Author Archive

• Frontier Down as Southwest Enters Denver
  Eddy Elfenbein, October 20th, 2005 at 10:06 am

  Frontier Airlines (FRNT) is down sharply today on the news that Southwest Airlines (LUV) will be going back into the Denver airport. This is bad news for Froniter, but it’s not the end of the world. Denver has been an overlooked opportunity for other carriers for a long time, and now that’s coming to an end. Don’t count Frontier out just yet. The company still has a solid business. Their earnings are due out one week from today.

• Danaher & Golden West
  Eddy Elfenbein, October 20th, 2005 at 9:36 am

  We have two big earnings reports this morning. Golden West Financial (GDW) continues to be one of my favorite financial stocks. The company just reported earnings of $1.22 a share, up from $1.05 last year. Herb Sandler, the CEO, said that despite higher interest rates from the Federal Reserve, the savings & loan continued to hold expenses down. Wall Street was looking for earnings of $1.19 a share, so this was a good showing. The stock is now going for about 13 times earnings. It doesn’t get a lot cheaper than that. This stock is a great buy.
  Danaher (DHR) may be the best company that no one knows about. The company makes industrial tools. Danaher just announced that it earned 70 cents a share which was inline with expectations. Last year, it earned 62 cents a share. For the fourth quarter, DHR sees earnings of 76 to 81 cents a share, and $2.74 to $2.79 for the full year. For more on Danaher, here’s a recent report from Standard & Poor’s.

• China’s Economy Grew by 9.4% in Q3
  Eddy Elfenbein, October 20th, 2005 at 7:14 am

  The world is waiting for the Chinese economy to go all Refco on us, but that doesn’t look like it’s going to happen any time soon. For the third quarter, China’s economy grew by 9.4%. In the second quarter, the economy grew by 9.5%. China now has 300,000 millionaires.
  The economy is expected to slow down next year to just 9.1% growth from the 9.4% rate for this year.

  The Chinese economy, which accounted for a 10th of global growth in 2004, has defied expectations for a slowdown in the past year as demand for cell phones, restaurant meals and travel surged. Premier Wen Jiabao is seeking to channel more investment into the nation’s power and transport networks, where capacity hasn’t kept pace with overall economic activity.
  Fixed-asset investment, which accounts for more than a third of China’s economy, increased 26.1 percent to 5.71 trillion yuan ($704 billion) in the nine-month period after first-half growth of 25.4 percent, the statistics bureau said. Industrial output rose 16.3 percent, after gaining 16.4 percent in the first half.

• The Dow-to-Nasdaq Ratio
  Eddy Elfenbein, October 19th, 2005 at 7:19 pm

  Today the Dow closed at 10414.13 and the Nasdaq finished at 2091.24. That comes to a Dow-to-Nasdaq ratio of 4.9799. Yesterday, it was 5.0026. Basically, this is about as close to 5-to-1 as you get. That’s been the average Dow-to-Nasdaq ratio for the last 20 years, which leads me to think that the overall tech sector is fairly valued. The Nasdaq could certainly outpace the Dow over the next few months, but it’s unlikely to do so for long.
  During the tech boom, the ratio went as low as 2-to-1 (for two days, it slipped just below 2.0). On the other end, in the summer of 2002 the ratio barely jumped above 6.6666 (making the Nasdaq 15% of the Dow).
  Many people think that the Nasdaq has outperformed the Dow for many years, but it hasn’t. Over the last 18 years (today is the anniversary of Meltdown Monday), the Nasdaq Composite is up 480.6% while the Dow is up 498.9%.

• Today’s Market
  Eddy Elfenbein, October 19th, 2005 at 4:34 pm

  Well that was a nice turnaround! The market was pretty dull almost all day, and then zoomed higher in the afternoon. It all started about 1 p.m. today. I don’t know what to say, it was so unexpected. Maybe it’s to celebrate the 18th anniversary of the 1987 crash. Who knows? But I’ll take it. Here’s a chart of the S&P 500 today.
  
