Oracle Earned 68 Cents Per Share
Posted by Eddy Elfenbein on March 18th, 2014 at 4:59 pm

Oracle‘s ($ORCL) earnings are out. The company earned 68 cents per share for fiscal Q3, which is at the low end of their range of 68 to 72 cents per share. Revenue came in at $9.31 billion which was below consensus of $9.36 billion.

Net income in the third quarter rose 2.4 percent to $2.57 billion, or 56 cents a share. New software-license and cloud-subscription sales, a closely watched indicator of future revenue, rose 3.6 percent to $2.42 billion, the company said today.

Oracle is the second-largest maker of business applications behind SAP AG, and it entered the computer-server market with the 2010 acquisition of Sun Microsystems. Hardware product sales rose 8 percent to $725 million during the quarter.

Oracle is under pressure in its three main businesses, Thill said. Microsoft Corp. has gained ground in database software, along with newer companies such as MongoDB Inc. and Couchbase Inc. that are chipping away at more established providers. Other customers are leaving Oracle because they’re putting data in the cloud with vendors like Amazon.com Inc.

In business applications, programs that handle tasks like finance, client management and human resources, customers are defecting to cloud-based suppliers like Salesforce.com (CRM) and Workday. In hardware, Oracle has “missed more quarters than they’ve made,” Thill said.

The stock is down about 5% in the after-hours market.

Stocks Climb as Invasion Fears Fade
Posted by Eddy Elfenbein on March 18th, 2014 at 11:32 am

The stock market is working its way higher again today. The S&P 500 cracked 1,870 earlier today. The good news is that tensions in Eastern Europe seem to be falling lower. Shares of the Russian ETF ($RSK) are up another 3.3% today. It’s up more than 11% from last Thursday’s low. We also got a favorable report on housing starts.

This is the first day of the two-day Fed meeting. All the action, however, will come tomorrow when the Fed releases its statement, updates its forecasts and Janet Yellen holds her first press conference.

On our Buy List, Microsoft ($MSFT), of all stocks, is doing very well today. The shares are up nearly 4% and it’s close to hitting $40. The company may introduce Office for Apple’s iPad next week.

Microsoft Chief Executive Officer Satya Nadella will begin unveiling his vision for the company when he debuts a version of Office for Apple Inc.’s iPad and offer some features of the application for free at an event next week, said people with knowledge of the announcement.

The Redmond, Washington-based company will introduce Office for the iPad with limited capabilities that can be upgraded to premium versions requiring a subscription to the Office 365 Internet-based software, said the people, who asked not to be identified because the plans aren’t public. At the event, which will be held March 27 in San Francisco, Nadella will also discuss his commitment to software services that work on Microsoft’s Windows and rival operating systems, the people said yesterday.

Microsoft last closed above $40 in July 2000.

Morning News: March 18, 2014
Posted by Eddy Elfenbein on March 18th, 2014 at 6:45 am

Putin’s Motives Rooted in History Remain a Mystery Abroad

Germany’s Top Court Upholds Legality of ESM Rescue Fund

Bank of England Names Two New Deputy Governors

Fed Seen Adopting Qualitative Rate Guidance as Job Market Gains

With Alibaba IPO Official, Pressure Mounts on Yahoo

GM Stock Unfazed by Recall Saga; CEO Mary Barra Issues Video Apology

Hertz Will Spin Off Equipment Rental Unit to Focus on Cars

Massachusetts to Cut Ties With CGI Group Over Troubled Online Health Exchange

Quiznos Files for Bankruptcy; Can it Ever Compete With Subway?

Walmart to Offer Customers Credit for Used Video Games

Tesla Fights For a Place to Park

Bitcoin Revelation Under Scrutiny

$1 Billion Contest: Some Already Cashing In

Jeff Carter: Is There Something Amiss?

