Blue Line Jumps 11 Percent
Posted by Eddy Elfenbein on December 23rd, 2005 at 12:46 pm

OK, it’s Friday. This is for my all technician friends. Here’s the big story courtesy of The Onion:

Blue Line Jumps 11 Percent
NEW YORK–Excitement swept the financial world Monday, when a blue line jumped more than 11 percent, passing four black horizontal lines as it rose from 367.22 to 408.85.
It was the biggest single-day gain for a blue line since 1994.
“Even if you extend the blue line’s big white box back many vertical lines, you won’t find a comparably large jump,” said Milton Vogel, a senior analyst with Merrill Lynch. “That line just kept going up, up, up.”
The blue line, which had been sluggish ever since the red line started pointing down in April, began its rebound with an impressively pointy 7 percent rise Friday. By noon Monday, it had crossed the second horizontal line from the top for the first time since December.
Ecstatic investors are comparing the blue line to the left side of a very tall, steep blue mountain.
“It’s a really steep line,” said Larry Danziger, a San Jose, CA, day trader and golf enthusiast. “I stand to make a tremendous amount of money as a result of the steepness of this line.”
“It looks like the line’s about to shoot out of the box,” said Boston-area investor Michael Lupert, enjoying a glass of white zinfandel on the bow of his 30-foot yacht. “I’m definitely going to keep a close eye on this line as it continues to move to the right.”
Despite such bullishness, some financial observers are urging caution.
“Given this line’s long history of jaggedness, we really should take a wait-and-see approach,” Fortune magazine associate editor Charles Reames said. “And even if this important line continues its upward pointiness, we must remember that there are other shapes, colors, numbers, and lines to consider when judging the health of the economy.”
Reames also warned that the upward angle of the line, which most analysts agreed was approximately 80 degrees, may have been exaggerated by the way the graph was drawn.
“The stuff that’s written along the bottom of the graph is all squished together, making the line look a lot more impressive than it is,” Reames said. “Had that same stuff been spread out more, the line would have looked a lot less steep.”
Still, most U.S. investors found it hard to contain their enthusiasm as the blue line shot up sharply, outperforming the green line, the yellow line, and even the thriving dotted purple line.
“Typically, the blue line rises or falls no more than 10 in a day,” said Beverly Hills plastic surgeon Dr. Jeffrey Gruber. “But Monday, it went up an astonishing 41–and during a time when we have a big red slice showing on our pie charts, no less. We live in a truly remarkable time.”

I’m long blue. In other news, Brown & Brown (BRO) is at a new high and Frontier (FRNT) is back over $9.

BW on How to Build Your Own Hedge Fund
Posted by Eddy Elfenbein on December 23rd, 2005 at 8:26 am

It isn’t that hard.

Private Equity Strikes Again
Posted by Eddy Elfenbein on December 23rd, 2005 at 7:19 am

This time, they’ve come for Tommy Hilfiger (TOM).

WSJ: Foreign Firms Bailing Out
Posted by Eddy Elfenbein on December 23rd, 2005 at 6:08 am

This morning’s WSJ has a disturbing story on C1. It looks like more foreign-based stocks are being scared off by Sarbanes-Oxley:

This month, the Securities and Exchange Commission opened the door for foreign companies to bail out of their U.S. stock listings. Next year, several fed-up companies will indeed bolt.
More worrisome is that fewer firms want to list here to begin with. That’s bad news for individual investors looking to buy the best foreign companies: In the future, they may find their options getting narrower.
At the center of all this: Sarbanes-Oxley. That 2002 legislation put tougher accounting rules on U.S. companies — and applies to many foreign ones. Basically, any foreign firm with more than 300 U.S. shareholders must use these rules.
Foreign companies lobbied to be excused from the rules, and the SEC apparently has relented. It has proposed allowing foreign companies to deregister with the SEC if they meet certain thresholds, such as U.S. investors owning no more than 5% of the stock.
Not that many foreign firms should exit if this proposal, as expected, becomes official. Cathleen McLaughlin, who represents several foreign companies as a partner at Allen & Overy in New York, expects only a couple dozen companies to take the SEC up on its offer.
Those that do, she says, will be primarily lesser-known Latin American and Asian companies that don’t have active trading in their U.S. shares anyway. In the 1990s, many companies sought the prestige associated with a Big Board or Nasdaq listing. But for some, the trouble and costs of complying with Sarbanes-Oxley now outweigh the benefits of a U.S. share.
Yet if popular names like Nokia and Toyota Motor are sure to stay, the tougher U.S. regulations may be deterring the latest crop of foreign companies from listing here in the first place. Many are turning instead to the rival London Stock Exchange, where regulatory burdens are considered less onerous. In 2000, foreign companies raised $16.9 billion in new listings in New York and London, with the U.S. claiming 89% of that total, Citigroup says. This year, London grabbed 88% of that business.
Most companies opting for the U.K. also have entered the U.S. private-placement market, which lets them sell a dollar-denominated U.S. security without being accountable to Sarbanes-Oxley or SEC regulations. More bad news for the little guy: These unlisted shares are available only to professional fund managers.

