RIP: Mark Haines
Posted by Eddy Elfenbein on May 25th, 2011 at 10:53 am

Sad news today. CNBC anchor Mark Haines has passed away at age of 65.

Veteran journalist Mark Haines, a fixture on CNBC for 22 years, died unexpectedly Tuesday evening. He was 65 years old.

Haines, founding anchor of CNBC’s morning show “Squawk Box,” was co-anchor of the network’s “Squawk on the Street” program, providing insight and commentary sometimes humorous and occasionally acerbic.

CNBC President Mark Hoffman called Haines a “building block” of the financial networks’ programming. Hoffman said Haines died at his home.

“With his searing wit, profound insight and piercing interview style, he was a constant and trusted presence in business news for more than 20 years,” Hoffman said in a statement to CNBC employees. “From the dotcom bubble to the tragic events of 9/11 to the depths of the financial crisis, Mark was always the unflappable pro.

“Mark loved CNBC and we loved him back. He will be deeply missed.”

I always loved Haines’ style. He refused to let guests bully him. Check out this classic clip when Barney Frank tried to bully Haines. Let’s just say Frank didn’t come out the winner:

Fastenal ($FAST) — A 299-Fold Winner
Posted by Eddy Elfenbein on May 25th, 2011 at 8:09 am

Here’s another edition in our continuing series of great companies that no one’s heard of. Well…in this case, many people have heard of Fastenal ($FAST) but few realize how greatly this stock has performed.

Here’s the company description from Hoover’s:

Some might say it has a screw loose, but things are really pretty snug at Fastenal. The company operates more than 2,360 stores in all 50 US states as well as in Canada, Mexico, Puerto Rico, Asia, and Europe. Its stores stock about 690,000 products in about a dozen categories, including threaded fasteners (such as screws, nuts, and bolts). Other sales come from fluid-transfer parts for hydraulic and pneumatic power; janitorial, electrical, and welding supplies; material handling items; metal-cutting tool blades; and power tools. Its customers are typically construction, manufacturing, and other industrial professionals. Fastenal Company was founded by its chairman Bob Kierlin in 1967 and went public in 1987.

This week, FAST split its stock 2-for-1. This is the seventh split since it went public. The totals are six 2-for-1 splits and one 3-for-2 split which adds up to 96-for-1.

Shortly after the IPO and one week after the market crash in October 1987, shares of FAST closed at $10-3/8 (yuck…I hated those fractions). Adjusted for splits, that’s 10.81 cents per share. This year, the company will earn about that much each month.

FAST closed yesterday at $32.32 per share. So in less than 24 years, the stock is up 299-fold. An initial investment of $10,000 would be worth nearly $3 million today — and that doesn’t include dividends. Annualized, that works out to 26.8% per year for nearly a quarter of a century.

Last month, Fastenal said that Q1 profits rose 42% and revenue jumped 23%. The company earned 54 cents per share which was three cents better than estimates (those numbers aren’t adjusted for this week’s 2-for-1 split). Wall Street currently expects full-year earnings of $1.17 per share.

Here’s a look at the long-term chart. FAST has beaten the S&P 500 so badly that the index looks like a flat line in comparison.

Morning News: May 25, 2011
Posted by Eddy Elfenbein on May 25th, 2011 at 7:48 am

French Minister to Seek Top I.M.F. Job

Why The BRIC Revolt At The IMF Is A Huge Deal With Devastating Implications

OECD Cuts Japan GDP Forecast Again, Urges Easy Monetary Policy

Greece Should Hold Referendum on Reform Program, SEV Head Says

China’s Utilities Cut Energy Production, Defying Beijing

South African Rand Slumps to Lowest Versus Dollar in More Than a Week on Risk Aversion

Gold May Climb as Concern About European Sovereign Debts Increases Demand

U.S. Suit Sees Manipulation of Oil Trades

Tumult? AIG’s ‘Re-IPO’ Remains on Go-Ahead

Russian Internet Firm Yandex Leads IPO Pack

Summary of Reported EPS for First Quarter of ’11 for S&P 500

Costco 3Q Profit Rose 6%; Sales Growth Offset Lower Margins

Toll Reports Second-Quarter Net Loss After ‘Disappointing’ Selling Season

Liberty Media Plans A Hands-Off Role At Barnes & Noble

An Econometric Approach to Tactical Asset Allocation

Brian Shannon: Stock Market Video Analysis 5/24/11

Stone Street: Goodbye Ruble Tuesday

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Target Vs. TJX Companies
Posted by Eddy Elfenbein on May 24th, 2011 at 2:34 pm

I really don’t have anything profound to say with this post but I was struck by the large divergence between Target ($TGT) and TJX Companies ($TJX).

