Oh So Close…
Posted by Eddy Elfenbein on March 26th, 2013 at 7:06 pm

The S&P 500 closed today at 1,563.77. The index is now less than 0.0882% from its all-time close of 1,565.15 from October 9th, 2007.

Ten-Straight Up Tuesdays
Posted by Eddy Elfenbein on March 26th, 2013 at 11:12 am

The Dow has risen for the last 10 Tuesdays in a row. We’re going for #11 today. The Dow is currently up 96 points.

Johnson & Johnson Breaks $80
Posted by Eddy Elfenbein on March 26th, 2013 at 10:56 am

Yesterday I mentioned my bad call with Nike ($NKE); today I’ll highlight another misstep. I took Johnson & Johnson ($JNJ) off this year’s Buy List.

Shares of JNJ just broke through $80 per share this morning for a new all-time high. This is interesting because the stock had not strayed very far from $60 for more than a decade. It did a few times, but not for long. JNJ is currently up more than 14.5% for the year.

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Buffett, Goldman Rework Warrants
Posted by Eddy Elfenbein on March 26th, 2013 at 10:04 am

It’s good to be Warren Buffett. Back when the world was melting down, Berkshire Hathaway ($BRKA) bought warrants that gave them the right to buy 43.5 million shares of Goldman Sachs ($GS) at $115 each. These warrants expire on October 1st of this year. Shares of Goldman are now up to $147 apiece.

Goldman and Buffett are reworking the deal so instead of Buffett getting the difference between $115 and $147 in cash, he’ll get it in more stock. This is interesting first two reasons. One is that Buffett doesn’t want cash. I can’t blame him since interest rates are so low. Even Goldman’s lowly dividend of 1.4% looks good. The other reason is that Buffett is sticking with banks; more specifically, large banks. He already owns a big portion of Wells Fargo ($WFC) but he obviously sees no problem with sticking by Goldman a while longer.

Update: It looks like I had this wrong. Apparently, Buffett is only getting the number of shares worth the profit of those warrants. That will probably work out to about nine million shares. So instead of paying $5 billion to get $6.3 billion in stock, he’s paying nothing to get $1.3 billion in stock.

Morning News: March 26, 2013
Posted by Eddy Elfenbein on March 26th, 2013 at 6:39 am

Cyprus Banks Remain Closed To Prevent Run On Deposits

Stricter Rules But Signs of Disarray in Cyprus Deal

BRICS Nations Plan New Bank to Bypass World Bank, IMF

Ireland Lures Germans With EBay as Economy Rouses From Recession

New BOJ Chief Elaborates on Easing Plans

China Construction Bank Quarterly Net Rises 16% on Loans

Fed’s Fisher: Economy Starting To Move, Not Accelerating

Summly News App Tempts Yahoo To Make 17-Year-Old A Multimillionaire

SEC Approves Nasdaq’s $62 Million Settlement for Facebook

Hon Hai Posts Record Profit as Apple Expands Product Line

Dollar General Profit Tops Expectations, Shares Up

Apollo Jumps as Sales, Profit Beat Analysts’ Estimates

Ford CEO Mulally Says He’s Concerned About Japanese Yen

Roger Nusbaum: Winters Likes Watches

Stone Street: Fear Not Every Penny Stock

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Nike Continues to Soar
Posted by Eddy Elfenbein on March 25th, 2013 at 11:33 am

Here’s one of my more embarrassing calls. Last August, I said that Nike ($NKE) was absurdly overvalued at $95 per share. The stock has since split 2-for-1 so that was $47.50 post split. Thanks to a strong earnings report, the shares are at $59 today.

Oops.

The shoe company beat earnings by six cents per share:

Earnings excluding items rose to 73 cents per share from 60 cents a share in the year-earlier period.

Revenue improved about 9 percent to $6.19 billion from $5.66 billion a year ago.

Wall Street had expected Nike to report earnings excluding items of 67 cents a share on $6.23 billion in revenue, according to a consensus estimate from Thomson Reuters.

Orders for Nike-branded shoes and clothing scheduled for delivery from March through July 2013, known as futures orders, rose 6 percent compared to orders reported for the same period last year. In North America, the company’s biggest market, orders were up 11 percent.

As impressive as these numbers are, I still think Nike is too expensive. This is frustrating for me because I like the company a lot but I refused to chase it at a price that I think is unreasonable. Right now, I don’t see how paying more than $45 per share can be justified. The dividend works out to 1.4% which isn’t hard to beat elsewhere. Since 1984, Nike’s stock is up more than 250-fold.

Deal Reached in Cyprus
Posted by Eddy Elfenbein on March 25th, 2013 at 11:18 am

I largely held off on commenting on the rapidly-changing events in Cyprus. I felt that some sort of deal would be reached. I think these stories tend to be phony standoffs where everyone pretends to wait until the last minute until they decide to choose the only alternative left.

Here’s the New York Times:

Under the agreement, Laiki Bank, one of Cyprus’s largest, would be wound down and senior bondholders would take losses.

Depositors in the bank with accounts holding more than 100,000 euros would also be heavily penalized but the exact amount of those losses would need to be determined.

