Google Mars
Posted by Eddy Elfenbein on March 14th, 2006 at 10:17 am

First, there was Google Earth. Then Google Moon.
Now, there’s Google Mars.

Goldman’s Earnings Surge
Posted by Eddy Elfenbein on March 14th, 2006 at 10:09 am

Well, someone is making money on Wall Street. Goldman Sachs (GS) just reported that its first-quarter profit rose 62% to $2.45 billion, or $5.08 a share. That demolished Wall Street’s estimate of $3.29 a share.
You don’t often see a brokerage firm top its estimates by over 50%, but Goldman has been shooting the lights out lately. Revenues from asset management soared 89%. Whoa. The company also raised its quarterly dividend from 35 cents to 40 cents a share. The stock is up about 50% since June.
We’ll get another snapshot of the profits on Wall Street tomorrow when Lehman Brothers (LEH) reports. The company has regularly beaten estimates for the last several quarters. Interestingly, Lehman’s and Goldman’s stocks have tracked each other remarkably closely for the past several months. In fact, as I write this, both stocks are worth $146 a share.
Bear Stearns (BSC) reports on Thursday and Morgan Stanley (MS) follows next Wednesday.
Graef Crystal has more on executive pay of the Wall Street cheifs.

It was 20 Years Ago Today
Posted by Eddy Elfenbein on March 13th, 2006 at 12:02 pm

Microsoft went public. Believe it or not, you couldn’t even use margin to buy Nasdaq stocks back then.
Bill Gates initially didn’t want to go public and he held it off as long as he could. The problem he had was that many of his employees were worth tons of money on paper, but they had no way to sell their shares. Could you imagine employees striking unless the company goes public? How would Marx have explained that one?
Since the company didn’t need to raise much money, the offering was pretty small. They floated about 3 million shares priced at $21 a share. The IPO was a big hit and MSFT closed trading on March 13, 1986 at $28 a share.
The stock didn’t do much for the first six months.
However, things started to move and since then, MSFT has split nine times, seven 2-for-1’s and two 3-for-2’s. That comes to 288-for-1. So that $21 offering was worth 7.29 cents.
The stock reached its all-time high close on December 27, 1999 at $59.56 (split adjusted). (On December 30, the stock reached an intraday high of $59.97.) Basically, the stock gained an average of 1% a week for 14 years.
Microsoft fell back to $20 a share, and has been remarkably flat for the past few years. The stock has bounced between $22 and $30 for the most of the last four years.
The company started paying a dividend three years ago. Also, there was the gigantic $32 billion special dividend that the company paid out in late 2004. That payment was close to the $38 billion that the government paid out in tax rebates in the summer of 2001.

Here’s a chart showing the trailing four quarters of Microsoft’s sales, gross income, operating income and net income (in thousands). You can really show how the business started to level off at the beginning of the decade.

The amazing part of Microsoft’s business is its gross income. The teeny space between the black and green lines shows how little it costs Microsoft to makes its software. Microsoft’s gross income is usually over 80%. It’s actually gotten higher over the years.
At the beginning of the decade, Microsoft had a trailing P/E ratio of over 70. Today, that number is down to 22.

Merck Goes for Pfizer
Posted by Eddy Elfenbein on March 13th, 2006 at 11:06 am

I knew the drug stocks were cheap. The German Merck is offeting $18 billion for the German Schering. FYI: This isn’t the U.S. Merck (MRK), or the U.S. Schering Plough (SGP).
I hope this signals a bottom for drug stocks:

Merck said it expected annual synergies of 500 million euros, to be fully reached by 2009. It said the deal would have a positive impact on adjusted earnings per share (EPS), increasing its 2005 figures by more than 10 percent, even without synergies.
Merck said the 14.6-billion-euro payment would be financed by a combination of existing funds, debt and equity.
The company will initially finance the takeover through existing cash and bridge financing from Bear Stearns, Deutsche Bank and Goldman Sachs.

