• Pfizer Beats By 10 Cents a Share
    Posted by on August 3rd, 2010 at 9:01 am

    Congratulations to Pfizer (PFE)! They just had a very good earnings report this morning. For the second quarter, PFE earned 62 cents a share which is ten cents more than Wall Street’s consensus.

    Pfizer’s revenue increased 58 percent to $17.3 billion, boosted by the addition of Wyeth’s pneumonia vaccine Prevnar and Enbrel rheumatoid arthritis treatment. Pfizer is counting on products gained from the acquisition to help offset losses next year when generic copies of its top-selling Lipitor cholesterol pill enter the market. The New York-based drugmaker also is slashing costs by firing 19,000 employees, closing eight manufacturing plants and shutting six research centers.
    “With the acquisition of Wyeth completed during the fourth quarter, Pfizer is now in the initial stages of integrating yet another big pharma company, its third in 10 years,” said Tim Anderson, an analyst with Sanford C. Bernstein & Co., in a July 13 note to clients. “Large amounts of cost-cutting and share repurchases should help keep earnings per share flattish.”

    Will this report be enough to get the shares moving? It’s hard to say but it seems like PFE has been stuck in the mud for some time. Pfizer said that it expects earnings-per-share of $2.10 to $2.20 for this year, and $2.25 to $2.35 for 2012.
    By any reasonable measure, Pfizer is a cheap stock. The quarterly dividend of 18 cents a share translates to a yield of 4.8%. Yesterday’s closing price of $15.48 gives the stock a forward P/E of around seven.
    I was greatly tempted to add Pfizer to this year’s Buy List, but I held off. Despite the low price, I’m wary of Pfizer. The company spent $68 billion acquiring Wyethe and now it’s laying off people left and right. Large-scale mergers make for great press releases but there are often unexpected troubles after a company digests a competitor. On top of that, the highly profitable drug Lipitor goes off patent next year and Pfizer’s new drugs have mostly bombed recently.
    Pfizer might be worth a buy soon, but I want to see a few more earnings reports like this one.
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  • Meet Li Lu, A Possible Successor to Warren Buffett
    Posted by on August 3rd, 2010 at 8:22 am

    Warren Buffett turns 80 soon and the world has often speculated on who will succeed him as chairman and CEO of Berkshire Hathaway (BRKA). Charlie Munger, Buffett’s alter-ego, may have let the cat out of the bag when he said that the choice of Li Lu is a “foregone conclusion.”
    So who is Li Lu?

    The Chinese-American investor already has made money for Berkshire: He introduced Mr. Munger to BYD Co., a Chinese battery and auto maker, and Berkshire invested. Since 2008, Berkshire’s BYD stake has surged more than six-fold, generating profit of about $1.2 billion, Mr. Buffett says. Mr. Li’s hedge funds have garnered an annualized compound return of 26.4% since 1998, compared to 2.25% for the Standard & Poor’s 500 stock index during the same period.
    Mr. Li’s ascent on Wall Street has been no less dramatic. He spent his childhood shuttling between foster families after his mother and father were sent to labor camps during the Cultural Revolution. After the Tiananmen Square protest, he escaped to France and came to the U.S. Investors in his hedge fund have included a group of senior U.S. business executives and the musician Sting, who calls Mr. Li “hardworking and clever.”
    Mr. Li’s investing strategy represents a significant shift for Mr. Buffett: Mr. Li invests chiefly in high-technology companies in Asia. Mr. Buffett typically has ignored investments in industries he says he doesn’t understand.
    Mr. Buffett says Berkshire’s top investing job could be filled by two or more managers who would be on equal footing and divide up responsibility for managing Berkshire’s $100 billion portfolio. David Sokol, chairman of Berkshire unit MidAmerican Energy Holdings, is considered top contender for CEO. Mr. Sokol, 53, joined MidAmerican in 1991 and is known for his tireless work ethic.
    In an interview, Mr. Buffett declines to comment directly on succession plans. But he doesn’t rule out bringing in an investment manager such as Mr. Li while still at Berkshire’s helm.
    “I like the idea of bringing on other investment managers while I’m still here,” Mr. Buffett says. He says he doesn’t preclude making a move this year, though he adds that there is no “goal” to bring on an additional manager that quickly either. Mr. Buffett says he envisions a team approach in which the Berkshire investment officials would be “paid as a group” from one pot, he says. “I don’t want them to compete.”
    Mr. Li fits the bill in some important ways, Mr. Buffett says. “You want someone” who “can think about problems that haven’t yet existed before,” he says. Mr. Li is a contrarian investor, loading up on BYD shares when they were beaten down. And he’s a big fan of Berkshire, which may also help his cause. “We don’t want them unless they have special feelings about Berkshire,” Mr. Buffett says.