Joshua Brown: You Tell Me…

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The Return of Bank Dividends
Posted by Eddy Elfenbein on March 17th, 2014 at 2:24 pm

The largest U.S. banks are currently going through another round of “stress tests” in order to prove to the Federal Reserve that they can withstand another financial crisis. Of course, this test comes seven years after it was truly needed. The test results will be made known on March 20 and March 26.

The immediate effect for investors is that some of these banks will get the green light to raise their dividends and increase share buybacks. Citigroup and Bank of America, for example, only pay out one penny per quarter. Citi is expected to earn nearly $5 per share this year, and BAC is projected to make $1.32 per share. In 2011, BAC asked the Fed if they could do a modest dividend increase. The Fed said no.

The truth is that nowadays these banks are quite profitable. Of course, we don’t know which banks could fail the test. The largest banks will most certainly pass, but this test includes some smaller ones and I’m sure someone will be left out. I suspect Citigroup will jack up its dividend soon, but that will also be complicated by a recent $400 million fraud decision. The unknown legal bills will weigh on several other banks as well.

The six largest U.S. banks may return $47.8 billion starting in April, the estimates show. That compares with $23.6 billion for the prior year, according to Stifel Financial Corp.’s KBW unit. The firms gave back $66.4 billion in the 2007 calendar year, data compiled by Bloomberg show.

“The dividends and buybacks — the sheer size of them — suggest there is plenty of profit to play with,” David Ellison, a Boston-based mutual-fund manager specializing in financial stocks at Hennessy Advisors Inc., said in a phone interview. “It shows that if a bank is run appropriately, it’s very profitable.”

I’ve told investors that in light of the uncertainty, the best way to value these banks is by the dividend yield (though that’s not the only way). The issue is that many of the other traditional valuation metrics don’t work well with the big banks.

I would be very careful about committing any funds to financials right now. It’s not that there’s long-term danger, but whoever fails the test will surely be punished by the market.

AwesomePennyStocks Come to an End
Posted by Eddy Elfenbein on March 17th, 2014 at 11:54 am

Sometimes the frauds committed on Wall Street are so comical that you have to wonder how anyone could have fallen for something so silly. Yet it’s also sad that gullible investors get wiped out.

Bloomberg has a story today on the fall of AwesomePennyStocks and its 26 year-old mystery man. You can read the whole story here, but here’s a sample:

The promotion cited by the SEC involved America West Resources Inc., a Salt Lake City-based coal company. AwesomePennyStocks and another list called PennyStocksUniverse sent messages promoting the company’s shares on Feb. 23, 2012, according to the SEC.

The stock rose as high as $1.80 from 29 cents as more than 7.8 million shares were traded, more than double the total volume in the prior year, the agency said. Babikian sold at least 1.3 million shares for $1.9 million, according to the SEC. America West filed for bankruptcy protection last year.

Stocks Rise on Strong Industrial Production
Posted by Eddy Elfenbein on March 17th, 2014 at 11:15 am

The stock market is bouncing back today after a rough end to last week. Investors were ignited this morning by a stronger-than-expected report on industrial production. This is one of those reports that track the rise and fall of the economy well.

Industrial production jumped 0.6% last month. Economists were only expecting an increase of 0.1%. Manufacturing output, which is the largest part of industrial production, rose by 0.8%. That’s its biggest gain since August. This is also more evidence that the weather-related sluggishness is probably behind us (though I’m writing this as we got a late season snow here in DC).

The rising tension in Ukraine is, of course, on everyone’s mind. It appears that Crimea is done, and it’s now part of Russia. The worry is that Putin will ratchet up and launch an invasion of Eastern Ukraine. That’s a nightmare scenario. On one hand, that’s an irrational move on his part, but on the other, Colonel Putin doesn’t seem to play by reason. Interestingly, the Polish ETF (EPOL) is very strong today, up 2.7%. Even the Russia ETF ($RSX) is showing some strength, which may hint that the worst is over. RSX had been getting crushed this year.

