Archive for October, 2005

  • AP: Man requests 33-year sentence to match Bird’s number
    , October 21st, 2005 at 7:22 am

    OKLAHOMA CITY — A man got a prison term longer than prosecutors and defense attorneys had agreed to — all because of Larry Bird.
    The lawyers reached a plea agreement Tuesday for a 30-year term for a man accused of shooting with an intent to kill and robbery. But Eric James Torpy wanted his prison term to match Bird’s jersey number 33.
    “He said if he was going to go down, he was going to go down in Larry Bird’s jersey,” Oklahoma County District Judge Ray Elliott said Wednesday. “We accommodated his request and he was just as happy as he could be.
    “I’ve never seen anything like this in 26 years in the courthouse. But, I know the DA is happy about it.”
    Shouldn’t he have said that he’s a fan of Robert “00” Parish?

  • The Future, if any, for General Motors
    , October 20th, 2005 at 11:03 pm

    George Will with some sobering thoughts on General Motors (GM).

    General Motors took an interesting turn on Monday. It is going back into the automobile business.
    Granted, GM has always been in that industry, but it has also become the nation’s largest private purchaser of health care. This supposedly secondary role has become primary.
    GM has been forced to allow product development, pricing and other decisions to be driven by the need to keep sufficient revenue flowing in so it can flow out in fulfillment of GM’s function as a welfare state. GM provides $5.2 billion in health care annually — more than Harley-Davidson’s revenue — to 1.1 million workers, retirees and dependents. Retirees outnumber current U.S. employees 2.5 to 1. The $4 billion that goes annually to retirees does not go into developing products people want to buy.

    For several decades, the government has outsourced social welfare programs on the backs of corporations. The problem is that corporations are far more fragile than its detractors assume. Many of the blue chip names of a generation ago no longer exist.

    Shortly before Monday’s announcement that the UAW agreed to trim GM workers’ and retirees’ benefits, Delphi, the auto parts company that GM owned until 1999, sought bankruptcy protection. Under terms of the 1999 separation, GM may be liable for up to $12 billion of Delphi’s pension and health care benefits, which would offset GM’s gains from the UAW concessions.
    The bankruptcy of Delphi is another pebble — a big pebble; Delphi has 185,000 employees worldwide, 33,000 of them unionized Americans — in an accelerating avalanche of corporate decisions dismantling “defined-benefits America.” As a result, intergenerational strife, which has long been anticipated, may at last be at hand: Delphi proposes cutting the compensation — pay and benefits — of younger workers from $65 per hour to $20 or less, so it can fulfill the promise to retirees of a fixed percentage of their salaries.
    Robert “Steve” Miller, Delphi’s chief executive, minces no words, telling the Wall Street Journal that defined-benefit programs are imprudent anachronisms: “The notion of having all your retirement eggs in one basket — your employer — is a concentration of risk that is simply inadvisable for anyone in today’s fast-moving economy.” He calculates that a competitive American industrial compensation cost is about $20 an hour. And to get to a total compensation cost of $20, including health care, retirement and workers’ compensation, “which is high in the states we are in like New York, Ohio and Michigan,” you have to have a basic hourly wage of $10. Pay at Delphi’s plants in China is roughly $3 an hour.

    Daniel Gross at the Slate.com thinks that the UAW deal doesn’t go nearly far enough. As he sees it, GM is corned with no way out.

    GM has a pathological need to produce and sell cars—even at a loss—because it needs the revenues. For decades, GM has fought a vicious—and losing—battle against domestic and foreign competitors to maintain its once (and still) leading market share in the all-important North American market. In recent years, GM’s leadership has repeated the mantra that if GM could only retain market share in the short-term, many of its long-term problems will go away.
    A company that has high structural costs, pays a healthy dividend, and has made large investments in infrastructure needs to have all its factories running to the fullest extent at all times. A strike, even for a week or two, would prove devastating. It would halt production and screw up the just-in-time delivery system. Some dealers would have fewer cars to sell, or lose out on expected sales. Rivals would rush to capitalize on GM’s woes by offering incentives. And as the last few decades have shown, once GM’s customers go elsewhere, they tend not to return. GM wants a 28 percent market share in North America, but it’s down to 26.1 percent so far this year. A strike would drop that number even lower.

    The Federal Reserve is often described as the lender of last resort. I have a feeling that in the near future, the federal government will be the car marker of last resort.