  That looks like nobody wanted to take profits. All told, the S&P 500 was up 1.50% today, and our Buy List beat it slightly, rising 1.57%. That’s really good considering we have Stryker (SYK) which was one of the worst stocks on the market today. Stryker was down -9.1%, and Zimmer (ZMH) lost -6.9%. Despite those stocks weighing us down, we beat the market. Our huge winner was SEI Investments (SEIC) which rallied over 11.5%. Also, Varian Medical (VAR) broke out to a new 52-week high.
  Very good news from Brown & Brown (BRO). The insurer announced that it will split 2-for-1, and it increased its dividend by 25%. The split will happen late next month. Yesterday, Brown & Brown reported earnings of 50 cents a share. I should also say that Stryker is a very good stock. The company reiterated its growth going forward.
  eBay (EBAY) just reported earnings of 20 cents a share, which is inline with estimates. The company slightly beat on its top-line growth. I’m happy to see eBay’s operating margins expanded to 36%. eBay’s stock was up $1.59 today, although it’s giving some of that back (and more) in the after-hours market.
  Three of our stocks report earnings tomorrow; Fiserv (FISV), Danaher (DHR) and Golden West Financial (GDW). I also have to add a word on Dell (DELL). The stock is cheap. Very cheap.

• Google Watch
  Eddy Elfenbein, October 19th, 2005 at 3:49 pm

  The Googloids are having a hard time understanding what “copyright” means.

  Google Inc. (GOOG) faces a lawsuit by the Association of American Publishers, or AAP, over the company’s plans to digitally copy and distribute copyrighted works under its Google Print program announced last year.
  The lawsuit, which was filed after lengthy discussions broke down between AAP and Google’s top management, seeks a court declaration that Google commits infringement when it scans entire books covered by copyright and a court order preventing it from doing so without permission of the copyright owner.
  In a press release Wednesday, U.S. book publishing trade association AAP said the suit was filed on behalf of five major publisher members of the group – McGraw-Hill Cos. (MHP), Pearson Plc’s (PSO) Pearson Education, Penguin Group (USA), Viacom Inc’s (VIA,VIAB) Simon & Schuster, and John Wiley & Sons Inc. (JWA).
  In the Google Print program, the company hopes to create an online, searchable database by scanning and digitizing millions of published books from the collections of three major academic libraries – Stanford University, Harvard University and the University of Michigan.
  Oxford University and the New York Public Library are also participating in the project, but are only making available works in the public domain.
  The lawsuit disclosed on Wednesday follows a Tuesday editorial in The Wall Street Journal by Google Chief Executive Eric Schmidt. In the editorial, Schmidt outlined the Google Print plan, stressing that copyright holders are free to send the company a list of titles they don’t want to include in the Google Print Index.
  “Recently, some members of the publishing industry who believe this program violates copyright law have been fighting to stop it. We respectfully disagree with their conclusions, on both the meaning of the law and the spirit of a program which, in fact, will enhance the value of each copyright,” wrote Schmidt.
  Despite consenting that its members understand how useful the search engine could be, AAP said it isn’t convinced the program properly compensates authors and publishers.
  “The bottom line is that under its current plan Google is seeking to make millions of dollars by freeloading on the talent and property of authors and publishers,” said AAP President and former Colorado Congresswoman Patricia Schroeder.

  Google will also report earnings tomorrow, however there’s one major caveat. This will be the first time Google reports pro-forma earnings as well as GAAP earnings. Wall Street’s consensus is for $1.36 a share. The pro-forma earnings will exclude tax benefits and stock-based compensation. Most analysts back out the stock-based compensation, but the community is divided on tax benefits. This is all rather confusing, and it won’t be cleared up tomorrow.
  One final Google note. Due to legal pressure, the company is changing the name of its Gmail in Britain to Google Mail. The company never bothered to see if the name was trademarked in Europe. Which they could have found out by Googling it.

