• Oracle Vs. Google
    Posted by on June 17th, 2011 at 11:13 am

    Bloomberg reports:

    Oracle Corp. (ORCL) is seeking billions of dollars in damages in a patent- and copyright-infringement lawsuit against Google Inc. (GOOG) that claims the search-engine company’s Android software uses technology related to the Java programming language, according to court papers.

    The extent of the claims was disclosed yesterday in San Francisco federal court by Oracle, as it sought to prevent Google from filing under seal documents in the case stating Oracle’s monetary claims.

    “Oracle’s damages claims in this case are in the billions of dollars,” the company said in a filing, arguing that its demands “are based on both accepted methodology and a wealth of concrete evidence.”

    “They should not be hidden from public view,” Oracle said.

    Oracle got Java when it bought Sun Microsystems. I would expect that any legal battle might take years to resolve. But someone must think they have a case. Shares of $ORCL are up more than 2% today.

  • CWS Market Review – June 17, 2011
    Posted by on June 17th, 2011 at 7:43 am

    For a little while, on Tuesday, it looked like the market was finally going to shake off its six-week losing streak. But soon, fears of more problems in Greece sent U.S. share prices lower once again. There’s a very good chance that this will be our seventh-straight week of losses.

    The reality is that Europeans have failed miserably in their attempt to contain the problems in Greece. I should add that I don’t have any bright ideas on this myself, but the Europeans seem to be going out of their way to prove themselves a dysfunctional political unit.

    Put it this way: two-year notes are running around 30% in Greece. The credit swaps indicate that the market thinks there’s an 81.5% chance that Greece will default on its debt. That’s not “in the bag” but it’s very close. On top of that, Ireland and Portugal are also looking shaky, but they’re nowhere as bad as Greece is. At least, not for now.

    The message is that if the Europeans are unwilling or unable to do something about Greece, there’s little reason to believe they’ll be able to tackle the next problem child. And there will be a next.

    For investors, the effects of this crisis are being felt in many areas. The euro just hit a record low against the Swiss franc. This is a good measurement to watch since Switzerland is surrounded by Eurozone countries but it’s not actually in it. Folks have turned against the euro and options players are paying mightily for insurance against a euro plunge.

    This week, I want to highlight some comments that Ben Bernanke made recently. The Fed Chairman acknowledged weakness in the U.S. economy and in the jobs market in particular; plus he discussed the recent rise in commodity prices. According to Bernanke, these issues, while serious, are “transitory” and he expects that they’ll soon fade. Bernanke said that the economy should firm up later this year.

    What I find interesting is that the stock market still seems unusually complacent and I suspect that Bernanke has convinced investors that he’s right. Here’s an example: The Volatility Index, better known as the $VIX, typically moves in the opposite direction of the stock market. And as the stock market has moved lower, the VIX has in turn moved higher. But, and here’s the catch, the VIX hasn’t rallied as much as much as we would expect. Perhaps the market already sees reasons to be calm that haven’t become readily apparent yet.

    Another example of the news/price disconnect can be in seen in the bond market. Quite simply, the bond market isn’t at all worried about inflation despite emerging signs of higher prices. This past week’s inflation report showed the highest core inflation in four years. This is important because the core inflation report doesn’t include food or energy prices which can be highly volatile. Furthermore, there’s been a clear trend of rising inflation for several months now.

    But if we look at bond prices, once again we can see that Bernanke’s optimism seems to be the dominant view. The ten-year Treasury yield is back down to 2.91% after a brief spike up to 3.1%. It’s now at its lowest point of the year. Similarly, the five-year Treasury yield has fallen to 1.5% which is its lowest yield this year. In other words, bond traders seem very unimpressed by the recent inflation reports. Perhaps they value the liquidity of Uncle Sam’s debt which can be dumped quickly if needed. Or they may be convinced by Bernanke’s view.