  • ISM Lifts Stocks
    Posted by on August 2nd, 2010 at 12:21 pm

    The market is getting August off to a very good start. After Friday’s lousy GDP report, I wasn’t exactly looking forward to today’s ISM number. Fortunately, the index came in at 55.5 which is a decent number. The Street was expecting 54.2.
    If you’re not familiar with the ISM, it’s the Institute for Supply Management index that comes out at the beginning of each month. It’s one of the best measurements for how well the economy is doing. If the number is above 50, then the economy is growing. Below 50, it’s not. Today’s report is the 12th straight month of 50+ reports. What I like about the ISM is that it comes out early and that it’s not revised endlessly like GDP data.
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    Are we heading for a double-dip? It’s hard to say. For now, I would say that the odds are low but they’re increasing. The problem is that the outlook for the future is cloudy, even more than usual. What concerns me most is that the GDP numbers are very poor. Businesses have been growing earnings by growing their margins. That’s nice to see, but at some point you need to see growing sales as well.
    The Buy List is having a very nice day. As of now, all 20 stocks are higher. Reynolds American (RAI) just hit a new 52-week high. Here’s a quick investing lesson. The other day, Wright Express (WXS) came out with decent earning and the stock sold off. Here we are a few days later and it’s gained back all it lost and then some. Sometimes stock prices just make no darn sense.

  • Well, At Least Someone Is Making Money
    Posted by on July 31st, 2010 at 9:07 pm

    Bernanke made some coin last year:

    Federal Reserve Chairman Ben Bernanke’s personal finances recovered in 2009, disclosure forms released by the central bank on Friday showed.
    Bernanke listed assets in a range of $1.2 million to $2.5 million. They had slipped to between $822,011 to $1.8 million in the previous year, from $1.7 million and $2.5 million in 2007.
    Bernanke’s assets included annuities, mutual funds and money market funds. His two largest holdings were annuities from the TIAA-CREF financial services company worth between $500,001 and $1 million each.

  • Moog Beat By a Penny
    Posted by on July 30th, 2010 at 8:39 pm

    One more Buy List stock report. Moog (MOG-A) earned 64 cents per share which beat Wall Street’s estimates by a penny a share.
    In 2008, Moog earned $2.75 per share and that dropped to $1.98 per share last year. Last November, Moog said to expect EPS for this fiscal year (ending in September) between $2.15 and $2.35. They reiterated that in February. Then in May, Moog said to expect $2.35 per share which they reiterated today. On top of that, they gave an estimate for FY 2011 of $2.70 a share.
    The CEO also had something interesting to say:

    With third-quarter profits up 83.6 percent and earnings per share rocketing 73 percent, respectively, Robert Brady, the chairman of Moog, declared the recession is over for the aerospace and defense manufacturer.

    The stock was up 2.8% today and it’s our third best-performing stock this year.

  • Mad Men: Lie Vs. Lay
    Posted by on July 30th, 2010 at 1:29 pm

  • Recession Receded Worst Than Previously Thought
    Posted by on July 30th, 2010 at 11:15 am

    Today’s Q2 GDP report came out and it was ugly. The economy grew by just 2.4% in real terms for the second three months of the year. That was below the Street’s forecast of 2.6%.
    The Commerce Department also revised the GDP numbers going back to Q4 of 2006 and it turns out that the recession was even worse than they thought.
    Check out the old numbers versus the new ones:
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    Nothing is as surprising as the past.

