Archive for March, 2006

• Bernanke Warns
  Eddy Elfenbein, March 22nd, 2006 at 6:54 am

  
  Reuters:

  Bernanke warns on mixing banking, commerce

  CBC News:

  Bernanke warns about size of U.S. deficit

  AP:

  Bernanke warns community banks on loans

  UK Telegraph:

  Bernanke warns of more rate rises

  WSJ:

  Blunt-Talking Bernanke Warns of Inflation Risks

  UK Independent:

  Bernanke warns on danger of US deficits

  Reuters:

  Bernanke warns on commercial real estate loans

  CNN:

  Greenspan home robbed

• Microsoft delays consumer launch of Windows Vista
  Eddy Elfenbein, March 22nd, 2006 at 6:38 am

  The tech sector should open lower today:

  Microsoft Corp. said on Tuesday it plans to delay the consumer launch of its much-anticipated Windows Vista until after this year’s holiday shopping season, sending its shares down nearly 3 percent.
  The world’s largest software maker pushed back the consumer version of Vista until January 2007 from an earlier target for the second half of 2006 and pledged to ship the next version of its operating system to business customers in November.
  Vista is the first major overhaul of Windows since Microsoft rolled out Windows XP nearly five years ago.
  Microsoft had originally been expected to release Windows Longhorn, now Vista, in 2005. The company scaled back its ambitions and pushed it out to 2006 before this latest delay.
  The eight- to 10-week delay, according to estimates by research firm Gartner Inc., may reverberate throughout the technology industry from PC manufacturers to chip makers and down the supply chain, analysts and investors said.
  “It is a critical eight- to 10-weeks for retailing and for the producers. The retailers and PC hardware manufacturers work on razor-thin margins, so the impact there could be pretty severe,” said David Smith, analyst at Gartner.

• The Market Today
  Eddy Elfenbein, March 21st, 2006 at 4:00 pm

  Today’s early rally fizzled. The S&P 500 dropped -0.60%. Bonds sold off, possibly due to Bernanke’s speech. The core PPI rate was higher-than-expected, but commodity stocks did poorly.
  Thanks to FactSet Research Systems (FDS) rising 6.3%, our Buy List beat the market by falling -0.36%. This is despite Biomet‘s (BMET) lousy day. Strangely, Biomet opened lowered and rallied until 1 p.m., before it dropped sharply. The stock closed down over -4.8%.
  Dell (DELL) finished above $30 a share for the first time in over a month.
  Also, something tells me that the Brazilian market has gone too far. The Brazil ETF (EWZ) was down -3.5% today. (Calling all technicians. That can’t be a good chart.)
  Finally, stay tuned for Tim Horton’s IPO. The New Wall Street is skeptical, while Clearfish is bored.

• The Global Saving Glut
  Eddy Elfenbein, March 21st, 2006 at 2:39 pm

  Here’s the speech Ben Bernanke gave yesterday to the Economic Club of New York. This has been getting a lot of attention in investing circles.
  As I’ve said before, I’d never base an investing decision on anything said by a member of the Federal Reserve. However, Bernanke gives an interesting speech. Unlike other Fed Chairmen we could name, his talk is clear and jargon-free.
  The issue Bernanke is concerned with is why long-term interest rates are still low despite 14 increases of short-term rates. Personally, I think this is more of an “angels-on-a-pin” topic.
  It’s fun to speculate why, but it really doesn’t matter that much. Bernanke seems to believe that the low rates are due to an excess of savings around the world.

• The Case Against Buy-and-Hold?
  Eddy Elfenbein, March 21st, 2006 at 1:00 pm

  In today’s Investor’s Business Daily, Trang Ho makes an unconvincing case against buy-and-hold:

  Sitting tight may be prudent during brief downturns, but in many cases you cannot tell how long or deep a bear run will last.

  Change “but” to “because,” and tell me which makes more sense.
  What I find curious is that he points to Intel (INTC) to support his case:

  Intel plummeted 73% in a year. It bottomed out at 13.89 — 82% off its all-time high — by September 2002. It, along with most of the tech leaders of 2000, never recovered.

  Sorry, but Intel is one the best examples of buy-and-hold. Let’s look at history. In just four months, the stock plunged from $83.50 to $15.50. The year was 1974. Let’s just say that the stock recovered quite nicely. If you want to put those dollar figures in today’s terms, the stock has split 540-for-1 since then.
  Or there was the 1980’s. Many people assume Intel’s stock was a big winner during the bull market. It wasn’t. The stock’s 1986 low was about 60% off its 1983 high. I hope you didn’t sell. As they say, “in many cases you cannot tell how long or deep a bear run will last.”

• FactSet Research Systems Beats Earnings
  Eddy Elfenbein, March 21st, 2006 at 11:13 am

  FactSet Research Systems (FDS) earned 38 cents a share last quarter, one penny more than estimates.

