Author Archive

  • The Pete Best of Investing
    , August 27th, 2013 at 3:04 pm

    I recently saw the movie Jobs. Unfortunately, it’s not very good, which is too bad because I think the story has the potential to make for a really good movie.

    One part of the Apple ($AAPL) story that wasn’t covered was the involvement of Ronald Wayne. When Apple was formed, Steve Jobs got 45% ownership, Steve Wozniak got 45%, and Ronald Wayne got 10%. The company was formed on April 1, 1976. They were working out of a garage at this point. Wayne decided to relinquished his stock on April 12, 1976. His proceeds: $800.

    Today, 10% of Apple is worth about $45 billion.

    Last year, Alex Plane of the Motley Fool wrote about Wayne’s blunder.

  • 29 High-Quality Mid-Caps
    , August 27th, 2013 at 11:29 am

    I’d be embarrassed to admit the number of companies I look at each day. My computer overfloweth with spreadsheets. I thought I’d share some of my recent research. Here’s a list of 29 high-quality mid-cap stocks. Some are well-known but a lot aren’t. I’m not saying these stocks are good buys, but they’re certainly ones worth watching.

    Stock Ticker
    American Public Education Inc APEI
    Bio Reference Laboratories Inc BRLI
    Buckle Inc BKE
    CARDTRONICS INC CATM
    Encore Capital Group Inc ECPG
    Epiq Systems Inc EPIQ
    First Cash Inc FCFS
    Hanger Inc HGR
    ICU Medical Inc ICUI
    IPC The Hospitalist Co Inc IPCM
    MWI Veterinary Supply MWIV
    NTELOS Hldg NTLS
    Neogen Corp NEOG
    Netscout Systems Inc NTCT
    OpenTable Inc. OPEN
    OSI Systems Inc OSIS
    Papa John’s Intl Inc PZZA
    Portfolio Recovery Associates Inc PRAA
    SHFL Entertainment Inc SHFL
    South Jersey Industries Inc SJI
    Stamps.com Inc STMP
    Steven Madden Ltd SHOO
    THE ENSIGN GROUP ENSG
    Texas Roadhouse TXRH
    Tyler Technologies Inc TYL
    United Stationers Inc USTR
    Vitamin Shoppe Inc VSI
    World Acceptance Corp WRLD
    rue21 Inc RUE

  • The People’s Broker
    , August 27th, 2013 at 9:20 am

    “In the jungle among the money funds, there is only one king.”

    Those who have been in the investing game long enough will probably remember the slogan for the Dreyfus Fund, the top-performing mutual fund of the 1950s and -60s started by Jack Dreyfus. The ads for the fund featured a lion striding out of the Wall Street subway station and ran essentially unchanged for over 40 years.

    Dreyfus himself was one of the kings of Wall Street, but he also had the common touch. His populist, take-it-to-the-people approach made him not only a financial pioneer (and a very rich man), but also a fierce advocate for the little guy.

    In his memoir, The Lion of Wall Street, he wrote that steam came out of his ears whenever he felt that “the American people have been jerked around.”

    Dreyfus was born exactly 100 years ago, on August 28, 1913, in Montgomery, Alabama. His early career was utterly undistinguished: by his own accounts, he was a lackluster student, both in high school and later at Lehigh University. He fumbled his way through jobs as a candy salesman and industrial designer before landing a kind of apprenticeship at a Wall Street brokerage firm—an apprenticeship that his father surreptitiously paid for.

    After World War II, however, things started to happen. Dreyfus started his own brokerage firm in 1947, and then, four years later, hit upon the inspiration that would change the U.S. investment landscape: the mass-market mutual fund, geared towards individuals instead of large financial institutions. Such funds would, he hoped, give ordinary investors the opportunities previously enjoyed by professional financiers. Now he just needed to attract clients.

    He had his work cut out for him. Back in the pre-IRA day, investing in the stock market was for high rollers and wheeler-dealers, not for ordinary families with their 401(k)s. Average Joes kept their money in their mattress, which is to say, in the bank, so Dreyfus learned to master the burgeoning art of advertising. His firm’s TV spots blended ebullience and earnestness: “The Dreyfus Fund hopes to make your money grow, and takes sensible risks in that direction.” “Christopher Columbus: America’s first speculator.”

    It worked. The company exploded. Investor’s Business Daily shows the Dreyfus Fund as yielding 604% from 1953 to 1964, compared with 346% for the Dow Jones and 502% for the next-best fund. Life magazine did a spread on the “Wall Street Lion,” and later Barron’s would call Dreyfus the second-most-influential money manager of the 20th century.

    It was at this point that Dreyfus had the first of many battles with Goliath of government institutions. Just after his firm premiered its trademark commercials featuring the king of the cats, the SEC passed a law forbidding TV spots for mutual funds. For years, the company was unable to air any new ads. The SEC later rescinded the law, but the episode doubtless confirmed Dreyfus in his opposition to bureaucracies that, in his view, denied ordinary citizens access to potentially beneficial information.

