• More Firms Are Refusing to Provide Earnings Guidance
    Posted by on January 21st, 2006 at 4:29 pm

    Since the tech bubble burst nearly six years, regulators have declared war on research analysts. There was the global research settlement, plus new guidelines like Regulation FD.
    When it comes to criticizing the Street, I take a back seat to no one. However, we’re now starting to see some unintended consequences of the anti-analyst movement. Perhaps the most troubling is that more and more companies are refusing to provide any earnings guidance whatsoever.
    This week, Motorola (MOT) become the latest stock to say that it will no longer tell the public where it sees its earnings headed. Intel (INTC) said that it will no longer provide its mid-quarter sales updates. Today, only 71% of the publicly traded stocks give earnings guidance, which is down from 77% three years ago.
    I really can’t blame these companies. The legal atmosphere has become toxic, and any misstep could result in legal action. As usual, an attempt for more transparency has resulted in less.
    Hopefully, this will help more independent analysts, like stock bloggers, and any individual investor willing to do a little homework. There are lots of great stocks out there that almost no one knows about.
    A few weeks ago, I mentioned a great little bank Northern Empire Bancshares (NREB). The company just report terrific earnings. For 2005, EPS came in at $1.59 compared with $1.23 for 2004. Not many banks are growing like that, yet not one single analyst follows the stock. There’s no guidance, no consensus, no upgrades or downgrades, just year after year of outstanding results.
    Perhaps the lack of guidance isn’t as troubling as I think. The great stocks are still out there, but we may have to work a little harder to find them.

  • What if They Held an Olympics
    Posted by on January 21st, 2006 at 3:56 pm

    and nobody came?
    Forty percent of the tickets to Turin(o) are unsold.

  • 213 Points Down
    Posted by on January 20th, 2006 at 5:54 pm

    It’s all my fault. I thought I’d take it easy today, maybe a post or two. The weather’s so nice out, what’s the worst that could happen?
    213 points. That’s what could happen.
    Obviously, the market can’t live without me. I’ve always suspected as much, and now I have proof. Today, the Dow gave us its first 200 point drop in nearly three years. Ugh.
    The S&P 500 fell 1.83% which was its biggest fall since September 24, 2003. The Nasdaq dropped 2.35% and erased all its gains for the year. Remember that Google (GOOG) stock? It lost 8.5% today—its worst day ever—and fell below $400 a share. Last Wednesday, the stock was at $475.
    Today, energy stocks led the charge and tech stocks got whacked the most. Concerns about the nuts running Iran, and the reappearance OBL sent oil up $1.52 to $68.35 a barrel. I think it’s interesting that oil is climbing on potential news, not news itself. This is a typical pattern. Oil rallies on fears, but falls on news.
    Most people forget that the hurricanes didn’t cause oil to rally. Oil peaked on the day Katrina made landfall. The price of oil fell in the aftermath. That’s now how many people have remembered it. We’re not experiencing inflation. This is just scared oil traders.
    The Oil Service Holders ETF (OIH) has become very popular with traders, and it shined today. That ETF tracks the Dow Oil Equipment and Services Index (^DJUSOI) which rose 2.56%. That was the single best industry group of all 100 sectors. Of the stocks in that index, Schlumberger (SLB) rose 6.4% and Halliburton (HAL) rose 5.2%. This energy rally is starting to depart from reality. It’s as if Google isn’t falling, it’s just being replaced. Same crazniness, different stocks.
    On the tech side, the Dow Jones U.S. Technology Total Return Index (^DJUSTCT) dropped 3.16%. That doesn’t shock me so much.
    Twenty-nine of the 30 Dow stocks lost value. Every single stock on our Buy List fell today. Combined, the Buy List fell 2.12%. Our biggest losers were Respironics (RESP) which lost 4.30% and UnitedHealth (UNH) which lost 3.24%. There wasn’t major news with either stock. Unlike the Dow and Nasdaq, we’re still up for the year (0.167% woo!).
    General Electric (GE) made a lot of news by reporting earnings that matched estimates, but sales were weak. The stock fell 3.8%. That’s about $13 billion. Citigroup (C) fell 4.7% as it missed its earnings by two cents a share.
    Today the market clearly said that it’s worried about the economy. Stocks move to earnigns and interest rates. Since long-term rates fell, that must mean its earnings. Here’s our proof: The Cyclical Index (^CYC) fell 2.41% today, but the Consumer Index (^CMR) only fell 1.31%. That’s a pretty wide spread for one day.
    One curious thing today is that investors didn’t seek safety in Treasury bills. The three-month yield rose today to 4.25%. Investors did seek comfort in longer term Treasuries. The 10-year yield fell to 4.36%. Also, gold fell today. That wouldn’t happen if people were really scared.
    I’m not concerned by today’s sell-off. I had said before that too much of the recent rally has been skewed to tech and energy. That couldn’t keep up. I was glad to see tech come down some, but energy look at risky as ever.
    More of our stocks will report earnings next week, and I think our Buy List looks as good as ever. It should be a good week for us.
    Here’s today’s damage:
    dow.bmp

