Seven Straight Up Days for the Dow
Posted by Eddy Elfenbein on April 10th, 2007 at 11:34 am

The Dow has risen for the last seven sessions. Today could be day #8, but we’re currently down 3.9 points.
The Dow last had an eight-session win streak four years ago, at the beginning of the bull market. The Dow hasn’t had a nine-session win streak in over ten years.
In1987 when the Dow rose for the first 13 trading days of the year. Of course, we know what happened later that year.
The Dow rallied for 12 straight days twice, once in 1929 and again in 1970. The streak in 1929 came right after a six-day win streak for a combined 18-of-19 streak. Again, we know what happened later that year.
The record is from 1897 when the Dow rose for 14 straight days.

Earnings Preview: Bed Bath & Beyond
Posted by Eddy Elfenbein on April 10th, 2007 at 10:47 am

Tomorrow, Bed Bath & Beyond (BBBY) reports its fourth-quarter earnings. Like many retailers, the company’s fourth-quarter ends in February so it can take in the entire holiday shopping season. That’s a big time for BBBY. Historically, more than one-third of their profits come during the fourth quarter.
Sales have been growing in the low double-digit rate for the past few quarters, so I’m looking for a top-line number of about $1.9 billion. That works out to about 12.7% growth which should give the company a net earnings figure of about $222 million, or roughly 78 cents a share, which is exactly what the company told us to expect. It could be slightly higher or lower, but either way the company’s results are fairly easy to forecast. Despite what many people think, the slowdown in housing doesn’t affect BBBY that much.
The company has also warned us of a $40 million charge, or about 14 cents a share, to help employees out with the tax consequences of options grants. This came about as the part of the company’s options review.
I also expect BBBY to give us a peak at what they expect for this year. I think the company should be able to make about $2.40 a share this year. Barron’s mentioned earlier this year that if BBBY exceeds its conservative expectations, the stock can go to the upper-$40s, which certainly seems reasonable.
On last quarter’s conference call, the company said that it’s targeting sales and EPS growth of 10% a year. I think they’re obviously low-balling, but that’s how they do things. The other thing to watch is BBBY’s number of outstanding shares. The company has been buying back its stock at a nice pace for the past few years.
For some reason, $43 a share has been like Krypton for this stock. Let’s hope that changes in the next few weeks.
The AP has more.

Wall Strip Looks at the Refiners
Posted by Eddy Elfenbein on April 10th, 2007 at 9:41 am

Here’s a trend I wish I had spotted early on. The oil refinery stocks have been spectacular for the past five years. In today’s Wall Strip, Lindsay looks at two in particularly, Valero Energy (VLO) and Tesoro (TSO).
From its 2002 low, Valero’s stock is up more than tenfold. Tesoro’s rise has been ever more dramatic. In October of 2002, the stock closed as low as $1.33, and it’s currently over $107.
The good times may be coming to an end. Earnings for both stocks are expected to slip this year and next. Also, the price of oil took a big hit yesterday.

Buffett Goes Off the Rails
Posted by Eddy Elfenbein on April 9th, 2007 at 12:45 pm

Warren Buffett is investing in railroads:

Warren Buffett’s company recently invested in three railroads, and in the process, Berkshire Hathaway Inc. became the largest shareholder in the Burlington Northern Santa Fe Corp., according to a company filing and a media report that the company confirmed.
The disclosure sent Burlington Northern shares up more than 7 percent in midday trading Monday.
Omaha-based Berkshire Hathaway revealed in a filing with the Securities and Exchange Commission that it owned 39 million shares of Burlington Northern as of last Thursday. The cable network CNBC reported Buffett said Berkshire had also invested in two other railroads that he declined to name.

The Solengo Kerfluffle
Posted by Eddy Elfenbein on April 7th, 2007 at 7:40 pm

Before the suits find out, you can download the Solengo Capital marketing piece here.
(Hat Tip: Gary Weiss).

Volatility Returns! Then Leaves
Posted by Eddy Elfenbein on April 5th, 2007 at 2:26 pm

Remember how volatility finally returned on February 27? Well, it turns out that it didn’t stick around for too long.

Following 2/27, the S&P 500 had three +1% days and one -2% day, but in the last two weeks, the market has gone back to being as dull as usual.
For the last ten days, the S&P 500 has had an average daily swing of 0.49%, which is just about what it did for the six months prior to 2/27.
The Volatility Index (^VIX) is back below 13 today.

Danaher (DHR)
Posted by Eddy Elfenbein on April 5th, 2007 at 12:45 pm

I’m surprised more people don’t know about Danaher (DHR), especially considering how many people pay 2/20 to hedge fund managers who don’t have a prayer of beating DHR.
Earnings will come out two weeks from today. The company has already given us a range of 75 to 77 cents a share, which probably means 77 or 78 cents a share.
For last year’s first quarter, Danaher made 66 cents a share, so were talking about pretty good earnings growth. S&P just reported that earnings growth for the S&P 500 officially came in below 10% for fourth quarter, the first time that’s happened in 18 quarters.
Here’s a chart of Danaher (blue line is price, black is EPS and red is the forecast):

The right and left axes are scaled at 20-to-1, so when the lines cross, the stock has a P/E ratio of 20.

The Real Estate Roller Coaster
Posted by Eddy Elfenbein on April 4th, 2007 at 10:17 pm

Is It Too High or Too Low?
Posted by Eddy Elfenbein on April 4th, 2007 at 10:16 am

Here’s something to consider. This is a chart of Apple‘s (AAPL) stock for the first five years after its IPO.

In June 1983, the stock ran up to $7.84 a share (adjusted for three 2-for-1 splits), then plunged about 75% to less than $1.82 a share. So it was overpriced at $7.84, right?
But if you were unlucky enough to have bought it at the exact top, the stock is still up about 1,100% since then compared with 775% for the S&P 500. Including dividends, the S&P 500 would still come out ahead, but it’s interesting to think about “too expensive” means.

Subprime Homsick Blues
Posted by Eddy Elfenbein on April 4th, 2007 at 9:37 am

James Surowiecki looks at the subprime mess:

The backlash against the subprime lenders is understandable, since their business practices were often reckless and deceptive. Instead of responding to the slowdown in the housing market by cutting back their lending, they pressed their bets—last year, six hundred billion dollars’ worth of subprime loans were issued. Many of the lenders hid their troubles from investors, even as their executives were dumping stock; between August and February, for instance, New Century insiders sold more than twenty-five million dollars’ worth of shares. And there’s plenty of evidence that some lenders relied on what the Federal Reserve has called “fraud” and “abuse” to push loans on unwitting borrowers.
For all that, “predatory lending” is a woefully inadequate explanation of the subprime turmoil. If subprime lending consisted only of lenders exploiting borrowers, after all, it would be hard to understand why so many lenders are going bankrupt. (Subprime lenders appear to have been predators in the sense that Wile E. Coyote was.) Focussing on lenders’ greed misses a fundamental part of the subprime dynamic: the overambition and overconfidence of borrowers.

It’s seems that subprime lenders are in a never-ending cycle. If their standards are too loose, they’re accused of being predatory. If their standards are too tight, then they’re accused of “redlining.”