  Revenue totaled $93.7 million, a 23 percent jump from $76.5 million a year earlier and beating the consensus target of $92.3 million.
  Looking forward, FactSet forecast third-quarter revenue of $95 million to $97 million. That compares with analysts’ expectations for $94.9 million in revenue.
  Last month, the company acquired Europrospectus.com for $7.5 million of cash in a deal that increased quarterly subscriptions by $3.2 million, but is projected to dilute earnings by 1 cent per share over the next year.

  The stock broke out to a new all-time high this morning. Dell (DELL) is up about 2.7%, and Biomet (BMET) is down -2.5%.

• Google Finance
  Eddy Elfenbein, March 21st, 2006 at 9:52 am

  http://finance.google.com is live.
  The reviews are mixed so far.
  The Internet Stock Blog has a summary of the new features:

  After much speculation, Google (GOOG) this morning launched Google Finance. Google Finance differs from Yahoo Finance in three crucial respects: first, it attempts to present most information about a stock on a single page. Second, it leverages the breadth of external sources from Google News. Third, in contrast to Yahoo (YHOO) which is investing in its own content (particularly in personal finance), Google Finance is built entirely of licensensed data and links to external sources. Here are the key points about the product (evaluation and stock impact will follow in a later post):
  Google Finance is built from two types of sources — those that Google is licensing and providing direct to users, and those that Google links to.
  Directly provided data include:
  1. Interactive charts. News events are highlighted on the charts, with links to related news articles appearing alongside. Mousing over a chart provides historical stock price and volume. The integration of news and charts is not entirely successful. Look at the news stories that “explain” the TSCM chart, for example. They’re largely a set of promotional stories by TheStreet.com itself. Note that Yahoo! Finance manager Peggy White already stated in an interview with Forbes that Yahoo is soon to launch interactive charts.
  2. Management team bios with brief descriptions and photos, plus links to external data on compensation (from Reuters) and trading in the company’s stock (from Yahoo Finance).
  3. Range of other licensed data from third-party providers, including Hoover’s, Morningstar (MORN) and Reuters Group. Most financial data seems to come from Reuters.
  4. Portfolio tracking. Users can enter their stock portfolios to track them.
  Information Google links to includes:
  1. Blogs. Google Finance includes blog posts relevant to the company in question. But Google hasn’t used it’s blog search, so the blog results on Google finance differ from a ticker search using Google Blog Search. Compare the blog headlines for “GOOG” on Google Finance, for example, with a Google Blog Search for “GOOG”.
  2. Google Groups. Google Groups will become the basis of stock-related discussion. For many stocks, a Google Group doesn’t yet exist. According to Forbes, Google “has hired an unspecified amount of message-board moderators with experience in customer support or online communities to make sure the boards remain on topic and to keep them free of spam.”
  3. Analyst Estimates from TheStreet.com (TSCM).
  4. SEC Filings from Edgar Online.
  5. “About the company” from Wikipedia.
  6. Research Reports and Comparison Charts from Yahoo Finance.
  7. Options info from MarketWatch, which is owned by Dow Jones (DJ).

  They forgot the most important thing! You can’t download the historical data for the stock charts (or at least, I couldn’t). How can a financial site not have that? That’s like opening a cheese shop and not having any cheese.

• Dell sees 2006 sales growing faster than market
  Eddy Elfenbein, March 21st, 2006 at 9:49 am

  More good news from Dell (DELL):

  Dell Inc., the world’s largest maker of personal computers, expects its sales growth to outpace the broader industry this year, aided by rapid expansion in Asia, chairman Michael Dell said on Tuesday.
  “We would expect that this year, Dell will grow faster than the industry,” Dell, in Manila to open a new customer center, told reporters.
  “In the last three years, Dell has grown from roughly $35 billion of revenues to roughly $56 billion … We need tremendous capacity to support our internal growth and we see that growth continuing.”
  Worldwide PC shipments rose 17 percent in the fourth quarter of 2005. Research firm IDC has forecast a 10.6 percent increase in shipments in 2006.

  Also, Lenovo is laying off 1,000.

• The Miracle of Warsaw, Indiana
  Eddy Elfenbein, March 21st, 2006 at 6:00 am

  One of the more interesting figures of the American Revolution is Thaddeus Kosciuszko, a Polish army officer who was so moved by the patriot’s cause that he came to the colonies to join the fight. Kosciuszko was named head engineer of the Continental Army, and his help was critical at the Battles of Ticonderoga and Saratoga.

  The good citizens of Indiana and Mississippi both named counties in his honor. The Hoosiers went one better, and named the county seat Warsaw as a salute to Kosciuszko’s heritage.

  It might seem strange that a city in the heartland has the same name as the capital of Poland. But Warsaw, Indiana isn’t like most towns. In 1895, the city was altered forever when a salesman named Revra DePuy decided that he no longer wanted to work for other people. So he did what any American would do: He became an entrepreneur.

