , December 21st, 2005 at 9:25 am

    Lots of news this morning. Third-quarter GDP growth was revised slightly lower to 4.1%. That’s still the best growth is 1-1/2 years. I think the market will shrug it off as the third-quarter started six months ago.
    The good news is what’s happening overseas. We have multi-year highs in Britain, Germany and Japan. The Nikkei is coming close to 16000. There’s also the news from China. The Chinese government announced that its economy is really about 17% larger than it originally thought. The New York Times has more.
    I think we’re heading to a positive opening. FedEx (FDX) reported very strong earnings. The Google/AOL deal is now official. Calpine finally filed for bankruptcy. Here’s a timeline of Calpine’s recent history. Nike (NKE) disappointed Wall Street was a poor earnings report.
    The transit strike is in its second day. B of A said that it will impact Tiffany’s (TIF) business. Lastly, in Slate Adam L. Penenberg speculates on the end of Moore’s Law.

  • Biomet’s Earnings
    , December 21st, 2005 at 5:23 am

    From Reuters:

    Biomet Inc. (BMET) on Wednesday said its quarterly earnings rose on sales growth for its orthopedic reconstructive and dental reconstructive implants.
    The Warsaw, Indiana-based maker of orthopedic devices said its earnings rose to $101.3 million, or 41 cents per share, in its fiscal second quarter ended Nov. 30. In the year-ago period, the company earned $91.2 million, or 36 cents per share.
    The consensus estimate on Wall Street was for a profit of 43 cents per share, according to Reuters Estimates.
    Biomet said sales in the quarter rose 8 percent to $494.7 million.
    It said it expects third-quarter earnings per share will rise to a range of 43 cents to 44 cents a share, slightly below analyst estimates of 46 cents a share. It expects sales in the quarter to be between $510 million to $520 million.

  • The Buy List for 2006
    , December 21st, 2005 at 2:03 am

    Drumroll….
    Crash! Here’s the Buy List for 2006:
    AFLAC (AFL)
    Bed Bath & Beyond (BBBY)
    Biomet (BMET)
    Brown & Brown (BRO)
    Donaldson (DCI)
    Dell (DELL)
    Danaher (DHR)
    Expeditors International (EXPD)
    FactSet Research Systems (FDS)
    Fair Isaac (FIC)
    Fiserv (FISV)
    Golden West Financial (GDW)
    Harley-Davidson (HDI)
    Home Depot (HD)
    Medtronic (MDT)
    Respironics (RESP)
    SEI Investments (SEIC)
    Sysco (SYY)
    UnitedHealth Group (UNH)
    Varian Medical Systems (VAR)
    Well, no big surprises. You should notice lots of familiar faces. Fourteen stocks are holdovers from the current list. For this year, I decided to cut back the list to 20 stocks. Sadly, eleven stocks didn’t make the cut including favorites like Frontier Airlines, Progressive and Quality Systems. Yes, I know. It’s sad to see them go (…sniff). I’ve also decided to cut back on all those orthopedic stocks. That was just too heavy a sector bet. I’m keeping Biomet though.
    The six new stocks are Bed, Bath & Beyond, Harley-Davidson, Home Depot, Sysco, FactSet Research Systems and UnitedHealth Group. Please, make them feel at home. I think you’ll get to like them.
    I didn’t plan it this way, but I’m surprised at how many mega-cap stocks made the list. The new Buy List represents over $460 billion in market value, which is equal to about 4% of the entire S&P 500. The real biggies are Home Depot, UnitedHealth, Dell and Medtronic. Combined, those four represent about two-thirds of the market value of the Buy List.
    I’m also surprised at the small number of financial stocks, although I’m going to keep stocks like Golden West, AFLAC and Brown & Brown. Any way you slice it, this is a pretty conservative list.
    If you’re not familar with the Buy List, here’s the deal. I’m not going to make any changes to the Buy List for the next 12 months. This list is set in stone (I’ll make adjustments if any positions are bought out). I’m going to start tracking these 20 stocks on January 3, 2006, which is the first trading day of the new year. For track record purposes, I’m going to assume that all 20 stocks are equally weighted based on the closing price of December 30, 2005.
    As usual, you can assume that I own any of the stocks on the Buy List. Your pain or gain is also mine. I’m still going to track the 2005 Buy List through the end of next week.
    I’m looking forward to a fun and profitable 2006!

