• Dell and Microsoft
    Posted by on April 28th, 2006 at 2:20 pm

    In less than a decade, Dell (DELL) and Microsoft (MSFT) have gone from growth stocks to value stocks.
    Shares of MSFT are getting ripped today in the wake of the company’s third-quarter earnings report. The company earned 28.6 cents a share, which rounds up to 29 cents, but that includes a 2.6-cent charge for stock options. The Street consensus was for 33 cents a share.
    The stock is currently down over 11%, its worst day since 2000. As bad as Microsoft is, Dell just don’t make no sense. The stock is down to $26 a share! One of the things I’ve learned about investing is that trends can go on longer than you think. Everytime you wonder, “how much more can this go on?” it will.
    Dell was at this price eight years ago, yet the company’s sales and income have tripled since then.

  • Supply and Demand
    Posted by on April 28th, 2006 at 9:07 am

    Charles Krauthammer is today’s Washington Post. His theory for higher oil prices: something about supply and demand.

    China has come from nowhere to pass Japan as the number No. 2 oil consumer in the world. China and India — between them home to eight times the U.S. population — are industrializing and gobbling huge amounts of energy.
    American demand is up because we’ve lived in a fool’s paradise since the mid-1980s. Until then, beginning with the oil shocks in 1973, Americans had changed appliances and cars and habits and achieved astonishing energy conservation. Energy use per dollar of gross domestic product was cut by 30 percent in little over a decade. Oil prices collapsed to about $10 a barrel.
    Then amnesia set in, mile-per-gallon ratings disappeared from TV ads and we became “a country of a million Walter Mittys driving 75 mph in their gas-guzzling Bushwhack-Safari sport-utility roadsters with a moose head on the hood, a country whose crude oil production has dropped 32 percent in the last 25 years but which will not drill for oil in the Arctic National Wildlife Refuge for fear of disturbing the mating habits of caribou.”
    I wrote that during the ’96 witch hunt for price gougers. Nothing has changed. Except that since then, U.S. crude oil production has dropped an additional 12.3 percent.

  • Economy Grew By 4.8% in First Quarter
    Posted by on April 28th, 2006 at 8:51 am

    The government just reported that the economy grew by 4.8% in the first quarter. That’s a pretty good number. Inflation actually slowed down some. I expect the economy to cool off as the year goes on, but for now, the business outlook is very strong.

  • Divergence
    Posted by on April 27th, 2006 at 2:37 pm

    Look at this divergence between the cyclicals (blue line) and the consumer stocks (red line).
    cmr.png
    These indexes normall track each other fairly closely. Combined with the turnaround in the bond market, this may indicate a weaker-than-expected GDP report.

  • UNH Changes Governance Policy
    Posted by on April 27th, 2006 at 2:24 pm

    UnitedHealth (UNH) is in much more trouble than I realized. The stock dipped below $47 a share this morning. The company is in crisis-management mode. The WSJ reports:

    UnitedHealth Group Inc.’s board, under fire for past stock-option granting practices, said it would adopt several changes to its corporate-governance policies.
    The board also said it would meet Monday to act on recommendations that Chief Executive William McGuire, in a bid to respond to questions surrounding his stock options, made last week. They include terminating further equity-based awards for a small number of the company’s most senior executives with large numbers of stock options already, and doing away with noncash forms of compensation.
    The health-insurance titan, based in Minnetonka, Minn., has been reviewing some of its corporate-governance policies since last year. But the changes announced yesterday come amid scrutiny of the circumstances under which Dr. McGuire obtained some of the $1.6 billion in unrealized gains he holds in UnitedHealth stock options. He and at least 10 other top executives at times received options just before big run-ups in the company’s share price or at the lowest price points in the year, raising questions about the timing of those grants.

    Too many corporate boards are little more than rubber stamps for whatever senior management wants. How does someone get $1.6 billion stock options. That’s more than $1 a share. These policy changes are nice too see, but I think they’re a first step in a major overhaul.

  • The Hard-Hitting Questions
    Posted by on April 27th, 2006 at 11:12 am

    From TheStreet.com’s earnings call courtesy of Seeking Alpha.

    Michael Moncroft – MRM Capital
    Okay. Let me ask you this question. From the standpoint of valuation, your metrics were just wonderful, the best they have ever been. Except for maybe one analyst covering the stock, there seems to be a lack of coverage. With the dividend that you guys have since distributed, the cash going up, the earnings going up, the outlook is great, valuation seems to be phenomenal, especially apples-to-apples, other names out there. Is there any reason why there is a lack of analyst coverage? Obviously there are institutional guys that have been buying this stock, including myself. Can you just elaborate on that? I am just curious, because it is just a wonderful story and it continues to get better.

    I have a follow-up: How are your eyes so blue?

