Morning News: November 13, 2012
Posted by Eddy Elfenbein on November 13th, 2012 at 7:08 am

Europe Gives Greece 2 More Years to Reach Deficit Targets

Comments From EU Finance Ministers And Officials

Japan’s Economy Threatens Return To Recession

U.K. Inflation Quickens More Than Forecast on Tuition Fees

German Investor Confidence Unexpectedly Fell in November

Treasuries See U.S. Falling Over Cliff as Yields Converge

Black Thursday? Stores To Open Even Earlier On Thanksgiving.

Home Depot Profit Rises 1.4% as Customer Traffic Gains

Vodafone Falls Into Red On South Europe Writedowns

With Jefferies Deal, ‘Baby Berkshire’ Deviates From Buffett

A Dose of Realism for the Chief of J.C. Penney

D.R. Horton Tops Target And Rises, Beazer Slips

Hostess Closes Plants as Workers Strike

Joshua Brown: How the Fiscal Cliff Could Affect Families, By State

Howard Lindzon: Momentum Monday…Is ‘The Big Apple’ (Not Manhattan) Rotten…and Thank God We Can Trust Bank of America

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Reynolds American’s Investors Day
Posted by Eddy Elfenbein on November 12th, 2012 at 1:32 pm

Reynolds American ($RAI) is holding its Investors Day today. Here’s some coverage:

Reynolds American President and CEO Daan Delen said during Investors Day presentations Monday morning that the company is focusing over the long-term on emerging smoke-free products such as snus and its new electronic cigarette Vuse that offer larger margins and greater potential for growth.

“Everything we’re working on from an innovation standpoint has a higher margin than cigarettes,” Delen said. “I think we’re very well positioned in an evolving market.”

Officials with the Winston-Salem-based tobacco company said volumes have risen this year in smoke-free categories such as moist snuff and snus, particularly among younger demographics, while cigarette volumes continue to decline.

But Delen emphasized that cigarettes are still the core focus and business for the tobacco company. He offered an internal mantra of “80/90/90,” which reflects that 80 percent of the company’s resources are still in the combustible tobacco space, 90 percent of its organizational resources focus on that area, and 90 percent of its research and development budget is centered on combustibles.

“That is the category that is still going to deliver a lot of growth in the future,” Delen said, noting that the U.S. tobacco market continues to offer about a $14 billion “profit pool,” about 85 percent of which comes from cigarettes.

But Reynolds American’s strategy on “transforming tobacco” is obvious, as Delen spent substantial time talking about other categories besides cigarettes in promoting the company’s efforts toward innovation.

The shares are down to $40.85 right now. RAI may hit lowest close since June. The dividend now yields 5.8%.

Gilead Continues to Soar
Posted by Eddy Elfenbein on November 12th, 2012 at 10:49 am

I made a big mistake last year in taking Gilead Sciences ($GILD) off the Buy List. The shares are up more than 72% YTD, and are up big again today.

Shares of Gilead Sciences (GILD) popped more than 11% early Monday after the biotech reported over the weekend that its hepatitis C regimen produced a 100% cure rate in a late-stage trial.

At the annual Liver Meeting in Boston, Gilead reported that all 25 patients in the study showed a sustained virological response after a 12-week course of treatment with standard oral treatment ribavirin along with Gilead’s two drug candidates, GS-5885 and sofosbuvir (formerly known as GS-7977). The group included only patients with genotype 1 of the virus, which accounts for about 70% of all U.S. hepatitis C cases, who had never been treated before. Patients with genotypes 2 and 3 had response rates in the 60s, while genotype 1 patients who’d failed previous treatment responded only at a 10% rate.

The stock gave us nothing but grief last year, but has been a rock star in 2012. Peter Lynch once said that the best stock to buy is often one you already own. I’m kicking myself for letting Gilead go. The lesson is that when you buy out-of-favor stocks, the turnaround often takes longer than you think.

Leucadia National Buys Jefferies
Posted by Eddy Elfenbein on November 12th, 2012 at 10:33 am

While the stock market is open today, the bond market is closed in honor of Veteran’s Day. The stock market still seems unnerved by recent events although I think it’s unfair to blame President Obama’s reelection for the entire downturn. There are still concerns about the fiscal cliff and more unresolved problems in Europe.

Regarding the fiscal cliff, I think leaders of both parties realize that the American public is weary of more partisanship, and it’s in their best interest to reach some sort of deal. If nothing is done before the end of the year, automatic across-the-board tax increases will go into effect. I imagine that some tax increase on the wealthy will be passed in exchange for some measures on entitlements (like higher retirement age). I won’t guess as to the specifics but it’s not in anyone’s interest to have a bloody, drawn-out affair.