  • The Market Today
    , December 20th, 2005 at 5:55 pm

    This is truly frightening. Wall Streeters are walking today. Do these transit workers have any idea what they’ve done? Cabs are impossible to get. Some people have to carpool! I mean…ick.
    I don’t know how much longer this can go on. I’m all for labor unions, but couldn’t they strike during better weather. Planning, fellas! Anyway, stocks bounced around for most of the day and finished just a wee bit lower. This was the third straight down day, the most since October. Our Buy List had another rough day, although not quite as bad as yesterday. The S&P 500 lost 0.02% and our Buy List fell 0.40%.
    The good news is that Commerce Bancorp (CBH) raised its quarterly dividend by 9%. That’s always nice to see. Zimmer (ZMH), Dell (DELL), Biomet (BMET) and Stryker (SYK) all got hit today. Biomet comes out with earnings tomorrow. Melissa Davis at The.Street has an interesting story on Biomet and the orthopedic industry.
    Outside our Buy List, FactSet Research Systems (FDS) reported earnings that were three cents a share higher than estimates. This is a neat little stock. I was troubled to see Electronic Arts (ERTS) say that this quarter will be “well below” expectations. ERTS used to be a “can’t miss” stock. Also, General Motors (GM) fell to an 18-year low. The company is recalling 425,000 vans due to bad seat belts. The Dow is only up 2.5% this quarter. For the last four years, the Dow has gained at least 7% in the fourth quarter.
    Business Week has an article about the tech boom in Israel.

  • Google Earth
    , December 20th, 2005 at 2:23 pm

    Here’s an interesting article in today’s NYT. Apparently, Google Earth is very good. Perhaps, too good.

    When Google introduced Google Earth, free software that marries satellite and aerial images with mapping capabilities, the company emphasized its usefulness as a teaching and navigation tool, while advertising the pure entertainment value of high-resolution flyover images of the Eiffel Tower, Big Ben and the pyramids.
    But since its debut last summer, Google Earth has received attention of an unexpected sort. Officials of several nations have expressed alarm over its detailed display of government buildings, military installations and other important sites within their borders.
    India, whose laws sharply restrict satellite and aerial photography, has been particularly outspoken. “It could severely compromise a country’s security,” V. S. Ramamurthy, secretary in India’s federal Department of Science and Technology, said of Google Earth. And India’s surveyor general, Maj. Gen. M. Gopal Rao, said, “They ought to have asked us.”
    Similar sentiments have surfaced in news reports from other countries. South Korean officials have said they fear that Google Earth lays bare details of military installations. Thai security officials said they intended to ask Google to block images of vulnerable government buildings. And Lt. Gen. Leonid Sazhin, an analyst for the Federal Security Service, the Russian security agency that succeeded the K.G.B., was quoted by Itar-Tass as saying: “Terrorists don’t need to reconnoiter their target. Now an American company is working for them.”

