• Bed Bath & Beyond Makes New 52-Week High
    Posted by on January 16th, 2007 at 10:25 am

    Shares of Bed Bath & Beyond (BBBY) hit a new 52-week high this morning. Lower gas prices basically act like a tax cut for consumers. FactSet (FDS) and SEI Investments (SEIC) are also at new highs.

  • The Buy List So Far
    Posted by on January 11th, 2007 at 10:58 am

    I’m happy to report that our Buy List is off to a good start for 2007. As of mid-day today, we’re up about 1.36% compared with 0.39% for the S&P 500. Of course, this is only the seventh day of trading, so a lot can change, but it’s nice to get a fresh start out of the gate.
    Our biggest winner so far is Joe Bank (JOSB), which is one of our new stocks for this year. It’s up 8.9%. Our second-best stock is Bed Bath & Beyond (BBBY) which is up 7.2%. SEI Investments (SEIC) was our biggest winner from last year, and it made a new 52-week high this morning.

  • Long-Term Performance By Market Cap
    Posted by on January 10th, 2007 at 12:30 pm

    Over the last eighty years, small-cap stocks have been the best-performing size category of stocks. I got this data from Professor Ken French’s Web site.
    He divided the market into ten “size deciles.” What’s interesting is that it’s almost perfectly rank-ordered–the largest stocks did the worst, the smallest did the best.
    image390.png
    The data covers from mid-1926 through November 2006. Here’s the annualized return by decile:
    Lowest…………………13.588%
    Third……………………12.504%
    Fourth………………….12.371%
    Fifth…………………….12.128%
    Second………………..12.120%
    Sixth……………………12.015%
    Seventh………………..11.861%
    Eight……………………11.414%
    Ninth……………………10.950%
    Biggest…………………9.703%
    Here’s the same chart, but I divided all deciles by the largest decile (which is the flat line).
    image391.png
    You can see that small-cap outperformance is very cyclical with the last “up” cycle starting seven years ago.

  • Hollywood & Hedge Funds
    Posted by on January 10th, 2007 at 10:31 am

    Many hedge funds have taken a beating this year, but Stark Investments got whacked due to its bomb at the box office:

    When news broke that Benjamin Waisbren had been fired as Hollywood frontman for Stark Investments, moviedom shuddered.
    Hedge fund managers such as St. Francis, Wisconsin-based Stark have become piggy banks for the U.S. film industry. Since 2005, these funds and private equity investors have committed $4.5 billion to movies, betting the box office can beat the markets.
    Movie industry bible Variety called Waisbren’s abrupt exit in May a “bellwether” for the future of fast money in Hollywood. A former bankruptcy lawyer who led equity creditor committees for America West Airlines Inc. and WorldCom Inc., Waisbren, 49, had convinced his bosses at Stark that Hollywood could be structured like any other investment, albeit with more glitz.
    Stark, which manages $9.4 billion, ended up getting soaked by “Poseidon,” the 2006 remake of “The Poseidon Adventure,” which sank at the box office. Stark executives declined to comment for this story.

  • Computer is So ’06
    Posted by on January 9th, 2007 at 4:44 pm

    First Dell drops “Computer” from its name. Now Apple Computer is just Apple. Nobody wants to be seen as “just” a computer stock anymore.

  • Earnings Season
    Posted by on January 9th, 2007 at 12:51 pm

    Over the next few weeks, several of our Buy List stocks will report earnings. Fourteen of our 20 stocks have quarters that ended on December 31. Here they are with their earnings dates and EPS estimates:
    Ticker……………….Date…………….EPS Estimate
    HOG………………..18-Jan……………….$0.96
    UNH………………..18-Jan……………….$0.85
    VAR…………………24-Jan……………….$0.39
    DHR………………..25-Jan……………….$0.93
    FISV……………….31-Jan……………….$0.65
    AFL……………………TBA……………….$0.67
    APH…………………..TBA……………….$0.81
    FIC……………………TBA……………….$0.58
    GGG………………….TBA………………..$0.52
    NICK…………………TBA……………….$0.27
    RESP…………………TBA……………….$0.39
    SEIC…………………TBA……………….$0.59
    SYY…………………..TBA…………………$0.38
    BER…………………..TBA………………..$0.88

  • Skies May Darken for Insurers
    Posted by on January 9th, 2007 at 12:28 pm

    The Wall Street Journal sees problems ahead for insurance stocks:

