Archive for 2005

• Electronic Paper
  Eddy Elfenbein, November 9th, 2005 at 6:25 am

  Behold the future, “electronic paper.”

  “Electronic paper” is a display technology that makes possible flexible or even rollable displays which, unlike current computer screens, can be read in bright sunlight.
  But, much like when LCD displays came to the market, consumers are first likely to see the technology in clocks and watches. The popular example of an electronic newspaper that automatically updates itself wirelessly is still years away.
  A number of companies are currently working on such displays—LG.Philips LCD and Massachusetts-based E Ink announced last month that they have developed a protype 10-inch display, and Fujitsu showed a color display in July.
  Philips’ Polymer Vision unit aims to mass-produce a rollable 5-inch display by the end of 2006, and among the first consumer products is a watch with a curved electronic paper display from Seiko Epson, due to hit the Japanese market next year.
  Electronic paper was invented in the 1970s at Xerox’ Palo Alto Research Center by Nick Sheridon, who now works as research director at Xerox subsidiary Gyricon, which makes electronic paper signs.
  “If you remember the green-screen monitors—it drove him crazy and he was looking for something that was easier on the eyes,” Gyricon spokesman Jim Welch said.
  Electronic or paper?
  The technology at the heart of electronic paper? Tiny black and white particles that are suspended in capsules about the diameter of a human hair.
  The particles respond to electrical charges—a negative field pushes the negatively charged black particles away to the surface, where they create a black dot. Positively charged white particles create the opposite effect.
  At a 10th of a millimeter, the thickness of an ordinary sheet of paper, electronic paper is much thinner than the liquid-crystal displays (LCDs) used in today’s computers and mobile phones.
  It also consumes 100 times less power because it does not require a back light and only needs electricity to change the image, not to hold it.
  Like ordinary paper, it reflects light, making it readable even in difficult conditions such as direct sunlight.

  I think Xerox PARC invented everything.

• The Market Today
  Eddy Elfenbein, November 8th, 2005 at 4:46 pm

  Except for the homebuilders, it was another quiet day on Wall Street. Here’s how the 20 top homebuilders did today:

  Ticker	Today’s Loss
  PHM	-8.92%
  DHI	-9.33%
  LEN	-5.23%
  CTX	-6.48%
  KBH	-5.50%
  TOL	-13.96%
  NVR	-6.51%
  RYL	-4.93%
  MDC	-5.59%
  HOV	-7.05%
  SPF	-8.06%
  BZH	-5.30%
  WLT	-1.08%
  MTH	-11.24%
  HXM	-2.80%
  BHS	-5.39%
  TOA	-6.79%
  WCI	-4.53%
  WLS	-10.69%
  CHB	-1.57%

  The S&P 500 lost 0.35% today and our Buy List fell 0.20%. We’re still ahead for November; 2.39% for us compared with 0.96% for the S&P 500.
  There’s not much to say about today’s market. This marks four straight days of little movement. The S&P 500 has bounced between 1215 and 1225. Dell (DELL) came within a penny of matching a 52-week low. I’m curious at to what Dell will have to say on Thursday. I’m particularly interested in its guidance for next year (Dell’s fiscal year ends at the end of January). If the low end of Dell’s forecast is $1.82 a share or more, then it would give the stock a P/E ratio of less than 16.

• TO & Guidant & JNJ
  Eddy Elfenbein, November 8th, 2005 at 4:04 pm

  On Sunday, I watched the Redskins beat the Eagles 17-10. The Eagles didn’t have their star receiver Terrell Owens, and I don’t think his presence would have made a difference. I don’t see how Owens can continue to a part of the Eagles anymore. In fact, I doubt he’ll play for an NFL team ever again. Seriously, who wants that headache?
  “TO” is an immature, selfish, greedy brat. That’s not what you want from a football player. A hedge fund manager? Sure. But not a football player. He poisons whatever touches. Frankly, I think the Eagles deserve some blame simply for tolerating his antics for far too long.
  You’re probably wondering where I’m going with this. After giving it some thought, I think the TO story has its parallel with some corporate mergers, or would-be mergers. As I’ve said before, I hate mega-deal mergers. They rarely work out. Executives love to declare them. They get to use business school words like “synergy” and “cross-promotion.” The stock market usually rewards the stocks, at first. But after awhile, the big deal is seen to be one big headache. Mega-mergers are the TO’s of Wall Street.
  The problem is that these ”synergies” never work out. I’ll give you a great example. Fifth Third Bank (FITB) used to be an all-pro bank. (That name? The Fifth National Bank merged with the Third National. So they called it, Fifth Third. Yep, and it’s still better than Verizon.) This was a stock that creamed the market for years. They dominated banking in Ohio. From 1975 to 2002, the stock went up about 250-fold. Then they had to blow it all away. Fifth Third announced its mega-merger with Old Kent, a Michigan bank.
  Suddenly, there were accounting problems. Followed by regulatory issues. Followed by a loss of market share. Now the share price has been cut in half, despite a rising market.
  That’s how dangerous a bad merger is. A bank goes up 250-fold, and then falls in half. Now the word on the Street is that Fifth Third would make a great acquisition target. I mean, it’s so cheap it can’t possibly go any lower. Right? Plus, there’s synergy. It can’t miss! The latest is the Wells Fargo (WFC), or maybe US Bancorp (USB) are interested. Do these people ever learn?
  We also have the story of Time Warner (TWX) desperately trying to ditch AOL. I rank this as the worst merger since the Hitler-Stalin Pact. This is The Onion from five years ago:

  In the largest merger of imaginary assets in corporate history, Internet giant America Online last week acquired media megacorp Time-Warner for an unprecedented $161 billion in pretend money. “This merger will revolutionize the way invisible amounts of non-existent cash are transferred,” said Steve Case of AOL, a company whose actual revenues are a tiny fraction of its make-believe valuation. In an effort to keep pace with AOL, website blairwitchproject.com is expected to acquire General Motors sometime later this week.

