• Morning News: February 9, 2011
    Posted by on February 9th, 2011 at 7:30 am

    London Stock Exchange Ties Transatlantic Knot With Canada’s TMX Group

    China Yuan Trades Near 17-Year High After PBOC Rate Increase

    German Uber-Hawk Axel Weber Won’t Replace Trichet As ECB Chief

    AOC, Bridgestone, NEC, Nissan, Pioneer: Japan Equity Preview

    Emerging Stocks, U.S. Index Futures Decline as Wheat Advances

    An Early End to QE2?

    Fannie, Freddie Could Be Phased Out Under Treasury Housing Plan

    Precious Metals: Platinum, Palladium Hit Records; Gold Ebbs

    UBS Posts First Annual Profit Since Crisis

    Disney Parks Help Drive Gain in Profit

    Norwegian Oil Giant Statoil Falls 3% After 4Q Results Disappoint

    SAC, Citigroup, Galleon, Airgas, UBS in Court News

    Broker Wars

    Joshua Brown: Research or Insider Trading? A Guide (Reprise)

  • The CNBC Effect
    Posted by on February 8th, 2011 at 3:26 pm

    An academic paper looks at what happens to a stock after the CEO appears on CNBC. Basically, the stock pops then gradually gives it back.

    This paper investigates whether media attention systematically affects stock prices by analyzing price and volume reactions to 6,937 CEO interviews that were broadcast on CNBC between 1997 and 2006. We document a significant positive abnormal return of 162 basis points accompanied by abnormally high trading volume over the [-2, 0] trading day window. After the interviews, prices exhibit strong reversion; over the following ten trading days, the cumulative abnormal return is negative 108 basis points. The pattern is robust even after controlling for the announcements of major corporate events and surrounding news articles, and is larger in magnitude if the interview is accompanied by larger viewership. Furthermore, we find evidence that enthusiastic individual investors are more likely to trade based on CNBC interviews that are neither confounded by any events nor by other news articles. Lastly, we find that more attention drawing interviews are associated with higher short-selling volume, which suggests that rational utility maximizing investors take advantage of the regular pricing pattern related to the media attention.

  • John Paulson Made $5 Billion Last Year
    Posted by on February 8th, 2011 at 1:11 pm

    How’d you do last year? John Paulson made a cool $5 billion in 2010. Gregory Zuckerman explains how he did it:

    So John Paulson made $5 billion –- for himself -– during 2010. A number of Journal readers have contacted us, wanting more specifics on how he pulled off such huge gains. Still more readers want to know: Will this golden touch continue?

    First, a fuller explanation of the $5 billion personal gains. About $1 billion came from the 20% performance fee that Paulson & Co. reaped from the approximately $5 billion the hedge-fund firm generated for clients in 2010, as well as from management fees charged to clients of his $36 billion firm.

    What about Paulson’s remaining $4 billion? Keep in mind that Paulson began 2010 with about $10 billion of personal investments in his hedge funds, his investors say. Those holdings rose about 40%, or $4 billion, his investors say.

    Read the whole thing.

  • U.S. Takes Out Debt-Consolidation Loan
    Posted by on February 8th, 2011 at 11:18 am

  • The Long-Term Power of Dividends
    Posted by on February 8th, 2011 at 11:07 am

    The Federal Reserve Bank of St. Louis is a great resource for economic data. They just added some indexes for the Wilshire 5000 which is the broadest stock market index of all.

    I took the Wilshire 5000 Total Return index date, which includes dividends, and divided it by the normal Wilshire 5000. What’s left is the return generated solely by dividends. The chart is below. (To make it clearer, I set the starting number to 100.)

    I think too many investors ignore how important dividends are to total returns. After a while, those dividend checks really add up.

    Since the beginning of 1980, the Wilshire 5000 has gained more than 1,150%, but the total return index has gained over 2,750%.

    The return generated by dividends is 126.02%. That’s a tiny amount each day but it’s one you should never ignore.

  • James Altucher on Yahoo’s Tech Ticker
    Posted by on February 8th, 2011 at 10:34 am

  • Becton, Dickinson Beats Earnings, Sells Off
    Posted by on February 8th, 2011 at 10:17 am

    The stock market broke out to yet another multi-year high yesterday. The S&P 500 closed at 1,319.05 which is the highest close since June 25, 2008. That’s more than 31 months ago.

    A few of our stocks have missed earnings recently but I’ve been impressed with how well they’ve rebounded. AFLAC (AFL), for example, got as high as $58.99 before its earnings report. After it missed earnings, its shares pulled back to $56.50.

    This reaction didn’t make much sense since the company didn’t alter its long-term forecast at all. Yesterday, AFL got as high as $58.72. In other words, by just waiting a few days, the stock gained back nearly everything it lost.

    We’ve seen similar action with Ford (F). The stock got as low as $15.10, but it’s now back above $16 per share. I still think Ford is a $20 stock.

    The good thing about a well-diversified Buy List is that when some stocks are weak, you can be sure that others will be strong. Just yesterday, Stryker (SYK), Deluxe (DLX), Leucadia (LUK) and Wright Express (WXS) all broke out to new 52-week highs.

