Author Archive

  • The One-Point Trend Finally Ends
    , October 20th, 2010 at 3:02 pm

    To paraphrase Churchill: “Never in the field of capital markets have so many taken so much confirmation from so little.”

  • The Return of the Nifty Fifty
    , October 20th, 2010 at 2:20 pm

    In the early 1970s, there was a spectacular run in a small group of stocks known as the Nifty Fifty. Here’s a list of the names.

    These stocks were popular because they were seen as stable growing stocks. There was also a belief at the time that capitalism could help “bring people together” after the tumult of the 1960s.

    I think the Coca-Cola ad of kids on a hilltop singing the Coke Song best captured this worldview. Other stocks like McDonalds, Disney and Eastman Kodak really tapped this idea.

    What I’ve noticed recently is that a lot of these Old School Nifty Fifty guys have been doing quite well recently.

    Coke (KO) just gapped up higher earnings. McDonalds (MCD) hit an all-time high today. Also, 3M (MMM), Altria (MO) and Procter & Gamble (PG) are near new 52-week highs (Philip Morris was a Nifty Fifty stock).

    Is this 1972 or 2010?

  • Bailout Profits Beat Treasuries
    , October 20th, 2010 at 1:55 pm

    Bloomberg notes that the government’s profits from TARP are running ahead of the yield on U.S. Treasury bonds so far. In other words, the proceeds have covered the expenses:

    The government has earned $25.2 billion on its investment of $309 billion in banks and insurance companies, an 8.2 percent return over two years, according to data compiled by Bloomberg. That beat U.S. Treasuries, high-yield savings accounts, money- market funds and certificates of deposit. Investing in the stock market or gold would have paid off better.

    When the government first announced its intention to plow funds into the nation’s banks in October 2008 to resuscitate the financial system, many expected it to lose hundreds of billions of dollars. Two years later TARP’s bank and insurance investments have made money, and about two-thirds of the funds have been paid back. Yet Democrats are struggling to turn those gains into political capital, and the indirect costs of propping up banks could have longer-term consequences for the economy.

    “From the perspective of the taxpayers getting their money back, TARP has been a great success,” said Todd Petzel, chief investment officer at New York-based Offit Capital Advisors LLC, which has more than $5 billion of assets under management. “But there are other costs as the government made it possible for the banks to pay back TARP. Those costs can turn out to be larger, and their legacy could last longer.”

    That’s good news. The problem is that taxpayers could have — and should have — made a much larger profit. Warren Buffett was able to loan money to Goldman Sachs for 10%. That’s twice what the government got.

  • Bill Miller: Best Time to Invest Since Early 1980s
    , October 20th, 2010 at 10:41 am

    This is pretty long (27 minutes) but worth it. Bill Miller beat the market for 15-straight years. He said he’d be surprised if the market isn’t up 20% in the next 12 months.

  • SEI Investments Earns 30 Cents Per Share
    , October 20th, 2010 at 10:25 am

    The market is shaking off yesterday’s loss and trading higher this morning. The good news is that Stryker (SYK) and Gilead (GILD) are doing well thanks to their positive earnings reports.

    Our only earnings report today is from SEI Investments (SEIC). For the third quarter, SEIC earned 30 cents per share which is four cents more than Wall Street was expecting. The stock is currently up about 0.6%.

    The weak spot today is coming from Eli Lilly (LLY) due to the FDA, once again, not approving a weekly version of Byetta, a diabetes drug.

  • Morning News: October 20, 2010
    , October 20th, 2010 at 7:43 am

    N.Y. Fed Joins Investors Demanding Bank of America Buy Back Mortgages

    China’s Move May Push Capital Controls in Asia

    U.S. Mortgage Applications Fall by the Most in Four Months

    Stock Index Futures Signal Small Rebound

    Wall Street Bailout Returns 8.2% Profit Beating Treasury Bonds

    Yahoo Disappoints on Revenue Forecast

    Russia to Join WTO within a Year, Obama Aid Says

    Rio to Boost Iron Ore Output Despite Mine-Tax Fears

    Regulators to Recommend Abolishing Mandatory Ratings

    Dollar Slips as China Rate Hike Impact Wanes

  • Earnings from Gilead and Stryker
    , October 19th, 2010 at 4:30 pm

    Today was a rough day for stocks. The S&P 500 dropped 18.91 points or 1.59%. Johnson & Johnson (JNJ) didn’t get hurt too badly by its earnings report from this morning. The stock dropped 57 cents today which was just 0.89%.

    After the bell, Gilead Sciences (GILD) reported earnings of 90 cents per share which was three cents higher than the Street’s forecast. Revenue rose 8% to $1.94 billion which was $20 million ahead of the Street’s estimate. The stock is up 2.78% after-hours. Let me caution you not to get too excited by after-hours moves—they don’t guarantee a higher open tomorrow.

