• Don’t Invest From 40,000 Feet
    Posted by on April 19th, 2012 at 9:49 am

    I read a lot of investment advice on and off the web. One of the mistakes I often see is that investors try to invest from 40,000 feet above their targets. By this, I mean they pay far too much attention to things like politics, seasonal effects or the Federal Reserve.

    I hear people say things like, “I want to hold off investing right now until I see how the election turns out.” I’m never sure what that means exactly. Or they say, “I’d never investment now, not with Helicopter Ben in charge!”

    I realize this sounds like heresy, but the Fed’s role in the movement of stocks is far, far over-rated. What’s more important is earnings and (to a lesser extent) valuations.

    Look at McDonald’s ($MCD). The stock has done very well over the last ten years because its profits have done well. Yahoo‘s ($YHOO) profits haven’t well and the stock has suffered. Sure, there are exceptions, but those are the minority. Valuations, of course, do matter. Overall profits have increased while the market has done poorly.

    Don’t mistake what I’m saying: Monetary policy is important, but even if you knew exactly what the Fed was going to do, that should barely impact your investments. Most investors would be much better off if they ignored all the news about the Fed or politics. People need to believe that someone is in control of the market, and that someone must be in Washington. I hate to break it to you, but they’re not running the market.

    I also hear people say that sure, the market is up over the last three years, but that’s only because it’s been boosted by the Fed. They often say this as if the profits somehow don’t count. Don’t look for confirmation of your political views in the stock market (this is known as the “Larry Kudlow Effect”).

    Since the beginning of 2009, Lowe’s ($LOW) is up about 40% while Home Depot ($HD) is up about 110%. Investors would do themselves a lot more good thinking about how two companies that are so similar can perform so differently or why Starbucks ($SBUX) went from $40 to $10 and is now over $60. What happened there? Google ($GOOG) gets tons of attention but its stock hasn’t outperformed the market over the past few years. Danaher ($DHR) gets almost no attention yet the stock keeps powering higher (even this morning, the AP calls the company a “health care conglomerate“). I don’t think that’s due to Ben Bernanke.

    Ignore the large-scale stuff—anything where it’s easy to have a canned opinion (Obama, Bernanke, Romney). Instead, focus on low level things like one particular company’s sales, earnings and debt.

  • Morning News: April 19, 2012
    Posted by on April 19th, 2012 at 5:48 am

    European Rescue Fund May Face Biggest Test Yet

    Spain Tests Nervous Markets With 10-year Issue

    In Brazil and Elsewhere, Dismay at Argentina’s Nationalization Move

    Italy Reneges on Vow to Balance 2013 Budget

    Banks Ordered to Raise Loan Loss Reserves

    IMF Gets $320 Billion in New Pledges to Raise Resources

    Brazil Did A Massive Rate Cut, And Suddenly The Whole World’s Been Turned Upside Down

    U.S. Caps Emissions in Drilling for Fuel

    Talks With Instagram Suggest a $104 Billion Valuation for Facebook

    Ford Plans $760 Million Factory in Eastern China

    American Express 1Q Profit Up 7%; US Card Loans Increase 4%

    EBay Posts Higher Profits, Raises Full-Year Outlook

    Qualcomm 2Q Income More Than Doubles

    Olympus Seeks Approval for New Board to Move Past Scandal

    Jeff Miller: Are You Confused About Stocks? You Are Not Alone.

    Phil Pearlman: Scott Thompson’s First Yahoo! Earnings Call Is All About Leadership

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  • Intuitive Surgical Soars
    Posted by on April 18th, 2012 at 4:37 pm

    I’m often asked my opinion about small companies that are involved in some new technology. My standard response is that I won’t invest in any company until it proves that it can earn a steady profit. That’s harder than it looks. Simply put, too many companies go public before they’re ready.

    The odds against a money-losing start-up becoming a very successful player are large. A good case of a company that has shown the world that it can make a lot of money is Intuitive Surgical ($ISRG). The company is known for its robotic da Vinci Surgical System. Pretty cool, eh?

    ISRG is a member of my Watch List. Check out the growth in earnings-per-share over the last six years: $1.89, $3.70, $5.12, $5.93, $9.47 and $12.32. That’s pretty darn impressive. ISRG was barely hit by the recession.

