Jamie Dimon’s Shareholder Letter
Posted by Eddy Elfenbein on April 8th, 2011 at 8:47 am

Jamie Dimon just released this year’s shareholder letter. Here’s the whole thing and below is a story from Dow Jones:

J.P. Morgan Chase & Co. (JPM) could earn between $22 billion and $24 billion a year in a “normal” business environment, Chief Executive Jamie Dimon told shareholders in his annual letter.

The forecast represents the possibility the nation’s second biggest bank by assets, behind Bank of America Corp. (BAC), could grow earnings by more than 40% from 2010’s profit, which was a record $17 billion. The forecast would be double 2009 earnings.

Dimon didn’t give a time frame when the more “normal” earnings could be booked.

Dimon’s long letter to holders reiterated much of what he’s said publicly recently, including his plethora of concerns about regulations and their costs, warning that if reforms aren’t implemented carefully they could hurt the banking industry in the U.S.

And only weeks after the bank boosted its quarterly dividend as a result of passing the Federal Reserve’s stress tests, Dimon said “if it were up to me personally, I would reinvest all the capital into our company and not pay any dividend–but this is not what most shareholders want.”

He wrote that the bank’s first priority is to invest in organic growth. His second priority for capital would be to find acquisitions, both large and small. His third priority would be share buybacks.

Dimon’s letter also touted the bank’s survival through the crisis, saying it has gained market share and is positioned for future growth.

“Looking at these results in the context of the last three difficult years, what particularly pleases me is how exceptionally our company performed, not in absolute financial terms but in human terms,” he wrote.

“I remain, perhaps naively, optimistic,” he added.

JPM currently has 3.91 billion shares so Dimon’s forecast translates to an earnings-per-share range of $5.63 to $6.14. The stock closed yesterday at $47.40 which is roughly eight times Dimon’s “normal” environment estimate.

(By the way, Dimon’s $20.8 million pay package is in the news today. You’ll see plenty of phony outrage. Let’s remember that this works out to about half-a-penny per share.)

CWS Market Review – April 8, 2011
Posted by Eddy Elfenbein on April 8th, 2011 at 7:47 am

Far from being the cruelest month, the stock market and our Buy List are doing very well this month. We’re already up 9.56% for the year compared with just 6.03% for the S&P 500. As usual, we’ve accomplished this without making one single change to our Buy List this year, nor will we make any changes for the rest of the year.

Now let’s look at what’s been driving our success: First, we had great earnings from Jos. A Bank Clothiers ($JOSB) and Oracle ($ORCL); and the biggest star for us this week was unquestionably Bed Bath & Beyond ($BBBY). After the bell on Wednesday, the home furnishings retailer announced earnings of $1.12 for its fiscal fourth quarter. I was extremely impressed with these results.

In their last earnings report, Bed Bath & Beyond told us to expect Q4 earnings of 91 cents to 95 cents per share. I looked at the numbers and felt the company would beat that guidance, but only modestly. I was really surprised that BBBY did so well.

The details are very impressive. BBBY’s quarterly sales came in at $2.505 billion. That’s an increase of 11.6% over the fourth quarter of last year. It’s also an increase of over 30% from the fourth quarter of two years ago. Clearly, someone is breaking free from this economic slump! As fast as sales are growing, earnings are growing even faster. Year-over-year net profit margins have increased for the past eight-straight quarters.

But as I said in last week’s issue of CWS Market Review, I was really looking forward to hearing what Bed Bath & Beyond’s guidance for this year would be. In Wednesday’s earnings report, BBBY said it was expecting Q1 earnings of 58 cents to 61 cents per share. That’s a growth rate of 11.5% to 17.3% which is very good.

For the full-year, BBBY said to expect earnings to grow by 10% to 15%. Let’s break out some math: In this past year the company earned a total of $3.07 per share, so their forecast translates to a range between $3.38 and $3.53 per share. Honestly, I think that’s a conservative estimate but let’s stick with it since it’s still so early in the fiscal year (BBBY’s fiscal year ends in February).

On Thursday, the stock opened at $54 even. During the day, it got as high as $55.17 and finally closed at $54.55. That’s an amazing 10.45% gain in just one day. Up until then, BBBY had been one of our poorer-performing stocks this year, so score one big victory for holding on to high-quality stocks. There’s an old saying on Wall Street that sometimes the best stock to buy is the one you already own.

Due to the price surge, shares of BBBY aren’t exactly a screaming bargain anymore but I still think the stock is a good buy. It’s very likely that the company will give us some positive surprises this year and that should continue to help boost shares. I rate Bed Bath & Beyond a “strong buy” up to $55 per share.