    Stryker (SYK) also reported very good earnings after the bell. For Q3, the company earned 80 cents per share which is three cents ahead of the Street’s projection. The shares are trading 6.7% higher after-hours.

    The company said domestic sales jumped 9.7 percent to about $1.73 billion, while international sales rose 1.7 percent to $593.8 million. Overall, sales of orthopedic equipment rose 1.2 percent to $1.03 billion while sales of surgical equipment jumped 16.1 percent to $738.8 million.

    The company tightened its full-year outlook and now expects full-year adjusted profit between $3.27 and $3.30 per share, up from prior guidance of $3.20 to $3.30 per share. It also tightened its sales outlook to an increase between 7 percent and 8 percent from prior guidance of a 5 percent to 8 percent boost.

    Analysts are forecasting net income of $3.26 per share on $7.23 billion in revenue for 2010.

    The best news today is that Nicholas Financial (NICK) closed at $9.89. Wow! Our Buy List finally snapped its seven-day win streak, but we only fell 0.99% which was 60 basis points better than the S&P 500.

    Here’s a recap of our earnings calendar:

    Company Ticker Symbol Earnings Date Wall Street’s Estimate
    Gilead GILD 19-Oct $0.87
    Johnson & Johnson JNJ 19-Oct $1.15
    Stryker SYK 19-Oct $0.77
    SEI Investments SEIC 20-Oct $0.26
    Baxter BAX 21-Oct $0.97
    Eli Lilly LLY 21-Oct $1.15
    Reynolds American RAI 21-Oct $1.34
    Fiserv FISV 26-Oct $1.00
    AFLAC AFL 27-Oct $1.39
    Moog MOG-A 4-Nov $0.70
    Wright Express WXS 4-Nov $0.68
    Becton Dickinson BDX 4-Nov $1.25
    Sysco SYY 8-Nov $0.51

  • Cramer on Goldman Sachs
    , October 19th, 2010 at 4:13 pm

    Incidentally, he’s got a good point.

  • Johnson & Johnson Lifts Forecast
    , October 19th, 2010 at 10:35 am

    Johnson & Johnson (JNJ) came out with its earnings report this morning. Personally, I don’t worry so much about the details of JNJ’s earnings report. I’m more concerned with their earnings forecast. JNJ is such a solid blue-chip stock that they’re always going to come in pretty close to their forecast. If it’s up or down a few pennies per share, I don’t really much care.

    Three months ago, JNJ lowered their 2010 full-year EPS guidance from $4.80 to $4.90 to a range of $4.65 to $4.75. The good news today is that they raised their full-year guidance to $4.70 to $4.80 thanks to favorable exchange rates. That’s it. I’m done. I have all I need to know.

    If you’re interested in the details, however, I’ll mention that JNJ earned $1.23 per share which was eight cents higher than Wall Street’s consensus, and three cents higher than one year ago. Revenue came in at $15 billion which was below Wall Street’s forecast of $15.2 billion; and that’s probably why the stock is down today.

    To recap, they beat by eight cents and raised full-year guidance, and the stock is down. This is why I don’t much worry about short-term market moves. When I own a stock I just want to know that everything is fine, and everything is fine at JNJ.

    Update: The Wall Street Journal reports, “Johnson & Johnson Ekes Out Profit.” Just so we’re clear, by “eke” they mean “earned $3.42 billion.”

  • 23 Years Ago Today
    , October 19th, 2010 at 8:03 am

    Twenty-three years ago today was Black Monday, Wall Street’s worst day ever. The Dow dropped from 2246.74 to 1738.74—a loss of 508 points or -22.61%.

    To put this in some perspective, the second-worst percentage loss was roughly half that (-12.91% on October 28, 1929).

    Now let’s take another look at this historic market crash. From the day the market crashed until today, the Dow has gained 540.96%. Add in dividends and it’s up 1,050.32%. (Yes, dividends do that much!) Annualized, that comes out to 11.20%. Let’s not forget inflation which has climbed by 89.95% over the last 23 years, which is 2.83% annualized.

    But what if you had invested right before Black Monday, on the previous Friday? (Wow, you’d be one unlucky SOB!) From that starting line, the Dow has gained 395.99%. Throw in dividends and you’re up 750.57%. Annualized, that’s 9.97%.

    Now I’m not saying that Black Monday wasn’t a big deal, but viewing it from the very long term adds a new dimension. Calling it right by one day changes your annualized returns from 11.20% to 9.97%. That’s just 123 basis points per year.

    So the biggest crash in history isn’t too different from what investors throw away all the time every year with needless trading or exorbitant mutual fund fees.

    Bottom line: Using common sense can be just as good as making a once-in-a-century call.