    This morning’s problem stock is Becton, Dickinson (BDX). The company reported earnings of $1.35 per share for its fiscal Q1 which was six cents more than expectations. However, revenues came in at $1.84 billion which was slightly below Wall Street’s forecast of $1.89 billion.

    In response, the shares are down about 4% in today’s trading. Again, this doesn’t make much sense to me. BDX said they expect full-year earnings somewhere between $5.45 and $5.55 per share. This is still an excellent buy.

    This is a light week for economic news. Most trading will be dominated by the tail-end of earnings season. Overall, this has been another strong earnings season.

    Note: I read the earnings report too quickly. After adjusting for a tax issue, BDX missed earnings by one penny. My apologies for the error.

  • Morning News: February 8, 2011
    Posted by on February 8th, 2011 at 7:24 am

    China Raises Key Interest Rates to Counter Inflation

    German Industrial Output Drops on Construction Slump

    Credit Markets: Issuance Tapers Off And Concessions Disappear

    Regulators Seek to Foil Moves to Undermine Pay Reform

    Can Huffington Transform AOL Like She Has Herself?

    UBS Optimistic on Attracting More Client Funds in 2011

    Toyota Raises Full-Year Forecast Despite Drop in Quarterly Profit

    Oil Driller Ensco to Buy Pride for $7.3 Billion

    Teva Pharmaceuticals Shares Drop After Fourth-Quarter Profit Misses Estimates

    Beazer Homes Swings To 1Q Loss As Closings, Orders Plunge

    World’s Largest Steelmaker, ArcelorMittal, Advances to Nine-Month High in London on Outlook

    Joshua Brown: Repatriate!

  • Sysco Earns 44 Cents Per Share
    Posted by on February 7th, 2011 at 10:58 am

    Bad news from Sysco (SYY). The company earned 44 cents per share, three cents below expectations due to higher food costs.

    Sysco began to see revenue improve last year as more consumers started eating meals out again, coming out of the recession. But now higher costs are standing in the way of real revenue growth.

    The company, the largest food-service distributor in the U.S., said food cost inflation of 4.5%, driven by ongoing double-digit increases in meat, dairy and seafood prices, hurt its customers’ food purchasing budgets for the quarter, just when demand should have been increasing from consumers going out to eat more. In the year-earlier period, Sysco benefited from deflation of 3.5%.

    Like the restaurants that it serves, Sysco faces the challenges of balancing how much of its rising costs can be passed on to its customers. While Sysco also has hospitals, schools and other institutions as customers, its restaurant base makes up the majority of its business and that industry took the brunt during the economic downturn.

    Sysco Chief Executive Bill DeLaney said in a news release that the fiscal second-quarter results “reflect the unfavorable impact of certain market conditions and operational challenges that we were unable to fully overcome in the near term…. Looking forward, we are highly focused on improving the execution of our business plan in the second half of our fiscal year.”

    This was a very disappointing report from Sysco. The stock dropped more than 6% today. Fortunately, the stock is still a good value and it pays a nice dividend. Going by today’s close, the yield is 3.7%.

    This is what the CEO had to say on the earnings call:

    In assessing our performance for the quarter and for that matter, the first half of our fiscal year, we clearly struggled to achieve some of our key business objectives. Market conditions definitely contributed to our struggles. However, there is no doubt that we have opportunities to improve the execution of our business plan as we move into the second half of our fiscal year. Such improvement is a top priority for me and our entire leadership team.

    Looking forward, I’m highly confident the Sysco is well positioned to grow our business profitably and at a faster rate than our $210 billion market growth over the longer term. We do believe that we are in the early stages of an economic recovery based upon our trends throughout calendar year 2010. However, as we saw on the second quarter, that recovery and to some extent, our financial results, may be somewhat choppy due to the economic challenges that consumers continue to face.

    Our operating cash flow remains strong and our strategy, which we presented in detail at our Investor Meeting in early December, is sound. As you may recall, our strategy is customer centric in nature with the strong emphasis on operational excellence. Our associates throughout Sysco continue to provide dedicated support and excellent service to our customers. Our business review process is more targeted than ever, and the quality of these reviews improves each year. While fuel cost increases in the impact of nearly 5% inflation in our overall product portfolio created pressure on delivery and selling expenses, we did experience productivity improvements in our warehouse operations and administrative support functions in the second quarter. We’re also encouraged by the current level of quality acquisition opportunities in the marketplace.

    This was a rough quarter for Sysco but I think the problems are manageable.

  • Danaher Buys Beckman Coulter
    Posted by on February 7th, 2011 at 10:09 am

    I’m a big fan of Danaher (DHR) and the stock used to be a member of the Buy List. I decided to take the stock off the Buy List for 2010, which probably wasn’t a smart move since the stock rallied 25% last year.

    The company just announced that it’s buying Beckman Coulter (BEC) for $5.8 billion in cash.

    Under the terms of the deal, Danaher will pay $83.50 per share in a tender offer for Beckman’s shares. The price is 11 percent higher than Beckman’s closing price on Friday and 45 percent above the company’s stock price on Dec. 9, before reports of a potential deal emerged.

    I’m surprised to see that DHR is up today. Usually, the acquiring firm drops when a buyout is announced. Danaher beat out two consortiums to buy BEC.

    I was hoping that DHR would drop below $35 so I could add it to this year’s Buy List. As much as I like the stock, I think it’s fairly priced here.