• The Market Rallies to a Post-Crash High
    Posted by on September 6th, 2012 at 1:25 pm

    The S&P 500 is up 1,430 today. If this holds up, the index will close at its level since January 3, 2008.

    The Nasdaq Composite is on its way to highest close since November 15, 2000.

  • Wright Express Soars on Acquisition
    Posted by on September 6th, 2012 at 9:54 am

    Shares of Wright Express ($WXS) are up strongly today on the news that the company is buying fuel card provider Fleet One for $369 million. The stock was also upgraded to a Buy from Neutral at Janney Capital Markets.

    Payment processor Wright Express Corp agreed to buy fuel card provider Fleet One from private equity firms LLR Partners and FTV Capital for $369 million in cash.

    The deal is expected to immediately add to the company’s adjusted net income and will likely generate about $100 million in present value of tax benefits for Wright Express.

    Wright Express said it will finance the deal through its existing credit facility.

    The stock is up about 7.5% today.

  • 1400 to 1420 Trading Range
    Posted by on September 5th, 2012 at 12:27 pm

    Check out this chart to see the S&P 500’s tight trading range over the past month. Don’t let the vertical axis fool you, the market has stayed almost entirely within a 1.5% wide band since early August.

  • Why Return-On-Equity Is So Important
    Posted by on September 5th, 2012 at 10:58 am

    Here’s a post for new investors or a helpful reminder for more experienced investors.

    When you’re looking at a company, the single-most important number is return-on-equity. Forget head-and-shoulders, forget bear traps and double bottoms, forget volume, forget stochastics. Return-on-equity tells you more than anything else about how well a company is performing. It’s the best measure of efficiency, bar none. In short, ROE tells us how much we get for how much we got.

    ROE can be deconstucted down into three parts (warning, math ahead). Profits margins, asset turnover and leverage. Think of it this way:

    Profit margin is profits divided by sales.

    Asset turnover is sales divided by assets.

    Leverage is assets (stuff you have) divided by equity (stuff you own).

    If we multiply them it will look like this:

    (Profits) (Sales) (Assets)
    ——– X ——– X ——– = ROE
    (Sales) (Assets) (Equity)

    I pass the graphics savings on to you.

    The mathematically inclined will see that the two “sales” and two “assets” cancel each other out. And we’re left with profits divided by equity, or return-on-equity.

    (Profits) (Sales) (Assets)
    ——– X ——– X ——– = ROE
    (Sales) (Assets) (Equity)

    See, easy.

    The beauty of ROE is that it works for every company. You can compare General Electric to a lemonade stand. A company like Wal-Mart may have a teeny profit margin (around 3.5% last year), but incredible asset turnover. Wal-Mart is really just one big inventory control machine. A financial company like JPMorgan has 12 times more assets than equity, but it generates less than a penny of revenue for each dollar of assets.

    Everything here balances out. If you want to borrow more to increase your leverage, your interest costs will hurt your profit margin. Or, you can increase your asset turnover by lowering your margins. There’s no way to shortcut except by doing better business.

    For ease of explanation, I’m simplifying this but there are two other ways to bump up your ROE. One is by lowering your taxes and the other is by lowering your borrowing costs. Typically, however, companies aren’t in control of these variables.

  • Q2 Productivity = 2.2%
    Posted by on September 5th, 2012 at 10:01 am

    More decent news for the economy. The government reported that worker productivity rose by 2.2% last quarter. Economists were expecting an increase of 1.8%.

    The biggest gains in productivity during the current expansion have probably already occurred as companies find they need to boost staff to further increase output and as investment in new equipment cools. At the same time, a weakening global economy is already hurting earnings, indicating businesses will continue to look for ways to operate more efficiently.

    “Companies did a good job on productivity during the crisis, and they will continue to try to increase productivity to boost profits, but it’s not so easy to do that from here,” said Harm Bandholz, chief economist at UniCredit Group in New York. “Investment spending in the U.S. has been lackluster, and it’s certainly not getting better. The potential for increasing profits by cutting costs has come down quite a bit.”

