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.

Rising Inflation Expectations
Posted by Eddy Elfenbein on April 6th, 2011 at 10:29 am

One of the criticisms we hear from bearish investors is that the Federal Reserve has set us up for massive inflation. Personally, I tend to be pragmatic on these issues. If there is inflation coming, it’s certainly hiding itself well. While commodity prices are on the rise, we have yet to see a large surge in consumer prices. That may change soon.

But I’m not concerned with the political implications of inflation — hyper or not. I’m much more concerned with inflation’s impact on equity prices.

The danger of inflation is that it hurts bond prices and that, in turn, hurts stock valuations. Generally speaking, inflation doesn’t impact the stock market until it reaches a 5% annualized rate.

Once inflation passes 5%, stocks have historically been lousy investments. The only thing worse than inflation is deflation. What the market likes best is a low, boring rate of inflation.
One of the goals of the Fed’s policies has been to increase the market’s inflation expectations. The chart below shows the spread between the yield on the 10-year Treasury bond and the yield on the 10-year TIPs. In other words, this is the market’s view on the inflation premium.

Since last summer when the Fed announced QE2, the inflation premium has risen about 100 basis points. That’s a big rise. According to the market, however, inflation is far from being problem. For now.

I’m not always willing to accept the market’s judgment as correct. I find it very curious that the market doesn’t see much acceleration in the inflation premium.

While the spread between the 10-year Treasury and the 10-year TIPs is about 256 basis points, at five years, it’s only 232 basis points. That means the market expects inflation of 2.32% for the next five years and then 2.8% for the five years after that. That seems very optimistic.

Morning News: April 6, 2011
Posted by Eddy Elfenbein on April 6th, 2011 at 7:26 am

Euro Appreciates Before ECB Rates Meeting; Yen Falls on BOJ Stimulus Bets

Basel Develops Method to Identify Banks Posing Systemic Risk

European Central Bank: This Time, Politicians Content With Rate Rise

Toyota May Be Downgraded by Moody’s After Japan Earthquake

Contrarian Adding Bets in Mideast

Gold Climbs to Record in ‘Flight to Safety’ as Silver Reaches 31-Year Peak

Bernanke Faces Possible Fed Split on Maintaining Stimulus

Treasurys Rise Amid Debate On Fed; FDIC Rule Adds To Buying

Global Miner Rio Tinto Secures 49.49% Stake in $4 Billion Bid for Riversdale Mining

Pringles: Once a Great Flop, Now Sold for Billions

Dish Network Wins Blockbuster Auction With $320 Million Bid

Commerzbank to Repay $20.4 Billion of German Bailout

Chambers Vows ‘Fix’ as Cisco Stumbles

Sbarro Files for Chapter 11 Protection

Joshua Brown: So Many Black Swans that Only the White Ones are Rare

Nicholas Financial Opens Two New Branches
Posted by Eddy Elfenbein on April 5th, 2011 at 11:05 am

Here’s the latest press release:

Nicholas Financial, Inc. today announced the opening of two (2) new branch offices located in St. Louis, Missouri and Villa Park, IL, a Chicago area suburb. The new offices are Nicholas Financial’s first entries in both major metropolitan areas and continues the Company’s planned expansion of its branch office network, which now includes, fifty-six (56) offices in Florida, Alabama, Georgia, Kentucky, Indiana, Maryland, Michigan, North Carolina, Ohio, South Carolina, Tennessee, Virginia, Illinois and Missouri.

Nicholas employees have been working to develop business in each area for several months prior to the opening of the new locations. Each of the offices is a full-service lending and collection facility. Nicholas Financial acquires and services automobile and light truck installment sales finance contracts that it purchases from new and used car dealers.

According to Douglas Marohn, Senior Vice President, “We are reaping rewards from the performance of our branch business model in the Midwest. We intend to add additional branches in our new Missouri and Illinois markets as soon as they can be developed. Our success in Ohio, Michigan and Indiana has convinced us that the opportunity for successful growth in these markets is excellent.”

NICK’s business is traditionally heavily weighted towards Florida. The company is somewhat limited in its ability to expand since state laws vary on permissible chargeable interest.

