Ken Lay’s #1 Fan
Posted by Eddy Elfenbein on April 11th, 2006 at 11:39 am

Although the world may hate Ken Lay, he has a big fan in Lee Perry. Mr. Perry can regularly be found outside the courthouse in Houston with his handmade signs cheering on the smartest guy in the defendant’s chair.
Here’s Perry with Lay on April 3.

And again on March 9.

Well…who is this guy?
The Houston Chronicle made an early attempt in January:

A man who identified himself as Lee Perry held up a homemade sign proclaiming Lay’s innocence. Perry said he did independent auditing of the company in its heyday and that everything was on the up and up.

A man who identified himself as?? Yeesh, that’s not a confidence builder. Come to think of it, neither is “independent auditing of the company.”
Perry has said that doesn’t know Lay personally, but as the trial has gone on you’d think he’s become Lay’s consigliere.
Here they are yesterday:

And again on March 27:

These photos were taken two weeks apart, and Lay has the same suit, tie and BFF. The good news for Perry is that in that caption for the above photo, he’s been upgraded to “author and former Enron auditor.”
So not only does Ken Lay have 18 homes, but he also has his own personal author and cheering section. See, these are the parts of the New Economy I like best.

Some Stocks Worth Watching
Posted by Eddy Elfenbein on April 11th, 2006 at 10:40 am

Here are a few stocks that have caught my attention recently. I’m not adding them to the Buy List (I only do that once a year), but I think these stocks are good values right now.
First up is Mylan Labs (MYL). Mylan is one of the best generic drug stocks around. Generics tend to be counter-cyclical, meaning they do well when times are rough. Mylan’s sales have been flat recently and the stock got pounded. Shares of Mylan dropped from $28 to $15, but they’ve been steadily recovering since then.
The shares still look pretty inexpensive. In February, the company said that it’s expects to earn between $1.20 and $1.40 a share for Fiscal ’07 (ending in March 2007). That means that the stock is currently going for 16 to 19 times next year’s earnings.
Another interesting stock is Lowe’s (LOW). Frankly, this one surprises me. Although I decided to put Home Depot on this year’s Buy List, I can’t help but notice how good its main competitor looks. Make no mistake: Lowe’s is an earnings machine. Also, I don’t buy the idea that Lowe’s or Home Depot should follow the housing market. Both companies have clearly shown that they can thrive in all types of environments.
For the fourth quarter, Lowe’s earned 87 cents a share, seven cents more than Wall Street was expecting. The company also announced that it expects earnings for this year of $4.03 to $4.13 a share. I think it’s interesting that some investors will comb through all this crazy research on a stock, when sometime all you need to do is listen to what the company is saying. That’s also how I feel about Dell (DELL). I’ve been reading all these articles about how Dell’s business model is broken and out-of-date, yet the folks running the business keep telling us not to worry. Guess who I’m going to listen to?
Another good stock is Cintas (CTAS). This may be the best stock you’ve never heard of. They make workplace uniforms. No, I’m not making this one up. It’s hugely profitable. They’re even in the S&P 500.
Cintas was a big stock during the 1990’s, but it’s been flat for most of this decade. The company missed earnings a few times recently, which has weighed on the stock. But in January, Cintas raised its dividend by 9%. The company said that it expects to earn $1.92 to $1.96 a share this year, which is a nice improvement over the $1.74 it made last year.
There are also a few small banks and savings & loans I like to watch. These are great stocks to follow. There are lots of wonderful companies out there that almost no one knows about. Four of my favorites are Northern Empire Bancshares (NREB), Harleysville National (HNBC), NewMil Bancorp (NMIL) and Coastal Financial (CFCP). The first two are banks, the latter two are thrifts. Best of all, not a single analyst on Wall Street covers any of them.
To give you an example, here are Northern Empires’ EPS for the last few years.
2001 $0.77
2002 $0.85
2003 $1.01
2004 $1.23
2005 $1.59
Northern Empire is the holding company for Sonoma National Bank and is based in Santa Rosa, CA. The bank has eleven branches and 150 employees.

$5 a Gallon for Gasoline
Posted by Eddy Elfenbein on April 10th, 2006 at 2:32 pm

Scary stories are usually signs that a market has topped.

Probable $3-a-gallon gasoline, possibly going up to $5 a gallon, painted a bleak picture Monday for lovers of the open road.
Bloomberg News says crude oil costs, lack of refineries and an anticipated shortage of ethanol are likely to push gasoline prices to more than $3 a gallon this summer. Analyst Brian Hicks of U.S. Global Investors in San Antonio said $5-a-gallon gasoline is a possibility.
The national average for regular unleaded is now $2.59 a gallon. In Indianapolis, regular unleaded gas is $2.70 a gallon compared to $2.32 a year ago, according to AAA.