  DePuy was a splint salesman. At the time, fractures were set with wooden splints. DePuy had a revolutionary idea. He used metal splints instead of wood. The metal could be bent to fit any person. So in a garage in Warsaw, DePuy launched the town’s orthopedics industry.

  DePuy’s business did very well, and within a few years he hired Justin Zimmer to be his first sales manager. After DePuy died, Zimmer wanted to buy the company but wasn’t able to. So, like DePuy before him, he also started his own orthopedic business right in Warsaw. The orthopedics industry grew and grew and grew. Soon, the advent of plastics launched the industry into a new age of design and innovation.

  In 1977, four entrepreneurs, Dane Miller, Niles Noblitt, Jerry Ferguson and Ray Harroff (two of whom worked for Zimmer) branched out on their own. Right in Warsaw, they formed another orthopedic company which they called Biomet Inc. (BMET). In their first year, the company recorded sales of $17,000 and a loss of $63,000. Despite the modest start, Biomet has delivered record sales and earnings every year since. The company has one of the best track records in American business Remarkably, the four men are still active in Biomet’s operations.

  If any business could be described as the perfect business, it might be medical devices. The business has demographics on its side, and the industry is constantly driven by technology and prices increases. The stocks tend to be very stable, and highly profitable. Several stocks like Medtronic (MDT), Zimmer (ZMH), Stryker (SYK), Biomet (BMET) and St. Jude (STJ) have been market-beaters for years. According to data available at Professor Kenneth French’s Web site, medical device stocks have increased 370,000% over the last 65 years, that’s more than 30 times better than the overall market.

  Today Warsaw is the backbone (sorry) of the global market for replacement hips, knees, shoulders. Heck, if you break it, Warsaw can make a new one. Today, knee and hip replacements are quite common. Warsaw probably controls about 40% of the worldwide orthopedics business. DePuy Inc. is still based in Warsaw. A few years ago, it was bought out by Johnson & Johnson (JNJ). Zimmer is also still in Warsaw as is Biomet.

  Today, Biomet employs over 6,000 people. This year, it should have over $2 billion in sales. There simply aren’t many companies that have done as well as Biomet. For the last 10 years, the company has paid an annual dividend that has increased each year. Since 1982, Biomet’s stock has split nine times for a total of 162-for-1.

  Despite Biomet’s past success, the stock hasn’t done much recently. The shares nearly got to $50 in 2004, but are now around $36 even though the rest of the market has been making new multi-year highs. There have been concerns that the industry is under pricing pressure. I understand the worry. Price increases are the heart and soul of orthopedics. Biomet enjoys gross margins of 70% and net margins of 20%.

  The second quarter (ending in November) was pretty embarrassing for Biomet. The company had said it would earn 42 to 44 cents a share. It turns out, they earned just 41 cents. If that weren’t enough, Biomet said that for the third quarter (ending in February), it would earn 43 to 44 cents a share on sales of $510 to $520 million. That was below Wall Street’s estimate of 46 cents a share and $529.4 million. Last year, Biomet earned 40 cents a share. Mind you, this is a very stable business. For years, forecasting Biomet’s profits basically meant adding 18% to whatever they did last year.

  This morning, Biomet reported third-quarter earnings of 43 cents a share on sales of $506 million.
  The important fact to keep in mind is that Biomet is a very efficient company. It has no long-term debt. Return-on-equity is regularly over 20% Also, the company’s P/E ratio is at the low end of its historic range. Biomet’s CEO, Dane Miller (one of the four founders), has consistently dismissed worries over pricing pressures. I’m inclined to take his word over that of Wall Street analysts.

  Miller said: “We remain comfortable with analysts’ sales and earnings estimates of $530 million to $540 million and $0.45 to $0.46 per share for the fourth quarter of fiscal year 2006.”

  Year……..Sales……….EPS
  1996…….$535.2…….$0.36
  1997…….$580.3…….$0.41
  1998…….$651.4…….$0.49
  1999…….$757.4…….$0.46
  2000…….$920.6…….$0.65
  2001…….$1030.7…..$0.73
  2002…….$1191.9…..$0.88
  2003…….$1390.3…..$1.10
  2004…….$1615.3…..$1.27
  2005…….$1880.0…..$1.38
  2006…….$2020.0…..$1.68 (my estimate)

  

• The Market Today
  Eddy Elfenbein, March 20th, 2006 at 4:23 pm

  Today was a good day for our Buy List. The S&P 500 snapped its six-session winning streak as it closed -0.17% lower. Our Buy List rose 0.25%.
  Our best stocks were Dell (DELL), which was up 2.3%, and Bed Beth & Beyond (BBBY) which was up 1.3% to a seven-week high. Medtronic (MDT) also had a good day, climbing 1.6%. Biomet (BMET) had a good day, rising 1.3% before tomorrow’s earnings report.
  After the bell, Oracle (ORCL) reported earnings of 19 cents a share, one penny more than expectations.
  Also, Frontier Airlines (FRNT), a former Buy List stock, had an excellent day today. The stock rose 6.5% to a two-month high.