  • Earnings from Respironics and Fair Isaac
    Posted by on April 27th, 2006 at 10:44 am

    The market has flipped-flopped today. The cyclicals, particularly the oil stocks, are feeling the pain. But the consumer and defensive stocks are holding onto some gains.
    The bond market continues to get beaten up. The five year Treasury is now well over 5%. I’ll be honest. I don’t like the look of this market. I’m not pulling out, but higher long-term rates are like Kryptonite to any bull market.
    From our Buy List, Respironics (RESP) reported earnings of 38 cents a share, which was a penny below estimates. However, that included three cents a share in stock-option expenses. This is the first quarter that firms have to report earnings after stock options. Wall Street seems to be a bit confused about which number to follow for which company. Since Respironics is up this morning, I’m going to assume they beat estimates. The company also reiterated earnings for this year of $1.46 to $1.48 a share.
    Fair Isaacs’s (FIC) earnings weren’t so good. The company earned 40 cents a share, which was 12 cents below Wall Street’s forecast. Fair Isaac said it expects earnings of 44 cents a share for this quarter, and $1.75 for this year. This was below the company’s earlier projections. The stock is down about 7% today.
    The market is waiting for tomorrow’s GDP report. This will be our first look at how well the economy did for the first quarter. The report for the fourth quarter was a dud. I’m inclined to think it was a temporary blip as a result of Katrina and Rita. I think the first quarter number could be very strong. The bond market seems to be thinking the same thing.

  • Fiserv Shares Up Despite Analysts’ Worries
    Posted by on April 26th, 2006 at 11:29 am

    Fiserv (FISV) is doing well today, but the AP notes that some analysts are worried:

    Analysts said the company, which caters to the financial services and health benefits industry, benefited from a surge in flood claims, and a larger-than-expected stock buyback program.
    Although Jefferies & Co. analyst Craig Peckham said the company had a “great” quarter, he remains concerned about underlying gross margin trends in the company’s core financial services business.
    “With Fiserv’s portfolio consisting largely of relatively mature businesses, we remain on the sidelines for now, believing that mid-single digit internal growth will persist for the foreseeable future and near-term margin declines will restrict multiple expansion from current levels,” Peckham wrote in a note.
    Similarly, Merrill Lynch analyst Gregory Smith, who holds a “Neutral” rating on the company, said Fiserv’s pretty upside could be deceiving.
    “Fiserv reported first-quarter upside to both revenue and earnings driven by strong flood processing volumes following last year’s hurricanes. However, this does not translate into upside to the company’s full-year revenue and earnings per share guidance, which had assumed this level of flood revenue,” Smith wrote in a note.
    “While first-quarter upside versus Street expectations may push shares higher today, excitement should be tempered by the fact that guidance for the full year remains intact and that within the context of management guidance, higher flood revenues actually indicate a lower level for core operations,” he added.
    For the full year, the company said it expected to earn $2.46 to $2.53 per share, while analysts expect the company to earn $2.49 per share.

    AFLAC (AFL) is aslo higher today, and SEI Investments (SEIC) is at a new high. Fair Isaac (FIC) reports after the close.

  • Other Enron Scams
    Posted by on April 25th, 2006 at 7:31 pm

    From The Onion:
    Infographic-Other-Enron-C[1].article_0

  • Today Never Happened
    Posted by on April 25th, 2006 at 5:40 pm

    Yuck. Not a good day for our Buy List. Let’s just pretend today didn’t happen. What I love about Wall Street is that a new opening bell is never too far away.
    On days like this, I try not to get discouraged. Everything, it seems, is working against us. Still, I’m determined to stick with our strategy of buying great companies at great prices.
    First, let’s look at the bad news. Brown & Brown (BRO) got creamed in today’s session. The stock lost 7.7%. Frankly, I thought the stock was getting a bit ahead if itself, but still, today’s selling surprised me. The company reported earnings that were inline with estimates, but the market is concerned that too much of BRO’s growth came from acquisitions. (That’s what Brown & Brown always does!) I could see the stock pulling back some more before we’re done.
    But there is good news! After the bell, we had some decent earnings reports.
    First up is Fiserv (FISV). The company reported earnings of 64 cents a share, five cents ahead of estimates. Not bad at all! Plus, this stock continues to look cheap. Over the past few years, Fiserv’s P/E ratio has collapsed even though its earnings continue to grow.
    AFLAC (AFL) reported earnings of 72 cents a share, two pennies more than estimates. Few stocks are more reliable than AFLAC. The company also reiterated its growth forecast for this year and next. I always like to see my stocks do that.
    And finally, Varian Medical Systems (VAR) reported earnings of 46 cents a share, which was inline with forecasts. Varian doesn’t tend to surprise too much so I don’t expect a lot of fallout from the stock.
    The bond market got hammered today. The five-year note (^FVX) came very close to 5% today.