• Dow 11000
    Posted by on January 9th, 2006 at 2:20 pm

    dow11k.bmp
    We did it. Now only 723 more points to a record high.

  • Corporate Bond Offerings Soar
    Posted by on January 9th, 2006 at 1:09 pm

    We’re in the midst of a booming market for corporate bond offerings. So Wall Street is following Uncle Sam’s lead and going massively into debt. In January, Wall Street will float $50 billion worth of government bonds, plus another $20 billion of junk bonds. Will the 80’s ever end?
    The WSJ notes that Avon (AVP) will use proceeds from its bond offering to finance its share-buyback plan. Wha? This makes no sense to me. Sure, it would great a move assuming the CFO can accurately time the bond and stock markets. But that’s not what the CFO should be doing, and that’s not the person I’d go to for my timing needs. I’ll worry about that. You guys run your business. Capisce?

  • Blacklight Power
    Posted by on January 9th, 2006 at 9:50 am

    The WSJ has an article this morning on the unusual story of Blacklight Power. The private company has raised $50 million to develop what could be a revolutionary scientific concept. Unfortunately, everyone else thinks it’s bunk:

    Blacklight Power is a Cranbury, N.J., company run by medical doctor Randell Mills, who claims to have discovered what he calls “hydrinos,” a previously unknown form of hydrogen in which electrons move to a lower state of energy than previously thought possible but still manage to kick off power. Dr. Mills says his discovery will end the reliance on fossil fuels and even “replace fire.”
    But hydrinos as described by Dr. Mills violate the laws of quantum physics — the rules of how atoms behave — and therefore can’t be, modern physics holds. And a number of prominent scientists, including Nobel laureates, have criticized Dr. Mills’s theory.
    Yet some financial firms, businesses and even notable names from the military community have given Blacklight a total of nearly $50 million. Their investment comes at a time when high oil and natural-gas prices have placed greater emphasis on alternative forms of energy. The company is closely held, but Dr. Mills says he would consider a public offering of stock.
    “The physics that he uses is utter nonsense,” Robert Park, a University of Maryland professor and spokesman for the American Physical Society, which represents more than 40,000 physicists, says of Dr. Mills.
    Dr. Mills counters that Mr. Park represents an entrenched physics establishment that fears losing billions in academic funding and having its work discredited.

    The Journal’s article is only for subscribers, but here’s another article on BlackLight. Also, here’s a blog on alternative energy investments run by the hoster of this site.
    I don’t know anything about BlackLight’s research, and it seems highly suspicious. Nevertheless, I’m going to raise my rating to “near-term outperform.” Just in case.

  • Value the Beloved Guru
    Posted by on January 8th, 2006 at 6:55 am

    The New York Times looks at Warren Buffett’s Berkshire Hathaway (BRKA) and asks: “How should one value it?” That’s always a good question to ask. I think investors get unnecessarily tangled up by categories like “value” or “growth.” All companies are trying to grow. And a company can offer a compelling value due to its growth potential. But what about a company worth $137 billion (slightly less than Google)?
    The problem I have with Berkshire is the “Warren Premium.” The company is almost always slightly overvalued due to the presence of Buffett. Investors have so much confidence in him that the stock is given that extra, say, 10% or 15%. The stock is currently going for slightly more than 20 times this year’s estimate. That’s fairly rich.
    Now that Buffett is moving on in years, what will happen when he’s no longer at the helm? Could Berkshire even exist? The difficulty is that Berkshire is Warren Buffett:

    In a parallel world, where a 55-year-old Mr. Buffett with a fondness for kale was running the show, Berkshire stock might be trading higher as investors gave more weight to his involvement with the company. Yet Mr. Buffett’s presence is still valued enough that a suddenly Buffett-less Berkshire would be a real shock to investors. “If there was a sudden announcement that Warren was going to go sit on the beach and not run Berkshire, it’s very possible the stock would go down a lot initially,” Mr. Weitz said. “But the board might then choose to buy back a lot of stock.”

    Yes, it could. But that’s not what will concern the market. Investors will be looking at the empty captain’s chair.
    Think of it this way. Berkshire is largely an insurance stock (Geico) along with a smattering of consumer businesses. But even that’s an overly broad generality. Last year, Buffett took a big loss in shorting the dollar. I highly doubt any post-Warren board would allow such a move. The backlash would be too great.
    Valuing an insurance company is hard enough, but how does one place a price tag on the investing whims of a genius? This is where the textbook meets the real world and it doesn’t come away looking so good. One of my problems with the field of finance is that it tries to rationalize things that are really very hard to rationalize. All we’re doing is estimating a guess of an assumption of something we’re not very sure of in the first place.
    The variables that affect a stock’s price are monumentally complex. That’s one of the reasons why I stress stable stocks so much. Once Mr. Buffett retires, I think the best move will be to divide up the company he took a lifetime to build.