Normally, companies in the same industry tend to track each with some minor variation — and these companies did until about three years ago. Since then, TJX has raced ahead of Target, and the gap has grown even larger this year.

Target still has a larger market cap than TJX does ($34 billion to $21 billion). TJX’s stock dropped earlier this month after missing earnings by two cents per share. That broke an impressive streak of meeting or beating. Meanwhile, Target had a good earnings report last week although it hasn’t experienced the profit growth recently that TJX has.

TJX now has a distinct valuation premium over Target. Target currently goes for 11.74 times Wall Street’s consensus for this year’s earnings, and 10.88 times next year’s. TJX goes for 13.69 times this year’s estimate and 12.24 times next year’s.

This is a good example of the lesson I’ve told investors many times — don’t concentrate so much on what a company does. Instead, focus on how well they do it. I can’t tell you how many times investors ask me about some stock that’s supposed to be the next “fill in the blank.”

TJX isn’t the next anything, but they executed their business very well and the stock has been handsomely rewarded.

Putting LinkedIn’s Price Into Context
Posted by Eddy Elfenbein on May 24th, 2011 at 2:01 pm

How expensive are shares of LinkedIn ($LNKD)?:

Surging demand for social-media stock and a comeback in venture-capital IPOs propelled LinkedIn to a high of $122.70 in its first day of trading from an initial price of $45. With a market value of $8.45 billion, the company must boost revenue by 148 percent a year, twice its growth rate since 2009, to bring its price-sales ratio in line with the Dow Jones Internet Services Index by 2013, Bloomberg data show.

“This is not something we even consider investing in,” said Haverty, who helps oversee $35 billion in Rye, New York. “This is a sideshow. It’s a magic show,” he said. “The only question for the investor is how soon they should sell.”

I think when most people say “this time is different,” they really mean, “this time is different because now I own the stock.”

Medtronic Misses Earnings
Posted by Eddy Elfenbein on May 24th, 2011 at 11:21 am

This morning, Medtronic ($MDT) reported earnings of 90 cents per share for their fiscal Q4 which was two cents below the Street’s consensus (though some sources said the consensus was 93 cents per share). Quarterly revenue came in at $4.29 billion which matched consensus.

Worldwide sales of cardiac rhythm management products, including ICDs and pacemakers, fell 7 percent to $1.32 billion. Spine device sales fell 1 percent to $875 million.

Cardiovascular device sales, including stents to treat clogged arteries, rose 16 percent to $879 million. Neuromodulation device sales, which include pain treatments, rose 5 percent to $432 million, and diabetes device sales rose 11 percent to $368 million.

For fiscal 2012, Medtronic forecast earnings of $3.43 to $3.50 a share, below analysts’ expectations, on overall revenue growth in a range of 1 percent to 3 percent. It characterized its outlook as cautious, reflecting expected continued weakness in its key device markets.

For the year, Medtronic earned $3.37 per share on revenue of $15.993 billion. During the past several months, Medtronic has gradually lowered its 2011 earnings estimates. The 2011 EPS range went from $3.45 to $3.55, to $3.40 to $3.48, to $3.38 to $3.44, to $3.38 to $3.40 per share.

As I’ve said many times, I really like it when companies provide guidance and when they update that guidance throughout the year. Ultimately, Medtronic fell short of their guidance by one penny per share. That’s not what I wanted to see, but I’m still pleased with Medtronic’s development.

Medtronic’s fiscal year ends in April, so their FY 2012 just started. The company also provided its first guidance for 2012. Medtronic sees full-year earnings-per-share ranging between $3.43 and $3.50. The Street has been expecting $3.62 per share.