  • Today’s Market
    , October 20th, 2005 at 5:54 pm

    I’m officially declaring that today never happened. Frontier Airlines (FRNT) plunged 28.6% on the news that Southwest Airlines (LUV) is moving into Frontier’s Denver hub. Merrill Lynch quickly downgraded the stock. That’s an awful downgrade. Did it never occur to the analyst that Southwest would or could do this? Obviously, I think today’s sell-off is waaayy overdone. The fact is Frontier has been competing against Southwest for along time. Southwest will probably get two gates at Denver’s airport, and they’re going to have about 40 employees there. That’s hardly worth chopping 28.6% off the stock.
    We’ll know all the details later, but we’re probably looking at maybe a dozen or so daily flights. I think this will hurt Frontier’s flights to Vegas and L.A., but it won’t harm their lucrative Mexico business. Frontier is a healthy company with a growing business. Earlier, Southwest moved into to Philadelphia and clobbered everyone. Frontier will not be such a pushover. I’m still holing on to my Frontier stock.
    eBay (EBAY) fell after its earnings yesterday. The online auctioneer earned 20 cents a share, which was inline with expectations. But due to the Skype merger, the company expects 20 cents a share for this quarter, which was one penny below expectations. Sales grew by 37%. The company forecast earnings for next year of 81 to 86 cents a share.
    Our Buy List dropped -2.85% today while the S&P 500 lost -1.50%. Ironically, the S&P 500 was up 1.50% yesterday. This was just an ugly day, although we’re still ahead of the market for the month. The good news is that oil prices continued to fall. Oil is now down to $61 a barrel. That should help Frontier tomorrow.
    Google (GOOG) just reported earnings of $1.51 a share which was far ahead of Wall Street’s estimates of $1.36. That topped that highest estimate on Wall Street of $1.46 a share. The stock is soaring in the after-hours market. Google’s bottom line increased from $52 million last year, to over $380 million this year. The company is now up to nearly 5,000 employees and has a market cap of roughly $90 billion. That’s $18 million per each employee. General Motors (GM), by contrast, is worth about $50,000 per each worker.
    Lastly, here’s a chart of how the energy sector has been doing over the past month. It’s not looking good, and I don’t think it will get better.
    enegy.bmp

  • Q&A: Oracle (ORCL)
    , October 20th, 2005 at 3:21 pm

    Hi Eddy,
    I like your blog and I find it very informative. What’s your opinion of ORCL? I bought some share around 10…do you see it going much higher?

    Thanks for the nice words. With Oracle (ORCL), there’s always one key rule I have: Larry Ellison is nuts. Not in a bad way, mind you. I love Larry. He’s a genius, but he’s also a bit nuts. Look at his track record. He named Oracle’s first database Oracle 2, so people would think that all the bugs had been fixed. That’s brilliant, but think of the kind of person who thinks that stuff up. This is a guy who’s been repeatedly fined by his local airport due to the noise from his private jet. I mean, you have to admire that.
    The Larry factor filters down to the company and therefore, the stock. Oracle has made two huge acquisitions recently, and I can’t stand acquisitions. I’m terrified of what Gillette will do to Procter & Gamble (PG), and vice versa. Pfizer’s (PFE) mergers have caught up with them. The same with Citigroup (C). Oracle first bought PeopleSoft and now, they’re buying Seibel (SEBL).
    The company canceled its analyst day yesterday. It might be nothing, but it’s certainly not a good thing. On top of that, analysts have been paring back their estimates for this year and next. Oracle is one of those stocks that appears to be cheap, but really isn’t. The current price assumes the kind of performance that Oracle has had, not will have. I’m very doubtful Oracle will be able to digest these acquisitions smoothly. Just look at the Pfizer news today. A few years ago Pfizer looked unbeatable.
    You’re lucky to have gotten Oracle at $10, but I don’t see much upside from here. Oracle is a sell. Any of the stocks on our Buy List are better.
    Thanks for all the e-mails. Please keep them coming!

  • Pfizer’s Earnings Plunge
    , October 20th, 2005 at 11:57 am

    This is why I don’t like mergers. They’re great for press releases, but lousy for earnings. Pfizer has been a dud stock ever since its mega-merger with Warner Lambert, and later with Pharmacia. Why do companies continue doing this?
    I used to think that things couldn’t get much worse for Pfizer. Well, I was wrong. Today the drugmaker said that its earnings fell in half last quarter. Sales of Celebrex dropped by 44%. The problem with Celebrex is that it’s supposed to help your arthritis. The downside is an increased risk of a heart attack, which ironically, is still easier on your heart than actually owning shares of Pfizer.
    If that weren’t enough, Neurontin went off patent protection and saw its sales plunge by 80%. And Pfizer’s only bright spot wasn’t very bright. Lipitor sales grew by 6%, much less than Wall Street was hoping for. Sales in the U.S. grew by just 1%. Even sales of Viagara were down. The company also withdrew its sales forecast for next year and the year after that. I don’t see any bright spots here. The stock is now roughly were it was eight years ago. I hope you don’t own this stock. If you do, you can do better elsewhere.

  • Frontier Down as Southwest Enters Denver
    , October 20th, 2005 at 10:06 am

    Frontier Airlines (FRNT) is down sharply today on the news that Southwest Airlines (LUV) will be going back into the Denver airport. This is bad news for Froniter, but it’s not the end of the world. Denver has been an overlooked opportunity for other carriers for a long time, and now that’s coming to an end. Don’t count Frontier out just yet. The company still has a solid business. Their earnings are due out one week from today.

