Author Archive

  • Teva and Ivax to Get Hitched
    , July 25th, 2005 at 9:56 am

    Generic drug companies are some of the best investments in the world. I think this sector will continue to grow in profitability. Everyone needs drugs, and everyone wants to keep health care costs down. Generic drugs are one of the most effective ways of controlling costs.

    If you’re not familiar with generic drugs, it’s very simple. Once a major drug company loses its patent on a drug, a generic can make a cheap knock-off. For example, Ivax just started selling a version of OxyContin, which is also known as Hillbilly Heroin. No word if they’ll use Courtney Love or Rush Limbaugh in their ads. If it were up to me, I’d go for it.

    The pressure on prices is intense. Whenever there’s pricing pressure in an industry, there’s “consolidation.” In English, this means that everyone is merging with everyone else. Novartis, a Swiss company, bought Hexal and Eon Labs. Last year, Teva bought Sicor. Mylan Labs made a play for King Pharmaceuticals. One small problem. King restated their financials and Mylan got cold feet. But you get the idea.

    Now Teva is going to buy Ivax. This is a huge deal. It will make Israel-based Teva the largest generic drug company in the world. It’ll also be one of the largest stocks on the NASDAQ. I think Teva is probably paying too much ($7.5 billion, about a 14% premium), but the payoff could be enormous. Teva is definitely worth owning.

  • I See Fed People
    , July 24th, 2005 at 10:10 pm

    Here’s a dirty little secret about Wall Street. The Federal Reserve isn’t nearly as powerful as most people think. There, I’ve said it. I now expect Federal agents to bang down my door any second. Jack-booted goons will rip my keyboard from my cold dead hands. (First, they came for the bloggers….). I’m sorry, but it’s true. The Fed ain’t that big a deal.

    The real power is in the hands of the currency and bond markets. Don’t piss them off. They own the place. They rest of us just pay rent. The Federal Reserve is simply another bank trying to make a profit. If you understand that, you understand the Fed. Outside that, they give speeches. That’s it.

    I often hear people say that the Fed created the tech bubble, or the housing bubble. No, wait–it burst the tech bubble. It’s actually kinda hard to keep up with these theories, but they always rely on two crucial facts. The Federal Reserve is incredibly evil and incredibly efficient. I doubt the former, and I’m pretty convinced against the latter.

    In reality, the markets created those bubbles. By their nature, markets are composed of countless variables, all acting on each other at once. No one “controls” the market, especially not a committee.

    At the June Fed meeting, the central bank said that it won’t use interest rates to try and slow down the housing market. That’s good to hear, but it really won’t make a big difference anyway. Of course, I’d be much happier when the Fed tells us that it won’t use interest rates to control interest rates. Now that’d be progress!

  • AP: Real Estate Market a Gamble
    , July 24th, 2005 at 10:00 pm

    One sure sign that we’re in an investment bubble: the media turns against it.

    Real estate mania is this decade’s version of the irrational exuberance that pushed Internet stocks to ridiculous heights during the last decade, only to come crashing down at the beginning of this one. And just as many investors wish they’d never heard of etoys.com or XO Communications, a lot of would-be real estate tycoons may soon rue the day they started buying property.

  • China signals bigger yuan rise unlikely
    , July 23rd, 2005 at 9:31 pm

    The Chinese are now saying that they don’t see more revisions to their yuan policy. I have to say that I’m very skeptical. The fact is that China now has a lot more flexibility in managing the yuan. They bought themselves some time, but the monetary realities are still the same. Our Treasury debt just doesn’t pay very much. If I had to guess, I’d say that this is an empty gesture to prevent yuan speculation. Good luck.

  • Two Cheers for Microsoft
    , July 23rd, 2005 at 9:11 pm

    I think I’m the only person who was impressed with Microsoft’s earnings. Why is everyone so upset? Profits were up 37%. The company beat the Street by two cents a share, and the stock is down. What I saw was a pretty decent report.

    Yes, I know. They warned about big investments for the new versions of Xbox and Windows (Windows Vista). But so what? Those are going to hugely profitable, and not in the distant future either. We’ll start seeing the payoffs next year.

    Let’s look at all the pluses. Xbox is still selling like a champ, and the Server Division is a big moneymaker. As much as people talk about Xboxes, servers are a much bigger business for Microsoft. In the Servers Division, sales were up 16%, and operating profit jumped 32%. On top of that, deferred revenue, which is a sneak peak at future sales, is running very strong.

    I haven’t seen Microsoft this cheap in years. For FY 20006, the company expects EPS of $1.27–$1.32. That gives them a P/E of about 20, or an earnings yield of 5%–which is higher than any point on the yield curve.

