• Apple Vs. Google
    Posted by on October 25th, 2010 at 11:27 am

    Russ Roberts spoke to Thomas Hazlett of George Mason in a podcast about the rivalry between Apple and Google:

    It is commonly argued that Apple with its closed platform and tight control from the top via Steve Jobs is making the same mistake it made in its earlier competition with Microsoft. Google on the other hand is lauded for its open platform and leveraging of a large number of suppliers for its Android phone, for example. Hazlett, drawing on his recent article in the Financial Times, argues that these arguments fail to recognize the different competitive advantages of Apple and Google and the implications of those advantages for the companies’ respective strategies. The conversation concludes with a discussion of the move to application-based web browsing such as Facebook, Twitter, and the implications for Google.

    The podcast is 68 minutes long.

  • Buy List +11.5 YTD
    Posted by on October 25th, 2010 at 10:21 am

    Our Buy List is having a very nice day so far but I should remind you (and me) to never judge a market day until the closing bell.

    All 20 stocks are trading higher. AFLAC (AFL) broke $56 per share and is very close to a new 52-week high. Intel (INTC) is inches away from $20 per share. Both Nicholas Financial (NICK) and Reynolds American (RAI) are at fresh 52-week highs.

    The Buy List is currently up 1.20% for the day and 11.50% for the year.

  • Fiserv and AFLAC’s Earnings Due this Week
    Posted by on October 25th, 2010 at 8:53 am

    This will be another busy week for earnings. I’m especially looking forward to Friday’s GDP report. This will be our first look out how well the economy did during the third quarter.

    So far, the much-talked-about Double Dip has been in the second derivative. The rate of growth has slowed down, but we haven’t actually seen negative growth. I don’t expect much from this report, perhaps around 2%.

    On our Buy List, Fiserv (FISV) and AFLAC (AFL) both will report on Tuesday. Fiserv rarely deviates much from Wall Street’s earnings forecast.

    The Street currently expects $1.00 per share for Q3 earnings. In July, they gave full-year guidance of $3.96 to $4.07 per share. I wouldn’t be surprised if they lifted the low end of that forecast.

    AFLAC said it expects Q3 earnings of $1.35 to $1.38 per share. Of course, since much of AFLAC’s business is in Japan, much of the fine-tuning depends on the yen/dollar rate. For all of 2010, AFLAC sees earnings of $5.34 per share.

  • Morning News: October 25, 2010
    Posted by on October 25th, 2010 at 7:16 am

    Dollar Sell-off Resumes Post G20, Fed Policy Key

    BP Sells Gulf of Mexico Fields to Pay for Oil Spill

    Singapore’s Offer for ASX Misses Mark

    G-20 to Avoid `Competitive Devaluation,’ Prod China

    Markets Smell Recovery as Consumers Drive Retail Sales

    Short Sales Resisted as Foreclosures Are Revived

    Existing Home Sales in U.S. Probably Rose for a Second Month

    App Makers Take Interest in Android

    Children Want Gadgets Not Toys for Christmas

    Try Not To Be Too Smart

  • Viva la Revolucion — Or Maybe Not
    Posted by on October 22nd, 2010 at 11:07 am

    Just one day after a socialist island country announced plans to shed 500,000 government jobs, another one plans to do the same.

    Cuba has laid out details of a sweeping tax system for the newly self-employed — a crucial step in the socialist state’s plan to convert hundreds of thousands of state workers into self-employed businesspeople.

    The tax code described in a two-page spread in the Communist Party newspaper Granma will have many Cubans paying more than a third of their income to the state, while those who create businesses and hire their own employees will pay more.

    Cuba announced last month that it was laying off half a million state workers — nearly 10 percent of the island’s work force — while opening up more avenues for self employment.

    At times, the article reads like a children’s lesson for a population with little experience at entrepreneurship — and almost none with the concept of taxes. It also offers a detailed peek at a mix of levies that would be complicated even for an accountant.

    Throughout, there is an attempt to soften the blow by explaining that no government can provide services without revenue.

    “Perhaps because Cubans are used to receiving medical care without taking a penny out of our pocket, or studying for free at any educational center we want, few stop to ask where the money the state uses for this comes from,” the article reads.

    Those selling goods and services will pay a 10 percent income tax monthly, as well as another 25 percent into a social security account, from which they will eventually draw a pension.

    Those who hire employees also will also have to pay a 25 percent payroll tax. The article says taxes will rise for successful businesses with many employees, but does not give details.

    “The tax has a regulatory character in order to avoid a concentration of wealth or the indiscriminate use of the labor force,” the article says. “The more people hired, the higher the tax burden.”

