Author Archive

  • Kling on the Senate Hearings
    , April 28th, 2010 at 9:41 am

    Arnold Kling sums it nicely:

    Too bad somebody at Goldman could not have called out a Senator. It must have been tempting to say, “Look. You can’t make a market by bending over backwards giving buyers every reason not to buy and sellers every reason not to sell. Sophisticated investors understand how we operate. Just like everybody who goes to play blackjack understands that some of the cards are dealt face down. You can complain that you think all the cards should be face up, but that would totally change the game. Do you hold to such high standards in your election campaigns? Do you think your disclosure of the consequences of your votes is honest? Do you disclose how lobbyists told you to vote? Do you go out of the way in your campaigns to give people all the possible reasons not to vote for you? You want to tell me about my responsibility to my clients? How would you like to hear my opinion about your responsibility to your constituents?”

  • AFLAC’s Earnings
    , April 27th, 2010 at 4:17 pm

    After the bell, AFLAC (AFL) reported first-quarter operating earnings of $1.41 per share. With insurance companies, it’s more important to focus on operating earnings since net earnings can be heavily influenced by investments. The Street was looking for $1.32.
    This is what AFL had to say about guidance:

    With one quarter of the year complete, we continue to believe we are positioned for another year of solid financial performance. Although challenges posed by weak economic conditions clearly persist, particularly in the United States, we still believe our goal for increasing operating earnings per diluted share is reasonable and attainable. As such, our goal remains an increase of 9% to 12% this year in operating earnings per diluted share, excluding the impact of the yen. If the yen averages 90 to 95 to the dollar for the full year, we would expect reported earnings to be in the range of $5.24 to $5.56 per diluted share. Using that same exchange rate assumption, we would expect second quarter operating earnings to be $1.33 to $1.38 per diluted share.

    The stock is at $52.41 and they see full-year EPS coming in between $5.24 and $5.56. That’s a forward P/E Ratio of 9.4 to 10. AFLAC is a very good buy.

  • Putting Today In Perspective
    , April 27th, 2010 at 3:30 pm

    The Dow is off about 150 right now. I see that people are concerned.
    My how we forget what real volatility looks like!
    Here’s a look at the daily changes in the Dow since the beginning of 2008:
    image933.png
    Update: The Dow closed down 213 points.

  • Sector Performance
    , April 27th, 2010 at 2:42 pm

    Bespoke has a handy round-up of how the S&P 500 sectors have performed over the past few years:
    spxsec427.png
    The important lesson for investors is to see how much less volatile the consumer staples are (these are the stocks that are the opposite of cyclicals). Staples tend to fall the least and rally the least.
    Here’s a listing of the 41 stocks in the S&P 500’s Consumer Staples sector. I’ve included each stock’s dividend yield:

    ADM Archer-Daniels-Midland 2.13%
    AVP Avon Products 2.67%
    BF-B Brown Forman 2.05%
    CAG ConAgra Foods 3.27%
    CCE Coca-Cola Enterprises 1.27%
    CL Colgate-Palmolive 2.52%
    CLX Clorox 3.12%
    COST Costco 1.21%
    CPB Campbell Soup 3.12%
    CVS CVS Caremark 0.96%
    DF Dean Foods 0.00%
    DPS Dr Pepper Snapple 1.79%
    EL Estee Lauder 0.83%
    GIS General Mills 2.81%
    HNZ H.J. Heinz 3.68%
    HRL Hormel Foods 2.14%
    HSY The Hershey Company 2.71%
    K Kellogg 2.84%
    KFT Kraft Foods 3.90%
    KMB Kimberly-Clark 4.33%
    KO Coca-Cola 3.31%
    KR Kroger 1.65%
    LO Lorillard 5.11%
    MJN Mead Johnson Nutrition 1.78%
    MKC McCormick & Company 2.65%
    MO Altria Group 6.66%
    PEP Pepsico 2.79%
    PG Procter & Gamble 3.05%
    PM Philip Morris 4.73%
    RAI Reynolds American 6.69%
    SJM J.M. Smucker 2.26%
    SLE Sara Lee 3.19%
    STZ Constellation Brands 0.00%
    SVU SuperValu 2.34%
    SWY Safeway 1.57%
    SYY Sysco 3.24%
    TAP Molson Coors 2.22%
    TSN Tyson Foods 0.81%
    WAG Walgreen 1.57%
    WFMI Whole Foods Market 0.00%
    WMT Wal-Mart Stores 2.23%

  • Watch The Senate Hearings Live
    , April 27th, 2010 at 9:55 am

    You can see the Senate testify before Goldman Sachs here.
    Wait, I might have that backwards. It’s getting hard to tell.
    Here are live blogs from:
    TBI
    WSJ
    NYT
    FT
    Reformed Broker
    Dealbreaker

    Guardian
    Simon Johnson at PBS
    This is a perfect opportunity for a Godfather 2-like scene when Frank Pentangeli testified before the Senate. Fab starts reading his testimony and Blankfein walks in with Fab’s brother Olivier and takes a seat in the back row. Then Fab suddenly recants: “Abacus? I never heard of an Abacus.”