    His greatest battle was yet to come. In the 1960s, Dreyfus began to suffer from severe depression, which he thought was caused by too much “electricity” in his body. Flawed reasoning, but strangely, it served him well: when he asked a doctor for a prescription for Dilantin (phenytoin), an epilepsy medication, the drug seemed to cure him almost overnight.

    Thus began the crusade that would last the rest of his life. Convinced that the drug had medical uses beyond those for which it was commonly prescribed, he wrote an earnestly titled book, A Remarkable Medicine Has Been Overlooked, and began lobbying for further investigation of phenytoin’s benefits. His aim was to help people who suffered as he had, but he soon found his way blocked by a formidable opponent: the FDA.

    It turned out that FDA regulations forbid so-called off-label uses of medications—i.e., prescribing drugs for ailments other than those they were designed to alleviate. No matter how beneficial a drug may be, companies and individual doctors cannot publicize its effects in the official literature if it hasn’t been specifically approved for a given purpose. In Dreyfus’s view, this hyper-cautious bureaucratic attitude caused millions of ordinary Americans to suffer needlessly: “Without FDA approval, drug companies cannot market phenytoin as anything other than an anticonvulsant, and most doctors remain in the dark as to its versatility…Millions of people in this country alone suffer because of the letters FDA.”

    Dreyfus spent the next 30 years trying to persuade doctors, senators, even President Clinton himself to liberalize FDA regulations, but to little avail. The $100 million of his own money that he spent to promote phenytoin for other uses never succeeded in winning widespread approval for the medication, in part because its manufacturer, Parke-Davis, didn’t want to invest in a product whose patent was about to expire.

    But if Dreyfus’s medical lobbying yielded little fruit, his legacy to ordinary investors was tremendous. His methods for managing his mutual fund, which included trading stocks rapidly, buying companies that are on the upswing regardless of their price, and close scrutiny of charts that track stock prices, have influenced countless major investors such as Charles Schwab and Ned Johnson. Meanwhile the popularization of the mutual fund as a financial product has changed retirement as we know it.

    Jack Dreyfus was an American original. If an institution is the lengthened shadow of a single man, his shadow is long indeed.

    (You can sign up for my free newsletter here.)

  • Morning News: August 27, 2013
    , August 27th, 2013 at 6:49 am

    Emerging Stocks Fall to Six-Week Low on Syria as Currencies Drop

    British Fraud Investigator In China TV Confession

    German Business Confidence Rises to Highest in 16 Months

    Indian Rupee Plumbs New Depths As Confidence In Government Ebbs

    NOMURA: India’s Lower House Just Passed A Food Bill That’s Going To Make Its Economic Situation Even Worse

    Bitcoin Meeting, OTC Derivatives, Trump U: Compliance

    Bats CEO Sees Value of Stock Data Rising From Merger

    Bill Ackman to Sell Entire J.C. Penney Stake

    The Deal: American Airlines Profit Soars

    Billabong Losses Triple as 40-Year-Old Brand Seen Worthless

    Facebook Market Value Tops $100 Billion Amid Mobile Push

    AstraZeneca to Buy U.S. Cancer Firm for Up To $500 Million

    Judge Rules Against JPMorgan in Suit Over Billionaire’s Losses

    Roger Nusbaum: Grim Savings Numbers

    Phil Pearlman: Hyperloop, Tesla & Transportation Disruption with Gregor Macdonald

    Be sure to follow me on Twitter.

  • Pitching Records and Investing
    , August 26th, 2013 at 1:08 pm

    On Saturday, Detroit’s Max Scherzer pitched another gem and he increased his won-loss record this season to a remarkable 19-1. Scherzer just pulled ahead of Pittsburgh’s Roy Face’s record for single season winning percentage of 18-1 set in 1959. Scherzer has another seven or eight starts this year, and to break Face’s record, he can’t afford to have another loss.

    Scherzer has pitched incredibly well this year. He leads or is near first in just about every pitching category. What I find interesting, though, is Face’s 18-1 mark from 1959.

    More than any other record I can think of, Face’s incredible won-loss record seems the most due to luck. We often hear from academics that the record of any great money manager is simply due to luck. If you flip enough coins, surely you’ll see a fantastic run of consecutive heads. It’s just probability.

    With investing, I usually think that’s a bogus argument, but in Face’s case, it appears to be correct. Let me clear: Roy Face pitched very well in 1959, just not 18-1 well. Looking closely at his 1959 season, the run of luck he had seems extraordinary.

    For one, Face wasn’t a starter. He was one of the first regular closers in baseball. Also, anyone’s won-loss record isn’t solely due to their performance of the pitcher. His teammates have a lot to do with it. Face had a remarkable ability that year to come on in relief when the game was tied, and thanks to his fellow Pirates, he’d get credited for the win. Or blow the save, then get the win. After all, shortening a baseball game to one or two innings greatly raises the importance of luck to your outcome.

    That year, the Pirates went 78-76 but they were an amazing 19-2 in extra-inning games, plus 36-19 in one-run games.