  • NICK’s ROE 14.5%
    Posted by on July 30th, 2010 at 10:47 am

    Here are still more stats from NICK’s earnings report.
    The beginning and ending shareholder equity figures for the last quarter were $101,361,000 and $97,437,000. That averages to $99,399,000. NICK earned $3,425,500 for the quarter so that comes to a quarterly ROE of 3.45%. Annualized that comes to 14.51%.
    So this stock is almost like a 14.5% subprime bond that’s going for less than par and it’s credit quality is improving.
    That’s not a perfect analogy but it does place the stock in some context.

  • 96 Years Ago, the NYSE Shuts Down
    Posted by on July 30th, 2010 at 10:09 am

    On July 30, 1914, the Dow plunged 6.9% — from 56.20 to 52.32. There apparently were some difficulties in Europe. The NYSE then decided to shut down. Gary Alexander explains it:

    The Federal Reserve was finally formed in 1913 – in the nick of time, right before one of the scariest bank crises of the 20th Century. Early in the morning of Friday, July 31, 1914, the London Stock Exchange announced that it would suspend trading until further notice, the first time it had done so in its centuries-long heritage. World War I was beginning all over Europe, and stock markets had already closed in Vienna, Rome and Berlin. The U.S. stock market was in a state of panic, with blue chip stocks falling 20% or more on July 30, on record volume. If the New York Stock Exchange opened for trading on July 31, it would be the only open stock market in the world. Since markets were then connected by undersea cables, all the world’s sellers would converge on Wall Street. In fact, the overnight sell orders “at any price” were lined up for the opening bell, so the NYSE governors decided to close for only the second time in its history.
    The NYSE was effectively closed from July 31, 1914 to the middle of April, 1915. But on that fateful Friday, July 31, 1914, U.S. banks stayed open, and the rush to convert cash to gold wiped out many banks. From July 27 to August 7, $73 million in gold was withdrawn from New York banks alone. But the presence of the Federal Reserve insured that most of those banks survived.

    Here’s the NYT‘s story.

  • AFLAC’s Dividend Streak Is in Jeopardy
    Posted by on July 29th, 2010 at 10:31 pm

    When AFLAC (AFL) reported earnings on Tuesday, the company also declared a dividend for the third quarter of 28 cents per share. This news caught my attention because AFLAC hasn’t raised its dividend all year, and the company is famous for its yearly dividend increases.
    AFLAC has raised its dividend every year for the past 27 years so if they’re taking this year off, it’s big news. They now have just one quarter to go to keep the streak alive.
    Fortunately, CEO Dan Amos said on the conference call that a fourth-quarter increase is probably on the way:

    As I have conveyed over the last several quarters, we would like to return to that policy, when we believe it’s prudent to do so, extending our lengthy record 27 consecutive annual increases in the cash dividend that it is important to us and to our owners.
    Along those lines, I fully expect the Board of Directors to approve a modest increase in the cash dividend effective with the fourth quarter of this year. Additionally, we continue to believe that share repurchase is an effective means for enhancing shareholder value.

    Personally, I can do without the share repurchase. But getting back to the dividends, what’s especially impressive is that AFLAC has not only raised its dividend consistently, it’s done so by a lot. According to my numbers, AFLAC has raised its dividend by at least 12% every year since 1991. That’s as far back as my data goes so the streak may be even longer.
    I’m almost positive (say 99% confident) that this is the longest current double-digit dividend increase streak going. I’ve searched and searched and haven’t found one exception.
    What’s peculiar is that AFLAC is financially strong enough that it can easily raise its dividend. The company earned $1.35 last quarter so the 28-cent dividend translates to a modest payout ratio of 20.7%. What are they afraid of?
    I think it’s that the simply want to build up capital and show the market that they’re in strong financial shape. It’s odd that a move like this could only happen after a crisis, not before.