  • Irrational Journalism
    , December 20th, 2005 at 1:25 pm

    During the palmy days of the tech bubble, countless gurus assured us that “it’s different this time.” All we had to do was load up on tech stocks or day-trade the latest dot-com and we’d be set for life. Then amidst all the ruckus stepped Yale professor Robert Shiller. His book “Irrational Exuberance” was a bold warning—stock prices were too high and bound to crash. He was right and we all should have listened to him.
    The basic outline of this story has been written a few other places. There’s just one problem.
    It’s wrong.
    Few people have gotten further on inaccurate market predictions than Robert Shiller. But still, the media keeps repeating the same urban myth. For the record, Dr. Shiller never called the top. He had been a bear for years (since at least 1996). And he’s never said to go back in the market—he’s still a bear today. That’s been his call and it’s been terribly wrong. Since no one else is saying it, I’ll say it. If investors had followed his advice, they would have missed out on a great profit opportunity.
    If you’re always screaming that the market is too high, you’re bound to be right one day. I’m sorry, that doesn’t impress me. I need more. You also have to tell me when to get back in again. Over the last 10 years, the S&P 500 with reinvested dividends is up over 140%.
    If you bought at almost any point before the market’s peak, and held on to today, you would have made money. The danger period was very brief—from November 1999 to November 2000. And we may soon top those numbers.
    By the way, that’s only counting the S&P 500. The S&P Mid-Cap and S&P Small-Cap Indexes have both hit all-time highs recently.
    Also, if someone continued to buy as the market fell, their returns would have been even greater. The market is up about 60% in the last three years.
    Here’s Fortune’s recent article on Shiller:

    One of the most important lessons you can ever learn about markets is also one of the easiest to forget: Just because prices are more reasonable than they were doesn’t mean they’re reasonable. I’m sorry to report that it’s absolutely the lesson to keep in mind now that the Dow has hit 42-year highs and crept back up near 11,000.
    The preeminent teacher of that lesson is Robert Shiller, a Yale professor with a strong record of thinking independently and being right. His book “Irrational Exuberance,” arguing that stock prices were insanely high, appeared almost precisely at their peak in March 2000. Now he has updated the book to reflect 2005 valuations and concludes that, believe it or not, the market is still irrationally exuberant.

    Forty-two year highs! I hope that’s just a misprint. The Dow is at a 4-1/2 year high.

    How does he come to this conclusion? After all, stocks are generally lower than back in the bubble days, and we’ve had four years of economic growth to rehabilitate corporate profits. His answer is simple. As he told me the other day, all the competing theories boil down to one easy-to-understand calculation: “The trailing P/E ratio for the S&P composite is still around 25, vs. a long-term average of 15.”
    That’s a huge difference, much greater than what you read about in the newspapers. The commonly cited figures — a current market multiple of 17, vs. a historical average of 15.2 — are based on the previous 12 months’ earnings. But, as Shiller points out, that’s foolish: “Twelve months is kind of short, only a fraction of one business cycle.”
    So he uses a ten-year earnings average, an approach advocated by Graham and Dodd in Security Analysis, the value investor’s bible. And while prices are clearly above the long-term trend any way you cut it, by that measure they are still mountainously beyond normal.

    By using 10-year data, we’re going to have the earnings bust of 2001 and 2002 stuck in our readings for years to come. According to data at Dr. Shiller’s Web site, the 10-year trailing P/E ratio was also over 25 in 1992. If we used that time the market, we would have missed another great bull market.
    Worst of all, the 10-year trailing P/E ratio soared over 25 in 1933. That was one of the best times to buy in history. The truth is that this analysis has not been an accurate predictor of market behavior. Are we the ones being told that it’s different this time?
    Update: Brad DeLong has more.

  • Morgan Stanley’s Profits Jump 49%
    , December 20th, 2005 at 10:43 am

    The profits continue for the brokerage firms. Today Morgan Stanley (MWD) reported a 49% increase in its third–quarter earnings.