The stock is currently down about 1.5% this morning. Here’s a look at Medtronic’s quarterly results for the past several years:

Morning News: May 24, 2011
Posted by Eddy Elfenbein on May 24th, 2011 at 7:51 am

Greek Worries Halt Euro’s Rally

Greek Opposition Leader Rejects New Austerity Plan

HK Shares Pare Losses To End Flat; China Mobile Gains

Analysis: Asia’s Reticence Costs It A Shot At IMF Power

Goldman Finding Third Time a Charm in Russia

An Interesting Change In German And Spanish Markets

Obama Says Ireland’s Resilience Will Drive Recovery

Commodities Gain as Goldman Advises Buying

U.S. Sues to Stop H&R Block Deal for Rival

Liberty’s Greg Maffei Says Barnes & Noble Stores Can Drive Digital Sales

Yandex Said to Raise $1.3 Billion as Public Offering Prices Above Range

Why LinkedIn’s Price May Have Been Right

Glencore Stuck Below Offer Price on Day One

Delta Ups LaGuardia Push Amid N.Y. Competition

Todd Sullivan: Jamba Turns The Corner…

Joshua Brown: The Barrel Bounce

Paul Kedrosky: Serial Bubble-Callers R Us

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Our Buy List Is Well Ahead of the S&P 500
Posted by Eddy Elfenbein on May 23rd, 2011 at 12:46 pm

We’re just over halfway through Q2 and our Buy List is holding up well against the broader market. Through Friday, the Buy List is up 11.08% while the S&P 500 is up 6.01%. That’s a lead of 507 basis points.

Both the Buy List and the S&P 500 are down today. Due to further weakness in the cyclicals, we should outperform the S&P 500 again today. Here’s a look at the Buy List’s spread over the S&P 500 this year.

Put Those Rate Hike Expectations on Hold
Posted by Eddy Elfenbein on May 23rd, 2011 at 9:54 am

I had been expecting the Federal Reserve to hike interest rates before most people expected. Now I think it’s time for me to change that outlook (and yes, we always want to change our market views based on new information — you never want to be tied to a thesis).

First, check this out. It’s from the Cleveland Fed and shows the market’s take on a Federal Reserve rate hike at the next few FOMC meetings. The lesson is that the market overwhelmingly expects the Fed to keep rates unchanged at near 0%.

Here’s a look at May 2012 futures contract for the Fed Funds rate. This is a full year away and the market has turned decidedly against any major move from the central bank.

LinkedIn and the Winner-Take-All
Posted by Eddy Elfenbein on May 23rd, 2011 at 8:43 am

With the success of LindedIn’s ($LNKD) IPO, I want to discuss one of the reasons, in my opinion, why Internet stocks have caused such a frenzy for a little over a decade.

One of the popular ideas that swept thinking circles in the mid-1990s was the impact of what economists call “natural monopolies.” The idea was also known as “the first mover advantage.” Robert Frank’s book, “The Winner-Take-All Society,” also touched on these themes.

The general idea is that if a company is the first to unveil a certain type of product, it becomes “the standard.” This is crucial because it’s in everyone’s interest to recognize it as the standard.

Probably the best example is Microsoft’s ($MSFT) Windows. Once Windows was established as the standard, so the idea goes, no one could knock it off and the company enjoyed an enormous competitive advantage. There’s no need to for two operating systems. Similarly, there was no need for VHS and Betamax to exist. (In econo-speak, a natural monopoly has very high fixed costs relative to its variable costs.)

Likewise, when one company is established on the Internet, say selling pet supplies as advertised by a sock puppet, it will hold a near-monopoly over the entire industry. As a result, the normal metrics of valuing a company need not apply. Or so we were told.

I remember how often I was told that some Internet stock was going to be huge and that it all had to do with the QWERTY keyboard. This was the easy way to explain the first-mover advantage. The story is that the QWERTY keyboard was established in the 19th century even though it’s an inefficient layout. The reason it won out, and is still around today, is that it became enthroned as the standard. QWERTY became the winner, and it took all.

The takeaway is that the better mousetrap didn’t win the race (I’m mixing metaphors; deal). The worse keyboard board won only because it was first. Again, so we were told.

It’s hard to emphasize strongly enough how widespread these ideas were. In Bill Clinton’s re-election campaign, he often warned voters about the emergence of the winner-take-all society. In 1998, there was even a new tech magazine called The Industry Standard.

Today, LinkedIn potentially holds a similar winner-take-all grip over the resume market. Why bother being listed some place? The problem with the winner-take-all thesis is that it doesn’t always hold. Industry standards do get knocked out. It may take time, but it can happen.

By the way, not all the stories we told we true. In typing contests, for example, QWERTY has held its own as an efficient layout. The biggest threat to natural monopolies comes, not from a competitor, but from innovation. As a result, these standards can be far more vulnerable than we realize. That’s why I’m so suspicious of the elevated price for LinkedIn.

One more thing: in 2001, the The Industry Standard went bankrupt.