• Earnings Preview: Harley-Davidson
    Posted by on January 19th, 2006 at 6:17 am

    From AP:

    EXPECTATIONS: The motorcycle maker has predicted year-end earnings will rise between 10 percent and 13 percent. Analysts surveyed by Thomson Financial, on average, are looking for 2005 profit of $3.38 per share — a growth of about 13 percent. For the fourth quarter, analysts expect earnings of 81 cents per share on sales of $1.35 billion.
    ANALYST TAKE: “Although we believe retail sales to moderate, which is reflected in our lowered wholesale sales outlook, we think the company could earn above consensus given its ability to buy back shares,” Citigroup analyst Gregory Badishkanian wrote in a recent research report. He predicted retail sales growth of 3 percent in the fourth quarter, the low of end of Street expectations for 3 percent to 5 percent growth.
    “Checks suggest retail sales in October were strong but borrowed heavily from November,” and were balanced by a “flattish” December, Credit Suisse’s Scott Barry wrote in a note to clients. He expects fourth quarter earnings of 82 cents per share.
    QUARTER DEVELOPMENTS: The Milwaukee-based company recalled more than 500 motorcycles in Japan in December, citing transmission problems. Harley also recalled about 13,400 of its Dyna series motorcycles because of a transmission defect.
    In October, Harley said it expects to ship 348,000 to 352,000 of its namesake motorcycles in 2006 and predicted earnings growth of 11 percent to 17 percent.
    COMPETITORS: Germany’s Bayerische Motoren Werke AG, or BMW, said earlier this month it sold 97,500 motorcycles in 2005, a 5.6 percent increase over 2004.
    STOCK PERFORMANCE: Harley shares fell 14 percent in 2005, ending the year at $51.49 on the New York Stock Exchange.

  • The Sky Isn’t Falling
    Posted by on January 18th, 2006 at 3:39 pm

    Michael Sivy takes on the bears:

    “Oil prices are going to soar even higher!”
    THE REALITY Yes, turmoil in the Middle East and hurricane damage to Gulf Coast wells and refineries have temporarily put a crimp in supply. Strong demand, including greater consumption in China, also has boosted energy costs.
    But there’s no long-term energy shortage. Canada’s oil sands alone contain nearly as much petroleum as Saudi Arabia has. It just costs $20 a barrel or more to produce, six times the cost of the cheapest existing wells in the Middle East. Other sources of oil and gas are abundant as well, although at high prices. The bigger catch is that it takes as long as five years to find and bring new production online.

    Read the whole thing.

  • The Schwab Economy
    Posted by on January 18th, 2006 at 3:18 pm

    Here’s an interesting story. I think it’s a microcosm of the economy.
    Charles Schwab (SCHW) just reported that its earnings tripled from last year. The reason for the good news is that the company has cut—slashed—its costs.
    As the tech bubble deflated, shares of Schwab fell from $50 a share to just $7. Management was replaced as founder Charles Schwab returned to take over, and the brokerage firm slashed its fees by 55%. The turnaround has been remarkable. Recently, the stock has recently been as high as $16.
    The company finally surpassed its peak earnings from 2000, even though it has about half the number of employees. Despite what I often hear about inflation returning, Schwab is proving that businesses can do more with half the employees at half the price. Lower costs and greater productivity can mean greater profits.

  • The Energy Rally Ain’t Over
    Posted by on January 18th, 2006 at 12:47 pm

    One of the hard parts about writing an investing blog is that I can’t run from my mistakes. When I’m wrong, it’s there for the whole world to see.
    Lately, I’ve been completely and totally wrong on energy stocks. I said that I thought the run-up in energy stocks had run its course. Nope. Yesterday, oil cracked $66 a barrel, and the Dow Energy Sector hit a new high (see the chart below). Poor Frontier Airlines (FRNT) fell all the way to $7 a share (higher fuel costs hit the airlines the most).
    I haven’t changed my outlook. I still don’t like the sector. Maybe this is what the technicians call a “double top.” I don’t know, but I simply don’t see how energy stocks can maintain their valuations. Take away energy and tech, and this is still a pretty quiet market.
    I’d have a lot more confidence in this market if it were being led by “foundation sectors,” like financials, industrials and consumer stocks. Everyone got excited about the market’s upturn at the start of the year, but it seemed far too narrow for my taste.
    Today may be the first of a reckoning of sorts. Both Yahoo (YHOO) and Intel (INTC) are down about 11% due to poor earnings reports. Google (GOOG) is back down to “only” $450 a share. All eyes are on Apple (AAPL), which reports after the close. The techs are taking a beating today, and the Nasdaq is down about twice that of the S&P 500.
    Right now, the Buy List is down about 0.15% while the S&P 500 is off 0.68%. Anytime energy stocks get hit, our Buy List will beat the market. For the year, the S&P 500 is beating us: 2.1% to 1.4%.
    Tomorrow, Harley (HDI) and UnitedHealth (UNH) weill report before the bell. I’m not so concerned about UnitedHealth. You can set your watch to their earnings. It’ll either be 66 or 67 cents. I don’t they’ll fall outside that range.
    But Harley is a little more difficult. The current estimate is for 81 cents a share. That strikes me as a bit too low, but I can’t be sure. Options buyers have been loading up on puts to protect themselves from a possible sell-off. The stock dropped about 17% after its earnings report last April. I think the market is being overly cautious but we’ll know more tomorrow.
    Here’s a chart of the Dow Energy Sector for the past few months:
    djene.bmp