    Today the company reported blow-out earnings.

    Intuitive Surgical Inc reported higher-than-expected first-quarter profit on Tuesday on increased sales of its high-priced da Vinci surgical robots and a rise in procedures using the systems and its shares rose nearly 6 percent.

    Based on the first quarter performance, the company slightly raised its full-year forecast for revenue and procedure growth.

    Intuitive now sees 2012 revenue growing by 19 percent to 21 percent, up from its previous forecast of 17 percent to 19 percent. It expects procedures to grow by 25 percent to 27 percent, up from a prior view of 24 to 26 percent.

    “After a quarter like this, there was no way they were going to maintain their guidance,” said ThinkEquity analyst Spencer Nam.

    “The guidance is very conservative and remains so even though they raised it a little bit,” said Michael Matson, an analyst for Mizuho Securities.

    The one disappointment for the quarter was sales of da Vinci systems in Europe, where only 14 of the 140 sold in the period were purchased and which the company called below historic trends.

    “European systems sales reflect the challenging economic environment,” Chief Executive Gary Guthart told analysts on a conference call.

    The company said it believes capital spending by European hospitals “will remain pressured for some time to come.”

    Intuitive posted a net profit of $144 million, or $3.50 per share, compared with a profit of $104 million, or $2.59 per share, a year ago. That exceeded analysts’ average expectations by 36 cents a share, according to Thomson Reuters I/B/E/S.

    Revenue for the quarter jumped 28 percent to $495 million, topping Wall Street estimates of $464.1 million.

    “It was a good quarter,” said Matson. “Everyone expected them to beat, but that said, it was a bigger beat than I expected. Some of it was from a lower tax rate, but even if you take that out, they still beat by a lot.”

    The stock soared 7% today and it was the top-performer on the Nasdaq 100. I like this company a lot. The price, however, isn’t so hot.

    I’m torn. I don’t mind paying a premium but the current price seems just too much.

  • Abbott Labs Lifts Guidance
    Posted by on April 18th, 2012 at 12:36 pm

    I took Abbott Laboratories ($ABT) off this year’s Buy List. Even though I still like the company a lot, I felt that the stock had become a bit pricey and I wanted to make room for some new stocks. Also, Abbott plans to split itself into two companies — one in diversified medical products and the other in research-based pharmaceuticals.

    Today, Abbott reported adjusted earnings of $1.03 per share which was three cents better than estimates. The company also raised its full-year forecast range to $5.00 to $5.10 per share. That’s an increase of five cents at each end.

    I’m not sure how the new range pertains to the spin-offs. The stock is down today but there’s a lot I like about Abbott. I’m not upset I took it off the Buy List; ABT is up 6.8% for the year which trails the S&P 500. However, once the new stocks are trading, I’d be very interested in adding the medical products stock to next year’s Buy List.

  • Morning News: April 18, 2012
    Posted by on April 18th, 2012 at 6:01 am

    Spain’s Surging Bad Loans Cast New Doubts on Bank Cleanup

    Posen Switches Vote as BOE Concerned on Inflation Risks

    HSBC Launching London’s First Offshore Yuan Bond

    Nishimura Says Bank of Japan Ready to Ease Further If Necessary

    Won Leads Gains in Asian Currencies on IMF Outlook; Rupee Falls

    Regulators to Ease a Rule on Derivatives Dealers

    Solar Company to Cut 2,000 Jobs and Close a German Factory

    Subsidies for Clean Energy Get Fresh Look

    Intel, IBM See Sales Stall as Europe Crisis Crimps Orders

    Coca-Cola 1Q Net Up 7.9% As Worldwide Volume Rises 5%

    Jaguar Land Rover IPO Seen as Jackpot as Valuation Soars

    Citigroup Shareholders Reject Executive Pay Plan

    Why Warren Buffett Revealed He Has Prostate Cancer

    Jeff Carter: Leaving America

    Roger Nusbaum: The Business of Giving Financial Advice is Complicated

    PRESENTING: The 101 Finance People You Have To Follow On Twitter

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  • Stryker Earns 99 Cents Per Share
    Posted by on April 17th, 2012 at 4:11 pm

    Stryker ($SYK) earned 99 cents per share for the first quarter which matched Wall Street’s estimate:

    For the latest quarter, Stryker reported a profit $350 million, or 91 cents a share, up from $307 million, or 78 cents a share, a year ago. Excluding items, earnings were 99 cents a share, matching the estimate from analysts polled by Thomson Reuters.