Our Buy List is also having a good day. CR Bard (BCR) continues to be remarkably strong. The stock got as high as $147.82 today which is another all-time high. Qualcomm is also having a good day for us, but that’s really making up for the weakness it showed on Thursday and Friday. Most of the tech world is waiting for Oracle’s earnings report tomorrow. Or more accurately, they’re waiting for Oracle’s guidance for the current quarter.

Morning News: March 17, 2014
Posted by Eddy Elfenbein on March 17th, 2014 at 6:58 am

QE Not the Only Option for ECB on Inflation

As Giant U.S. IPO Nears, Alibaba’s China E-commerce Crown Slips

Indian Solar Power: Cost of Production Dropped 60%; Price to Equal Thermal Power’s in Three Years

Commodities Cushioned From Crimea Crisis by Ample Supply

New York Strips London of Mantle as World’s Top Financial Center

U.S. Navy Seizes Tanker, Foiling Libya Rebel Attempt to Sell Oil

Federal Reserve Officials Weighing How to Retool Rate Guidance

U.S. Lags as Commercial Drones Take Off Around Globe

Rosneft to Buy Stake in Pirelli as Tiremaker’s Owners Reorganize

Toyota Unit Shuts 2 Factories in India

Vodafone to Buy Spanish Cable Operator Ono

Quiznos Files Pre-Packaged Chapter 11 Plan After Debt Deal

Candy Crush Saga Prices Initial Public Offering At Up To $7.6 Billion

Credit Writedowns: Capex May Be Behind the Sudden Improvement in U.S. Loan Growth

Jeff Miller: Weighing the Week Ahead: Yellen Takes The Stage

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The Leprechaun Brothers
Posted by Eddy Elfenbein on March 16th, 2014 at 11:39 am

CWS Market Review – March 14, 2014
Posted by Eddy Elfenbein on March 14th, 2014 at 7:53 am

“Don’t look for the needle in the haystack. Just buy the haystack!” – John C. Bogle

This was a quiet week on Wall Street up until Thursday when renewed worries over Ukraine sent the S&P 500 down 1.2%. The index is once again in the red for the year, however, our trusty Buy List remains in the black.

Despite the dearth of news this week, things will get a lot more interesting next week when the Federal Reserve meets on Tuesday and Wednesday. This will be Janet Yellen’s first meeting as Fed Chair. This will also be her first post-meeting press conference. But the most important news is that there’s a very good chance the Fed will officially drop the Evans Rule.

The Evans Rule, named after Chicago Fed President Charles Evans, states that the Fed won’t raise short-term interest rates until the unemployment rate drops below 6.5%. The problem is that the jobless rate is 6.7% at last count and nearly everyone agrees that the economy is nowhere near ready for higher interest rates. The Evans Rule has been in effect since December 2012, and the Fed has been very careful to say that it’s a threshold and not a trigger.

I first talked about the Fed ditching the Evans Rule in CWS Market Review from January 10. I didn’t think it would happen at the time, but I considered the possibility of it happening later this year. Apparently, later is now.

What does the ditching of the Evans Rule mean for us? It’s very good news for investors. I’ll explain more in a bit, but it’s a clear message from the Fed that they’re going to be on the side of investors. Also in this newsletter, I’ll highlight some of the recent news from our Buy List. Plus, I’ll preview next week’s earnings report from Oracle. Larry Ellison’s firm has turned a corner and I expect more good news. I’ll also talk about the recent earnings warning from Bed Bath & Beyond. But first, let’s look at what’s on the Fed’s mind.

It’s Time to Ditch the Evans Rule

In last week’s CWS Market Review, I talked about the debate on Wall Street regarding how much of the soggy economic news was due to the soggy weather. I explained that most of the incoming data confirmed that the cold weather was in fact keeping shoppers at home.

We recently got two more important pieces of evidence that underscored the bad weather hypotheses. Last Friday, shortly after I sent out last week’s newsletter, the Labor Department reported that the economy created 175,000 new jobs in February, which beat expectations. More importantly, it snapped a two-month streak of pretty bad jobs reports. Bear in mind that the jobs report is by far the most important monthly economic report.

