Archive for November, 2008

  • Cognizant Technology Solutions
    , November 17th, 2008 at 1:51 pm

    Cognizant Technology Solutions (CTSH) has some of the most impressive financials of any stock you’re likely to see. Recently, the company’s earnings growth rate has dropped from about 50% to a year, to just 19% for the last earnings report. The stock, however, has plunged by over 60% since early 2007.
    Here’s a chart showing the stock price (blue line, left scale) and the earnings-per-share (gold line, right scale). The two axes are scaled at a ratio of 50-to-1 which means that when the lines cross, the P/E ratio is 50. Using 50 is obviously a very high multiple. But as you can see, that’s what the stock was following for a long time.
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    The stock is currently going for less than 10 times next years’ earnings. Here’s what I wrote about Cognizant two years ago:

    One of the more fascinating companies in the world today is Cognizant Technology Solutions (CTSH). The company, along with Wipro and Inforsys, is one of the foremost names associated with IT outsourcing, particularly to India.
    While Cognizant is officially based in lovely Teaneck, NJ, its heart truly lies in the subcontinent. The company currently has over two dozen development centers in India. The growth in this business is simply astounding. The IT/outsourcing sector of the Indian economy is expected to grow from $17.2 billion in 2004, to $50 billion by 2009.
    For any company looking to cut costs and have someone else handle their IT problems, Cognizant is great place to go. Half of their business is clients in the financial services sector. In fact, JP MorganChase, one of the scions of Wall Street, is a major client. Another 20% of Cognizant’s business comes from health care companies like UnitedHealth.
    Cognizant was spun off from Dun & Bradstreet a few years ago and it hasn’t looked back since. As someone who pores over lots of financial statements, I can tell you that Cognizant’s results are extremely impressive. The company has consistently been able to grow its earnings over 50% a year. That’s no easy trick. Also, the company has a solid balance sheet and its operating margins are often around 20%.

    For Q4, the company expects non-GAAP earnings of 43 cents a share. That would be a growth of rate of 18%, and the fifth straight quarter of slowing growth.
    For number geeks, here’s a spreadsheet with CTSH’s financials.

  • Citi to Cut 50,000 Jobs
    , November 17th, 2008 at 11:03 am

    The news coming out of Citigroup (C) seems to be from bad to worse. At one point, I thought it would be good to break up the bank into four different companies. Now, I’m not sure even that would help. The company has just recently announced that it will cut 50,000 jobs. Shares of Citi are now in the single digits.
    The company is having a townhall meeting with its employees today. Here’s a look at the slideshow.

  • Belt Tightening: Wall Street’s Version
    , November 17th, 2008 at 10:47 am

    As you may have noticed, things are a bit tight on Wall Street these days. Now we hear that the CEOs understand the virtue of self-sacrifice. Lloyd Blankfein, the head of Goldman Sachs, for example, will forgo his executive bonus this year. His base salary is $600,000. Last year’s bonus was $70 million. So he’s giving himself a 99% pay cut. Deutsche Bank and UBS have also given up bonuses this year for the top brass.
    I’m not sure why there’s such a focus on CEO pay. All I can say is that politicians loves to complain about it and it seems to have some resonance among voters. If regulators think CEO pay is somehow connected to the mortgage mess, then they’re proving to me that they shouldn’t be in the regulation business.

  • Buy a Bank for $10 Million, Get $3.4 Billion from the Feds
    , November 16th, 2008 at 9:39 pm

    Wish I thought of it:

    Hartford Financial Services Group Inc. said it’s buying a Florida bank for $10 million so the insurer can be eligible for the Treasury rescue program. Hartford, based in the Connecticut city of the same name, expects to qualify for $1.1 billion to $3.4 billion under Treasury guidelines, the company said in a statement distributed today by Business Wire.

  • Worst Paragraph of the Day
    , November 16th, 2008 at 8:23 am

    From Eliot “Client 9” Sptizer

    No major market problem has been resolved through self-regulation, because individual competitive behavior doesn’t concern itself with the larger market. Individual actors care only about performing better than the next guy, doing whatever is permitted — or will go undetected. Look at the major bubbles and market crises. Long-Term Capital Management, Enron, the subprime lending scandals: All are classic demonstrations of the bitter reality that greed, not self-discipline, rules where unfettered behavior is allowed.

    I think greed rules even where unfettered behavior isn’t allowed.

  • 12% Real Yield
    , November 14th, 2008 at 11:27 pm

    Want to make 12% after inflation? Well, for two months….
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  • The Recession Gets Serious
    , November 14th, 2008 at 10:52 am

    The Brits aren’t going to the pubs:

    Robert Munro buys his booze at London liquor stores these days. As his expenses rise and Britain teeters on the edge of recession, the house painter is cutting back on nights out and pouring drinks at home.
    “It’s gotten more and more expensive to just head down to the pub for a drink,” said Munro, 55, who is self-employed. “You’re paying silly prices for a pint — you can drink at home for half the price.”
    Five British pubs are closing their doors every day, according to the British Beer & Pub Association, as pound- pinching drinkers embrace staying in as the new going out. That may hurt beer companies like Heineken NV and Carlsberg A/S more than distillers, such as Diageo Plc, because the brewers generate the majority of their U.K. sales at bars, where profitability can be double the level in retail outlets.

  • Corporate Bond Spreads
    , November 14th, 2008 at 12:56 am

    Here’s a fascinating look at corporate bond yields over the past 90 years. I got the data off the Federal Reserve Bank of St. Louis’ data bank. This chart shows the yields of Moody’s index of Aaa and Baa seasoned corporate bond yields.
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    You’ll notice that the gap has widened significantly. This signifies what we already know, that lenders have become extremely risk-averse. Here’s a look at the difference between the two yields:
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    The premium for high-quality lenders is as high as it’s been since the recession of the early 1980s. We’re still a long way from the spreads we had during the Great Depression.
    That data series is based on monthly averages, so to zoom in a little, let’s look at the weekly data which begins in 1962.
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    According to the daily series, which goes back to 1986, the spread reached 312 basis points on October 27. That’s the widest spread found in the daily records. According to my calculations, the entire gain of the S&P 500 has come when the spread is 96 basis points or less. The spread has been more than that every day for almost a year.

  • GE’s Dividend Yield
    , November 13th, 2008 at 11:27 am

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    Hmmm. Something tells me that GE’s 31-cent quarterly dividend payment isn’t quite sustainable.

  • When Investment Schemes Go Bad
    , November 13th, 2008 at 10:18 am

    They’re rioting in Columbia over the collapse of a pyramid scam:

    Thousands of Colombians have taken part in violent protests in several cities to demand the return of money invested in disreputable financial schemes.
    Police used batons and tear gas to control angry investors and curfews were declared in several cities.
    In Popayan in the south-western department of Cauca, 2,000 depositors stormed an investment firm’s offices.
    In Pereira, in Risaralda, police caught two men hurrying out the back door of a scheme’s office with suitcases of cash.
    They offered one of the cases to the police to let them go.
    The BBC’s Jeremy McDermott in Medellin says they are now in custody and that is the safest place for them, as conned investors have threatened to lynch them.