    Revenue increased 7.2% to $2.16 billion, above analysts’ expectations of $2.12 billion.

    Sales at Stryker’s MedSurg unit, which makes products including surgical equipment, hospital beds and stretchers, increased 7.5% to $821 million.

    Gross margin rose to 67.2% from 65.8%.

    Shares of the company, which affirmed its forecast for 2012, rose 1.1% to $55.50 in after-hours trading. The stock has risen 10% so far this year.

    Stryker reiterated its full-year forecast of earnings growth of “double-digit levels” over 2011.

  • Forgotten Stock Makes Man Millionaire
    Posted by on April 17th, 2012 at 2:06 pm

    Most of us would be better investors if we were like this guy:

    A man who believed he had sold all his shares in a high-flying computer data storage company found himself nearly $4 million richer after discovering he still owned 1,000 shares of the firm’s stock.

    The man, who asked that his name not be published, said he had no idea he still owned stock in Hopkinton, Mass.-based EMC until he was contacted by the state treasurer’s office last month.

    “I’m no accounting genius,” the 62-year-old salesman told The Associated Press on Wednesday.

    The man, who lives in Boston, said he purchased 3,000 shares of stock in 1987 on the advice of a cousin. Sometime during the 1990s he sold 2,000 shares of the stock to pay for his children’s college tuition and forgot about the remaining 1,000 shares.

    Some 13 years later, the value of 1,000 shares had ballooned to nearly $4 million.

    The forgotten shares were discovered by the treasury’s Abandoned Property Division. By law, brokerage firms must turn over to the state stocks which show no activity by their owners after three years.

    This is an old story. EMC had a difficult time from 2000 to 2002, although it’s done pretty well over the last 10 years. During the 1990s, it gained 80,575%.

  • Q1 Earnings Season So Far
    Posted by on April 17th, 2012 at 10:56 am

    It’s still very early but we have some stats for Q1 earnings season. Of the 500 companies in the S&P 500, 40 have reported so far. Twenty-nine stocks beat estimates, five reported inline and six companies missed estimates. Earnings are tracking at $24.34 which is a 3.62% increase over the first quarter of 2011.

  • Goldman Raises Dividend
    Posted by on April 17th, 2012 at 10:35 am

    Goldman Sachs ($GS) reported quarterly earnings of $3.92 per share which beat (lowered) estimates of $3.55 per share. Their net dropped 23% from last year.

    But what really caught my attention is that the bank raised its quarterly dividend from 35 cents to 46 cents per share. Goldman was one of the few financials that didn’t slash its dividend during the financial crisis. They managed to keep it at 35 cents since 2006.

    With the dividend increase, the bank now yields about 1.56% which isn’t a whole lot. I think it’s important that such a high-profile financial stock is willing to increase its dividend. Hopefully, this will encourage other financials to follow.

  • Sluggish Economic News
    Posted by on April 17th, 2012 at 10:03 am

    We got some sluggish economic news this morning. The Federal Reserve said that industrial production was flat last month, and the Commerce Department said that housing starts fell by 5.8%. Manufacturing dropped by 0.2%.

    For industrial production, economists were expecting an increase of 0.3%. The weakness is probably due to the problems in Europe. Capacity utilization, which tells us how much of a plant is being used, now stands at 76.7%.

    The drop in manufacturing output, which accounts for about 12 percent of the U.S. economy, in March was the first since November. The figure was restrained by a decrease in consumer durable goods such as furniture and appliances. Construction supply production slumped 1.3 percent in March after a 1.9 percent jump.

    Still, first-quarter factory output climbed at a 10.4 percent annual rate, the most in almost two years, the Fed said.

    Auto production rose in March at a slower pace, climbing 0.6 percent after a 0.8 percent rise. Factory output minus production of vehicles and parts fell 0.3 percent in March.