• Oil Hits $80
    Posted by on September 12th, 2007 at 3:26 pm

    Oil hit an all-time high today of $80.18. But adjusted for inflation, we still have more to go.

    Prices rose from 1979 through 1981 after Iran cut oil exports. The average cost of oil used by U.S. refiners was $37.48 a barrel in March 1981, according to the Energy Department, or $84.73 in today’s dollars.

  • Jos A Bank’s Earnings
    Posted by on September 12th, 2007 at 11:11 am

    Jos A Bank Clothiers (JOSB), the most erratic stock on our Buy List, just released very good second-quarter earnings. Sales rose 12% to $119 million and EPS came in at 44 cents a share which is a nice improvement over the 38 cents from last year. Wall Street was looking for 42 cents a share.
    Actually, breaking down the numbers, JOSB earned 44.49 cents per share. If they earned just $2,000 more, the number would round up to 45 cents per share.
    I’ve always noticed a tendency for EPS reports to come in at a number just about 0.5 so it can round higher. There’s probably some research report waiting to be written here (grad students take note). I’ll give JOSB credit for not trying to massage their earnings higher.
    All in all, this seems be a good report. I’ll have to dig through the numbers later. I added the stock at the beginning of the year and for awhile it seemed like a brilliant move on my part. The stock had been at over $48 and I was adding it at the year-end price of $29.35. By June, the stock had climbed back to $45. Since then, the stock has fallen all the way back to where it was. Fortunately, JOSB is doing well today.

  • What Should the Fed Funds Rate Be?
    Posted by on September 11th, 2007 at 2:57 pm

    Harvard Econ Professor (and blogger) Greg Mankiw came up with a nifty equation of determining what the Fed Funds rate ought to be.

    Federal funds rate = 8.5 + 1.4 (Core inflation – Unemployment)

    In July, the unemployment rate was 4.647%. The core CPI was 2.210%. That translates to a Fed Funds rate of 5.088%, which is below where the Fed is now. Here’s a look at how the Mankiw Rate compares with the real Fed Funds rate over the past few years.
    image523.png
    One small problem with this method is lag. The latest month we have data for is July. The August CPI will be coming out next week. (I also had a minor technical criticism of Mankiw’s equation.)

  • Orphan Stocks
    Posted by on September 11th, 2007 at 2:11 pm

    I’m a big fan of orphan stocks. These are companies with little or no analyst coverage.
    Last year, I highlighted three of my favorite banks with zero analysts following them. Since then, all three banks were bought out.
    It doesn’t take much to get a good idea of how well business is going. The filings have all the details.
    DealBook highlights a study on why firms get little coverage. Surprise, it’s because they don’t provide the investment banking income.

  • Automatic Data Processing (ADP)
    Posted by on September 11th, 2007 at 11:38 am

    ADP is starting to catch my eye as a good contrarian stock. (The first step, however, is to ignore their notoriously inaccurate monthly employment reports.)

    The stock is down to $44 from $50 in early June. I’m not claiming any great insight on its business, but it’s simply a good stock at a good price. In the last three years, earnings are up 56%. Gross margins are around 50% and the company has a solid balance sheet.

    The company also raised guidance for FY 08. ADP is now looking for 12% sales growth and profit growth of 18% to 21%. I like those numbers.
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  • Looking at Spinoffs
    Posted by on September 11th, 2007 at 10:34 am

    Here’s an interesting look at spinoffs I saw in the WSJ from a few months ago:

    Recent spinoffs have seen their shares drop more sharply than the historical trend: Spinoffs typically fall in the first month, recover by the third and start outperforming the market after six months. This happens as more analysts start covering the companies, and the spinoffs’ management teams, no longer part of big empires where attention and capital are often spread thin — are able to expand the businesses more aggressively.
    A Thomson Financial study of 200 spinoffs going back to 1996 bears this out. The median stock sank 2.1% one month after its spinoff, but then inched up 1.6% after three months. In six months, the median rose 8.2%, and it climbed 12.7% within 12 months. In the smaller sample of 83 businesses spun off from S&P 500 companies, the average share price was 37.3% higher in 12 months, beating the index’s 10-year average return of 6.7%.

    I’m not surprised by the initial underperformance, but I doubt the rebound is due to the sudden realization that management can do whatever it wants. I think the initial drop is simply due to a high price set by the parent and a flood of selling by shareholders.
    All things being equal, I look favorably at spin-offs. But there must be something worthy of spinning off before we can throw the usual hype about management no longer being constrained.
    For example, Eaton Vance (EV) spun-off Investors Financial Services (IFIN) and both stocks have been remarkable performers. In fact, IFIN was recently bought out at a very rich premium. Don’t jump at every spin-off. I think DNA matters more than people realize.

  • Wall Strip on Tim Hortons
    Posted by on September 11th, 2007 at 10:03 am

  • Crossing Wall Street Six Years Ago
    Posted by on September 11th, 2007 at 8:48 am

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  • The Money Honey Turns 40
    Posted by on September 10th, 2007 at 3:44 pm

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    Happy Birthday Maria from everyone at Crossing Wall Street!

  • The Infantilization of Corporate America.
    Posted by on September 10th, 2007 at 3:21 pm

    In the Weekly Standard, Matt Labash has a sharp take on how Corporate America forces the fun on its employees.

    There is, of course, a consultant for everything these days. Professional consultant-basher Martin Kihn, who is himself a consultant, and who wrote House of Lies: How Management Consultants Steal Your Watch and Then Tell You the Time, writes of everything from flag consultants to compost consultants to Satanic consultants who don’t actually worship Lucifer (consultants tend not to believe in anything). So it stands to reason that with the new core value of fun on the ascent, there would be fun consultants. They don’t have a trade association yet, and they go by all sorts of different names, usually with “fun” as a prefix (funsultants, funcilitators, etc). But if you had to distill what they do in one word, “fun” would be your best bet.
    A considerable corpus of literature on their discipline is amassing. I use the word “literature” loosely, to mean a series of often ungrammatical double-spaced sentences put on paper, slapped between festively colored covers, and sold to mouth-readers with too much discretionary income. While most business books, according to Kihn, are written on about a 7th-grade level (there are exceptions like Who Moved My Cheese? for Teens that are written on a 5th-grade level), the funsultant literature regresses all the way back to primary school. Since we all forget to play as adults, as funsultants repeatedly tell us, they seem intent on speaking to us as though we’re children.
    Their books are thick with instances of how successful businessmen keep things loosey-goosey at work. Forget industriousness, talent, and know-how–the wellspring of employees’ satisfaction, creativity, and prosperity is fun. In Mike Veeck’s Fun Is Good, the cofounder of Hooters Restaurants reveals, “I don’t know if we could’ve survived without humor,” whereas to the untrained eye it looked like Buffalo Chicken Strips served with large sides of waitress’s breasts were the secret to his success. Whatever. “Fun” is the cure-all for anything that ails your company.