Author Archive

  • Why Buybacks Are a Lame Idea
    , January 13th, 2006 at 10:58 am

    Business Week is on the case:

    The problem, says Thomas M. Doerflinger, an equity strategist at UBS, is that you can’t easily tell how much of what companies say they’re spending actually gets to investors. In a recent report on what he calls “vanishing buybacks,” Doerflinger found that the number of shares in the S&P 500 has continued to increase despite the bigger share-repurchase outlays by companies. In 2004, when companies reported spending some $197 billion on buybacks—nearly 2% of the market value of the index—the number of shares outstanding increased by 1.8%. In the 12 months through June 2005, shares increased 0.7%, and only a third of the companies actually shrank their share counts by at least 1%.
    Consider Microsoft Corp. During its three fiscal years ending in June, 2005, the company reported spending $18 billion to buy back 674 million shares. At the same time it issued 666 million shares for $8 billion. In the end, Microsoft, which has some 10.6 billion shares outstanding, had reduced its total count by a negligible 8 million shares and had spent just $10 billion—$6.6 billion after tax. Yet Microsoft execs present the gross sums they spend repurchasing stock as being on par with dividends they pay, including the huge $33 billion special dividend in December, 2004. “Many companies are very vocal about the money they spent buying back stock, but they’re not very vocal about what percentage of that money goes to counteract options,” says Merrill’s Osha. Microsoft responded in a written statement that it regularly evaluates its buybacks and dividends to “best meet the interests of its diverse shareholder base.”

    Share buybacks are a great idea in theory, but in the real world, I’d rather get a cash payment. If the company wants more of my equity, that’s a decision best left to me.

  • Gazprom and PlayStations
    , January 13th, 2006 at 10:38 am

    Ugh.

    “Pretty soon we’re all going to be Gazprom traders,” Kizenko said. “You’ve got to have it. Just like a PlayStation, you’ve got to have Gazprom.”

  • Stop the Presses
    , January 13th, 2006 at 5:42 am

    Wendy’s Facing Tomato Shortage
    I hope they catch up. (BA!)

  • The Media Turns Against Whole Foods
    , January 13th, 2006 at 5:38 am

    The WSJ questions Whole Foods‘ (WFMI) valuation. You heard it here first.

    Whole Foods’ shares are up nearly 60% since the start of last year and trade at 54 times estimates of their per-share earnings for this fiscal year, according to Thomson Financial. That is about three times the valuation of its peers and for the average stock in the Standard & Poor’s 500-stock Index, to which the stock was added this year.
    Pricey stocks can remain aloft for a long time, but Whole Foods’ price/earnings ratio has analysts worried because they see possible banana peels. Other grocers are beginning to copy the Whole Foods approach and could undercut the company. Despite store openings in Canada and the United Kingdom, the company eventually will run out of consumers willing to shop at high-end stores that some jokingly call “Whole Paycheck,” the bears argue.

  • NYT on Gazprom
    , January 13th, 2006 at 5:31 am

    From this morning’s NYT:

    Gazprom’s surge comes as a remarkable advance for Russian capitalism. Though 51 percent of the company is still owned by the government, its revenues in a few days dwarf the sums involved in the country’s financial implosion of the 1990’s. On Aug. 14, 1998, Russia’s economy collapsed after it defaulted on $13.5 billion in Treasury bonds – less than the rise in Gazprom’s market value on Thursday.

    Wow.

  • Welcome
    , January 13th, 2006 at 5:15 am

    I’ve had a lot of new visitors to the blog, so I thought I’d do a little more formal greeting.
    (trumpets!)
    Welcome to Crossing Wall Street. Please have a look around. You can see my Buy List for 2006. This is a list of 20 stocks that I recommend (and track my performance). The list won’t change all year.
    Here are a few recent posts that you might enjoy.
    This is me railing against General Motors.
    More ranting, this time Google.
    Me defending Dell against the media.
    Plus, you can scan the archives. I hope you become a frequent guest. Welcome!

  • The Market Today
    , January 12th, 2006 at 11:49 pm

    Not much to say today. In today’s market, the S&P 500 gave back 0.63%, and our Buy List dropped 0.77%. This snapped our three-day winning streak. Of our 20 stocks, only Bed Bath & Beyond (BBBY) and UnitedHealth Group (UNH) posted gains. BBBY was upgraded by CS First Boston. On the downside, Harley-Davidson (HDI) was downgrade by Citigroup.
    Incidentally, I went to my local Bed Bath & Beyond to buy linen: $200! No wonder they’ve never missed earnings.