The other encouraging news was that retail sales showed its first increase in three months. Retail sales for February rose by 0.3%, which was 0.1% better than expectations. The numbers for December and January were pretty bad. I should add that Thursday’s initial jobless claims report was especially strong; 315,000 Americans filed first-time unemployment claims. That’s the lowest number since November, and the sixth-lowest in six-and-a-half years.

Last Friday’s jobs report showed us that the pre-weather trend of mediocre jobs growth is still in tact. When the bad data came out, some folks started to wonder if the Fed may have started tapering their bond purchases too early. But most Fed officials stuck to their guns and made it clear that unless something really dramatic happened, they were going to continue paring back their monthly bond purchases.

The plan with Quantitative Easing was that the Fed would purchase each month, $85 billion in bonds. That’s $40 billion in mortgage-backed securities and $45 billion in Treasuries. Twice now, the Fed has lowered the monthly number by $10 billion ($5 billion for each group), and they’re almost certainly going to do it again next week.

Is the Labor Market Really Getting Tight?

There are some concerns that the labor market may be getting “tight” right now, meaning there aren’t enough folks out there to fill up the job needs. As a result, wages are starting to rise. I don’t buy this argument. At least not yet. While it’s true that wage growth is starting to creep up, that’s working off a very low base.

The trouble is that the current labor market is in uncharted territory. The workforce participation rate is near its lowest level in more than 35 years. Many folks have simply walked away from the job market. Some of that is due to demographics, most specifically retiring Baby Boomers, but we don’t know exactly how much.

The unsettling aspect of the current jobs market isn’t the high level of unemployed people, but it may be the high level of unemployable people. I hate to sound so negative, but why would the economy rather pay existing employees higher wages than take on new recruits? Like I said, I’m not on board with the tight labor market idea, but the change in workforce participation has been quite startling.

Here’s the bottom line: The Fed will continue to taper. They seem pretty set on that. The Fed wants to get QE out of the way before they start raising interest rates. Right now, most folks expect the first rate increase will come around the middle of next year. The best early warning sign to watch is rising wages. Of course, that’s good news for workers, but at some point that will turn into higher inflation.

We also want to keep an eye on commodity prices which have risen very sharply in the past few months. Coffee prices, for example, have surged dramatically. For now, your local Starbucks can absorb the blow, but at some point, those commodity prices will take a bit out of consumers’ wallets.

The risk/reward ratio is still very much on the side of stocks. Consider that a Buy List stock such as McDonald’s ($MCD) currently yields 3.33%. That’s 68 basis points more than a 10-year Treasury bond. In other words, investors are still vastly over-paying for safety. Until interest rates rise, the math is clearly on the side of stocks. Now let’s look at some of our Buy List stocks.

Oracle Is a Buy Up to $41 per Share

Oracle ($ORCL), the enterprise software king, will report fiscal Q3 earnings next Tuesday, March 18. Three months ago, the company told us to expect Q3 earnings to range between 68 and 72 cents per share. That sounds about right to me. They see revenues rising between 2% and 6%.

I’m pleased to say that reports of Oracle’s demise have been greatly exaggerated. The company is far more “cloudy” than a lot of folks realize. Safra Catz, Oracle’s President and CFO, recently said, “We decided that we were really going to lean in to the cloud to get market share.” That they have.

In December, Oracle reported Q2 earnings of 69 cents per share which was at the top their range. Bookings for Oracle’s cloud enterprise offerings jumped an impressive 35%. The weak spot is new software license subscriptions; revenue there fell by 1%.

I’m in the optimistic camp on Oracle for a few reasons. One is I never go against Larry Ellison. I’ve also been impressed by their headway into the cloud sector. The company has reorganized its sales staff and strategy. I also like how Oracle has been buying back its shares. While I’m not normally a fan of buybacks, Oracle is truly reducing share count and thereby raising EPS.

I’m very curious to see what guidance Oracle offers for Q4, which ends in May. The Street expects 96 cents per share which may be a bit too high. I’ll warn you that the bears love to pounce on ORCL. Either way, Oracle continues to be a very good buy up to $41 per share.

