Market to Open Lower as HD and WMT Raise Guidance
Posted by Eddy Elfenbein on August 16th, 2011 at 8:38 am

The stock market looks to open lower today as Germany reported economic growth of just 0.1% for the second quarter. That’s just terrible. The whole Eurozone economy grew by 0.2% in the second quarter which was down from 0.8% for Q1.

This news doesn’t come at a good time for Europe as Sarkozy and Merkel are meeting today in a summit. There had been some talk about Europe issuing “eurobonds” to help fix the mess everyone’s in, but apparently that’s not on the agenda for today’s meeting.

Perhaps the most important market news this morning is Walmart’s ($WMT) earnings report. The company already told us that Q2 (which ends with July) would come in between $1.05 and $1.10 per share. They weren’t lying; WMT earned $1.09 per share although same-store sales were flat.

More importantly, Walmart said that Q3 should range between 95 cents and $1 per share. The company also raised its full-year EPS range from $4.35 to $4.50, to $4.41 to $4.51. This means the stock is going for just 11.6 times the midpoint of the new full-year guidance.

They’re not the only one boosting guidance. Home Depot ($HD), which is also a Dow stock, just reported a 14% earnings increase. For Q2, HD earned 86 cents per share which was three cents better than estimates. The company raised full-year EPS guidance from $2.24 to $2.34. The stock is going for 13.4 times this year’s estimate which seems about right.

It’s Cheaper Now to Buy Than Rent
Posted by Eddy Elfenbein on August 16th, 2011 at 8:06 am

CNN Money has an interesting article saying that it’s now cheaper to buy a home rather than renting one:

Home prices have taken such a beating and demand for rental units has increased so much that it’s now cheaper to buy a two-bedroom home than to rent one in most major U.S. cities.

According to real estate web site Trulia, buying was cheaper than renting in 74% of the country’s 50 largest cities in July. In just 12% of the cities, including New York, Seattle and San Francisco, renting was cheaper. In the remaining 14% of cities, renting was less expensive but close to the cost of buying.

In addition to a continuing decline in home prices, rock-bottom interest rates have added a lot of weight to the buy side of the scale. The overnight average rate for a 30-year fixed was just 4.19% on Monday, according to Bankrate.com. A 15-year fixed averaged just 3.43%.

Stocks on Sale
Posted by Eddy Elfenbein on August 16th, 2011 at 7:18 am

Amid Warren Buffett’s call to raise taxes on himself, he also had fairly positive things to say about the economy. He even said that the economy might pick up faster than the Fed expects. That’s not all. The latest filings show that Buffett made his biggest bets of the year on August 8th as the stock market was falling.

Clearly Buffett believes the market is cheap and the numbers back him up. According to the latest data, the Price/Earnings Ratio for the S&P 500 fell all the way down to 12.1 last week which is the lowest it’s been since May 1989.

Yet the latest earnings data showed that the second quarter was a very strong one for the S&P 500. With 94% of its companies reporting, the S&P 500 is on track to earn $24.88 for Q2. That surpasses the previous record of $24.06 from the second quarter of 2007.

Interestingly, Wall Street has only cut earnings estimates very slightly for the near future. For the third quarter, which we’re already halfway through, Wall Street expects earnings of $25.10. That represents growth of 16.4% over the third quarter of 2010.

For all of 2011, Wall Street expects the S&P 500 to earn $98.94, and another $113.47 for next year. It’s very possible that earnings estimates will fall, but for now, the S&P 500 is going for 10.6 times next year’s earnings. That’s pretty cheap.

Morning News: August 16, 2011
Posted by Eddy Elfenbein on August 16th, 2011 at 6:50 am

Europe Q2 Expansion Slows More Than Forecast

Merkel, Sarkozy May Edge Toward Euro Bonds, Bofinger Says

India’s Inflation Rate May ‘Peak’ in August, Finance Ministry’s Basu Says

China Finance Ministry Said to Begin Yuan Bond Sale Tomorrow

Swiss Ponder Battle Over Runaway Franc

Oil Drops as Slowing German Economy Signals Demand May Falter

Gold Fever Gripping the Australian Outback

Freddie: Most Homeowners Used Fixed Rates To Refinance In 2Q

Home Depot Results Top Analyst Estimates

Is Google Turning Into a Mobile Phone Company? No, It Says

Asian Shares End Mixed; Google’s Motorola Buy Boosts Handset Makers

Qantas Overhauls With $9 Billion Fleet Order, 2 New Airlines

Cargill Will Acquire Provimi Group for $2.14 Billion

National Oilwell Pens $1.5 Billion Brazil Supply Deal

Howard Lindzon: Buddy Media is Going for It!

Brian Shannon: Stock Trading Ideas for 8/16/11

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QOTD
Posted by Eddy Elfenbein on August 15th, 2011 at 10:33 am

From the Wall Street Journal:

“I’m sure there were some wealthy families who were drinking the Bernanke Kool-aid and got burned,” he said. “But I don’t know many families in that boat.

Via Paul Kedrosky

Sysco Drops on Mediocre Earnings
Posted by Eddy Elfenbein on August 15th, 2011 at 10:26 am

Sysco ($SYY) just reported earnings of 57 cents per share which was inline with analysts’ estimates. However, it was well below my estimate of 60 cents per share, plus or minus two cents.