    The security that I find most surprising is the two-year Treasury. Investors are now willing to lock up their money for 24 months in exchange for 0.38% per year. Do they not know what stock dividends are? Investors are paying sky-high prices for security and very low prices to shoulder any risk which I believe is a result of the problems in Europe. Since the market peaked on April 29th, U.S. stocks have shed over $1 trillion, and the S&P 500 is now within sight of its 200-day moving average.

    Outside of the inflation report, we got some modestly positive economic news. Housing starts for May increased more than forecast. Building permits rose by 8.7% in May which was the highest jump this year. Work on multi-family homes rose by 23%. Also, fewer Americans applied for unemployment benefits. This may be the beginning of a trend but we still need to see more data to confirm that a turnaround is in the works.

    Now let’s turn to our Buy List, which is still ahead of the market for the year although both the market and the Buy List have had lost some luster over the last seven weeks. Leucadia National ($LUK) said that it’s selling a large portion of its stake in Fortescue Metals for $615 million. This is probably a very shrewd move. Fortescue is a large Australian iron ore producer.

    Johnson & Johnson ($JNJ) said that it’s quitting the stent business. Even though J&J was an early pioneer is this field, upstarts have been grabbing market share. Interestingly, two of the more successful rivals are on our Buy List: Abbott Labs ($ABT) and Medtronic ($MDT). Johnson & Johnson said they’re going to incur a charge of between $500 million and $600 million.

    Shares of Gilead Sciences ($GILD) got knocked a bit earlier this week on news of a Justice Department investigation. An analyst at Oppenheimer said this was a “minor concern” and I suspect he’s correct.

    Earlier this week, I did a post on why I think Oracle is a good value. The company gave us a very optimistic forecast for this quarter so I’m expecting an earnings beat, but not a very large one. What I find interesting is that Oracle’s earnings forecast came out when the quarter was still young. They wouldn’t say something so bold that early unless they were very confident. The earnings report is due out this Thursday. Wall Street currently expects earnings of 71 cents per share while I expect 73 cents per share. Either way, Oracle is still a very good value. Oracle is a buy up to $34 per share.

    The other Buy List earnings report next week will be from Bed Bath & Beyond ($BBBY). There have also been some rumors that BBBY is about to be acquired. These stories make me laugh because I would think that anyone who really knows isn’t talking.

    I’m going to reiterate what I said last week: In April, BBBY said it expects fiscal Q1 earnings of 58 to 61 cents per share. I think that’s on the low side. Remember that Q4 was a blow-out quarter for them. I’m expecting a modest earnings surprise—around 63 cents per share, give or take. I hope to see Q2 guidance of 80 to 85 cents per share. I’m keeping my buy price for BBBY at $55 per share.

    That’s all for now. Be sure to keep visiting the blog for daily updates. I’ll have more market analysis for you in the next issue of CWS Market Review!

    – Eddy

  • Morning News: June 17, 2011
    Posted by on June 17th, 2011 at 7:10 am

    Merkel Agrees to Voluntary Greece Bondholder Role

    Greek PM vows to stay, lead exit from debit crisis

    Oil Heads for Biggest Weekly Decline in Six on Concern Over European Debt

    Medvedev Pledges Economic Reforms

    Spanish Banking Giant Santander Sees 2011 Profit In Line With 2010

    Gold May Fall for a Second Day in London Trading on Oil Decline, Equities

    Wall Street Braces for New Layoffs as Profits Wane

    Raters May Face SEC Civil Fraud Charges

    Utilities Turn to Mergers as Demand for Power Slows

    RIM Profit Falls Below Estimates

    Capital One to Buy ING Direct USA for $9 Billion

    Energy Transfer buying Southern Union for $4.2 Billion

    Hayward’s Vallares Raises $2.2 Billion in IPO

    Nasdaq Confirms LCH.Clearnet Bid

    Joshua Brown: HRBN: Misfortune Cookie o’ the Day

    Todd Sullivan: Vegas Tourism Still Strong

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  • “It’s not a stock market. It’s a market of stocks.”
    Posted by on June 16th, 2011 at 1:02 pm

    My friend and I used to have an inside joke about phrases that could be used at any time to make yourself sound intelligent without really saying anything. I recall two examples: “just look at the Japanese” and “that reminds me of an article in The Economist.” Try it at your next dinner party and you’ll see what I mean.