JetBlue, You’re On Notice
Posted by Eddy Elfenbein on December 23rd, 2005 at 4:40 am

OK, I’m making an official announcement:
JetBlue (JBLU), you’re on notice.
You got that? You’re on frickin notice pal.
After today’s close, the stock will split 3-for-2 for the third time in three years! Yet the stock has done jack. Um, aren’t splits for stocks that have gone (what’s the word)…up?
Sorry JetBlue, this just can’t be allowed. I’m writing a letter to someone.
I don’t get why they’re splitting so much. At least do us the favor of doing something first. Like make a lot of money. It’s as if they’re trying to make their investors feel richer via a press release. “Hey, we have more crap at a crappier price! BFF!”
Since the last 3-for-2 split, the stock is down about 33%. So the market kinda did its own split. JBLU is basically where it was when it went public three-and-a-half years ago. If you remember, this was the fad stock of Oh Three.
Yes, I know. I’m beginning to sound like Napoleon Dynamite (freakin’ idiot!) but this could only happen on Planet Wall Street. This is why America thinks we’re insane people who have all gone crazy. It’s a bad sign when management pays more attention to the share price than to its business. Just worry about business, and the stock will follow. It ain’t magic.
Stock splits do nothing for a stock. You’re no poorer or richer due to a split. It’s that simple. Companies say they split to increase liquidity. Ok, fine. You can do that by a 4-for-1 split like every decade or so. Not one a year.
If JetBlue was going to do three 3-for-2’s, why didn’t they just go public at a lower price? It’s not like investment bankers have spines. But this makes no sense. They’re not fooling anyone. You hear me JetBlue, you’re on notice!
If you do one more split, you’re no longer on notice. Then…you’ll be dead to me.
You hear me, JetBlue! Dead!!

The Market Today
Posted by Eddy Elfenbein on December 22nd, 2005 at 5:10 pm

Outside of the strike news, today was a pretty slow day on Wall Street. Traders were pleased enough to give us the best day this week. The market rallied steadily all day. Every sector but energy was up. I have a feeling that’s going to be a theme during 2006. Just avoid energy and you’ll do well next year. Today, the S&P 500 gained 0.42% and our Buy List was up 0.40%.
Apparently, Biomet (BMET) has lots of fans out there. The stock gained over $1 a share today. Forbes noted that Morgan reiterated its “overweight” rating on the stock. Of all the stocks to worry about, Biomet is not one.
Frontier Airlines (FRNT) rose for the eighth time in the last nine days. This stock seems to like to move in waves. I’m still a bit puzzled by the company’s low guidance for next quarter. Maybe they’re setting the bar low intentionally, but I would be very surprised if Frontier misses this quarter.
CACI International (CAI) said that it’s going to buy Information Systems Support Inc. Terms of the deal were not disclosed, but we believe it has something to do with money.
Bed Bath & Beyond (BBBY) finished down 12% today. The stock is about where it was four years ago. Since then, sales have doubled and profits are up about 150%.
Also, checks for the Wall Street research scandal are going out in the mail. Are you getting one? Me neither.
Lastly, President Bush pardons two moonshiners.

Danaher
Posted by Eddy Elfenbein on December 22nd, 2005 at 3:21 pm

It’s about time Danaher (DHR) gets some love. This is Forbes on one of America’s best-managed companies.