Oracle’s Weighting Will Double in Nasdaq 100
Posted by Eddy Elfenbein on April 5th, 2011 at 10:27 am

The Nasdaq 100 Index ($QQQ) is one of the most important indexes for tech investors. The index represents the 100 largest non-financial stocks on the Nasdaq. One of the problems with the Nasdaq 100 is that Apple ($AAPL), which I believe is some sort of fruit company, currently represents more than one-fifth of the entire index.

Such a heavy weighting isn’t good for any index and it’s greatly disproportionate to Apple’s market value. As a result, the Nasdaq has announced that it’s rebalancing the Nasdaq 100.

This rebalancing will shift Apple’s weighting from 20.49% to 12.33%. This will have a big impact on the market since tons of ETFs own Apple, and the $QQQ ETF is one of the most popular investments on Wall Street.

While Apple will be a big loser in the rebalancing, one of the big winners will be our very own Oracle ($ORCL). The Nasdaq 100’s weighting for Oracle will more than double from 3.3% to 6.7%. You can see the full details of the rebalancing here.

Morning News: April 5, 2011
Posted by Eddy Elfenbein on April 5th, 2011 at 7:14 am

What’s Next for Singapore and the ASX?

China Raises Interest Rates to Counter Inflation Pressure

Moody’s Cuts Portugal, Says Bailout Needed Urgently

The Bank of Japan Answers The Trillion Dollar Question: What Is Causing The Commodity Rally?

Oil Declines for First Day in Four on Qaddafi Ouster Plan Report, Supplies

Silver Hits Fresh Peak In Asia; Gold Edges Higher

Dollar Strengthens Versus Euro on Bernanke Inflation Preparedness Comment

Geithner Sees ‘Severe Hardships’ If Debt Limit Isn’t Raised

Nasdaq Rebalance to Cut Apple’s Weighting

Texas Instruments Bets $6.5 Billion That Sales Force Can Stoke National Semiconductor’s Growth

The Antitrust Noose Is Tightening Around Google’s Neck

Buffett’s Ruthlessness Is Oddly Absent on Sokol

In Race With Groupon, LivingSocial Raises $400 Million

Erik Swarts: Where Rubber Meets the Road

Joshua Brown: Talking Cloud Computing Stocks on Yahoo

Buy List +9.19% YTD
Posted by Eddy Elfenbein on April 4th, 2011 at 10:53 pm

Today was another outstanding day for our Buy List. We gained 0.71% today compared with just 0.03% for the S&P 500. We’re now up 9.19% for the year to the S&P 500’s 5.98%. This is a pretty impressive run we’ve been on: we’ve beaten the S&P 500 for eight of the last nine days.

Ford ($F) got a big lift today thanks to an analyst upgrade from Credit Suisse. Bespoke notes that the stock is back above its 50-day moving average. Ford got as high as $15.74 today which is the highest level since February 18th. The next earnings report should be out in about three weeks.

Shares of Oracle ($ORCL), Deluxe ($DLX) and Leucadia (LUK) hit new 52-week highs today. Oracle got as high as $34.43 today. The stock seems to be experiencing a delayed positive surge from its recent earnings report.

I was happy to see Reynolds American ($RAI) briefly get over $36 per share. AFLAC ($AFL) closed today at $54.35 which is a post-quake high.

Remember that on Wednesday, the Bed Bath & Beyond ($BBBY) earnings report comes out. I’m not looking for spectacular earnings, but I’ll be very curious to hear what guidance they offer.

The Small-Cap Surge
Posted by Eddy Elfenbein on April 4th, 2011 at 10:42 am

I said that one of the effects of the Fed’s QE2 program is that it would cause investors to favor riskier assets. For example, they would favor stocks over bonds; and within stocks, they would favor riskier sectors like small-caps.

On Friday, the S&P Small-Cap 600 ($SML) broke 450 for the first time ever. In July 2007, the index reach an all-time intra-day high of 445.82.

The Russell 2000 ($RUT) broke above 850 which is just shy of its July 2007 high of 856.48. If the Nasdaq had kept pace with the Russell 2000, it would be over 7,300 today.