• The Snarkiness of Crowds
    Posted by on April 5th, 2006 at 12:44 pm

    Chevrolet thought it had a brilliant marketing idea, or at least, it was going to borrow someone else’s brilliant marketing idea. Just turn over the marketing of the Chevy Tahoe to the public.
    Hey, if viral marketing worked for other companies, why not a powerful multinational corporation trying to sell an SUV?

    In theory, the company was hoping that visitors to its Web site would e-mail their own videos around the Web, generating interest for the Tahoe through what is known as viral marketing. By the measure of Chevrolet Tahoe videos circulating the blogosphere and the video-hosting Web sites like YouTube, that goal was achieved. But the videos that were circulated most widely like the commercial that attacked the S.U.V. for its gas mileage, may not be what Chevrolet had in mind.
    Nor was the ad using a sweeping view of the Tahoe driving through a desert. “Our planet’s oil is almost gone,” it said. “You don’t need G.P.S. to see where this road leads.”
    Another commercial asked: “Like this snowy wilderness? Better get your fill of it now. Then say hello to global warming.”

    NPR has more (audio link).

  • Bed Bath & Beyond Earnings Preview
    Posted by on April 5th, 2006 at 10:08 am

    After the close today, Bed Bath and Beyond (BBBY) will report its fourth quarter earnings. Here’s a preview from AP:

    EXPECTATIONS: The company, which, as of the end of November 2005, operated 793 superstores selling better-quality home merchandise, forecast in December fourth-quarter earnings of 64 cents a share, and sales in stores open at least one year — a key performance gauge called same-store sales — to rise between 3 percent to 5 percent.
    Wall Street expects earnings of 65 cents per share, the mean estimate of 27 analysts surveyed by Thomson Financial, on $1.64 billion in sales.
    ANALYST TAKE: “While Bed Bath & Beyond remains a best-in-class operator with strong cash flow generation, its slowing growth across a tougher home spending backdrop with increased competition makes for a range-bound stock in the near term,” Goldman Sachs analyst Adrianne Shapira wrote in a March 13 client note.
    The investment bank also lowered its fourth-quarter estimate to 65 cents from 66 cents per share, and scaled down its same-store sales estimate for the quarter to 3 percent from 3.5 percent.
    QUARTER DEVELOPMENTS: Bed Bath & Beyond in January approved a $200 million increase to its previously announced $400 million stock buyback program. The company said it didn’t expect the new $600 million authorization would have a material impact on fourth-quarter earnings.
    The retailer in January also named its chief merchant, Arthur Stark, as its new president, and named Eugene A. Castagna, a vice president of finance, as chief financial officer and treasurer. Castagna succeeded Ronald Curwin, who was named senior vice president of investor relations, a new post.
    COMPETITORS: Bed Bath & Beyond competes with other home-focused retailers like Target Corp., Linens N Things, and Pier 1 Imports Inc.
    Target in mid-February reported its fourth-quarter earnings rose 14 percent, above analysts’ estimates, and forecast earnings per share growth in the mid-teens range in 2006. Pier 1, which is trying to engineer a turnaround amid several months of flagging sales, in March said it would sell its British subsidiary to Iceland-based Palli Ltd. for about $15 million.
    Linens N Things agreed to be taken private in a $1.3 billion buyout by an investment group in January.
    STOCK PERFORMANCE: Bed Bath & Beyond shares have gained about 6 percent so far this year and touched a 52-week low of $35.85 on Jan. 6. It is down 19 percent from a year-high of $46.99 it hit in July 2005.