“Looking at the overall business landscape, for some time now we have characterized the current economic recovery as slow, choppy, uneven and even fragile. Our fourth-quarter results and the events that have played out in Washington and in the financial markets over the past few weeks certainly support that outlook,” said Chief Executive Bill DeLaney on a conference call. “Nevertheless, we continue to believe that our industry will experience modest real growth over the long term.”

The company, which derives most of its sales from the restaurant industry, said its sales growth of 0.7% for the quarter was affected by inflation, acquisitions and currency translations, and that aside from these factors, its sales would have risen 1%. The company also said volume growth was positive for the quarter but remains at modest levels.”

Sysco is undergoing a major business-transformation project with a pilot in place at an Arkansas facility that it says will help drive growth and increase productivity. However, due to problems, such as the speed of taking and processing orders, it is delaying the wider rollout of the new system. It says it is still evaluating the financial impact of the delay.

Some analysts believe the delay is chalked up more to the company’s avoiding the capital spending on a full launch during such an uncertain economy. However, Sysco said that even with headwinds such as inflation not appearing to be letting up in the next couple quarters, it hasn’t come to that yet.

The stock dropped as much as 5.8% today, although it recovered some and finished 3.93% lower. With the lower price, the dividend yield is now 3.7%.

Google Buys Motorola Mobility
Posted by Eddy Elfenbein on August 15th, 2011 at 9:54 am

When Motorola finally split itself into two separate companies, I said that Motorola Solutions ($MSI) was by far the smarter buy. I had been right up until today. Now Google ($GOOG) announced that it’s buying Motorola Mobility($MMI) for $12.5 billion.

The deal, which comes just eight months after the split of Motorola Inc., would give Google control of Motorola Mobility’s attractive patent portfolio after the Internet giant recently missed out on a bid for Nortel Networks Corp.’s (NRTLQ) portfolio. Google, which owns the fast-growing Android operating system used in millions of mobile phones, has a thin portfolio of wireless and telecommunications patents.

Google’s buyout price works out to $40 per share. On Friday, MMI closed at $24.47 so Google is offering a 63% premium. I have to wonder if Google is making the smart move here. Wall Street thinks MMI will earn $1.39 per share next year, so Google is paying 20.8 times that. If the S&P 500 were valued similarly, the index would be over 2,300.

Activist investor Carl Icahn, who is the company’s largest shareholder, had urged Motorola Mobility to explore options for its patent portfolio in the wake of the Nortel deal that attracted multiple bidders.

Following that defeat, Google had preliminary discussions with InterDigital Inc. (IDCC) about a possible acquisition of the wireless technology developer and licenser.

The smartphone and set-top box company split with its sister Motorola Solutions Inc. (MSI), which is focused on business and networking operations, at the beginning of the year. The separation made Motorola Mobility nimbler and more focused on its core operations, but it faces a highly competitive smartphone market, including a persistent threat from Apple Inc.’s (AAPL) iPhone.

Last month, Motorola reported a 28% rise in second-quarter revenue, thanks to strong tablet sales, but the device maker provided weak guidance for the current quarter because of delays in launching speedier 4G devices.

Meanwhile, Google’s second-quarter earnings rose 36% on record revenue as the Internet giant experienced strength in its core search business and gained traction with its newer operations.

Morning News: August 15, 2011
Posted by Eddy Elfenbein on August 15th, 2011 at 6:35 am

Setbacks May Push Europe Into a New Downturn

Japan’s Economy Shrinks but Beats Expectations

Euro Zone Bond Debate Raises Pressure on Merkel

Middle East Oil Near Highest in a Week as Gasoil Profits Rebound

Sterling No Refuge as Bank of England Governor King Eyes Stimulus

Low Rates May Do Little to Entice Nervous Consumers

Ralcorp Rejects ConAgra’s Sweetened $5.2 Billion Bid

Time Warner Cable Said to Be Near $3 Billion Insight Deal

Transocean Announces $2.23 Bln Takeover Of Aker Drilling

Bright Nears Deal for 75% Stake in Manassen

Nestle Takeover in China Creates 23% Return

Israel’s Sewage-Eating Bacteria Lure GE Cash

Saab Customers Abandon Automaker as Swedes Fret

20 Valeurs Pour Battre Le Marché

Paul Kedrosky: Warren Buffett: Stop Coddling the Super-Rich

James Altucher: Nine Ways To Light Your Creativity ON FIRE

Epicurean Dealmaker: Investment Banks of the Plain

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The Carter Family: “Can the Circle Be Unbroken”
Posted by Eddy Elfenbein on August 12th, 2011 at 8:38 pm

Consumer Confidence Plunges
Posted by Eddy Elfenbein on August 12th, 2011 at 12:36 pm

It’s been a long time since consumer confidence was this low. Let’s just say that you probably had an alligator on your shirt back then.

Confidence among U.S. consumers plunged in August to the lowest level since May 1980, adding to concern that weak employment gains and volatility in the stock market will prompt households to retrench.

The Thomson Reuters/University of Michigan preliminary index of consumer sentiment slumped to 54.9 from 63.7 the prior month. The gauge was projected to decline to 62, according to the median forecast in a Bloomberg News survey.

The biggest one-week slump in stocks since 2008 and the threat of default on the nation’s debt may have exacerbated consumers’ concerns as unemployment hovers above 9 percent and companies are hesitant to hire. Rising pessimism poses a risk household spending will cool further, hindering a recovery that Federal Reserve policy makers said this week was already advancing “considerably slower” than projected.