  • The Midday Market
    Posted by on January 20th, 2006 at 12:09 pm

    Here are few random thoughts on the market this morning.
    This is one of the uglier days of the year so far. The energy stocks are climbing once again, while all the other sectors are in the red. GE’s earnings report didn’t please the trading gods. The techs are getting hit hard with the industrials close behind. Motorola (MOT) became the latest tech stock to fall after reporting good earnings. The market was annoyed that the company didn’t raise its guidance.
    The Dow is currently down over 120 points, and oil is close to $68 a barrel. The Dow Oil Equipment & Services Index (^DJUSOI) is up nearly 19% this year. The Oil Service Holders (OIH) closely tracks this index. The index includes stocks like Schlumberger (SLB), Transocean (RIG), Halliburton (HAL) and Baker Hughes (BHI).
    Although I liked what Home Depot (HD) had to say yesterday, some investors didn’t. The company said that it’s going to slow the rate of new store openings, while it focuses more attention on industrial customers. I’ve heard the professional builders hate Home Depot with a passion, and the company is looking for reconciliation.
    Although UnitedHealth’s (UNH) earnings missed some analysts’ expectations, the stock recovered yesterday afternoon from a sell-off in the morning. Varian (VAR) is the only stock on the Buy List that’s up. Jim Cramer profiled the stock on last night’s show. I’m curious if he’s following IBD’s lead.
    Gold is at another 25-year high. The metal is close to $570 an ounce. Google (GOOG) is down another $15 a share today.

  • Every Weekly Dow Close
    Posted by on January 19th, 2006 at 11:03 pm

    I’m an incessant data fiend. If something has data, I’m all over it. Even as a kid, I could swallow baseball statistics whole. Batting averages, slugging averages, it didn’t matter. I have no idea why I do it. I just do.
    I’m afraid I’m incurable. Any twelve-step program would backfire. I’d count the steps and find a moving average. I’m pathetic, I know.
    Here’s an excel spreadsheet of the Dow’s closing value for every week. And by that, I mean week. Starting from when Mr. Dow began calculating it by hand. All 5,698 weeks from May 12, 1896 until today.
    Some stats: The Dow’s average weekly gain is puny, just 0.13% (this doesn’t include dividends). That’s equal to a $76 stock rising 10 cents in a week.
    The weekly standard deviation is 2.56%. So the market’s average weekly swing is nearly 20 times its average weekly change. So 95% of what happens each week is pure noise. It’s totally meaningless.
    And that noise hangs around for a long time. Even after five years, the Dow’s average return is still equal to one standard deviation (for cool math types, 1.0013^260 is roughly 2.56*[260^0.5]).
    Think about that. That means that there’s roughly a 1-in-6 chance that the Dow will be exactly where it half-a-decade from now. Five years, zippo capital gains.
    The Dow is currently 2.8% higher than where it was five years ago today.
    Let’s hope the next five years will be better.

  • Home Depot Raises Dividend by 50%
    Posted by on January 19th, 2006 at 1:58 pm

    We have a nice rally on our hands this afternoon. The big news today is that Disney (DIS) is reportedly in talks to buy Pixar (PIXR). I can’t say that this is a big surprise, but it’s a neat story. It’s the marriage of old and new media. Disney’s stock hasn’t been a good buy in ten years. If the deal goes through, Steve Jobs would be Disney’s largest shareholder. I’m sure he won’t be a silent partner, which is probably a good thing.
    There’s more good news for our Buy List. Home Depot (HD) raised its earnings forecast and increased its dividend by 50% to 60 cents a share.

    For 2005, the company expects earnings at the high end of its projected growth range of 17% to 18%, and sales at the midpoint of its growth range of 10% to 12%. On this basis, Home Depot sees earnings of $2.64 to $2.67 a share for the year on sales of more than $81 billion. The current average estimates of analysts polled by Thomson First Call are for profit of $2.67 a share for 2005 on sales of $80.53 billion.

  • Computer Problems at the Nasdaq
    Posted by on January 19th, 2006 at 11:58 am

    Has caused incorrect stock quotes and prevented 81,000 trades.