  • Wright Express’ Earnings
    , April 27th, 2010 at 9:32 am

    One more Buy List stock reported earnings this morning. Wright Express (WXS) said it earned 61 cents per share for its first quarter which was four cents better than Wall Street’s expectations. In February, Wright said to expect Q1 earnings between 53 and 58 cent per share so they’re doing even better than their own forecasts. The company’s revenues rose 22.3% to $83.8 million which was just shy of expectations.
    Wright said that Q2 earnings should range between 61 and 66 cents per share. For all of 2010, Wright sees earnings-per-share coming in between $2.39 and $2.54. This is a big increase from the earlier range of $2.26 to $2.46.
    Bottom line: This was a very good report. The strange thing about Wright is why its shares didn’t do anything for the first few months of the year. Going back to last September to up until a few weeks ago, WXS mostly bounced between $28 and $32. Then two weeks ago, out of the blue, WXS started to break out. Who knows what traders are thinking? The shares are down again this morning. That’s OK, I can deal with folks who don’t see a bargain. Wright Express continues to be an excellent buy.
    After the closing bell, AFLAC (AFL) is due to report. This is one of my favorite Buy List stocks. The consensus estimate is that AFLAC will earn $1.32 a share.
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  • What Letter Would You Give This Chart?
    , April 26th, 2010 at 1:45 pm

    On Friday, the government will release its initial report on first-quarter GDP growth. The economy has grown for the last two quarters but it’s been far short of what should be expected when you emerge from a nasty recession.
    Economists and market-watchers are debating what letter the recovery will look like — will it look like a V, a U or possibly a W? Here’s what the Real GDP chart looks like, but I’ve added a guess for Friday’s data point (3.6% growth).
    image932.png
    To me it looks like a U. Or maybe a backwards J. I dunno. Possibly another letter?

  • Buy List Earnings This Week
    , April 26th, 2010 at 12:52 pm

    Five of our Buy List stocks will report earnings this week. Here they are along with Wall Street’s consensus:

    AFLAC AFL 27-Apr $1.32
    Wright Express WXS 27-Apr $0.57
    SEI Investments SEIC 28-Apr $0.27
    Becton, Dickinson BDX 29-Apr $1.23
    Fiserv FISV 29-Apr $0.97

  • What If the Fed Delivers a Surprise Rate Increase?
    , April 26th, 2010 at 11:38 am

    The stock market continues to climb. The S&P 500 has made up all it lost after the Goldman news, and we’re on our way to the highest close since Lehman Brothers went belly up.
    My feeling has been that as long as interest rates are low and profits are growing, then the market will rally. Still, the market is nearing B-Day. This will be the day when Ben Bernanke and the Federal Reserve finally decide to raise interest rates. The futures market currently thinks the Fed will have rates at 0.25% sometime this summer (that’s really not much of an increase since the current range is 0% to 0.25%) and 0.5% by the end of the year.
    But what if the Fed decides to surprise everyone by raising rates by 50 basis points or more before? This would be a dramatic move. Gold would plunge and the stock rally might halt in place. The benefit for the Fed is that it’s not much of a move but it would send a strong signal to investors that the economy is getting better and that the central bank is determined to unwind its dramatic policy moves of the past two years.
    I doubt a surprise rate hike would have a long-term impact of stock prices, but it would certainly change the tone of the market. A surprise hike is a long shot, but it’s not out of the question. No one can ignore the fact that earnings have been improving quite dramatically. This has been a great earnings season so far. Profits are running 22% ahead of estimates and this is leading analysts to raise their forecasts:

    The earnings upgrades come as income beats Wall Street estimates at the fastest rate ever for the third time in four quarters. More than 80 percent of the 173 companies in the S&P 500 that reported results have topped estimates, compared with 79.5 percent in the third quarter and 72.3 percent in the three- month period before that, Bloomberg data show.

    It looks very likely that the S&P 500 is on track to earn $80 for 2010 and possibly $95 for 2011. That’s my view but UBS is even more optimistic. They just upgraded their target for the S&P 500 to 1,350. They see EPS coming in at $92 for this year and $100 for 2011. UBS writes: “Moreover, the “junk trade” has re-emerged, with the most economically-sensitive companies and lower quality stocks outpacing the broader market.”
    This is exactly what I noted last week.
    One final note, Netflix (NFLX) is up another $8 a share today. I think I know how this story ends. I just don’t know when the last act will start.

  • Barron’s: Fiserv Could Jump 20% From Here
    , April 26th, 2010 at 7:32 am

    Fiserv (FISV), one of our Buy List stocks, gets some love from Barron’s:

    Earnings are on track to rise to $4 per share this year from $3.66 in 2009, and to gain nearly 10% in 2011 to $4.44, placing the price/earnings multiple at 13.4 times 2010 projections and 12.1 times 2011 expectations. (Per-share earnings are reported “as adjusted” for the adding back of goodwill amortization, for a clearer gauge of the underlying business.) This is cheap for such a high-quality, industry-leading business, which merits a multiple equal to or better than the Standard & Poor’s 500’s 15-plus times ’10 forecasts. Also, it suggests at least 20% upside for Fiserv shares.
    Because Fiserv’s business is so steady, many investors value it on free cash flow, which has exceeded reported earnings in recent years — a favorable trend. Free cash flow hit $668 million in 2009, up from $603 million in ’08. The company is guiding Wall Street to expect more than $700 million this year. With a market value of $8.2 billion, investors are getting a free-cash-flow “yield” of nearly 9%, at a time when corporate-bond investors are happy to accept 5% or 6%. The stock historically has traded above 14 times free cash flow. With nearly $5 a share of free cash penciled in for 2011, that multiple suggests a price target near 70.

    The next earnings report is due this Thursday after the bell. The Street is expecting 97 cents per share, up from 88 cents a year ago. Here are the annual EPS results for the past few years:
    2003: $1.61
    2004: $1.92
    2005: $2.31
    2006: $2.53
    2007: $2.66
    2008: $3.29
    2009: $3.66
    That’s what I like to see — nice steady increases. I think EPS for 2010 will come in around $4.05, give or take. Fiserv is an excellent buy.
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