    Anyone making more than 50,000 Cuban pesos ($2,400) a year will have to open a bank account and keep detailed books — perhaps creating a market for the private accountants who will be allowed under the economic reforms. Those who earn less need only maintain a list of income and costs. Most Cuban state workers make about $20 a month.

    The article says people in some forms of self-employment will be exempt from the 10 percent tax and instead will pay a fixed amount each month, regardless of what they make. It does not say which jobs will be eligible for this approach, however, nor say how much tax workers will pay. These workers will also be obligated to pay the social security tax.

    The reforms are an effort to breathe life into a dormant socialist economy that can no longer afford to provide free or nearly free health care, education and basic food to its population. They are the most significant adopted by the communist government since at least the early 1990s.

    The new system borrows many aspects of capitalism, while keeping in place Cuba’s state-dominated control of the economy. Citizens will be allowed to apply for licenses to work for themselves in just 178 areas, from car maintenance to rabbit farming, accounting to circus clown.

  • Time for Lilly to Go Shopping
    Posted by on October 22nd, 2010 at 10:53 am

    There’s no question that Eli Lilly (LLY) is a cheap stock based on its earnings. The problem, however, isn’t past earnings but future earnings. The company is running out of new drugs and they need to get on the stick very soon.

    Lilly has repeatedly said that they have a lot of products in development. But everyone, including me, expects them to open their wallet to make an acquisition.

    The bad news is that Lilly just got slammed by Byetta (though not as badly as Amylin was hurt). The good news is that this may further spur them to make an acquisition. The talk now is that Lilly will buy either Cephalon (CEPH) or Endo Pharmaceuticals (ENDP).

    By 2013, Lilly loses patents on medicines responsible for almost half its revenue. The Bydureon rejection, which stalled a new revenue source for at least two years, was compounded Oct. 20 when the company halted tests on a second experimental diabetes medicine because it wasn’t effective. Lilly Chief Executive Officer John Lechleiter yesterday ruled out “large- scale combinations” while expressing interest in smaller deals.

    “An outright acquisition of Amylin certainly could make sense” if Lilly thinks Bydureon will be approved, Fernandez said in a telephone interview from Boston. Amylin, based in San Diego, lost half its market value on Oct. 20 after the Food and Drug Administration requested a study of Bydureon’s effect on heart rhythm.

    Eli Lilly currently has over $5 billion cash on hand — and it ain’t earning much interest in the bank.

    “Our fundamental strategy remains intact,” Lechleiter (that’s LLY’s CEO – Eddy) said during a conference call yesterday. “We’re not interested in large-scale combinations (yeah, right). I think there are many other opportunities that I think we could consider along the lines of several that we have done this year.”

    Lechleiter’s plan to stick to small purchases or licensing deals won’t give investors much confidence, said Barbara Ryan, an analyst with Deutsche Bank in New York, in a telephone interview.

    “A lot of those companies will just be adding to the pipeline and they’re not going to be something that the market will accrue much value to on Lilly,” Ryan said.

    United Therapeutics Corp. may also be a good fit because Lilly has an 11 percent stake and the two companies are partnered on Adcirca, a lung treatment made from the ingredient in Lilly’s impotence pill Cialis, according to Fernandez. Forest Laboratories Inc. (no, gag!) would be another option to complement Lilly’s research in antidepressants and arthritis medicines, he said.

  • Morning News: October 22, 2010
    Posted by on October 22nd, 2010 at 7:21 am

    Stock Index Futures Signal Falls as G20 and Earnings Eyed

    Geithner Push for Current Account Targets Splits G-20 Nations

    AIG Raises $17.8 Billion in Record AIA Hong Kong IPO

    Fannie and Freddie May Need Infusion

    UK Debt Cost Falls to Lowest Since 1980s

    Boeing Sales Beat `New Normal’ Pessimism as Fed May Act

    Caterpillar to Acquire MWM Holding for $806 Million

    Schlumberger’s Profit More Than Doubles

    UPS Profit Tops Analysts’ Estimates on Global Economic Pickup

    Credit Cards Soon to Get a Makeover

  • $10
    Posted by on October 21st, 2010 at 1:31 pm

    NICK printed $10 moments ago.

    It happened. It really happened.

  • Google Pays 2.4% Taxes on Overseas Profits
    Posted by on October 21st, 2010 at 11:55 am

    How much are you paying on your overseas taxes? Or do you even have overseas taxes? Well, if your name is Google then you’re only paying 2.4% on the profits you generate outside the country.

    For the record, the U.S. corporate tax rate is 35%.

    One analyst thinks that if Google followed the normal rules the stock would be $100 lower. Mind you, Google isn’t doing anything illegal, at least not as the laws now stand. Also, there are plenty more companies doing the exact same thing.

    These companies use a complicated maneuver where they send their taxes through Ireland to a tax-haven island. This is known at the “Double Irish.” Google uses Bermuda after a stop in the Netherlands. From 2007 to 2009, Google saved $3.1 billion.