  • Google to $2,000?
    Posted by on January 7th, 2006 at 7:13 pm

    Dagnabit. I lost my lead!
    There’s a new leader in the Google Price Target Sweepstakes. Mark Stahlman at Caris & Co. says that Google (GOOG) is headed to $2,000 a share.
    Update: OK, here’s goes. My new price target is…
    **Deep Breath**
    $2,000.36.
    Oh, and a sack of magic beans. Can’t forget that.

  • IBM Goes for 401K’s
    Posted by on January 7th, 2006 at 4:14 pm

    Last month, it was Verizon (VZ). Now it’s IBM’s (IBM) turn. The only surprise here is that it took them so long. I mean, pension plans are so last century:

    International Business Machines Corp. said today it will freeze the pension plans of some 120,000 employees in the United States, effective at the end of next year, and will offer instead a more generous 401(k) plan.
    IBM’s move is part of a corporate stampede away from traditional pension plans. IBM officials called the change essential to remain competitive with foreign and domestic information technology rivals.

    The pension crisis is also coming after corporate balance sheets.

  • End of Week One
    Posted by on January 7th, 2006 at 4:05 pm

    Yesterday capped off a great week for the market, but a mediocre one for our Buy List. Don’t get me wrong; I’m pleased with the market’s performance, but I’m a little suspicious of so much strength in tech, energy and gold. Bear in mind that those sectors can move quickly, but I’d much rather see “core” areas like finance and consumer stocks lead the way. That’s the foundation of a lasting rally.
    Yesterday, the S&P 500 was up 0.94% to another four-year high. Our Buy List gained 0.55%. So far, 2006 is looking very good. The S&P’s return this week, not including dividends, is roughly equal to what it did for all of 2005. For the week, the S&P gained 2.98% and our Buy List was up 1.54%. I’m not ready to panic just yet. The returns for the week were pretty uneven. Many tech and energy indexes were up over 6%.
    On our Buy List yesterday, AFLAC (AFL), of all stocks, had a good day. The insurer gained over 3.5% thanks to a bullish report from Deutsche Bank. However, our other insurance stock, Brown & Brown (BRO), had a weak day. Respironics (RESP) was also weak due to a downgrade from Harris Nesbitt. The earnings reports for the fourth-quarter will start coming out in about two weeks. On Monday, Alcoa will report its earnings. This will be the first Dow component to report for the fourth quarter.
    Yesterday, the Dow was finally able to break through the Fibonacci number of 10940 as it closed at 10959. I’m not a fan of technical analysis, but I have to concede that the market loves to toy around with these benchmarks. For example, the Russell 2000 (^RUT) broke out to a new all-time high yesterday. The index was briefly over 700, but it closed at 699.39. I don’t think that’s purely by chance. The Russell 2000 has been creaming the S&P 500 for nearly seven years now. Since April 8, 1999, the Russell 2000 has gained nearly 75%, while the S&P 500 is down 4%.

  • Dow 11K is Within Reach
    Posted by on January 6th, 2006 at 2:29 pm

    This could be the first close over 11,000 since June 7, 2001. It would also snap a 301-session streak of closes between 10,000 and 11,000.

  • Dell cuts estimate for fiscal 2007 options expense
    Posted by on January 6th, 2006 at 2:18 pm

    From Reuters:

    Computer maker Dell Inc. (DELL) on Friday cut its estimate of what it will cost the company to expense options awarded as employee compensation in fiscal year 2007 by 8 cents a share.
    Dell now expects to incur full-year after-tax stock-based compensation expenses of $250 million, or 10 cents a share, for fiscal 2007. That’s below its previous forecast of 18 cents.
    The company said it plans to accelerate the vesting of some “out of the money” stock options. That will reduce stock-based compensation expenses it would otherwise be required to recognize under reporting requirements from new accounting rule, FASB 123R, Dell said.
    The company is fully vesting previously granted stock options that have exercise prices higher than $30.75, Dell’s closing price on Thursday.
    The company’s options typically vest over a five-year period.

    Ironically, it’s one of the benefits of a sagging share price.

  • Share Buybacks
    Posted by on January 6th, 2006 at 11:58 am

    The big fad on Wall Street has been to buy back outstanding shares. I’m not a big fan of share repurchases. Personally, I’d rather get the cash. Too often, a company wastes good money on its own bad stock. As I see it, I pay corporate execs to run their businesses, not manage my money.
    According to USA Today:

    A record-breaking number of companies, 1,012, repurchased a record number of shares worth $456 billion last year, says TrimTabs. Buybacks for Standard & Poor’s 500 companies also hit a record at an estimated $315 billion.

    Those are pretty impressive numbers. The share buybacks are starting to have a major effect on earnings. Fewer shares means higher earnings-per-share. The fourth-quarter earnings are expected to grow (or have grown) by 14.9%. This marks the 15th straight quarter of double-digit earnings growth.