  • Radiating Success
    Posted by on January 18th, 2006 at 5:39 am

    IBD profiles Varian Medical Systems (VAR):

    It’s not every day that a hospital spends a couple of million dollars on a new piece of equipment.
    But it’s happening a lot more often, thanks to a new product from Varian Medical Systems.
    Varian’s cancer therapy systems are used to treat thousands of patients a day. The company dominates the market for radiation therapy treatment, which is used for a number of types of cancer.
    Varian is just now entering the first stages of a new product cycle. That fuels sales for Varian as well as the industry as a whole.
    Of course, it’s nice when your firm practically is the industry. Varian controls about 60% of the global share of radiotherapy treatment, says analyst Mark Lanyon of Morningstar. That number is more like 70% in North America.
    “You rarely see a company in any industry with that level of global market share,” Lanyon said. “They dominate this niche.”
    With the new product cycle, Varian is cranking out even more business. The impact is just taking effect.
    “The last few quarters, we’ve started to see acceptance ramp up,” Lanyon said.
    On Target
    Varian’s image-guided radiation therapy system, known as IGRT, is leading the new cycle.
    The product features the same core technology as its previous version, called intensity modulated radiation therapy, or IMRT, which launched in 1999.
    The IGRT system is designed to be more accurate and efficient than its predecessor. When you’re zapping cancerous cells with radiation, the more accuracy you have, the less likely healthy tissue is damaged.
    IGRT lets hospitals account for a tumor’s small movements. It can even adjust for shifts of up to one inch that take place when a patient breathes in and out.
    “People have been talking about a magic bullet for a long time,” said Varian Chief Executive Dick Levy. “That’s usually a drug that kills damaged cells and leaves healthy ones untouched. IGRT is getting close to the magic bullet.”
    Varian’s IGRT sales accelerated in the last two quarters of fiscal 2005, which ended in September. That should continue. Acceptance of the product has already come three times faster than IMRT. And IGRT just picked up Medicare reimbursement starting Jan. 1.
    “That should really facilitate order growth,” said Ryan Rauch, analyst at Jefferies & Co. “Reimbursement has improved, so this is really profitable for hospitals.”
    A survey Rauch’s firm did of 450 radiation oncologists showed 61% plan to upgrade to an IGRT system in the next year.
    Varian is getting higher prices per sale, too. Its prior system sold for about $1 million. The upgraded system runs about $2 million.
    Tight Focus
    The new product helped Varian’s fiscal fourth-quarter sales rise 12% from the prior year to $386 million. Earnings increased 22% to 45 cents a share. Sales for all fiscal 2005 gained 12% to $1.38 billion, while earnings rose 27% to $1.50 a share.
    Analysts polled by First Call expect Varian’s profit this year to climb 18% to $1.77 a share.
    The company battles huge firms such as Siemens and Philips. Varian’s advantage is that it’s been tightly focused on this area for decades, while the others run far-flung companies.
    Varian’s research strength helps it carry the best technology and the most diverse product set while it offers the best service, Rauch says.
    Global Play
    Beyond IGRT, Varian has other factors boosting its results. It’s getting a boatload of growth from its international business, Lanyon says. And it has the chance to gain share in Eastern Europe and Asia.
    “They can win business that didn’t exist before,” Lanyon said.
    Even in Western Europe, the number of radiation machines per capita is one-third what it is here, Levy says. Many countries there are committed to boosting that percentage.
    Varian’s international order growth rate has ranged from 20% to 30% the past four years, Lanyon says. The U.S. rate has been less than 10%.
    A rise in the cancer rate also will boost Varian’s sales. The rate in the U.S. is projected to swell by 50% by 2020, Lanyon says.
    Meanwhile, Varian looks to increase sales of other products. Sales for its smaller X-ray products unit rose 18% last fiscal year, thanks partly to its new line of flat-panel image detectors. These replace the need for film and let doctors read X-rays instantly.
    The market for flat-panel detectors is around $150 million, Levy says. It could reach $2 billion in the next decade.
    Varian uses the X-ray unit’s technology to make detectors used in busy ports like the one in Long Beach, Calif. The product can screen cargo containers for bombs.
    How much business could this market generate?
    “It could be enormous or it could be nothing,” Lanyon said.
    Another uncertainty is how much reimbursement Medicare will offer for Varian’s radiation products. If governments change their minds, they could slash payments by half, Lanyon says.
    “That’s one of those land mine risks that could derail it,” he said.
    Levy, 67, is retiring next month, to be replaced by President Timothy Guertin. Analysts don’t see that as a concern. Levy will remain as chairman, and Guertin has been with the firm for 30 years.
    “I don’t want to downplay the importance of Dick Levy,” Rauch said. “He’s going to be missed. But I don’t think they’ll miss a beat.”