    I’m not going to pretend that MSFT is the earnings juggernaut it once was. But at this price, the shares are a solid value.

  • Google Watch
    , July 21st, 2005 at 5:55 pm

    Google reported its earnings after today’s close. Because it’s Google, and they have to do everything differently, there are several earnings figures you can choose from. For example, the company had net income of $1.19 a share. But it doesn’t end there. If you take out the stock options, Google earned $1.35 a share. Or—depending on taxes—$1.29 a share.

    Wall Street’s consensus was $1.21 a share, but I have no idea which figure that was for. There was a consensus; we just don’t what was consented to. Last quarter, it took the wire services several hours to figure out what the earnings report meant. Since the stock is getting creamed in the after-hours market, I’m assuming the company missed their earnings.

    Sell this stock now.

  • Greenspan on the Hill
    , July 21st, 2005 at 2:31 pm

    I was surprised to hear Alan Greenspan spend so much time yesterday talking about long-term interest rates. He seems puzzled why long-term rates are still so low.

    This decline in long-term rates has occurred against the backdrop of generally firm U.S. economic growth, a continued boost to inflation from higher energy prices, and fiscal pressures associated with the fast approaching retirement of the baby-boom generation. The drop in long-term rates is especially surprising given the increase in the federal funds rate over the same period. Such a pattern is clearly without precedent in our recent experience.

    He thinks the reason is that, across the world, people are saving too much and not investing enough. The clearly wants high rates, and I think the market will oblige.

  • eBay Keeps Going
    , July 21st, 2005 at 1:30 pm

    eBay had a great earnings report. I’m simply amazed at how well this company performs.

    Sales jumped 40%, and net income rose by 53%. All told, eBay took in 22 cents a share, which was four cents higher than forecasts. The company also raised its full-year forecast to a range of 82 cents to 83 cents a share. Was it just six months ago that eBay warned of slowing growth, and full-year earnings of 74 cents to 76 cents a share?

    Let’s put today in perspective. Last year, eBay earned 57 cents a share, and the year before that, it made 33 cents a share. So in the last three months, it earned two-thirds of 2003’s profit. The stock is up about 20% higher today.

  • Free the Yuan (and Katie too!)
    , July 21st, 2005 at 1:05 pm

    It finally happened: The Yuan is free!

    Well, not entirely free. But more free, nonetheless.

    The Chinese government officially ditched its peg to the U.S. dollar. It’s not a big move. The yuan is only 2.1% higher against the dollar.

    The Chinese central bank will now keep to a tight 0.3% band against a basket of currencies. They won’t say what those currencies are, but I assume it includes the dollar, yen and euro, plus a smattering of other Asian currencies.

    Even though the timing was a surprise, this move is hardly big news. I’d have to agree with one analyst who said that this reform is the tiniest thing China could have done. But it does give the Bank of China more flexibility in the future.

    The problem with currency pegs is that they’re simply price-fixing, and price-fixing screws up the normal ebb and flow of capital markets. If you wait long enough, you’ll start to see weird side effects.

    For example, Americans have been gobbling up goods made in China. If it were a country, Wal-Mart would be China’s eighth-largest trading partner. I also think that a lot of the huge demand we’ve seen for things like steel is a consequence of yuan. Also, the Baltic Dry Index, which is a barometer of shipping costs, plunged today to it lowest level in two years. This could be a freefall.

    What happens next is a big mystery. Right now, gold is up and bonds are down. I suspect that long-term bond yields will continue to rise, perhaps to 5%.

  • Lucent’s Word of the Day
    , July 20th, 2005 at 5:01 pm

    The Newark Star Ledger:

    Generally speaking, we had a good, solid quarter. This is a tough industry,” Lucent Chairman and Chief Executive Patricia Russo said in an interview.

    The Wall Street Journal:

    “We continue to make progress,” said Patricia Russo, chairman and chief executive officer of the Murray Hill, N.J., company. “It was another solid quarter of us doing the things we said we would do.”

    Reuters:

    Lucent Technologies Inc., one of the world’s largest makers of telecommunications equipment, on Tuesday said its quarterly net income fell from a year-ago, but beat Wall Street estimates driven by solid demand for wireless equipment.

    Telephony Online:

    Lehman Brothers analyst Steve Levy called Lucent’s results “solid” in a research note issued before the earnings call.

    Reuters II: Lucent’s quarter seen solid, wireless a concern

    Lucent’s Press Release:

    Over the last 90 days, we have made solid progress building on the collaboration that was already taking place in the business,” said Russo.