There’s actually some good news out of Greece for a change. The country’s parliament passed its austerity budget by a vote of 167 to 128. Once the bigwigs in the EU give the thumbs up, this will clear the way for Greece to get another $40 billion in aid. The problem for Europe right now is that the southern part is weak and that’s starting to pull Germany down.

One of our former Buy List stocks is in the news as Leucadia National ($LUK) is buying Jefferies ($JEF) for $3.7 billion. LUK already owns a big chunk of JEF. In fact, they even increased their stake last year during the sovereign debt crisis. Now LUK will buy the whole thing.

Morning News: November 12, 2012
Posted by Eddy Elfenbein on November 12th, 2012 at 7:20 am

Greece’s ‘Monster’ Debt Problem Haunts Europe

Rajoy Aims to Stem Evictions as Suicide Darkens Crisis

Slower October Loans Will Not Derail China Recovery

Japan’s Economy Shrinks As Firms Cut Spending, Recession Looms

Japan Likely to Embrace Free Trade Pact

U.S. Oil Output to Overtake Saudi Arabia’s by 2020, IEA Says

Americans Say Europe Lesson Means Act Now as Austerity Will Fail

Republicans Say Deal Can Be Done On U.S. “Fiscal Cliff”

Apple Settles HTC Patent Suits Shifting From Jobs’ War

Groupon Fights For Its Life As Daily Deals Fade

India’s United Spirits Jumps 35 Percent As Diageo Deal Seen Positive

Emirates Group First-Half Profit Climbs 68% on Passengers

Singular Success: China’s Billion-Dollar Hallmark Holiday

Cullen Roche: About Those “Invisible Bond Vigilantes”

Jeff Miller: Weighing the Week Ahead: Will US Leaders Become Cliff Divers?

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In Memoriam
Posted by Eddy Elfenbein on November 11th, 2012 at 12:55 pm

In Flanders fields the poppies blow
Between the crosses, row on row,
That mark our place; and in the sky
The larks, still bravely singing, fly
Scarce heard amid the guns below.

We are the Dead. Short days ago
We lived, felt dawn, saw sunset glow,
Loved and were loved, and now we lie,
In Flanders fields.

Take up our quarrel with the foe:
To you from failing hands we throw
The torch; be yours to hold it high.
If ye break faith with us who die
We shall not sleep, though poppies grow
In Flanders fields.

Morning News: November 9, 2012
Posted by Eddy Elfenbein on November 9th, 2012 at 7:37 am

Heavy Lending Creates a Surge in Chinese Economy

China Electricity-Output Growth Rebounds

Diageo to Buy Stake in India’s United Spirits for $2 Billion

Iberia To Axe 4,500 Jobs To Keep Airborne

Soybeans Drop as Supply Concern May Ease in U.S. and Brazil

Debt Ceiling Complicates a Tax Shift

U.S. Jobless Claims Fall as Storm Starts to Affect Data

Record Overseas Sales Boost U.S. Growth

Wall Street Left To Rebuild Obama Ties After Backing Romney

New York to Begin Gas Rationing as Storm Delays Recovery

Priceline to Buy Kayak in $1.8 Billion Deal

Mcdonald’s Monthly Sales Fall For First Time In Nine Years

J.C. Penney Same-Store Sales Plummet 26.1 Percent

Jeff Miller: Debunking the 100% Recession Chart

Roger Nusbaum: 200 DMA Looms!

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Yeah…About that Rally
Posted by Eddy Elfenbein on November 8th, 2012 at 12:18 pm

The market has lost all its gains today and just pierced the intra-day low from yesterday. Today’s low was 1,387.96 which is the S&P 500’s lowest point since early August.

We’re now hovering just above the market’s 200-day moving average of 1,380.77.

Oops
Posted by Eddy Elfenbein on November 8th, 2012 at 11:39 am

From yesterday’s New York Times:

Correction: November 7, 2012

An earlier version of this article misspelled the singer’s surname in a number of places. He is Bruce Springsteen, not Springstein.

Earnings Projections Are Still Coming Down
Posted by Eddy Elfenbein on November 8th, 2012 at 11:24 am

Here’s a look at the S&P 500 along with its earnings. The black line is the S&P 500 and it follows the left scale. The yellow line is the earnings and it follows the right scale. The two lines are scaled at a ratio of 16-to-1. This means that whenever the two lines cross, the market’s P/E Ratio is exactly 16.

The earnings line into the future represents the consensus from analysts. The problem is that earnings projections have been coming down. The analyst community now expects the S&P 500 to earn $113 next year. That’s still a good number but it will require earnings growth to ramp from the small earnings decline we saw with Q3.

When I saw Barry Ritholtz’s investment conference last month, Barry posted a graph showing how poor analysts have been in getting earnings growth right. It seems to me that as long as the earnings growth trend continues, then analysts are pretty accurate in getting that right. Of course, that’s the least important information. Where they’re wrong is in targeting when earnings suddenly drop. That’s the most important information.