243,000 New Jobs
Posted by Eddy Elfenbein on March 10th, 2006 at 10:01 am

The economy created 243,000 new jobs last month. The unemployment rate ticked up to 4.8%. Wages were up slightly, although that’s been sluggish lately.
The yield on the 10-year bond (^TNX) is up sharply this morning. It’s now at the highest level since June 2004. The yield is very close to breaking that level and reaching its highest point since July 2002.

Six Years Ago Today
Posted by Eddy Elfenbein on March 9th, 2006 at 2:05 pm

The Nasdaq first broke 5,000. The index reached its highest close on March 10, 2000 at 5048.62. Ah, good times those were.
Thirty-one months later, the Nasdaq closed at 1114.41, a loss of 77.9%.
It’s roughly doubled since then, although the Nasdaq is still over 55% off its high.
Assuming the average long-term growth rate of stocks, the Nasdaq should make a new high around May 2014.

Hansen Keeps Growing
Posted by Eddy Elfenbein on March 9th, 2006 at 1:45 pm

If there’s a leading candidate for “Stock of the Decade,” it’s probably little Hansen Natural Corp. (HANS). The company is known for its Monster Energy drink, which is essentially a mixture of sugar and caffeine. I’m told that people actually drink this. I’m guessing it’s the perfect beverage to keep you wired to play video games all night.

Personally, I don’t judge the products. I’m just interested in making money. And Hansen makes gobs of it. Three years ago, you could have picked up the shares for about $2 a piece. Since then, the stock has exploded.

Today the stock nearly hit $110 a share as the company reported another quarter of astounding growth. This is still a pretty tiny company, but let’s look at these numbers. Sales grew 83.9% to $133.6 million! Whoa.

At the bottom line, Hansen made 75 cents a share, which more than doubled last year’s fourth quarter net of 31 cents a share. Since the stock is still largely uncovered, we really can’t say that there’s a “Street consensus.” Nevertheless, the average of the three analysts came to 62 cents a share. The highest was looking for 67 cents a share, so in that sense I guess we can say that Hansen beat expectations.

For the year, sales were up 85.4%, and the company earned $2.59 a share compared with 86 cents last year. I have no idea how to value a stock like that. I have no idea even how to start! But I have a feeling that the biggest profits have already been made in Hansen.

Update: Hansen took a big hit after Cramer appeared on CNBC at 3:30.

Now, Cramer clears up his view:

OK, the venues collide. When I started my radio show today, which now airs live, I said that I thought that Hansen was taking share away from Coke and Pepsi, which makes it a good situation. I subsequently went on “Stop Trading” and said I thought it was clear that people were buying it today because of the soda weakness described in The New York Times. I then feel that I let myself get painted into an unfair corner where I didn’t like HANS.

Of course, you can’t go out in one medium and say you like it, and then say you don’t in another. That’s just ridiculously inconsistent. It is true that the “tape” turned down after my radio broadcast, making it seemingly difficult to sustain the rally in Hansen. But this decline off of “my comments” was way too harsh.

My long-term view on Hansen is that it is a share-taker and a valuable stock. My short-term view is that you can buy some, but expect it to go lower because the tape is so bad. The truncated style of “Stop Trading” created a false impression of negativity and I deeply regret the contrast between mediums, as it should not have come out that way.

Um…glad that’s all cleared up.

The Brazilian Market
Posted by Eddy Elfenbein on March 9th, 2006 at 10:24 am

The ETFs have had a huge run-up. Are they starting to show some weakness?

Google Agrees to Settle ‘Click Fraud’ Case
Posted by Eddy Elfenbein on March 9th, 2006 at 6:23 am

From the AP:

Google Inc. has agreed to pay up to $90 million to settle a lawsuit alleging the online search engine leader overcharged thousands of advertisers who paid for bogus sales referrals generated through a ruse known as “click fraud.” (Are the scare quotes really necessary?)
The proposed settlement, announced by the company Wednesday, would apply to all advertisers in Google’s network during the past four years. Any Web site showing improper charges dating back to 2002 will be eligible for an account credit that could be used toward future ads distributed by Google.
The total value of the credits available to advertisers will be lower than $90 million because part of that amount will be used to cover the fees of lawyers who filed the case last year in Arkansas state court. The proposed settlement still requires final court approval.