  • The Morning Market
    Posted by on April 5th, 2006 at 9:48 am

    It’s a quiet morning so far. The major indexes are up slightly. On CNBC, David Faber followed-up on yesterday’s news that Biomet (BMET) had hired Morgan Stanley. Faber said that the stock’s move was perhaps a bit overdone. Many firms are holding to their price targets. The last big deal in the sector was Zimmer’s deal for Centerpulse, which went for 15 times “enterprise value.” Just because the Biomet hired Morgan doesn’t guarantee that it will be sold. Perhaps the CEO simply wants to have the company looked over thoroughly.
    In other news, Apple (AAPL) released a patch that let its Intel-based Macs run Windows. The new software is called “Boot Camp.” For the record, my suggestion was “Band Camp.” Samsung said that it will sell the thinnest cellphone in the U.S., just 9.8 millimeters wide.
    Autodesk (ADSK) backed its 2007 view of $1.12 to $1.17 a share. Also, St. Jude Medical (STJ) cut its first-quarter estimate. The company says that Guidant (GDT) is to blame. Monsanto (MON) reported record earnings of $1.60 a share, nine cents more than estimates.
    Commodities continue to soar. Zinc and Copper are at all-time highs. In China, the yuan made another post-revaluation high.
    And lastly, Katie Couric is leaving the “Today” show to take over the CBS evening news.

  • The Wacky FOMC
    Posted by on April 4th, 2006 at 6:10 pm

    Ever wonder what it’s like at a Fed policy meeting? Me neither.
    Well, we’re in luck. Today, the Fed released the transcripts of its meetings from 2000. I never knew these economists were such cut-ups. I’d like to share with you some my favorite moments. (These are all actual quotes taken from the transcripts.)
    #11

    MR. PRELL. It may just be that we are wild and crazy guys here.
    MS. MINEHAN. I love it when you say that.

    #10: After being elected unanimously chairman of the FOMC:

    CHAIRMAN GREENSPAN. I always appreciate the democratic process.

    #9

    MR. KOHN. Actually, I think it could occur if we put the third derivative negative. That is, productivity could still be accelerating but if it were accelerating more slowly over time, the same mechanism would work slowly.
    CHAIRMAN GREENSPAN. I grant you your algebra.

    #8

    CHAIRMAN GREENSPAN. I would not want to be in the position of adopting a hard asymmetric statement of the balance of risks toward rising inflation and then see the economy weaken from under us. That would make us look really unimaginative.

    #7

    MR. MOSKOW. I would like to speak first because those of us in Chicago know how to handle recounts!
    CHAIRMAN GREENSPAN. I’ve heard that if you rig the numbers in the beginning, you won’t have to do a recount.

    #6

    CHAIRMAN GREENSPAN. Let me indicate that the next meeting is going to be a rather long one because our agenda is quite lengthy. We will be meeting at 9 a.m. on both Tuesday and Wednesday, which is longer than usual, so I’ll give you all a heads up. Let’s go to lunch.
    MR. KOHN. The announcement?
    CHAIRMAN GREENSPAN. Oh, I’m sorry. That tells you how hungry I am.

    #5
    From the meeting on March 21, 2000, right before the Nasdaq went kablooey.

    MR. BROADDUS…It’s almost as though we have too much credibility, in a sense.

    #4

    CHAIRMAN GREENSPAN. Governor Ferguson.
    MR. FERGUSON. I support both halves of your recommendation. And since we are confessing, I will confess that my heart is pure.
    MR. GRAMLICH. You’re obviously not a Catholic.
    MR. FERGUSON. That is also true. I do think a 25 basis point move is appropriate today. As I said earlier, a 50 basis point move may be appropriate later.
    VICE CHAIRMAN MCDONOUGH. You know what happens to those whose hearts are pure? Their strength is as the strength of ten.
    MR. FERGUSON. He has to turn his collar around the other way.

    #3:

    MR. POOLE…I’m reminded that a couple of weeks ago I had the very pleasant experience of touring the Boeing F-18 assembly plant and had about thirty minutes in the simulator for an F-18. I must say I’m a lot happier sitting around this table than I am in an F-18! But in the process of trying to land that plane in the simulator of the aircraft carrier, I ended up producing what the instructor called “pilot-induced oscillation.” That means finding oneself wobbling first one way and then the other way. And I think we have some of the same concerns about monetary policy. We don’t want to overreact–
    CHAIRMAN GREENSPAN. Let me ask–did you land or didn’t you land?
    MR. POOLE. Well, I did not end up in the drink! I had some helping hands, although on one occasion the instructor forgot to put the hook down, so there was no catch on the deck, and we pushed the throttle forward and took off again. What it amounts to is a $20 million video game and it’s a lot of fun.