    What does this mean for investing? Realize that looks can be deceiving. Almost anything can happen with a small enough sample size. Concentrate on numbers that are subject to lower volatility. That’s why I like stocks with long histories of raising their earnings and dividends. That’s not luck, it’s earned.

    One-year performance marks for a stock or mutual fund are like won-loss records for pitchers — they really don’t tell you much. In fact, in many cases those are the worst investments to have due to mean reversion.

    Still, I’m rooting for Scherzer to go the rest of the season without a loss.

  • The Case For The Economy
    , August 26th, 2013 at 10:53 am

    In Friday’s CWS Market Review, I said that it’s very likely the rise in long-term interest rates is due to greater optimism about the U.S. economy. The morning’s durable goods report certainly doesn’t aid that thesis, but Bill McBride of Calculated Risk lays out the reasons why he thinks the next few years will be good for the economy.

    For one, the economy has been held back by cutbacks in state and local government. That trend appears to be over. The U.S. budget deficit is also shrinking quite quickly. Next year, we have a good shot of coming in at less than 3% of GDP. In fact, given the state of the labor market, some might think that’s too austere. Also, American households have significantly delevered themselves over the past five years. Financially speaking, we’re in much better health today.

    Perhaps the best variable in the economy’s favor is the housing market. Bear in mind that the general cycle of the economy is very close to that of the housing market. During the boom, so many houses were built that we had a very large amount of inventory overhang. Now it appears to be wearing off. Simple demographics tell us that despite any increase in mortgage rates, the demand for new homes will increase. McBride writes:

    Starts averaged 1.5 million per year from 1959 through 2000. Demographics and household formation suggests starts will return to close to that level over the next few years. That means starts will come close to doubling from the 2012 level.

    Residential investment and housing starts are usually the best leading indicator for economy, so this suggests the economy will continue to grow over the next couple of years.

  • Harris Raises Dividend 13.5%
    , August 26th, 2013 at 10:06 am

    Excellent news today from Harris Corp. ($HRS). The board has raised the quarterly dividend from 37 cents to 42 cents per share. That’s a 13.5% increase. Based on Friday’s close, HRS yields 2.95%. The shares are currently up 41 cents today. A few weeks ago, Harris reported earnings significantly better than estimates. The company earned $1.41 per share compared with Wall Street’s consensus of $1.15 per share. Business is clearly going well there.

    Turning to economics, this morning’s report on orders for durable goods was pretty lousy. July orders fell by 7.3% which was the biggest drop in 11 months. Economists were expecting a drop of 4%. Bloomberg notes:

    The report shows struggling overseas markets and the effects of federal government spending cuts are lingering and holding back manufacturing, which accounts for about 12 percent of the economy. Further improvement in the labor market and sustained demand for automobiles and housing would help spur production through the second half of the year.

    Microsoft ($MSFT) is down 49 cents today, which is about 1.4%, but that’s after its strong post-Ballmer showing from last Friday.

    Bespoke Investment Group reminds us that the S&P 500 is back above its 50-day moving average. We snapped a five-day streak over closing below the 50-DMA.

    big.chart08262013

  • Morning News: August 26, 2013
    , August 26th, 2013 at 6:46 am

    ECB Council Members Split in Jackson Hole Over Rate Cuts

    China Economy Showing Clear Signs of Stabilisation: National Bureau of Statistics

    Greece Could Return to Debt Market in Late 2014, Stournaras Says

    Japan May Dip Into Budget Reserves To Fight Fukushima Toxic Water

    Wall Street Is So Obsessed With The Taper, It’s Missing The Bigger Threat Coming Out Of Washington

    America Movil to Back KPN German Sale After Bid Sweetened

    Amgen to Buy Onyx for $10.4 Billion to Gain Cancer Drug

    ONGC May Raise Overseas Debt for $2.64 Billion Purchase

    ING Sells Korean Life Insurance Unit for $1.7 Billion to MBK

    Abercrombie & Fitch Might Need Those Plus-Size, Unpopular Teens After All

    Young Tech Sees Itself in Microsoft’s Ballmer

    As Amazon Stretches, Seattle’s Downtown is Reshaped

    Muriel Siebert, Pioneer at NYSE, Dies at 80

    Joshua Brown: Being Ben Bernanke

    Jeff Miller: Weighing the Week Ahead: Will Fear Beget More Fear?

    Be sure to follow me on Twitter.

  • Foghorn Unplugged
    , August 24th, 2013 at 10:09 pm

  • Ballmer to Resign, MSFT Surges
    , August 23rd, 2013 at 9:15 am

    Here’s a rule of thumb: If you happen to be the CEO of a major corporation and the news of your resignation causes your stock to gain $24 billion in market value, you probably made the right call.

    Microsoft ($MSFT) said today that Chief Executive Officer Steve Ballmer has decided to retire within the next 12 months. In the pre-market, MSFT is up $2.87, or 8.86%. The company has 8.33 billion shares outstanding, so today’s surge comes to $23.9 billion. Again, that’s for someone to no longer be there.