One of our new additions to the 2011 Buy List is Deluxe Corp. ($DLX). I’ll admit that this was a bit of an oddball buy but I’m a stock junkie so I’ll go practically anywhere to find a good stock. Little did I know that DLX would turn out to be one of our biggest winners so far: through Thursday, shares of Deluxe are up 21.76%. Whodathunkit?

Deluxe is in the business of printing checks, which, to put it kindly, is a business with a limited future. I often tell investors, especially new investors, not to pay so much attention to what a company does. Instead, they should pay attention to how well the company does it. This is counterintuitive to how we think about business. Simply put, there’s money to be made in lots of places, and right now, Deluxe is a cash flow machine.

The shares ended 2010 at roughly half their 2007 high. Plus, they pay a decent dividend so I decided to add DLX to this year’s Buy List. In January, Deluxe reported Q4 earnings of 78 cents per share which was seven cents more than Wall Street was expecting.

With that earnings report, Deluxe said to expect earnings this year to range between $2.85 and $3.10 per share. That gave the stock an incredibly low P/E Ratio of eight. Even with the shares’ impressive rally, DLX is still going for only nine times the upper end of its range. On top of that, the 25-cent quarterly dividend works out to a yield of 3.6% which is more than a 10-year Treasury bond’s yield. Don’t let Deluxe’s dullness fool you. It’s a very good buy up to $30 per share.

First-quarter earnings season will start next week. Most of our Buy List stocks will report in late April and early May. However, we will have one early-bird earnings report and that will be from JPMorgan Chase ($JPM) which reports before the opening bell on Wednesday, April 13th.

For the fourth-quarter earnings report, I was convinced that JPM would beat Wall Street’s forecast of 99 cents per share. I said it would be at least $1.10 per share. It turned out to be $1.12 per share. The stock responded well and cracked $48 by mid-February but it hasn’t been able to top that price since then. The other good news was that JPM raised its dividend from five cents per share to 25 cents per share.

Wall Street currently expects JPM to report Q1 earnings of $1.16 per share. My numbers say to expect $1.24 per share. I’ll be very curious to hear how well JPM’s business units are performing. The most important factor affecting JPM is that the extra-wide yield curve is very good for them. Jamie Dimon, the CEO, just said that JPM could earn $22 billion to $24 billion in a “normal” business environment. That’s insanely good (around $5.60 to $6.20 per share), but Dimon didn’t say when. He just said that’s what they could do when things are “normal.” JPM is a very strong company. I think it’s a great buy below $50 per share.

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

Morning News: April 8, 2011
Posted by Eddy Elfenbein on April 8th, 2011 at 7:45 am

EU Stress Tests to Examine 90 Banks, 5% Core-Capital Pass Rate

Battle Starts Over British Bank Rules

Portugal to Face Strict EU Aid Terms Amid Political Storm

Japanese Central Bank Aids Utility, Rebuilding

Gold At Record In Asia; Silver Breaks $40/Oz.

Obama Demands Budget Deal to Avert Government Shutdown

The Logic of Cutting Corporate Taxes

Gas Prices Don’t Stall March Sales At Limited, Other Stores

Goldman Bets on China Insurance With $900 Million Taikang Stake Buy

Disney Plans Lavish Park in Shanghai

Expedia Plans Spinoff

Google Close to U.S. OK on ITA Deal

Ergen Wages Deal-a-Month Spree to Boost Dish, EchoStar With Web

Joshua Brown: Wall Street Gets Paid for the Demolition AND the Salvage

Howard Lindzon: Web 3.0…The ‘S’hock and ‘A’we Phase…Speed and Acceleration

Early Afternoon Market Update
Posted by Eddy Elfenbein on April 7th, 2011 at 1:25 pm

I wanted to give you a quick market update for today’s trading. It’s currently 1:20 pm here in the East. Our Buy List is up 0.51% today while the S&P 500 is down 0.28%. For the year, we’re almost exactly 10%.

Without question, the heavy lifting today has been done by Bed, Bath & Beyond ($BBBY) which is currently up 10.43% to $54.54.

Deluxe ($DLX) is up to $28.66 to another new 52-week high. I may have said this before, but I can’t believe that DLX is a 24% winner for us. Yesterday, Ford ($F) got as high as $15.98 although it’s pulled back some today.

AFLAC ($AFL) was having a good day today. The stock got as high as $55.24 this morning before news of another earthquake in Japan brought the shares to as low as $53.73. Fortunately, cooler heads are prevailing and the stock has rebounded to $54.18. AFLAC continues to be a very good buy.

Good Day for BBBY
Posted by Eddy Elfenbein on April 7th, 2011 at 9:55 am

Bed Bath & Beyond ($BBBY) opened at $54 per share.