    #2

    MR. BROADDUS. I would recommend and would hope that the press statement that accompanies our announcement includes language making it clear that we are not yet panicking–that it’s not a foregone conclusion that we’re necessarily going to ease further. I guess that comment was predictable.
    MS. MINEHAN. “We are not yet panicking.”
    VICE CHAIRMAN MCDONOUGH. I don’t think we will make you our press secretary.

    #1

    MS. MINEHAN. What do they say about consistency being the hobgoblin of something?

  • The Market Today
    Posted by on April 4th, 2006 at 5:08 pm

    Today was the day for Biomet (BMET). The Morgan Stanley news caused the stock to shoot up 9.7% today. (Check out this chart for the day.) Over the last year, the stock had traded in a fairly narrow range. This afternoon, Biomet finally made a new 52-week high.
    Today was also a good day for many financial stocks. The Federal Reserve Bank of New York finally took Citigroup (C) off double-secret probation. The company had not been allowed to make any acquisitions until it got its financial house in order. Not being a fan of acquisitions, I wouldn’t mind seeing this applied to many other companies.
    Now that the ban has been lifted, I don’t expect Citi to go on a massive buying spree. Chuck Prince, the new CEO, is far more conservative than Sandy Weill. Bear in mind, Citigroup is a gigantic company with assets of $1.5 trillion, so it’s still going to be a major dealmaker. To see the power and influence of Citigroup, today’s news lifted the entire financial sector. The stock currently yields about 4.1%. Interestingly, many of the international financial stocks were particularly strong.
    The transports also did well today, as the Dow Transportation Average (^DJT) and Expeditors (EXPD) both hit new highs. Hey, someone has to move all those expensive commodities around.
    We also had good news for AFLAC (AFL) which was upgraded today. Bed Bath & Beyond (BBBY) will report its earnings tomorrow. The current estimate is for 65 cents a share. In December, the company said it was going to 64 cents a share for this quarter. BBBY said it’s expecting to make $2.08 to $2.10 a share this year.
    The 30-year Treasury yield is now within striking distance of 5%. Today, the S&P 500 was up 0.63%, and the Buy List was up 0.97%.

  • The Fortune 500
    Posted by on April 4th, 2006 at 2:51 pm

    The new Fortune 500 list is out. Congratulations to Fiserv (FISV) which arrived at #488. Google (GOOG) is #353.
    Here’s the full list.

  • Biomet Hires Morgan Stanley
    Posted by on April 4th, 2006 at 2:38 pm

    CNBC is reporting that Biomet (BMET) has hired Morgan Stanley. It’s hard to say what this is about, but you certainly have to assume that the company is thinking about selling itself.
    I doubt this will happen, but it’s possible. The question is who? Zimmer (ZMH) and Stryker (SYK) aren’t big enough. Maybe Medtronic (MDT)? Maybe Johnson & Johnson (JNJ)? It’s hard to say. The company has denied that it’s going to be sold.
    The stock is surging higher.

  • Early Morning, April 4
    Posted by on April 4th, 2006 at 2:19 pm

    Thirty-eight years ago, Martin Luther King was assassinated in Memphis. That night, there were riots in over 60 U.S. cities. Some of the riots lasted for days. In many cities, the white population quickly left, taking the tax base with them. That started a vicious cycle of deteriorating schools and services which led to even more migration. By 1975, New York City nearly went bankrupt.
    Today in France, either hundreds of thousands or millions of demonstrators protested the government’s new labor law. The law, which President Chirac plans on signing, would make it easier for French businesses to fire younger workers.
    The differences between the job market in France and the U.S. are striking. In this case, quite literally. Since 1968, American has created 67 million jobs, approximately 67 million more than France. The unemployment rate for young people in France is close to 40%. What’s sad is that today’s protestors are demanding the status quo.
    In America, one of the problems for urban communities is that too many people want to live there, and the real estate market has priced lower-income residents out of the market. In fact, the recent protests in the United States were done by immigrants who have come here to find jobs.
    France has erected an elaborate social welfare state which may have been built on wonderful high-minded ideals, but it thrived due to a very base fact—demographics. As long as there are more young people than old people, the social-welfare state can hum along. Eight weeks of paid leave? No problem.
    But now France, and other countries in Europe, has a major problem. The birthrate has plunged. So Europeans have turned to another source for young people—immigration.
    Since French workers have much more time off than American workers, the economy has less demand for service type jobs that immigrants do in the United States. White collar workers in the U.S. learn to write “BASURA” on the office garbage, often to the amusement of Russian or Asian cleaning crews.
    They don’t have that in France. But they do have a generation of angry young people with nothing to do. That’s an unpleasant thought for any April 4.
    That’s not all that’s going on in France today. A smaller story, which is related more than you might think. According to the AP:

    The European Commission sent a formal warning to France on Tuesday, saying a takeover law that creates extra hurdles for foreign firms could break EU law.
    France wants to give the government a veto on takeovers in 11 sectors deemed sensitive to national security — from biotechnology to data security and arms manufacturing.
    The EU said the new rules could discriminate against foreign companies by requiring them to get special clearance before they can buy into one of the affected industries.

    There law grew out of last year’s uproar over rumors that Pepsi was interested in buying Danone. Le Figaro described Pepsi as “the American Ogre.” Thierry Breton, the finance minister, warned Pepsi that “this is not the Wild West.” Wild West? For the record, Pepsi is based in Purchase, NY, which is neither Wild nor West.
    The prime minister and sometimes poet, Dominique de Villepin called Danone, “a flower of our industry.” It turns out that Danone was actually started in Spain. The company only became a French flower due to a series of takeover, which I think may be ironic. I’m really not sure.

  • Merck Guides Higher
    Posted by on April 4th, 2006 at 12:35 pm

    I don’t consider myself to be a value investor. I like growth stocks, and I’m willing to pay for them. I don’t dismiss value investing, but there are many potential difficulties. One of the problems is what’s known as the value trap.
    The value trap refers to stocks that appear to be bargains according to traditional measures of value but are in fact, very much overpriced. In other words, there’s a reason why they’re so cheap.
    I think of the value trap each time I look at the major drug companies. It’s pretty remarkable how much these stocks have lost their appeal. For many years, stocks like Merck (MRK) and Pfizer (PFE) consistently beat the market. Not anymore.
    So now we face the question, “are these stocks really cheap, or are they value traps?” I like these companies and I’m rooting for them, but so far, I’ve merely been an observer, not an owner. I’m just amazed at how everything Merck and Pfizer touch seems to turn to mud. Just a few weeks ago, Pfizer guided lower for the year.
    Previously, I’ve said that I won’t go near either stock until I see some real improvement. I still feel that way. Right now, I’m watching for those little stories that ought to impress investors. For example, Pfizer raised its dividend by 26% a few weeks ago. That’s a good show of confidence.
    Today, Merck finally has some good news. The company is guiding higher for the first quarter. The company now sees earnings of 61 cents to 67 cents a share for the quarter. Merck also backed its full-year forecast of $1.98 to $2.12 a share. That’s not bad.
    The stock is trading near its 52-week high, but I’m not concerned about that. The past 52 weeks haven’t been that great for Merck. Also, I don’t worry about picking the exact bottom of a stock. I can live with missing the first move. I’d rather focus on the following couple hundred percent.
    At the beginning of the year, I made a casual observation that I thought Merck would outperform Pfizer this year. I still think that will happen. Today is a good day for Merck. I hope to see more in the future.
    I can’t leave this subject without saying something about Johnson & Johnson (JNJ). This may be the best buy in the large-cap end of the sector. I probably would have added it to my Buy List this year if not for the Guidant deal. That was a stressful few weeks, complete with the spectacle of Guidant suing J&J after Guidant did everything it could to ruin the deal. Now Guidant is someone else’s problem.
    Johnson & Johnson reports its earnings two weeks from today. The current estimate is for 98 cents a share. This could easily be a $70 stock.

  • AOL is now just AOL
    Posted by on April 4th, 2006 at 10:47 am

    Time Warner’s internet unit, America Online, has announced that it will now be known as AOL LLC. Despite the name change, the service plans to continue sucking.