  • Danaher & Golden West
    , October 20th, 2005 at 9:36 am

    We have two big earnings reports this morning. Golden West Financial (GDW) continues to be one of my favorite financial stocks. The company just reported earnings of $1.22 a share, up from $1.05 last year. Herb Sandler, the CEO, said that despite higher interest rates from the Federal Reserve, the savings & loan continued to hold expenses down. Wall Street was looking for earnings of $1.19 a share, so this was a good showing. The stock is now going for about 13 times earnings. It doesn’t get a lot cheaper than that. This stock is a great buy.
    Danaher (DHR) may be the best company that no one knows about. The company makes industrial tools. Danaher just announced that it earned 70 cents a share which was inline with expectations. Last year, it earned 62 cents a share. For the fourth quarter, DHR sees earnings of 76 to 81 cents a share, and $2.74 to $2.79 for the full year. For more on Danaher, here’s a recent report from Standard & Poor’s.

  • China’s Economy Grew by 9.4% in Q3
    , October 20th, 2005 at 7:14 am

    The world is waiting for the Chinese economy to go all Refco on us, but that doesn’t look like it’s going to happen any time soon. For the third quarter, China’s economy grew by 9.4%. In the second quarter, the economy grew by 9.5%. China now has 300,000 millionaires.
    The economy is expected to slow down next year to just 9.1% growth from the 9.4% rate for this year.

    The Chinese economy, which accounted for a 10th of global growth in 2004, has defied expectations for a slowdown in the past year as demand for cell phones, restaurant meals and travel surged. Premier Wen Jiabao is seeking to channel more investment into the nation’s power and transport networks, where capacity hasn’t kept pace with overall economic activity.
    Fixed-asset investment, which accounts for more than a third of China’s economy, increased 26.1 percent to 5.71 trillion yuan ($704 billion) in the nine-month period after first-half growth of 25.4 percent, the statistics bureau said. Industrial output rose 16.3 percent, after gaining 16.4 percent in the first half.

  • The Dow-to-Nasdaq Ratio
    , October 19th, 2005 at 7:19 pm

    Today the Dow closed at 10414.13 and the Nasdaq finished at 2091.24. That comes to a Dow-to-Nasdaq ratio of 4.9799. Yesterday, it was 5.0026. Basically, this is about as close to 5-to-1 as you get. That’s been the average Dow-to-Nasdaq ratio for the last 20 years, which leads me to think that the overall tech sector is fairly valued. The Nasdaq could certainly outpace the Dow over the next few months, but it’s unlikely to do so for long.
    During the tech boom, the ratio went as low as 2-to-1 (for two days, it slipped just below 2.0). On the other end, in the summer of 2002 the ratio barely jumped above 6.6666 (making the Nasdaq 15% of the Dow).
    Many people think that the Nasdaq has outperformed the Dow for many years, but it hasn’t. Over the last 18 years (today is the anniversary of Meltdown Monday), the Nasdaq Composite is up 480.6% while the Dow is up 498.9%.

  • Today’s Market
    , October 19th, 2005 at 4:34 pm

    Well that was a nice turnaround! The market was pretty dull almost all day, and then zoomed higher in the afternoon. It all started about 1 p.m. today. I don’t know what to say, it was so unexpected. Maybe it’s to celebrate the 18th anniversary of the 1987 crash. Who knows? But I’ll take it. Here’s a chart of the S&P 500 today.
    today's market.bmp
    That looks like nobody wanted to take profits. All told, the S&P 500 was up 1.50% today, and our Buy List beat it slightly, rising 1.57%. That’s really good considering we have Stryker (SYK) which was one of the worst stocks on the market today. Stryker was down -9.1%, and Zimmer (ZMH) lost -6.9%. Despite those stocks weighing us down, we beat the market. Our huge winner was SEI Investments (SEIC) which rallied over 11.5%. Also, Varian Medical (VAR) broke out to a new 52-week high.
    Very good news from Brown & Brown (BRO). The insurer announced that it will split 2-for-1, and it increased its dividend by 25%. The split will happen late next month. Yesterday, Brown & Brown reported earnings of 50 cents a share. I should also say that Stryker is a very good stock. The company reiterated its growth going forward.
    eBay (EBAY) just reported earnings of 20 cents a share, which is inline with estimates. The company slightly beat on its top-line growth. I’m happy to see eBay’s operating margins expanded to 36%. eBay’s stock was up $1.59 today, although it’s giving some of that back (and more) in the after-hours market.
    Three of our stocks report earnings tomorrow; Fiserv (FISV), Danaher (DHR) and Golden West Financial (GDW). I also have to add a word on Dell (DELL). The stock is cheap. Very cheap.