Here’s a chart of gas prices for the last nine months (from GasBuddy.com):

The Morning Market
Posted by Eddy Elfenbein on April 10th, 2006 at 11:01 am

The market is slightly higher this morning. This is another good day for energy stocks. What I find interesting is that while oil is up to $68 a barrel, the Dow Oil & Gas Index is still below its January high, even though the broader market has been making new highs. I’m curious if there’s a message in that.
Today is also another good day for commodities. Copper and Zinc are at all-time highs. In the past year, the Goldman Sachs Commodity Index is up 20%, twice that of the S&P 500. Copper continues to be the gold standard. A strike at a Mexican producer has aided the rally. Aloca (AA), the world’s largest aluminum producer, will report earnings later today.
On our Buy List, Biomet (BMET) was downgraded by Banc America Securities. Harley-Davidson (HDI) will report its earnings on Wednesday. The Street’s current estimate is for 86 cents a share, which I think Harley will easily beat.
UnitedHealth (UNH) said that a committee of independent directors would look at how it has granted stock options. Many of the option were granted right before the stock rose, which may indicate that the options were “backdated.”
In France, Jacques Chirac announced that he’s caving in to the protestors and he’s ditching the youth labor law. Also, the market will be closed on Friday for Good Friday.
Finally, here are some very cool pictures from the Mars Reconnaissance Orbiter.

Dell’s Growth in Foreign Markets
Posted by Eddy Elfenbein on April 10th, 2006 at 8:45 am

I think I must be the last person who hasn’t given up on Dell (DELL). Here’s an article highlighting the company’s growth in foreign markets.

Sales in Brazil, for example, almost doubled in Dell’s 2006 fiscal year ended February 3, Parra said. Michael Dell, 41, last month announced plans to double the company’s Indian staff to about 20,000 in the next three years.
Dell also added a second plant in Xiamen, China, doubling capacity in the world’s fastest-growing economy and helping boost computer shipments there by 37 percent. China now is Dell’s fourth-largest market outside the United States.
Those efforts contributed to a 21 percent surge in revenue in the Asia-Pacific region last year, pushing the region’s share of Dell’s total revenue to 12 percent. Dell’s revenue outside the United States reached 43 percent of the total last year.
Meanwhile, Dell has high hopes for myriad new product initiatives, including pushing its three-year-old printer business.
“The value proposition for customers is easy,” Parra said. “If you’re using a Dell printer and you’re about to run out of ink, with three clicks you can order the print cartridge you need.”

I can’t believe this stock isn’t $35, much less $30.

Cramer on Google
Posted by Eddy Elfenbein on April 10th, 2006 at 7:13 am

From Mad Money’s Web site, here’s Jim Cramer’s incoherent advice for Google (GOOG).
December 20…..Hold…..$429.74 (sell at $446)
January 3……….Buy…….$435.23 (going to $500)
January 4……….Buy…….$445.24 (going to $500)
January 13……..Buy…….$466.25 (going to $600)
January 23……..Buy…….$427.50
January 25……..Buy…….$433.00 (take profits)
February 2……..Buy…….$396.04
February 6……..Sell.. ….$385.10 (sell at $400)
February 14……Buy…….$343.32
February 27……Buy…….$390.38 (going to $500)
March 6………….Sell…….$368.10 (going down $15)
March 7………….Buy…….$364.45
March 13………..Sell…….$337.06
March 21………..Sell…….$339.92
March 23………..Buy…….$341.89
March 29………..Sell…….$394.98
Did anyone else’s head just explode?

The Carbohydrate Economy
Posted by Eddy Elfenbein on April 8th, 2006 at 3:24 pm

Here’s a fascinating article by David Morris on “The Once and Future Carbohydrate Economy.”

Up until the end of World War II, some companies were still hedging their bets on the material base of the future chemical industry. In 1945, the large British chemical manufacturer ICI still maintained three divisions: one based on coal, one on petroleum, and one on molasses.
Meanwhile, the carbohydrate economy was featured in the popular press and newsreels, reporting on such sensational developments as Henry Ford’s biological car. The body of the 1941 demonstration vehicle consisted of a variety of plant fibers, including hemp. The dashboard, wheel, and seat covers were made from soy protein. The tires were made from goldenrods, bred by Thomas Edison on his urban farm in Fort Myers, Florida. The tank was filled with corn-derived ethanol.
The next time you watch the obligatory Christmas showing of It’s a Wonderful Life, pay close attention to this scene: Jimmy Stewart is on the phone with his brother, who excitedly proclaims he is going to be rich because he is on the ground floor of the next major industry, soybean-derived plastics!
Yet only 25 years later, movie audiences hear Dustin Hoffman in The Graduate ask an older man for career advice. The man responds with one word, “plastics,” and everyone in the audience knows he means petroleum-derived plastics.