    In that vein, Henry Blodget has a wonderful post at TBI listing 16 of Wall Street’s favorite meaningless phrases:

    “The easy money has been made.”

    “I’m cautiously optimistic.”

    “It’s a stockpicker’s market.”

    “It’s not a stock market. It’s a market of stocks.”

    “We’re constructive on the market.”

    “Profit taking”

    “Bargain hunting”

    “More buyers than sellers”

    “There’s lots of cash on the sidelines.”

    “We’re in a bottoming process.”

    “Overbought”

    “Oversold”

    “Buy on weakness”

    “Sell on strength”

    “Take a wait-and-see approach”

    “It’s a show-me stock.”

    What I love about these phrases is that they can be used anytime for almost any reason. Yet the phrases ultimately convey no information whatsoever. But they somehow sound as if something intelligent is being said.

    I suppose the human brain is wired to follow authoritative phrases before thinking. It reminds me of this article I once read in The Economist….

  • Morning News: June 16, 2011
    Posted by on June 16th, 2011 at 8:07 am

    Europe Faces ‘Lehman Moment’ as Greece Unravels

    Societe Generale CEO: Greek Restructure Would Be Issue For Europe, Not Banks

    Ireland Opens New Front as ECB Battles Against Meltdown

    IEA Boosts 2016 Oil Demand Forecast, $100 Crude a Risk

    Consumer Prices Rise 0.2%

    Foreclosure Filings Plunge as Bank Delays Mask ‘True Face’ of U.S. Crisis

    Futures Slip as Caution Prevails

    HSBC, Citi Given Nod to Underwrite China Corporate Debt

    Terex to Acquire Demag Cranes for $1.4 Billion After Sweetening Its Offer

    Chinese Alibaba Group to Split E-Commerce Site, Talks I.P.O.

    Smithfield Foods Swings to Profit on Higher Prices

    American Retailers Try Again in Europe

    Women Are Better Investors, and Here’s Why

    Jeff Miller: How to Watch and Interpret the Greece Story

    Stone Street: Project YOKU-zuna: Failure to Execute

    Epicurean Dealmaker: The Two Beds of Procrustes

    Be sure to follow me on Twitter.

  • Inflation Hits Four-Year High
    Posted by on June 15th, 2011 at 8:14 pm

    Today’s CPI report showed that inflation rose by 0.2% in May which was 0.1% ahead of expectations. The core rate, which excludes food and energy prices, rose by 0.3% which was also 0.1% ahead of expectations.

    Breaking down the numbers, I took the monthly seasonally-adjusted core rates and annualized them. It turns out that May’s increase was the most in exactly four years. The seasonally adjusted core rate for May rose by 0.29%. Annualized, that comes to 3.50%. The last time it was higher was May 2006 when it rose by 3.57%.

  • Larry Called It
    Posted by on June 15th, 2011 at 2:08 pm

    After $HPQ’s board fired Mark Hurd (or forced him to resign), Larry Ellison sent an e-mail to the New York Times:

    Lawrence J. Ellison, the chief executive of Oracle, denounced Hewlett-Packard’s directors on Monday for forcing the resignation of the H.P. chief executive, Mark V. Hurd, who is a friend of Mr. Ellison’s.

    Mr. Hurd stepped down Friday after a sexual harassment inquiry found that he had filed inaccurate expense reports.

    In an impassioned e-mail sent to The New York Times, Mr. Ellison chided H.P.’s board for what he said was a grave mistake.

    “The H.P. board just made the worst personnel decision since the idiots on the Apple board fired Steve Jobs many years ago,” Mr. Ellison wrote. “That decision nearly destroyed Apple and would have if Steve hadn’t come back and saved them.”

    That was 10 months ago. Yep, I think Larry was right.