Q&A: Investing Recommendations
Posted by Eddy Elfenbein on March 8th, 2006 at 3:02 pm

Dear Eddy,
Firstly thanks for your blog. I read it faithfully several times a day and find it very helpful.
My question relates to NSTK. It lost 8.55 today after Merck pulled out of deal. However, prior to his passing, Kennedy Gammage recommeded the stock heavily noting it as a once in a life time opportunity.
Also after such a hammering it seems these stock rebound quite well (ex. BCRX and ENDP). What would be your thoughts on NSTK? I bought it around 14.80 [Sep 2005] and jsut got stopped out around 14.90.
Also would you please recommed two books to read, maybe two periodicals and if possible, two newsletters you think are worth subscribing to [although I think in the past you wrote on newsletters, I’ll need to look that up].
Thank you again. My family and I appreciate your efforts.

Thanks for the kind words!
First off, let me say: Never listen to anyone who says there’s a once-in-a-lifetime opportunity in the stock market. There are once in a lifetime opportunities in many places, but the market is not one. The fact is there are many, many great stocks out there, and investors have many opportunities to buy them.
To show you what I mean, let’s look at AFLAC (AFL). Twenty years ago, you could have bought it for $1.50 a share (split-adjusted). So there’s your once in a lifetime chance, right? But ten years later it was going for $8 a share. (Twice in a lifetime??) The stock soared, but it was still a huge bargain. Even if you were late to the party, you still could have made a big profit. This return creamed the vast majority of mutual funds and hedge funds. The opportunities are always there.
Or Golden West Financial (GDW). This stock is about as boring as they come. In 1982, it was going for (split-adjusted) 30 cents a share. Let’s say you ignored it. In 1990, it was still going for $3 a share. Today, it’s at $70, and that doesn’t include dividends!
I don’t know much about Nastech Pharmaceuticals (NSTK), but let’s look at the basics. They don’t make money. In the world of high-powered finance, we call that “a bad thing.” Actually, they haven’t made money is several years. That’s even worse than my March Madness brackets!
I also have to admit that I don’t know much about Nastech’s business (intranasal drug delivery). It sounds interesting, but what do I know? I begin my analysis not by predicting things that might happen, but instead by admitting my ignorance. Fortunately, I have a lot to work with.
I don’t know what the Fed will do, what will happen with the economy or what Google will do. The price of oil? Beats me. But what I can do is find stocks that have consistent track records of delivering high returns-on-equity. Sure, AFLAC could blow up tomorrow and lose all its value. Same with Fiserv (FISV) or Brown & Brown (BRO). But I think the odds are fairly remote. The important point is that I can’t eliminate risk, but I can work to control it. My view is, never take risks you don’t need to.
The stocks on my Buy List all have great track record, and I assume that in due course, the market will reward them. Nastech could have the most fabulous amazing invention ever, but I wouldn’t know, and I couldn’t know. I wish them well. But I won’t go near them until they prove they can make money in good times and bad. That’s the difference between investing and speculating.
Two books I would recommend are “One Up on Wall Street” by Peter Lynch. Lynch is the legendary manager of Fidelity Magellan. The book is about 20 years old, but in my opinion, it hadn’t been topped. Another good book is “The Essays of Warren Buffett,” which is a collection of his writings over the decades.
As far as periodicals, trust me, periodicals aren’t necessary to becoming a good investor. In fact, they probably harm a lot of investors. I assure you, reading Fortune never made anyone rich.
For newsletters, I’d recommend “Richard Band’s Profitable Investing.” I’ve known Richard for many years. He’s an outstanding writer and he has a sharp mind for all things financial. Another excellent letter is “The Prudent Speculator,” which is now written by John Buckingham. The late Al Frank wrote it for many years. They have a deep value approach that has beaten the market for many years.
Thanks for your e-mail, and happy investing!