Archive for December, 2005

• The Market Today
  Eddy Elfenbein, December 22nd, 2005 at 5:10 pm

  Outside of the strike news, today was a pretty slow day on Wall Street. Traders were pleased enough to give us the best day this week. The market rallied steadily all day. Every sector but energy was up. I have a feeling that’s going to be a theme during 2006. Just avoid energy and you’ll do well next year. Today, the S&P 500 gained 0.42% and our Buy List was up 0.40%.
  Apparently, Biomet (BMET) has lots of fans out there. The stock gained over $1 a share today. Forbes noted that Morgan reiterated its “overweight” rating on the stock. Of all the stocks to worry about, Biomet is not one.
  Frontier Airlines (FRNT) rose for the eighth time in the last nine days. This stock seems to like to move in waves. I’m still a bit puzzled by the company’s low guidance for next quarter. Maybe they’re setting the bar low intentionally, but I would be very surprised if Frontier misses this quarter.
  CACI International (CAI) said that it’s going to buy Information Systems Support Inc. Terms of the deal were not disclosed, but we believe it has something to do with money.
  Bed Bath & Beyond (BBBY) finished down 12% today. The stock is about where it was four years ago. Since then, sales have doubled and profits are up about 150%.
  Also, checks for the Wall Street research scandal are going out in the mail. Are you getting one? Me neither.
  Lastly, President Bush pardons two moonshiners.

• Danaher
  Eddy Elfenbein, December 22nd, 2005 at 3:21 pm

  It’s about time Danaher (DHR) gets some love. This is Forbes on one of America’s best-managed companies.

  Electronics giant Danaher’s quirky $7.7 billion (sales) product mix runs from aircraft safety equipment and submarine periscopes to infrared thermometers and hand tools. And if you mailed or received a package over the holidays, thank Danaher’s Accu-Sort division, whose fixed-position lasers and scanners help sort 80% of all parcels shipped in the U.S. By imposing a just-in-time parts and manufacturing discipline, Danaher keeps inventory levels down and forces supply decisions to be made on demand. All this helps the bottom line. Five-year earnings-per-share growth has averaged 20%, ranking Danaher fourth in its sector for that metric.

• Biomet and Bed Bath & Beyond
  Eddy Elfenbein, December 22nd, 2005 at 3:08 pm

  So Biomet (BMET) disappointed Wall Street yesterday. But due to its low price, the stock was upgraded today by Lehman Brothers. Well…now it’s back to almost exactly where it started. Glad that’s all cleared up.
  The company missed earnings by two cents a share, and it lowered guidance for next quarter. That doesn’t please me but I realize that Biomet is in a tough environment. The industry is totally freaked about the threat of price cuts. Still, Biomet has held up well and the fundamentals are very strong.
  The stock was too expensive at $50, and ideally I’d be a more enthusiastic buyer at a little lower price, but this is a solid stock. That’s why I’m keeping it on the Buy List for next year. Don’t let the market fool you.
  Now we turn to Bed Bath & Beyond (BBBY). One day after I announce that it’s going on the new Buy List, the stock gets slammed by 10%. This is why I’m not a trader. I would be awful. But again, I’m not worried at all about BBBY. Actually, the lower price makes me like it even more. Here’s what the Wall Street Journal had to say today:

  The company’s fiscal third-quarter earnings met targets, but sales missed analysts’ forecasts, as did the retailer’s profit outlook for the current quarter. Also, the recent quarter, which ended Nov. 26, marked only the second time in the last two years that Bed Bath & Beyond didn’t beat estimates.
  In-line earnings are “not enough to sustain [the stock’s] rich valuation,” analysts at Goldman Sachs said, adding that the company’s forecast “seems light even by management’s conservative standards.” Analysts at Morgan Keegan cut their rating on Bed Bath stock to “underperform” from “market perform.”
  Given the home-furnishings retailer’s habit of beating estimates regardless of the competitive landscape, it “was a bit of a surprise to hear management highlight the unusually promotional holiday season as a source of concern,” Merrill Lynch retail analyst Danielle Fox wrote, in a note to clients.