The plan to resolve Laiki Bank should allow the Bank of Cyprus, the country’s largest lender, to survive. But the Bank of Cyprus will take on some of Laiki’s liabilities in the form of emergency liquidity, which has been drip-fed to Laiki by the European Central Bank. That short-term financing, which the E.C.B. had threatened to cut off on Monday, is expected to continue.

Depositors in the Bank of Cyprus are likely to face forced losses rather than any form of tax. That plan, which set off outrage last week in Cyprus and as far away as Moscow, has now been dropped entirely.

Mr. Dijsselbloem said he was “convinced this is a much better deal” because under the revised agreement, the heaviest losses “will be concentrated where the problems are, in the large banks.”

My apologies to the good people of Cyprus, but what happens there doesn’t much affect us. The fear was that a bank deposit tax would lead to a continent-wide bank run. Alas, that’s not the case. The Cypriots got together with the Troika and decided to screw the Russians—and by Russians, I of course mean the uninsured depositors. The best part of this deal is that it doesn’t have to be approved by the Cypriot parliament.

The U.S. stock market jumped at the open, and the S&P 500 came near its all-time high close, but we’ve given it back already. That should tell you that the Cyprus deal isn’t such a big deal. The stock market is currently down just a bit.

Morning News: March 25, 2013
Posted by Eddy Elfenbein on March 25th, 2013 at 6:42 am

Cyprus Salvaged After EU Deal Shuts Bank to Get $13 Billion

Spain’s Swelling Debt Seen Impeding Rajoy Deficit Battle

Norway Becomes Petro-State as Investors Balk at Hidden AAA Risks

Japan 10-Year Bond Yield Falls to 2003 Low on Easing Bets

Indonesia Vets Martowardojo for Central Bank in Reshuffle Bid

China To Resume Electric Car Subsidies – BYD Chairman

China Construction Bank Quarterly Net Rises 16% on Loans

SEC’s Walter Urges “Maximum” Reliance On Foreign Swaps Rules

Bankruptcies Are a Healthy Sign for the Solar Industry

Luring Young Web Warriors Is a U.S. Priority. It’s Also a Game.

2 Rivals Complicate Deal for Dell

Otelco Files For Bankruptcy After Losing Time Warner Cable Contract

Astrazeneca Settles Crestor Patent Row

Cullen Roche: US Treasuries Remain an Effective Portfolio Hedge

Jeff Miller: Weighing The Week Ahead: Can The Cyprus Fallout Be Contained?

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Cyprus to Vote Until They Get It Right
Posted by Eddy Elfenbein on March 22nd, 2013 at 10:45 am

From the AP:

Cypriot lawmakers are due to vote Friday on a raft of new measures they hope will qualify the country for a bailout package and avoid financial ruin next week. But officials in Brussels and Berlin gave no indication it would be enough.

Cyprus needs to find a way to raise the 5.8 billion euros to qualify for 10 billion euros in rescue loans from other eurozone countries and the International Monetary Fund.

The plan needs approval from eurozone and IMF and that remained elusive. Eurozone officials said they had not seen all the details and would have to discuss whatever final plan Cyprus presents.

“The next few hours will determine the future of this country,” said government spokesman Christos Stylianides.

BBBY Hits $64
Posted by Eddy Elfenbein on March 22nd, 2013 at 10:28 am

In the CWS Market Review from February 15th, I wrote that Bed Bath & Beyond ($BBBY) finally looks cheap. Here’s what I wrote:

I want to focus on Bed, Bath & Beyond ($BBBY), which had been one of my favorite Buy List stocks, but a string of earnings warnings rocked the shares last year. While 2012 was unpleasant, I think the stock has now fallen back into being a very good buy at this price.

Let’s review what happened last year. In June 2012, Wall Street had been expecting fiscal year earnings (ending February 2013) of $4.63 per share, which represented 14% growth over the year before. But the company surprised investors by telling us to expect earnings growth somewhere between the single digits and the low double digits.

No biggie, right? Guess again. Traders gave BBBY a super-atomic wedgie as the stock got crushed for a 17% loss in one day. Now here’s the odd part: Here we are eight months later, and it looks like BBBY will earn about $4.54 per share for the year, give or take. In other words, that dreaded earnings warning turned out to be about 2% or so.

After the earnings report in September, BBBY got hammered for a 10% one-day loss when it reiterated the exact same full-year forecast. Then, for the December earnings report, BBBY only got nailed for 6.5% after it reiterated, you guessed it, the exact same full-year earnings forecast.

For Q4 (which covers the holidays so it’s the big dog of BBBY’s fiscal year), the company said earnings would range between $1.60 and $1.67 per share. The Street was expecting $1.75 per share. C’mon, this lower guidance isn’t that bad. But traders have lost confidence in BBBY. The shares have plunged from over $75 in June to as low as $55 in December, although it’s come up a bit since then.

Now let’s run some numbers: If Bed, Bath & Beyond can increase earnings by 10% for next fiscal year (which begins in two weeks), that should bring them to roughly $5 per share. That means we’re looking at a stock that’s going for less than 12 times earnings and growing at 10% per year. Furthermore, the recovering housing market should continue to aid them. While BBBY looks cheap, I suspect it will take a while before the stock comes back to life. The earnings warnings really spooked traders. The next earnings call isn’t until April 10. Bed, Bath & Beyond is a good buy up to $60 per share.

The stock has responded very well this month. BBBY briefly hit $64 this morning.