    Net income for the three months ended Nov. 30 increased to $1.79 billion, or $1.68 a share, from $1.2 billion, or $1.09, a year earlier, Morgan Stanley said today in a statement. The firm repatriated $4 billion in foreign profit, boosting net income by 26 cents a share. Revenue climbed to $6.96 billion.
    “It’s been a very good environment for trading,” Jordan Posner, a money manager at Matrix Asset Advisors, said before the results were released. Posner helps oversee $1.9 billion, including shares of Morgan Stanley.
    Morgan Stanley is recovering from a corporate-governance battle that led to the June ouster of former Chief Executive Officer Philip Purcell. The new CEO, John Mack, urged Morgan Stanley traders to make bigger bets with the firm’s own capital and target more business from the booming hedge fund industry.
    Shares of Morgan Stanley rose $1.03 cents to 48.53 euros, or about $57.97, in German trading before U.S. stock markets opened. The stock closed down 21 cents at $56.67 on the New York Stock Exchange yesterday.
    Earnings Surprise
    Kenneth Worthington of CIBC World Markets, who’s considered one of the most accurate analysts following New York-based Morgan Stanley, expected net income to drop 8.5 percent to $1.1 billion, or $1.04 a share. The average estimate in a Thomson Financial poll of 17 analysts was $1.08 a share.
    Revenue at Morgan Stanley’s institutional securities unit, which includes stock and bond underwriting, sales and trading and merger advisory work, rose 47 percent to $4.15 billion, according to the statement. In fixed-income trading, Morgan Stanley had revenue of $1.6 billion, up 79 percent.
    Morgan Stanley’s retail brokerage, which caters to individual investors, increased revenue by 21 percent to $1.3 billion. The firm’s asset-management unit had revenue of $890 million, up 25 percent.
    Discover, the credit card business that Mack, 61, decided to keep after rejecting a spinoff plan proposed by Purcell, posted $694 million in revenue, down 24 percent. The firm cited a “spike” in bankruptcy filings in advance of a new federal law making it harder for consumers to cancel debts.

  • The Market Today
    , December 19th, 2005 at 6:13 pm

    Ugh! This was not a good day for the Buy List. Right now, I’m looking around for a red flag I can toss out onto the field for a video review. Upon further review, perhaps today didn’t happen. For the record, the S&P 500 fell 0.58% today, and our Buy List fell 1.15%. Youch! It was actually worse earlier in the day. We still have our slight lead over the market for December, but I’m far too competitive to settle for a slight lead.
    Only four of our 25 stocks went up. Oddly, we didn’t have any major individual losses. Our biggest dud was eBay (EBAY) which dropped 2.87%. That’s not so unusual for eBay. Frontier (FRNT) had an interesting day. I was curious to see if it could follow up its huge day on Friday. FRNT opened lower today, but rallied and finished just one penny lower. Not bad. The company also reported that it’s adding two more Mexican destinations. Also, IBD ran a bullish article on the airline sector today.
    On Wednesday, Biomet (BMET) will report its earnings. The current estimate is for 43 cents a share. The stock has been pretty flat lately. I’d like to see a nice rally there.
    On the overall market, decliners beat advancers by more than four-to-one, which is the broadest sell-off since October. Outside our Buy List, Pfizer (PFE) gained 7.7%. Merck (MRK) was up almost as much, rising 7.5%. Ford (F) had its debt downgraded to junk status. I guess American car-making was a 20th century event. The semiconductor sector was weak today and oil fell again. A barrel of crude is now below $58. Small-cap stocks were especially weak today. The Russell 2000 lost 1.59%.
    If today did indeed happen, then I’m eagerly looking forward to tomorrow. That’s what I love about Wall Street. An opening bell is never far away.

  • Rydex Funds
    , December 19th, 2005 at 2:53 pm

    The Rydex family of mutual funds offers some interesting mutual funds for investors. Generally I shy away from trading, but if you’ve got mad trading skillz the Rydex funds can leverage your returns (or losses).
    For example, the Rydex Titan 500 fund aims to double the daily move of the S&P 500. The Tempest 500 fund aims to double the opposite of the daily move of the S&P 500.
    This is what hedge fund managers try to do all the time. This is another example of the tools of Wall Street’s pros being brought to the masses.
    Here are some of Rydex’s other funds:

    Mekros aims to do 1.5 times the Russell 2000
    Nova aims for 1.5 times the S&P 500
    Titan 500 is 2.0 times the S&P 500
    Long Dynamic Dow 30 is 2.0 times the Dow
    Ursa goes for -1.0 of the S&P 500
    Tempest 500 is -2.0 times the S&P 500
    Venture 100 is -2.0 of the Nasdaq 100
    Strengthening Dollar is 2.0 of the U.S. Dollar Index
    Weakening Dollar goes for -2.0 of the U.S. Dollar Index

    Here’s some more info on Rydex.