Read the whole thing.

The Hemline Theory
Posted by Eddy Elfenbein on April 7th, 2006 at 4:28 pm

One of the classic bits of market wisdom is the Hemline Theory.

Financial analysts have loosely used it to determine where the economy is headed. So far it’s been pretty accurate. In the ’20s and ’60s, hemlines were at a high and so was the stock market. And in the ’30s and ’40s, the stock market was so low that women were almost tripping on their skirts. The hemline theory was also on the ball in 1987. Miniskirts were all the rage, and the stock market was at a matching high. But then the market quickly crashed in October, right when designers such as Bill Blass decided that miniskirts looked ridiculous. Hemlines dropped and so did the market. Coincidence? I think not!

I just learned from CNBC that USA Today reports that “Short shorts are sexier, and totally hip.” This also means that I’m only two media degrees of separation away from knowing what’s totally hip.

Inseams are inching up this spring. Capris begat gauchos, which crept up to become bermudas. Now, short shorts — thigh grazers with 2½- and 3-inch leg lengths — are emerging as the top bottom.

The market closed lower today. Daisy Duke, I blame thee.

Defending Buy-and-Hold
Posted by Eddy Elfenbein on April 7th, 2006 at 2:52 pm

The most e-mail I get is whenever I defend buy-and-hold investing. Despite all the evidence in its favor, too many investors dismiss this simple, proven strategy. The complaint I hear most often is that buy-and-hold has been a flop for the past several years.
My defense is that I don’t favor buy-and-hold per se. More accurately, I favor buy-and-buy-and-buy-and-hold. This is much closer to reality for investors as they usually add to their portfolios each month.
Let’s assume an investor put $200 in the S&P 500 at the beginning of each month starting in January 2000. That’s an investment of $15,000 (75 X $200). Today, that portfolio would be worth about $18,100 even though the market is down about 2% over that same time.
More good news for the Buy List today. We’ve finally pulled ahead of the S&P 500 for the year. Harley-Davidson (HDI) is our next stock to report earnings. The announcement is scheduled for Wednesday. The current estimate is for 86 cents a share. Reuters notes that some investors are nervous before the announcement. I’m not one of them. Harley is cheap at this price.
Also, the Oil ETF (USO) will debut on the Amex Monday. Hopefully, there will be a silver one soon.

Biomet’s Future
Posted by Eddy Elfenbein on April 7th, 2006 at 10:06 am

The New York Times has an article this morning on Biomet (Biomet Won’t Say So, but Investors Expect a Sale).
Well, I don’t expect one. It’s hard to say, but I don’t think Biomet will be sold any time soon. Sure, it could happen, but let’s look at the facts. The company is in a very strong position. Unlike many companies in similar situations, Biomet can easily afford to walk away from a deal it doesn’t like.

Many analysts project that a successful takeover bid would have to top $10 billion. And industry experts say that Biomet, which is nearly debt-free, will be under no pressure to accept a low bid. Biomet reported net income of $307.6 million on revenues of $1.49 billion in the nine months that ended Feb. 28.
“It’s big enough to survive as a stand-alone company so this won’t be a distress sale,” said Anthony G. Viscogliosi, a principal at Viscogliosi Brothers, a consulting and investment firm in New York that specializes in orthopedics.

There’s also the question of who the buyer would be.

The management shake-up and CNBC report sparked speculation about who might acquire Biomet. Those prominently mentioned included Medtronic, which is a broad-based medical device maker and a leader in spinal implants that has historically denied interest in the rest of the orthopedics business, and Abbott Laboratories, a drug maker that has been diversifying into orthopedic devices as part of a strategy to develop a broad portfolio of medical products.
Bids by Zimmer, DePuy and Stryker are viewed as less likely for many reasons, including antitrust concerns. But the British company Smith & Nephew is a major orthopedics company with complementary strengths that many would see as a logical partner in a merger of equals. The combined company would have a 20 percent share of the knee and hip market, nearly the same as Stryker.

Let’s round up the usual suspects. I think Medtronic (MDT) is at the top of the list, followed by Johnson & Johnson (JNJ).