    newamer011806.gif

  • Turmoil in the Japanese Markets
    Posted by on January 18th, 2006 at 5:27 am

    Volatility has finally returned, but not here—in Japan. The Japanese Nikkei 225 Index (^N225) got slammed for the second straight day. On Tuesday, the index fell 2.8%. Then it fell another 2.9% on Wednesday. Today’s session was cut short due to a surge of transactions.
    n225.png

  • Happy 300th Birthday Benjamin Franklin
    Posted by on January 17th, 2006 at 1:04 pm

    The ulitmate buy-and-hold investor:

    At his death, Franklin bequeathed £1000 (about $4400 at the time) each to the cities of Boston and Philadelphia, in trust for 200 years. The origin of the trust began in 1785 when a French mathematician named Charles-Joseph Mathon de la Cour wrote a parody of Franklin’s Poor Richard’s Almanack called Fortunate Richard. In it he mocked the unbearable spirit of American optimism represented by Franklin. The Frenchman wrote a piece about Fortunate Richard leaving a small sum of money in his will to be used only after it had collected interest for 500 years. Franklin, who was 79 years old at the time, wrote back to the Frenchman, thanking him for a great idea and telling him that he had decided to leave a bequest of 1,000 pounds each to his native Boston and his adopted Philadelphia, on the condition that it be placed in a fund that would gather interest over a period of 200 years. As of 1990, over $2,000,000 had accumulated in Franklin’s Philadelphia trust since his death. During the lifetime of the trust, Philadelphia used it for a variety of loan programs to local residents. From 1940 to 1990, the money was used mostly for mortgage loans. When the trust came due, Philadelphia decided to spend it on scholarships for local high school students. Franklin’s Boston trust fund accumulated almost $5,000,000 during that same time, and eventually was used to establish a trade school that, over time, became the Franklin Institute of Boston.

    Pretty cool.

  • Boston Scientific Strikes Back
    Posted by on January 17th, 2006 at 10:10 am

    $80 a share for Guidant (GDT).
    BSX has pushed all its chips to the center of the table. They’re also getting help from Abbott Labs (ABT).
    Here’s the press release, and here’s a timeline of the Guidant War from the beginning.

  • The Gold Rush of 2006
    Posted by on January 17th, 2006 at 7:35 am

    Another reason why I’m not a gold bull: Higher prices mean more exploration.
    It’s always been this way. The panic of 1893 and the Free Silver candidacy of William Jennings Bryan were eventually defeated. Not by President McKinley (or his political advisor Mark Hanna, whom Karl Rove greatly admires), but by the discovery of gold in the Klondike.

  • A Short Squeeze at Hansen Natural
    Posted by on January 17th, 2006 at 7:13 am

    Last week, I discussed Hansen Natural (HANS). The stock is up over 50-fold in three years. Nearly one out of every four shares is currently being shorted. That’s astounding. A whole bunch of those shorts got “squeezed” last week.
    Reuters profiles the company:

    The stock of the No. 2 energy drink maker behind Austria-based Red Bull GmbH emerged as the clear winner on the Standard & Poor’s 1500 index, rising 333 percent in 2005 with an average daily share volume of more than 1 million shares.
    “There’s no exact science or answer as to why we have been successful,” the South-African born Sacks told Reuters. “What we did to make ourselves different was we created an aggressive personality and in-your-face image for the brand.”