  • Would You Buy this Stock?
    Posted by on September 4th, 2012 at 12:21 pm

    What do you think?

    It’s Facebook ($FB) upside down.

  • Ford U.S. Sales Rose 13%
    Posted by on September 4th, 2012 at 11:58 am

    Good news for Ford Motor ($F):

    Ford said it sold 197,249 vehicles in August in the U.S., a 13% improvement from both last year’s 175,220 and July’s total of 173,966.

    The Ford brand, the company’s largest, saw a 13% sales improvement, while Lincoln brand sales grew 1.7%.

    Company-wide, August car sales rose 7.1% as truck sales improved 6.1%. Utility-vehicle sales jumped 28%.

    Ford Fusion sales grew 21% last month, while sales of its best-selling vehicle, the Ford F-Series, were up 19%. Fiesta sales dropped 28%.

    August had 27 sales days, while the year-ago month had 26 sales days.

    Strong sales of the Ford brand have helped the auto maker’s results in recent months. But Ford reported in July its second-quarter earnings fell 57% as its overseas operations and a higher tax rate held back strong results from North America. The auto maker also lowered its full-year profit forecast as well as its budget for capital spending.

  • August ISM = 49.6
    Posted by on September 4th, 2012 at 10:05 am

    The August ISM Index just came out and it was 49.6. Wall Street was expecting 50. Remember that a reading greater than 50 means that the manufacturing sector is expanding while less than 50 indicates contraction. In July, it was 49.8. This is the third straight reading that’s been slightly below 50. Historically, recessions occur when the ISM is below 44 or 45.

  • It’s Easier for Stock-Pickers
    Posted by on September 4th, 2012 at 9:56 am

    This story from Bloomberg confirms a lot of what I’ve been saying:

    Companies in the S&P 500 rose or fell an average of 4.4 percent the day after releasing results since July, according to data compiled by Bloomberg. The last time they moved more was in the second quarter of 2009. Daily swings in the benchmark gauge narrowed to 0.4 percent last month from 2.2 percent a year ago, as economic and policy changes battered investors. More than 475 S&P 500 stocks moved in the same direction in six of the first nine days of August 2011, with all 500 down on Aug. 8.

    Bulls say lockstep moves are diminishing because investors are changing their behavior, making choices based on corporate results at a time when analysts estimate profits (SPX) for companies in the S&P 500 will rise almost 10 percent a year through 2014. Bears say the focus on earnings won’t bring back individuals who have drained more than $420 billion from U.S. equity mutual funds over the past four years even as stocks rallied 108 percent since March 2009 and net income was unchanged in the second quarter.

    “I’m not saying it’s an easy job to be a stock picker in this environment, but it’s certainly easier,” Sandy Lincoln, the Chicago-based chief market strategist with BMO Global Asset Management, which oversees about $100 billion, said in an Aug. 28 interview. “Stock selection does have the opportunity here to finally show a face with a smile.”

  • Morning News: September 4, 2012
    Posted by on September 4th, 2012 at 8:08 am

    EU Outlook Cut by Moody’s to Reflect Germany, U.K. Risks

    Fears Rising, Spaniards Pull Out Their Cash and Get Out of Spain

    Swiss Economy Contracted in Second Quarter on Export Drop

    Signs of Worry From Australian Central Bank

    Indian Shares End Higher; Reliance Gains

    Olympic Spirit Fails To Reach Retailers

    Oil Advances to Highest Price in a Week on Stimulus Speculation

    Gold Near 5-Month Highs After Fed QE Signal

    Breaking Up Banks Is Hard With Traders Hooked on Deposits

    Bernanke Channeling Hatzius Dismissing Gross New Normal

    Verdict Shows Samsung Needs to Copy Apple Design Culture

    Smithfield Q1 Earnings Fall 25% On Higher Costs

    The Man Behind Facebook’s I.P.O. Debacle

    Joshua Brown: Study: Republican Brains Fear the Future

    Roger Nusbaum: One Pro’s Take on Asset Allocation

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