• Trophy Stocks
    Posted by on June 6th, 2007 at 9:13 am

    Tom Wolfe coined the phrase “trophy wife.” Now, Michael Lewis says the reason the rich want to own newspapers isn’t for the money, but for the status.

    This logic explains what appears to be happening right now inside the two great national newspapers, the New York Times and the Wall Street Journal.
    The cachet of the New York Times is worth more to the Sulzberger family than to anyone else. The Sulzbergers’ relationship to the Times is the chief source of their status; without it they are mere mortals with a bit of cash; and so the Sulzbergers cling to their control of the Times as tightly as ever.
    Instead of getting out while the getting is good, they flop around looking for new ways to raise money without ceding control, and to make money without leaving the news business. Which is to say, they are working as hard as they possibly can to throw good money after bad — with the predictable result that they have alienated their outside investors.

    When you have nothing else to offer except a gazillion Class A shares, you’ll naturally overvalue your role, which the Bancrofts see as protecting the Journal’s independence. They’re confusing vanity for high-mindedness.

  • Morgan: Triple Sell
    Posted by on June 6th, 2007 at 9:01 am

    FT Alphaville reports that Morgan Stanley’s three key indicators are flashing SELL.
    Since 1980, this has happened only five other times. Six months later, the stock market hasn’t don’t very well:

    Apr 1981 -10.8%
    Sep 1987 -25.2%
    Feb 1990 -6.8%
    May 1992 -7.0%
    Apr 2002 -26.2%

  • $59.1 Trillion in Liabilities
    Posted by on June 6th, 2007 at 8:52 am

    Guess what company lost $1.3 trillion last year. I’ll give you a hint: You’re a shareholder.
    Of course, that’s only $1.3 trillion if it has to follow corporate-style accounting standards, which it doesn’t.

  • WSJ on Bed Bath & Beyond
    Posted by on June 6th, 2007 at 8:27 am

    The Wall Street Journal looks at Bed Bath & Beyond‘s (BBBY) first-ever profting warning:

    Bed Bath now trades at 16.1 times estimated per-share earnings for the next 12 months, a tad cheaper than the overall market, according to Credit Suisse. While that is well below the 25 price/earnings average of the past five years, Bed Bath doesn’t have the growth prospects it once had for its flagship stores, and investors have been frustrated with the slow progress in its other businesses, such as its specialty Christmas Tree Shops.
    Bulls point out that Bed Bath’s balance sheet is impressive. It holds about $1 billion more cash than debt, according to data company Capital IQ.
    And the earnings disappointment was relatively minor: The company said it would earn between 36 cents and 38 cents in the first quarter, which ended June 2, compared with expectations of 39 cents. Bed Bath’s same-store sales, or sales at stores open at least a year, are expected to rise 1.6%, besting many peers though below the company’s longstanding projection of 3% to 5% growth.
    But there are indications that Bed Bath’s historically juicy profit margins — 14% in 2006 — may be challenged by competitors, such as closely held Linens ‘n Things, which has been cutting prices amid its own sales decline.
    Another reason for bearishness: The company’s stores are getting older and are about at the point where money is needed to update them, argues Stephen Long, a portfolio manager at Hanover Square Capital, a New York hedge fund with less than $50 million in assets, which has been betting against Bed Bath in recent months.
    “Growth is falling; that suggests to us that the core concept is very mature,” Mr. Long says. “The stock will drift down to $33 as growth investors” bail out of the stock and are replaced by value-oriented investors.

    I still don’t see any reason to worry. All of the problems cited are problems that nearly every company in the sector faces. Let’s not forget the basics: BBBY is a very well-managed company, with sold financials going for a reasonable price. The bullish case for BBBY is that simple.