  • Philips Buys Lifeline
    Posted by on January 19th, 2006 at 11:55 am

    Yesterday I was working on a post on Lifeline Systems (LIFE). I was going to say that this is a cool little small-cap health care stock that’s worth watching. The company has posted impressive sales and earnings growth for the past few years. Periodically, I like to talk about socks that I like but aren’t on my Buy List.
    Well, Philips Electronics (PHG) beat my posting skills. I find out this morning that they said they’re going to buy Lifeline for $750 million, which is a 21% premium. The stock is soaring today.
    If I had gotten to post about Lifeline 24 hours earlier, I would look like a genius today, alas, I was too slow. In any event, here’s a profile of Lifeline Systems.
    life.bmp

  • Google Watch
    Posted by on January 19th, 2006 at 10:36 am

    We’re less than two weeks away from Google’s (GOOG) next earnings report and I’m starting to sense some nervousness about the stock. I can’t even pretend to forecast Google’s business, but I can judge its management, This company isn’t merely “insensitive” to its shareholders, it’s actively hostile.
    The WSJ has an interesting article this morning on Google’s increasing use of stock options and restricted stock. When your stock is soaring, this seems like free money to pay your employees, however, the bill will eventually come due:

    But few investors are focusing on the growing number of restricted shares and options that Google is handing out to employees, which will emerge as a sizable expense in the next few years. That expense added up to a hefty $600 million or so as of Sept. 30 of last year, all of which will be charged against future earnings.
    As Google’s business grows and it courts employees in a competitive marketplace, it is picking up the pace of its issuance of “performance-based stock units,” according to securities filings, a form of compensation that many investors overlook. Between March 31 and Sept. 30 of last year, Google gave out 498,000 units, a close cousin of stock options, which likely will convert into Google shares over a four-year period.
    The units are valued at the price of Google shares at the time they are granted. Since the average stock price was about $300, the units represent an expense of about $150 million. Because the units vest over four years, accounting rules require the company to count one-quarter of their cost as an expense each year. So, Google took just $8.9 million of expense for the units during the second and third quarters. The remaining cost will hit earnings over the next few years.

    This past weekend, Floyd Norris looked at the valuation comparisons between IBM (IBM), Berkshire Hathaway (BRKA) and Google.

    If Google were to now trade at the same multiple to historic revenue that Yahoo does, it would lose nearly half its value. If it traded at the same multiple to historical earnings, it would fall around 65 percent.

    On Tuesday, Scott Kessler at S&P did the unheard of. He downgraded Google to a “sell.” He told Business Week that he’s concerned about Google’s growing risk:

    What are the risks that Google faces?
    I think investors should know the ABCs of Google risk. “A” is for the absence of material revenue diversification. As good a company as Google is, it still generates 99% of revenue from one source: Internet search advertising.
    “B” is for building competition. Yahoo! is investing aggressively in search. It is No. 2 in the Internet search-advertising area and is doing its best to compete. Microsoft is slated to introduce adCenter in the second half of 2006. This will launch the company into Internet search advertising.
    We do think that Microsoft’s entry into this category is going to have an impact. In addition, Ask Jeeves, which was acquired by IAC/InterActiveCorp last summer, says it will pursue a proprietary Internet search-advertising strategy.
    Last but not least is Fox Interactive Media. This was created in mid-2005 by News Corp., and includes MySpace.com, which has become an extremely popular destination for teens and twentysomethings. This is not speculation that Fox Interactive Media will pursue Internet search — its executives have said they will do this. The question is how they will do it, either via acquisition or partnership. We don’t expect it to partner with Google.
    Getting back to the ABCs of Google risk, “C” is for click fraud. This is relatively unknown to most Internet users and investors. It’s relatively simple. A recent study suggests that up to 30% of online clicks could be fraudulent — meaning not authentic, or not consisting of real users delivering clicks. We’re talking about synthesized clicks by people or a box that automatically rings up clicks that benefit Internet search companies like Google.
    We think this problem is more pervasive than people think. We think it will affect advertisers’ taste for Internet advertising and the prices they are willing to pay for ads. And this could have a negative effect on Google.
    So, essentially, my downgrade of Google is about valuation and risk. The stock is up 450% since its August, 2004, debut at $85 a share. We think there are notable risks to the stock, and investors should take action based on them.

  • Earnings from Harley-Davidson & UnitedHealth
    Posted by on January 19th, 2006 at 10:24 am

    This morning Harley-Davidson (HDI) reported very strong earnings for last quarter. The company earned 84 cents a share, three cents more than Wall Street was expecting. That matched the Street high. Sales jumped 10%. Right now, the stock is trading about 3% higher.
    UnitedHealth (UNH) reported earnings of 65 cents a share. According to Thomson First Call, this was inline with Wall Street’s estimates. I was expecting a little bit higher number, but UNH always delivers solid growth. Last year, the company earned 54 cents a share. UnitedHealth is down about 1.5% today.