    Last year’s sky-high profits were mainly driven by the soaring cost of coastal natural-catastrophe coverage after Hurricane Katrina in 2005 and the dearth of major storms in 2006. While premiums charged for that coverage are still high, competition is steadily lowering rates in other important lines of coverage, like corporate directors’ and officers’ liability policies or workers’ compensation.
    Some insurers, flush with cash and hungry for growth, might charge too little for coverage to win customers. If future-year claims come in higher than expected and exceed the premiums collected, shareholders of property-casualty insurers could pay dearly. When companies report fourth-quarter results over the next two months, premium rates are worth watching.
    Typically, “when the pricing cycle is starting to soften, that is a sell signal,” says William Hawkins, an insurance-stock analyst with Keefe, Bruyette & Woods Ltd. in London.
    Also, the combination of high profits, low predicted sales growth and the lure of achieving global scale could be a recipe for insurers to strike deals, adding risk.
    Premiums tend to rise and fall in cycles often determined as much — or more — by the supply of capital as by the actual risks insurers take on.
    The last down cycle illustrates how price wars can sap earnings. Industry profits peaked in 1997 and dropped a total of 44% over the next three years, according to Insurance Services Office Inc., which provides data and services that help classify and evaluate risk. Prices fell and claims rose significantly during that period.
    Partly in response to those circumstances and partly because of losses associated with the Sept. 11, 2001, terrorist attacks in the U.S. and other factors, prices climbed earlier this decade. Amid this upswing, insurers preached a new focus on disciplined underwriting to avoid the boom-to-bust cycles of the past.
    “When you’ve gone through a bad period, you do behave in a more conservative fashion,” says William Berkley, chief executive of W.R. Berkley Corp., a Greenwich, Conn., insurer.

    IUX.gif

  • Mills Corp.
    Posted by on January 9th, 2007 at 10:59 am

    I’ve followed Mills Corp. (MLS) for many years. The company is a real estate investment trust that owns several gigantic mall complexes.
    To show you what a dramatic impact the tech bubble had, investment money was being drawn away from conservative investments. In December 1999, Mills Corp.’s stock got down to $15.31 a share, even though it was paying $0.503 a share in dividends. That comes to 13.8%.
    But as the tech market fizzled, the real estate market took off. By mid-2005, Mills Corp. broke $60 a share. Today, the company is facing bankruptcy. An internal investigation has revealed accounting errors and executive misconduct.

    Accounting mistakes included a failure to record a foreign currency gain, miscalculations of executive bonuses and a mix-up between Mills revenue and revenue generated by joint ventures, the company said.
    Mills also failed to properly account for its Empire Tract property in the Meadowlands, which the company sold to the state as part of winning the bidding to develop Xanadu project, the filing said.
    Those errors “reflect a lack of competence and in some instances a failure of communication and inadequate internal controls,” Mills said.

    The stock is down about 15% today.
    MLS.gif

  • A Look at Real Estate
    Posted by on January 9th, 2007 at 10:26 am

    Here’s a graph showing private residential investment as a percentage of GDP. It’s a good gauge of how well the real estate market is doing.
    The number averages about 4.7%, with a standard deviation of about 0.7%. Last year, it got up to 6.3% which was the highest level in over 50 years.
    Since then, it’s started to plunge. And as you can see, historically, the downtrends are pretty severe.
    image389.png

  • UnitedHealth Reaffirms Outlook
    Posted by on January 8th, 2007 at 12:00 pm

    UnitedHealth reaffirmed its outlook for next year. I pay close attention to these “reaffirm” announcements, and I think too many investors overlook them. For me, it’s nice to see a company give guidance at some point, but I’m impressed to see them back it up a few weeks later. In fact, I’m often surprised by how many good stocks are hidden in plain site. The company is clearly telling us how well things are going:

    The company previously estimated 2006 earnings in a range of $4.14 billion to $4.16 billion on revenue of $71.5 billion. For 2007, UnitedHealth forecast earnings of $4.7 billion to $4.75 billion on about $79.5 billion in revenue.
    Analysts polled by Thomson Financial expect 2006 earnings of $2.97 per share on $71.52 billion in revenue and forecast 2007 earnings of $3.43 on $78.45 billion in revenue. The company did not provide a per-share earnings estimate.
    In a filing with the Securities and Exchange Commission, UnitedHealth said its outlook reflects the range of $25 million to $60 million in costs it may incur related to a revision in its accounting of stock options.
    The company announced last month that, following a review of historical stock option practices, it expects to book an additional $400 million to $600 million in stock options expenses for the period from 1994 to 2005.

    I’m not sure why they didn’t give an EPS estimate. If we assume UNH will have 1.35 billion shares, that translates to a range of $3.48 to $3.52 a share. That means that the stock is going for just over 15 times 2007’s earnings.