  I think Bed Bath & Beyond is in a similar situation as Dell (DELL). The company pared its growth downward slightly, and investors are punishing it severely. This simply comes down to perspective. Let’s not forget that companies like Dell and Biomet are consistent performers. Dell’s stock recently dropped $13 after it cut its earnings guidance by two cents a share. That means that its marginal earnings were worth 650 times earnings. I’ll always take the opposite end of that trade.
  Here’s what I wrote about Dell six weeks ago.

• The Strike Ends
  Eddy Elfenbein, December 22nd, 2005 at 1:32 pm

  Hallelujah!

• Gazprom Watch
  Eddy Elfenbein, December 22nd, 2005 at 1:02 pm

  Here’s a fascinating story from NPR (audio file). Gazprom, the Russian state-controlled natural gas monopoly is raising prices in Ukraine by 300%. This is an obvious revenge move due to last year’s anti-Kremlin Orange Revolution.
  I’m not trying to be an alarmist but this company is bad news. I’m surprised it hasn’t made more news in the West. Gazprom is basically the KGB is the form of an energy company. It’s incredibly powerful in Russia. The company accounts for 8% of Russia’s GDP, and 25% of its tax revenue. Imagine if one company were that powerful here.
  Here’s an example of how Gazprom plays. Last year, they got into a fight with Belarus, so they shut off all gas supplies in the middle of winter. The company is now the third-largest owner of oil in the world, behind Iran and Saudi Arabia. I don’t know who to fear more. I guess I’ll go with the Holocaust-denying nuke crowd, but that really doesn’t narrow it down.
  Ukraine could respond. Gazprom supplies gas to much of Europe and those pipelines run through Ukraine. This could get nasty. Get used to hearing more stories like this.

• Charles & Colvard
  Eddy Elfenbein, December 22nd, 2005 at 11:27 am

  Charles & Colvard (CTHR) has been one of the hottest stocks on Wall Street. Four years ago, the stock was going for about $1 a share. Since then, it’s made Google (GOOG) look like a wimp. And what happens after you gain several thousand percent? Boo-yah!
  Yep, Cramer profiled CTHR on “Mad Money” two weeks ago. After that, the stock got as high as $32 a share. A 3,000% plus gain in four years is always a very good thing. (Does anyone not see where this story is going?) Since you’re probably wondering what Charles & Colvard does, here’s Cramer:

  Charles & Colvard’s synthetic moissanite jewels cost one-tenth the price of a diamond but are “more brilliant and more lustrous than diamonds,” he said. Moissanite jewelry is carried at more than 700 J.C. Penney stores.

  Moissanite jewelry? Oh dear lord. So we’re talking about a business model that relies on that key “Kevin Federline” demographic. Jewelry shoppers at Penny’s! For the past 12 months, the company made 36 cents a share. That means it nearly got to 100 times earnings and slightly over 11 times sales. Note my use of the past tense.
  This stock was priced to perfection, and perfection never came. Yesterday, Charles & Colvard said that it’s looking forward to strong growth for the fourth quarter, but next year will be “difficult to predict.” The stock is down about 30% today. Plus, there’s this gem:

  Shares of Charles & Colvard plunged nearly 30 percent Thursday after the Morrisville manmade jewel maker revealed Wednesday night that it had fully vested employee and board member options to purchase 107,000 shares of its stock.
  Charles & Colvard, which makes the jewel moissanite, made the move because of new accounting regulations going into effect Jan. 1 that will require companies to book stock options as expenses. Charles & Colvard will record a $54,000 expense for the fourth quarter but will avoid $522,000 in future stock options expenses, including $369,000 next year, the company would have had to take under the new rules.
  The options for the 107,000 shares, which would have vested over the next three years, instead all fully vested Wednesday.

  Charming, no?

• IBD on Amedisys
  Eddy Elfenbein, December 22nd, 2005 at 4:34 am

  This morning, Investor’s Business Daily highlights Amedisys (AMED). This is a pretty cool company. It’s a very profitable operator of several home nursing centers in the Southeast.