    This Bermuda-managed entity is owned by a pair of Google subsidiaries that list as their directors two attorneys and a manager at Conyers Dill & Pearman, a Hamilton, Bermuda law firm.

    Tax planners call such an arrangement a Double Irish because it relies on two Irish companies. One pays royalties to use intellectual property, generating expenses that reduce Irish taxable income. The second collects the royalties in a tax haven like Bermuda, avoiding Irish taxes.

    To steer clear of an Irish withholding tax, payments from Google’s Dublin unit don’t go directly to Bermuda. A brief detour to the Netherlands avoids that liability, because Irish tax law exempts certain royalties to companies in other EU- member nations. The fees first go to a Dutch unit, Google Netherlands Holdings B.V., which pays out about 99.8 percent of what it collects to the Bermuda entity, company filings show. The Amsterdam-based subsidiary lists no employees.

    At least no one can be laid off.

  • Three More Earnings Reports
    Posted by on October 21st, 2010 at 10:37 am

    The most-hated rally in history continues to rally, and our Buy List is now up over 10% for the year. The S&P 500 finally broke through 1,185 this morning after failing two times before.

    First, though, let’s get to three more earnings reports this morning. They all sound the same—beating forecasts and raising guidance.

    Eli Lilly (LLY) reported earnings of $1.21 per share which is six cents more than Wall Street’s consensus. That’s a good showing, but the weak spot is that revenues rose only 1.7% to $5.65 billion, $120 million short of Wall Street’s estimates. As a result, the stock has pulled back modestly this morning.

    Bloomberg writes    :

    Top-selling Zyprexa fell 0.8 percent to $1.21 billion, while the antidepressant Cymbalta gained 4.4 percent to $825.3 million and the cancer treatment Alimta rose 21 percent to $560.3 million. Higher demand outside the U.S. drove revenue growth, Lilly said.

    Watch for Lilly to make some acquisitions soon. They need new drugs in the pipeline. The good news is that Lilly raised its full-year EPS forecast to a range of $4.65 to $4.75. Two months ago, the company said to expect $4.50 to $4.65. The shares are currently down about 1%.

    Baxter International (BAX) is up nearly 4% today thanks to a very good earnings report. For the third quarter, Baxter earned $1.01 per share which is four cents more than Wall Street’s forecast. The company also said to expect full-year earnings of $3.96 to $3.98 per share. (Wow—that’s a narrow range, but there’s only one quarter to go.) The earlier range was $3.93 to $3.98. For Q4, Baxter sees earnings of $1.09 to $1.11 per share.

    Sales of $3.22 billion, up 2.5%, topped Wall Street’s $3.16 billion forecast. Baxter noted that international sales growth was nicked by unfavorable foreign currency rates.

    Sales in the bioscience business were flat at $1.39 billion, or up 3% excluding the currency impact, but Baxter noted better performance there. Contributing factors included hemophilia treatments and strong demand for a plasma-based treatment for immune disorders and another that treats an inherited condition that can hurt the lungs.

    Sales in medication delivery, which includes items like intravenous solutions and drug infusion pumps. rose 5% to $1.23 billion, with growth reduced by the currency impact. Sales in the renal unit, which includes products for managing patients with end-stage kidney failure, grew 3% to $594 million.

    Reynolds American (RAI) earned $1.35 per share, one penny more than estimates. The company also raised the low end of its full-year forecast. Reynolds now expects full-year EPS to range between $4.95 and $5.05. The earlier range was $4.90 to $5.05.

    The number of cigarettes the company sold fell 2.6 percent to 20.1 billion sticks, but its market share rose slightly to 28.2 percent with increases in the market shares of both Camel and Pall Mall. Camel volumes grew 1.5 percent, and Pall Mall grew 45.1 percent in the quarter.

    Although the company has been selling fewer cigarettes, they’ve been able to raise the price. The AP writes:

    Reynolds American has aggressively promoted Pall Mall as a longer-lasting and more affordable cigarette as smokers weather the weak economy and high unemployment. During the quarter, the brand’s market share increased 2.8 points to 7.8 percent of the U.S. market.

    “Pall Mall is the right product at the right time,” Daniel M. Delen, the head of R.J. Reynolds Tobacco Co., said in a news release.

    Reynolds American and other tobacco companies are also focusing on cigarette alternatives — such as snuff and chewing tobacco — for future sales growth as tax increases, smoking bans, health concerns and social stigma make the cigarette business tougher.

    Reynolds American said third-quarter volumes of its Kodiak and Grizzly smokeless tobacco grew only 1.2 percent due to higher levels of promotion from its competitors.

    Shares of RAI are currently down about 1%.