Electronics giant Danaher’s quirky $7.7 billion (sales) product mix runs from aircraft safety equipment and submarine periscopes to infrared thermometers and hand tools. And if you mailed or received a package over the holidays, thank Danaher’s Accu-Sort division, whose fixed-position lasers and scanners help sort 80% of all parcels shipped in the U.S. By imposing a just-in-time parts and manufacturing discipline, Danaher keeps inventory levels down and forces supply decisions to be made on demand. All this helps the bottom line. Five-year earnings-per-share growth has averaged 20%, ranking Danaher fourth in its sector for that metric.

Biomet and Bed Bath & Beyond
Posted by Eddy Elfenbein on December 22nd, 2005 at 3:08 pm

So Biomet (BMET) disappointed Wall Street yesterday. But due to its low price, the stock was upgraded today by Lehman Brothers. Well…now it’s back to almost exactly where it started. Glad that’s all cleared up.
The company missed earnings by two cents a share, and it lowered guidance for next quarter. That doesn’t please me but I realize that Biomet is in a tough environment. The industry is totally freaked about the threat of price cuts. Still, Biomet has held up well and the fundamentals are very strong.
The stock was too expensive at $50, and ideally I’d be a more enthusiastic buyer at a little lower price, but this is a solid stock. That’s why I’m keeping it on the Buy List for next year. Don’t let the market fool you.
Now we turn to Bed Bath & Beyond (BBBY). One day after I announce that it’s going on the new Buy List, the stock gets slammed by 10%. This is why I’m not a trader. I would be awful. But again, I’m not worried at all about BBBY. Actually, the lower price makes me like it even more. Here’s what the Wall Street Journal had to say today:

The company’s fiscal third-quarter earnings met targets, but sales missed analysts’ forecasts, as did the retailer’s profit outlook for the current quarter. Also, the recent quarter, which ended Nov. 26, marked only the second time in the last two years that Bed Bath & Beyond didn’t beat estimates.
In-line earnings are “not enough to sustain [the stock’s] rich valuation,” analysts at Goldman Sachs said, adding that the company’s forecast “seems light even by management’s conservative standards.” Analysts at Morgan Keegan cut their rating on Bed Bath stock to “underperform” from “market perform.”
Given the home-furnishings retailer’s habit of beating estimates regardless of the competitive landscape, it “was a bit of a surprise to hear management highlight the unusually promotional holiday season as a source of concern,” Merrill Lynch retail analyst Danielle Fox wrote, in a note to clients.

I think Bed Bath & Beyond is in a similar situation as Dell (DELL). The company pared its growth downward slightly, and investors are punishing it severely. This simply comes down to perspective. Let’s not forget that companies like Dell and Biomet are consistent performers. Dell’s stock recently dropped $13 after it cut its earnings guidance by two cents a share. That means that its marginal earnings were worth 650 times earnings. I’ll always take the opposite end of that trade.
Here’s what I wrote about Dell six weeks ago.

The Strike Ends
Posted by Eddy Elfenbein on December 22nd, 2005 at 1:32 pm

Hallelujah!

Gazprom Watch
Posted by Eddy Elfenbein on December 22nd, 2005 at 1:02 pm

Here’s a fascinating story from NPR (audio file). Gazprom, the Russian state-controlled natural gas monopoly is raising prices in Ukraine by 300%. This is an obvious revenge move due to last year’s anti-Kremlin Orange Revolution.
I’m not trying to be an alarmist but this company is bad news. I’m surprised it hasn’t made more news in the West. Gazprom is basically the KGB is the form of an energy company. It’s incredibly powerful in Russia. The company accounts for 8% of Russia’s GDP, and 25% of its tax revenue. Imagine if one company were that powerful here.
Here’s an example of how Gazprom plays. Last year, they got into a fight with Belarus, so they shut off all gas supplies in the middle of winter. The company is now the third-largest owner of oil in the world, behind Iran and Saudi Arabia. I don’t know who to fear more. I guess I’ll go with the Holocaust-denying nuke crowd, but that really doesn’t narrow it down.
Ukraine could respond. Gazprom supplies gas to much of Europe and those pipelines run through Ukraine. This could get nasty. Get used to hearing more stories like this.