  “Amedisys is riding a strong demographic wave right now,” said analyst P. Jay Fortner of Cochran, Caronia Securities. “You have a lot of baby boomers getting into Medicare.”
  That wave has helped Amedisys average 39% annual sales growth the past three years. Earnings have grown an average of 42% a year over the same period.
  Third-quarter sales this year rose 92% from 2004 to $112.2 million. Earnings gained 33% to 52 cents a share. Analysts polled by First Call expect full-year earnings to rise 32% to $2 a share.
  Amedysis took a hit on Dec. 19 when a House-backed budget plan called for reduced reimbursements. Aside from cutting reimbursements made to home health care providers, the bill calls for a nearly $5 billion cut in Medicaid spending.
  Amedisys’ stock fell nearly 12% on the news. First Call analysts also lowered its 2006 earnings estimate to $2.61 a share from $2.66 previously.
  Regardless of how the House plan takes shape, Amedisys will continue to expand.
  The company has opened 20 of the 25 new offices slated to be added by year-end. Last year it opened 13 new offices. It expects to open 45 startup offices in 2006.

• The Market Today
  Eddy Elfenbein, December 21st, 2005 at 5:21 pm

  Stocks followed a perfect arc today. The market opened higher, slowly rallied in the morning, flattened out by lunch, and gave back much of its gains during the afternoon. Still, we ended higher and that’s a nice change of pace.
  Despite Biomet’s (BMET) sluggish earnings, the Buy List had a decent day. The S&P 500 rose 0.25% and our Buy List added 0.53%. (By the way, have you seen our Buy List for 2006? Check it out.)
  Sixteen of our stocks went up and nine went down. Our big gainers were Expeditors (EXPD), Golden West (GDW) and Quality Systems (QSII).
  Expeditors was helped by the strong earnings report from FedEx (FDX). FedEx surged to a new all-time high. The stock is up 6,700% since its IPO in 1978. Both FedEx and Expeditors are part of the Dow Transportation Average (^DJT), which also hit a new all-time high today. The new high there is crucial to Dow Theorists.
  The economically cyclical sectors were very good today. The top sector today was Basic Materials (^DJUSBM). This may signal that the economy has more strength than many people think. Although, FedEx’s earnings covered the period through November; Wall Street really wants to know how well business is going right now. Interestingly, the small-caps had another big day. The Russell 2000 (^RUT) is close to a new all-time high.
  Bed Bath & Beyond (BBBY) just reported earnings after the close of 45 cents a share. This was in line with expectations, although sales were slightly below expectations. The stock is trading sharply lower after-hours. Anytime this stock is below $40 a share, it’s an excellent buy. Here’s some perspective: Sales grew from $1.31 billion to $1.45 billion, instead of $1.47 billion. That’s basically one-day’s worth of sales. Is that really worth $600 million in market cap? I didn’t think so.
  Also, mad props to GroovyStocks for the profile on yours truly.
  And finally, pork pie-makers in England want trade protection. I really wish I were making this up.

• Salesforce.com Shares Decline on Outage
  Eddy Elfenbein, December 21st, 2005 at 1:54 pm

  This stock always seems to be in the news.

  Shares of Salesforce.com, a San Francisco-based provider of customer relationship management software, got zapped in afternoon trading on Wednesday after the company reportedly suffered a severe system-wide outage on Tuesday.
  A Salesforce.com representative could not be reached to confirm the extent of the outage.
  “We are told the outage impacted a majority of customers, as well as restricting the company’s own access to the system. Customers were completely unable to log in and use the system to access customer data. We are aware of multiple customers that are quite displeased with the outage,” First Albany Capital analyst Mark Murphy wrote in a research note. “We believe this is the most severe and widespread outage Salesforce.com has experienced. It would not surprise us if Salesforce.com’s competitors get hold of this news and try to use it to their advantage.”

• Moody’s
  Eddy Elfenbein, December 21st, 2005 at 1:50 pm

  I have to admit that Moody’s (MCO) is a great company. The company just raised its dividend. It’s about to make another new high. Warren Buffett owns a large stake in it, but I think the stock is getting to be too rich at these levels. A lot of the stock’s surge is due to P/E ratio expansion. That can’t go on forever.
  If the shares come back below $50, I think it would be a great buy.