  • It’s Not Over
    , January 12th, 2006 at 11:13 pm

    The drama continues….
    Every time I think the battle for Guidant (GDT) is over, it jumps to life again. This is getting to be like That 70’s Show—it just doesn’t know when to end.
    The latest is that Boston Scientific (BSX) just made a counteroffer. They’re now bidding $73 a share for GDT, one dollar a share more than Johnson & Johnson (JNJ).
    I have to give BSX points for bravery, if not fiscal prudence. Let’s be clear: They simply can’t afford Guidant. JNJ is an enormous company. It’s roughly ten times larger than BSX. Boston Scientific is desperate, and it’s beginning to show. Even though Boston Scientific is offering more, they’re using more stock. They have to. But JNJ has a bottomless bank account.
    It’s clear to me that the Guidant folks want to go with JNJ, but the hedge funds are in BSX’s corner (or rather, vice versa). The board can accept a lower offer if it think the offer in the shareholders’ best interest. Personally, I think Guidant is going to be trouble at any price.
    The ball’s now in JNJ’s court. (Just between you and me, isn’t this getting kinda fun?)

  • A PDA for Pain
    , January 12th, 2006 at 10:49 pm

    Business Week on the latest technology from Medtronic (MDT):

    You might use the alarm on your watch (if you still wear one) or your Treo as a reminder to take your medicine. Now you can go one step further by using a personal digital assistant (PDA) to wirelessly control an internal pump that streams medication directly to its target inside your body.
    It’s an early but significant advancement in the convergence of consumer gadgets and patient-controlled medical tools. Health-device giant Medtronic—known for its pioneering pacemakers and insulin pumps for diabetics—recently released a device in the U.S. called the Personal Therapy Manager (PTM), a retooled version of a Palm handheld. A first for the market, it’s a patient-controlled device with a screen interface that can sync with the company’s programmable implanted pumps to deliver medicine, via catheter, to the fluid near the spinal cord—a process known as intrathecal drug delivery.

  • Reader Feedback
    , January 12th, 2006 at 12:18 pm

    One of the many benefits of this blog is the feedback I get from my readers. Here are a few interesting e-mails that I received over the past week. If you have any questions or comments, please drop me a line.
    The first e-mail is in response to one of my many rants against share buybacks:

    Share buybacks give an investor the option to receive cash (by selling some portion of their shares) or to own a larger portion of the company. Pre-tax considerations, it seems that an option to receive cash is superior to just getting the cash, no?

    In theory, yes. But keep in the mind an important factor: the shareholder must take on some risk. Money used to buyback a stock will not always have the same effect as getting cash. Over time, it will. But in the short-term, there’s a risk factor that’s not present with a cash payout.
    The ROE of a stock will in theory match the stock’s return after awhile. But even the least volatile stocks are volatile, so we have to shoulder some risk in the process. (Of course, sometimes the volatility works in our favor.)
    Ideally, I’d prefer to not have to deal with taxes, and get a cash payment. Then I could decide if and when I reinvested the funds in management. I think that would be best for the shareholders, and accountability.
    The is in response to my post on valuing Berkshire Hathaway (BRKA):

    Berkshire’s non-insurance businesses are much larger than most people realize (e.g. your comment that BRKA is mostly an insurance company). In fact, in 2005, nearly 2/3 of Berkshire’s revenues were non-insurance (~65% thru 9/30/05). The profit contribution varies due to the cat losses on the insurance side, but less than half of BRKA’s recent earnings come from insurance.
    If Berkshire’s non-insurance businesses were publicly traded, they would be one of the largest companies in the SP500. One issue the NYT article and yours didn’t mention is that BRKA’s disclosure on these large business – which are now a majority of revenues and earnings – is poor. That, along with the Buffett issue, weigh on the stock’s valuation, in my view.

    That’s an excellent point.
    In resonse to Mark Stahlman giving Google (GOOG) a $2,000 price target:

    I think the most compelling reason behind Stahlman suggesting a target price is also the most compelling reason to sit on the sidelines of Google. It was written in the last paragraph of the article.
    “Stahlman said his prediction was designed in part to comfort investors concerned by Google’s rapid ascent.”
    Hmmmmm. Will he be there to comfort investors during Google’s rapid decent?

    Exactly! Wall Street doesn’t turn to analysts for comfort. That’s been alcohol’s job for over 200 years.
    And lastly, here are some comments on the news of the Dow passing 11000:

    Could there be any more irrelevant index than the Dow? Made up of basically of 30 behemoths that were yesterdays news. They put stocks like Intel and Microsoft in at the very top of the bubble and have done little sense. They keep companies like GM until it will likely goes bankrupt. A very mismanaged group of 30 stocks that tell you little about where the growth of America is. It does a worse job every year.
    I really wish people would stop quoting it.

    Agreed!
    Here’s my rant on that very subject.