AFLAC’s Silent Movie
Posted by Eddy Elfenbein on April 7th, 2011 at 9:42 am

I saw this commercial last night. It’s a smart way to continue with the ad campaign when the duck is voice-less.

Morning News: April 7, 2011
Posted by Eddy Elfenbein on April 7th, 2011 at 7:05 am

Euro Falls as Portugal Bailout Overshadows Rate-Increase Outlook

Banks Rally as Portugal Seeks Aid, Talks Seen Quick

German Industrial Production Rose More Than Forecast in February

Bank of England Governor King Faces Isolation in Europe as ECB Prepares to Raise Rate

The Dominoes Fall, As Spain’s Economic Minister Declares A Bailout Is “Absolutely Ruled Out”

U.S. and Colombia Near Trade Pact

Safe Haven Dubai Gains as Middle East Turmoil Disrupts Lives

World Food Prices Seen Rebounding to Record After Grains Rally, UN Says

Crude Oil Falls In Asia But Supply Concerns Persist

Gold Down In Asia But Stays In Bull Mode

Andreessen Horowitz Raises $200 Million Co-Investment Fund

Cisco: What Went Wrong and What Needs to Be Fixed

Blockbuster Auction Draws Liquidators

The Money Network

Joshua Brown: Long or Short Capital’s New Inflation Index

Howard Lindzon: The TRUTH About Warren Buffett…GREAT Rolodex and Deep Pockets Always Win!

Bed Bath & Beyond Earned $1.12 in Q4
Posted by Eddy Elfenbein on April 6th, 2011 at 4:25 pm

Wow! Bed Bath & Beyond ($BBBY) had an outstanding earnings report for the fourth quarter. The company earned $1.12 per share which was much higher than their earlier guidance of 91 cents to 95 cents per share. It was also much higher than I had been expecting. Sales rose 11.6% to $2.505 billion.

For the fiscal year ended February 26, 2011, the Company reported net earnings of $3.07 per diluted share ($791.3 million), an increase of approximately 33% over net earnings of $2.30 per diluted share ($600.0 million) a year ago. Net sales for fiscal 2010 were approximately $8.759 billion, an increase of approximately 11.9% from net sales of approximately $7.829 billion in the prior fiscal year. Comparable store sales for fiscal 2010 increased by approximately 7.8%, compared with an increase of approximately 4.4% last year.

For fiscal 2011, the Company is modeling net earnings per diluted share to be approximately $.58 to $.61 for the fiscal first quarter and to increase by approximately 10% to 15% for the full year.

Bed Bath & Beyond earned 52 cents per share in last year’s Q1, so today’s forecast translates to a growth rate of 11.5% to 17.3%.

If earnings grow this year at a 10% to 15% rate, that comes out to a full-year forecast of $3.38 to $3.53 per share. Wall Street had been expecting $3.33 per share.

Year-over-year operating margins and net margins have increased for eight straight quarters. Here’s BBBY’s trailing four-quarter EPS, with the company’s forecast in red.

Here’s a look at BBBY’s quarterly numbers for the past few years:

The Middies Rule!
Posted by Eddy Elfenbein on April 6th, 2011 at 12:48 pm

Here’s something odd. The top-performing size category has been the mid-caps.

On the chart below, the black line is the S&P 400 Mid-Cap Index ($MID). The middies have outpaced the blue line which is the S&P 600 Small-Cap Index ($SML). The monster-cap S&P 100 ($OEX) in red trails everyone.

I say that this is odd because the middies are rarely at the extreme. They can usually been found mid-way between whatever the large-caps and small-caps are doing.

Trading Volume at Citigroup
Posted by Eddy Elfenbein on April 6th, 2011 at 11:17 am

If you ever want to check some insane numbers on Wall Street, look at trading volume for Citigroup ($C). This is the usually the most-traded stock each day. The trading volume isn’t just high, it’s amazingly high.

There are two main reasons for Citi’s huge volume. One is that the share price is low (currently $4.51, though it once was $57) and the other is that Citi has 29 billion shares outstanding. This makes Citi a favorite for day traders and high-frequency traders.

Average daily volume for Citi usually runs around 500 million shares. Since the financial crisis broke, Citi’s volume has topped one billion shares in a single day 60 times. Last December, when the government said it was ditching the last of its Citi stock, the total volume topped 3.2 billion in a single day. Over a trading day, that’s an average of 140,000 shares per second.

The trading bonanza must come to a close soon as Citi said it will have a 1-for-10 reverse stock split. This means that shareholders will have one-tenth as many shares but the price will increase by ten-fold.

I’ll be curious to see if trading volume drops by far more than one-tenth. I bet it will.