  • Louis Navellier’s E-Letter
    Posted by on June 15th, 2011 at 11:56 am

    I want to give a shout-out to my good friend Louis Navellier. He has a great (and free) e-letter that you can sign up for here. I highly recommend it.

    Louis is one of Wall Street’s legends. He’s one of the original “quant guys.” Nowadays, Wall Street is full of number crunchers, but Louis was doing this kind of work long before everyone else was. Not only that, but he has an amazing track record to boot.

    His e-letter always has some interesting insight or take on the market that you can’t find anywhere else. If you want to see a sample, here’s his latest where he names beverage stocks that “bring in the bucks.”

    To sign up, just follow this link.

  • Why Oracle Is a Good Value
    Posted by on June 15th, 2011 at 9:54 am

    Oracle‘s ($ORCL) fiscal Q4 earnings report comes out next week and I wanted to pass along this chart of the stock along with its earnings-per-share trend.

    As I usually do, I put the share price in blue and it follows the left scale while the EPS is in gold and it follows the right scale. The two lines are scaled at a ratio of 16 to 1 which means that the P/E Ratio is exactly 16 whenever the lines cross. The future part of the earnings line represents Wall Street’s consensus.

    The chart makes a few important points more clearly in graphic form than I could explain verbally. The first is that Oracle’s valuation is still rather subdued. The stock’s P/E Ratio is almost exactly the same as the S&P 500’s even though its earnings have fared much better than the overall market. As you can see, the earnings line was barely impacted by one of the worst recessions of the last 70 years. The rest of Corporate America, in contrast, saw its earnings plunge and we still haven’t made record earnings yet.

    The other point is that you can see how tepid Wall Street’s earnings projections are. If the future earnings projection is correct, it would be a dramatic deceleration of earnings growth (slowing of growth).

    I understand the need for conservative estimates and that’s most likely the sounder strategy, but I wanted to show you precisely what that means. If Oracle’s stock keeps tracking its earnings, I think it’s very likely that the stock will hit $36 before the end of the year. That’s about a 13% jump from yesterday’s close.

    Oracle likes to the play the “set-the-bar-low-and-guide-higher” game, and they play it very well. In March, for example, Oracle “shocked” Wall Street when it said it was expecting fiscal Q4 earnings to range between 69 cents and 73 cents per share.

    I think it’s interesting that Oracle was willing to give us this news when the quarter wasn’t even one month old. At the time, the Street was expecting 66 cents per share. Now the consensus is up to 71 cents per share.

    The company also gave us a 20% dividend increase recently. (Well…it was from five cents to six cents.) Look for a modest earnings beat, say, 73 cents per share. I’ll be interested to hear any guidance for the August quarter. Wall Street currently expects earnings of 46 cents per share.

  • Morning News: June 15, 2011
    Posted by on June 15th, 2011 at 7:43 am

    Greek Bailout Talks Deadlock as Pressure Mounts

    Greek Unions Stage Strike Against Austerity

    European Industrial Output Unexpectedly Increased in April

    China Moves Closer to Letting Foreign Banks Underwrite Yuan Bonds

    Oil Trades Near Three-Day High on U.S. Retail Sales; Stockpiles Decline

    Asia Grain Outlook: Japan Buys Wheat; Demand Subdued Elsewhere

    Stock Futures Slip After Rebound, CPI, Factory Data Due

    Bernanke Calls Debt Limit ‘Wrong Tool’ for Forcing Budget Cuts

    Fed Officials Discuss Explicit Inflation Target

    Shuttle’s End Leaves NASA a Pension Bill

    Mortgage Applications See Biggest Gain in 3 Months: MBA

    J.C. Penney Nabbing Johnson From Apple Sets ‘Huge Expectation’

    Pandora Prices Its I.P.O. at $16 Per Share

    Chevron Bets on Volcanoes in Indonesia

    Paul Kedrosky: Global Oil Crosses Into Structural Deficit

    Phil Pearlman: Examining the Open Cloud w GigaOM Pro

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