Bed Bath & Beyond Shakes Off the Bad Weather Blues

After the closing bell last Friday, Bed Bath & Beyond ($BBBY) released a statement saying that the lousy weather had zapped six or seven cents per share off their fiscal Q4 earnings. Their fourth quarter ended on March 1, and the earnings report will come out on April 9.

Let’s look at some math. The home furnishings store now says it sees Q4 coming in between $1.57 and $1.61 per share. The previous guidance has been for $1.60 to $1.67 per share. If you recall, the stock gotten beaten up in January when they lowered their initial guidance of $1.70 to $1.77 per share.

Here’s what’s interesting: I was almost convinced that the market was going to punish the shares at Monday’s open. Didn’t happen. Instead, BBBY was one of the top performers on our Buy List. It looks like the bad-weather message finally got through to traders.

The company said that during Q4, a store had to be closed for the entire day due to the bad weather 464 times. On top of that, there were 1,923 partial closings. Obviously people can’t shop at closed stores. There may be good news for BBBY in the future. Williams Sonoma, a close competitor, just reported earnings above expectations thanks to new home construction. That could be a lift for the industry. In fact, the entire retail sector has snapped back recently. For now, Bed Bath & Beyond remains a good buy up to $71 per share.

More Buy List Updates

I wanted to add a few quick notes on some of our other Buy List stocks. Cognizant Technology Solutions ($CTSH) split 2-for-1 on Monday. The stock has been weak lately after Infosys, a competitor, gave poor guidance. For the most part, CTSH has been executing much better than Infosys so I don’t know if this is such a bad omen. CTSH is a solid buy up to $56 per share.

The Icahn Vs. eBay ($EBAY) battle got even louder, if you can imagine that. This week, eBay (are you sitting down?) rejected both of Carl Icahn’s nominees for eBay’s board. eBay said they’re unqualified and urged shareholders to vote against them. This feud is getting tiresome. eBay has made it clear that they’re not going to sell PayPal. Carl, if you’re reading this, move on. eBay continues to be a good buy up to $62 per share.

McDonald’s ($MCD) has made an embarrassing amount of errors recently. That’s why the stock has lagged, and partly why I like it. At BusinessWeek, Vanessa Wong takes a look at how MickeyD’s is working to right the ship. McDonald’s is a good buy up to $102 per share.

That’s all for now. In addition to next week’s Fed meeting, the government will release the industrial production report for February on Monday. Then on Tuesday, we’ll get reports on inflation and housing starts. It will be interesting to see if any of the rise in commodities shows up in consumer prices. I suspect that it’s too early. Be sure to keep checking the blog for daily updates. I’ll have more market analysis for you in the next issue of CWS Market Review!

– Eddy

Morning News: March 14, 2014
Posted by Eddy Elfenbein on March 14th, 2014 at 7:15 am

Russia Says Kiev Not in Control of Ukraine as Vote Looms

Emerging Stocks Set for Weekly Drop on China Data to Crimea Vote

Premier Li Overshadowed by Chinese President Xi’s Strong Leadership

China’s Central Bank Halts Tencent, Alibaba Mobile Payment Process

UBS Traders Found to Have Tried Rigging Hong Kong Rate

Inflation Signs Lurk in Broader Labor Data Yellen Seeks at Fed

US Budget Deficit Hits $193.5 Billion in February

Electric-Grid Attack Fuels Sniper-Versus-Hacker Debate

Amazon Increases Prime’s Cost as it Turns Focus to Profit

Vodafone Close to Deal to Buy Spain’s Ono

Bill Gates: People Don’t Realize How Many Jobs Will Soon Be Replaced By Software Bots

303 Deaths Seen in G.M. Cars With Failed Air Bags

Steve Cohen Personally Made $2.3B In 2013 Despite Having To Shut Down SAC Capital

Are Exchanges Monopolies?

Cullen Roche: The Bank of England Debunks the Money Multiplier

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