• The Chicago Board of Trade Goes Public
  Eddy Elfenbein, October 19th, 2005 at 3:00 pm

  One of the major changes on Wall Street over the past few years has been the explosion of derivatives trading, meaning futures and options. It’s become a very big business for the exchanges, and there’s no better sign of a business going well than a new IPO.
  After 157 years as a private exchange, the Chicago Board of Trade (BOT) started trading publicly on the NYSE today. The stock was priced at $54, and investors don’t seem too worried about the recent implosion of Refco. Shares of BOT are currently trading at $83. That’s a nice 54% profit which ain’t too bad for one day’s work.
  The Chicago Board of Trade only sold about 6% of its shares, which means that there will probably be a large offering in the future. The Chicago Mercantile Exchange (CME) went public three years ago and has been a great performer since. Shares of CME are up over 800%. The Nasdaq Stock Market (NDAQ) has also done well. Refco went public in August.

• Q&A
  Eddy Elfenbein, October 19th, 2005 at 10:39 am

  Once again, I welcome any questions from my readers. Please feel free to e-mail me at eddy@crossingwallstreet.com. I’m happy to give you my opinion on any stock or investing in general; however per SEC rules, I’m not allowed to give personal portfolio advice.

• The Morning Market
  Eddy Elfenbein, October 19th, 2005 at 10:13 am

  Stryker (SYK), one of our Buy List stocks, is getting hammered this morning. The company’s earnings were 40 cents a share, one penny below Wall Street’s consensus. Still, the company reiterated its forecast of 20% growth next year. This is just silly, there’s nothing wrong with Stryker. Zimmer (ZMH) is lower this morning as well.
  SEI Investments (SEIC), also on our Buy List, just reported four cents a share better than expectations. This company just grows and grows. Next year, the Street is looking for $2.00 a share. The stock is up this morning. Also, eBay (EBAY) will report after today’s close. Wall Street is looking for 20 cents a share.
  Not on our Buy List, Intel (INTC) is trading lower on its weak earnings. Motorola (MOT), one of the most over-rated stocks on Wall Street, had very strong earnings. The stock is trading higher.
  As I mentioned yesterday, the banking sector looks very good even if the share prices aren’t going anywhere. Both JP Morgan Chase (JPM) and Bank of America (BAC) reported very strong earnings this morning. JPM’s net income jumped 78%. The company also said that Jamie Dimon will take over as CEO six months earlier than expected.
  Hurricane Wilma is now the strongest storm ever. The good news is that it won’t hurt the oil and gas industry. The bad news is the orange crop is in danger. Orange juice futures closed at a six-year high. Randolph and Mortimer Duke couldn’t be reached for comment.
  Also, the Commerce Department reported that housing construction defied expectations and rose last month. Mortgage applications were also up. And finally, gasoline demand is plunging. Production is at its lowest level since 1943.

• Dell Can’t Win
  Eddy Elfenbein, October 19th, 2005 at 8:51 am

  There’ve been some more ant-Dell articles in the news. The fear now is that Dell (DELL) is losing market share. Or rather, it’s not gaining market share as quickly as it used to. That’s all you need now to write an anti-Dell piece. Here’s an article on Dell from yesterday’s Financial Times:

  Although Dell continued to lead the PC industry in worldwide shipments, its shipment growth rate was 17.6 per cent, compared with an average growth rate of 17.2 per cent worldwide, according to Gartner, the IT consultants.
  “Dell normally has a premium,” said Loren Loverde at IDC, the IT research group, whose separate report showed similar results.
  Mikako Kitagawa, a Gartner analyst, said the change likely reflected a reduced focus on growing market share and an increased focus on profitability at Dell, which shocked Wall Street in August after second-quarter sales failed to meet forecasts in spite of aggressive price cuts.
  A Dell spokeswoman declined to comment on third-quarter shipments. However, she said the company’s strategy had not changed and that the company would “continue to drive balanced and profitable growth”. Dell is scheduled to report its third-quarter earnings on November 10.

  This is almost becoming a cliché. Let’s put this in some perspective: The “problems” at Dell are nearly trivial. The company is doing extremely well. Last quarter, Dell earnings were merely inline with the Street, and its sales were slightly below forecasts. From this, everyone is now assuming the worst. The CEO said that the company could have made up the shortfall with a $10-$15 increase in each unit sold. Now Dell is concentrating on higher margins, and the media is complaing that it’s losing market share. Dell can’t win! Meanwhile, the stock is at a 52-week low, and very close to a two-year low.