  • Think Gasoline is Expensive in Your Area?
    Posted by on June 5th, 2007 at 2:05 pm

    Think again:
    Amsterdam…………………………………..$6.48
    Oslo……………………………………………$6.27
    Milan ………………………………………….$5.96
    Copenhagen ……………………………….$5.93
    Brussels ……………………………………..$5.91
    Stockholm ……………………………………$5.80
    London ………………………………………..$5.79
    Frankfurt ……………………………………..$5.57
    Paris …………………………………………..$5.54
    Lisbon …………………………………………$5.35
    Budapest ……………………………………..$4.94
    Luxembourg ………………………………… $4.82
    Zagreb………………………………………… $4.81
    Dublin ………………………………………….$4.78
    Geneva……………………………………….. $4.74
    Madrid …………………………………………$4.55
    Tokyo ………………………………………….$4.24
    Prague ………………………………………..$4.19
    Bucharest …………………………………….$4.09
    Andorra ……………………………………….$4.08
    Tallinn …………………………………………$3.62
    Sofia …………………………………………..$3.52
    Brasilia ………………………………………..$3.12
    Havana ………………………………………..$3.03

  • The Backlash against Private Equity
    Posted by on June 5th, 2007 at 1:51 pm

    When most investors think of risk, they think of stocks going down. Today, I think a big risk investors face is selling out too early.
    Last week, I wrote about an emerging backlash against private equity buyouts and, in particular, my opposition to the Biomet (BMET) deal. Basically, these PE guys are getting great deals and I’d like to see more shareholders say “not so fast.”
    To quote George Bailey:

    Can’t you understand what’s happening here? Don’t you see what’s happening? Potter isn’t selling. Potter’s buying. And why, because we’re panicky and he’s not! He’s picking up some bargains. Now we can get through this thing all right. We’ve got to stick together though; we’ve got to have faith in each other.

    As usual, I’m totally ahead of the curve.
    The Wall Street Journal noted this backlash in an article yesterday. Some private equity deals are being sweetened, or organized as “stub equity,” meaning shareholders get a stake on the private equity side.
    I was happy to see shareholder win a victory when the private equity offer for Laureate Education (LAUR) had to be raised to $62 a share from $60.50 a share due to shareholder opposition. Would it surprise you to learn that the private equity group is being led by the company’s CEO?
    This is a nice reminder that management works for shareholders, not vice versa.

  • WallStrip on Rick’s Cabaret
    Posted by on June 5th, 2007 at 12:09 pm

  • Goldman Sachs Runs Italy?
    Posted by on June 5th, 2007 at 10:57 am

    Some Italians aren’t pleased that their prime minister, head of the central bank and deputy treasury head are all former Goldman Sachers.
    I understand, but look at it this way: Who has a better government track record over the last 100 years, Italy or Goldman?

  • Avaya To Be Taken Private
    Posted by on June 5th, 2007 at 10:53 am

    Another stock is leaving the public market. This time, it’s Avaya (AV), which is one of the spin-offs of the spin-offs of AT&T.
    It’s been 25 years since Judge Greene ordered AT&T to be broken up, and the pieces are now all over the place. One of the rules of the breakup order is that the new companies had to have worse and worse sounding names. This started with Nynex and continued through with Lucent, Avaya and Agere.
    In 2000, Avaya was spun-off from Lucent which isn’t even Lucent anymore, it’s Alcatel-Lucent (ALU). Although I doubt the hyphen will stay around much longer. In 1996, AT&T spun-off Lucent. I remember I sold my shares almost immediately and the stock shot up from there.
    If you’re old enough to remember those old-style rotary phones, those phones weren’t owned by customers, they were leased from Ma Bell. Well, that business still exists and Lucent runs it. If you’ve ever wondered why New York City’s area code is 212, it’s because it’s fast on a rotary phone.
    According to Lucent, they lease about 750,000 phones today.

  • June 5 in History
    Posted by on June 5th, 2007 at 10:26 am

    From Gary Alexander’s “This Day in Market History.”
    Adam Smith was born in Scotland on June 5, 1723.
    John Maynard Keynes was born in Cambridge on June 5, 1883, exactly 160 years after Smith.
    On June 5, 1933, the U.S. Congress officially took America off of the gold standard. Gold’s price was raised by governmental fiat, from $20.67 to $35 per ounce. Gold was forbidden for Americans to own, but the gold mining stocks were fair game and were among the best performers in the 1930s.