  The merger was going to revolutionize media. Cross-promotion! Leverage assets! Synergy! Then the bubble burst, and Time Warner was left carrying a dog. Is anyone really surprised? Microsoft (MSFT) and Google (GOOG) are now ready to square off in a fight for AOL. Actually, I’m not expecting much of a fight. I think Microsoft will win out simply because they need it more.
  I don’t have anything against small mergers, or “fold ins.” Large companies are always buying up smaller companies. The problem is the “mega-merger” that’s based on concept not real business.
  Look at what happened to Citigroup (C). They had the idea to make a “financial supermarket.” Hey, let’s take a mediocre bank, a mediocre insurance company, a mediocre investment bank and a mediocre retail brokerage, and smash them all together. It will make one great super-huge company! Actually, you get one gigantic mediocre mess. Notice how Lehman Brothers’ (LEH) stock keeps soaring, but Citigroup’s doesn’t. And now it’s Citi that’s selling off its insurance assets. My bet is that Citi will spin off Smith Barney and/or Salomon Brothers before the end of 2006.
  Here’s a hint: You always know a merger isn’t going well when the name gets changed back. The “AOL” just disappeared from AOL Time Warner like some out-of-favor Kremlin official. Or Morgan Stanley/Dean Witter is now Morgan Stanley (MWD) again? Morgan Stanley was the epitome of the Wall Street establishment. It was originally cut loose from J.P. Morgan back in the 1930’s when banks and brokers had to part ways.
  Dean Witter was the scruffy young upstart that brought Wall Street to the middle class. But together…they had Synergy!! This merger always reminded me of what Bette Davis said of Fred Astaire and Ginger Rogers: “He give her class, and she gave him sex.” How much longer does the “Chase” have in JPMorgan Chase (JPM)? Or Mobil in ExxonMobil (XOM)? Those aren’t spelling mistakes, by the way. Squished together names usually signify squished together companies. CEOs even try to synergize the alphabet. It’s what I like to call a “dumbassidea.”
  Now we have to watch the sorry spectacle of Guidant (GDT) suing Johnson & Johnson (JNJ), demanding to be bought out! What are they thinking? Guidant, they’re just not that into you. Move on! Guidant did everything it could to screw up the merger, and now they’re angry that J&J has cold feet. There’s so much bad blood, how do they expect the merger to work out? Instead of $76 a share, Guidant now just wants $69. Please.
  Both companies should forget about it, and pretend this whole episode never happened. It will be better for both. J&J, Guidant, TO and the Eagles never should have gotten together in the first place.

• Sluggish Day So Far
  Eddy Elfenbein, November 8th, 2005 at 1:39 pm

  A sluggish day so far. Not awful, just sluggish. The S&P 500 is down 0.39%, while our Buy List is down 0.21%. eBay (EBAY) is our leader today, up about 2.77%. Commerce Bancorp (CBH) is also having a nice day thanks to a New Jersey court dismissing a lawsuit against the company.
  Late yesterday, Frontier Airlines (FRNT) said that its passenger count rose in October. The stock is unchanged today, after a rotten day yesterday. Fiserv (FISV) said that its CEO will be retiring, and the new CEO will be the COO of H&R Block (HRB). Also, Dell (DELL) will report its earnings after the Thursday’s close. The stock is down today.
  On a side note, I track 20 homebuilders—every single one is down today. Bonds are having a very strong day, which I find a bit surprising. The 10-year yield is down to 4.65%.

• Riots Are Hurting the Euro
  Eddy Elfenbein, November 8th, 2005 at 11:32 am

  After 12 straight nights of rioting in France, the euro is beginning to feel the squeeze:

  “The riots in France will have impacted confidence over Europe and we’re also seeing key technical levels being broken, pushing the euro lower,” said Paul Mackel, a currency strategist at ABN Amro Holding NV in London.
  Against the dollar, the euro fell to $1.1763 at 11:10 a.m. in New York, from $1.1805 late yesterday, according to electronic foreign-exchange dealing system EBS. It traded as low as $1.1710, the weakest since Nov. 13, 2003. The euro slid to 137.90 yen, from 138.92.
  The euro’s drop accelerated in the past two days because traders have placed automatic sell orders to limit losses on the currency as their bets have gone the wrong way. The euro’s low for 2004 was $1.1760.
  “If people are selling the euro on a technical basis and you get any kind of negative news, it just exacerbates the situation,” said Ryan Schiff, global head of foreign exchange at Fimat Group in Chicago, whose company trades about $2 billion in currencies daily.

  

• Toll Brothers Warns
  Eddy Elfenbein, November 8th, 2005 at 10:04 am

  Toll Brothers (TOL), the largest builder of luxury homes, cut its forecast for next year. The company said that it will build 9,500 to 10,200 homes, lower than its previous guidance of 10,200 to 10,600 homes. Plus, it sees “softening in demand” in some markets.
  The entire homebuilding sector is taking a hit this morning. Toll Brothers is down about 13%, DR Horton (DHI) is down 11% and Pulte (PHM) is down 9%. Incidentally, Toll Brothers posted great earnings for the quarter, but no one seems to care.
  Here’s a chart of the homebuilding sector. At one point, the sector was up nearly ten-fold for this decade, but since July the stocks have been retreating.
  

• How Much Would You Pay
  Eddy Elfenbein, November 8th, 2005 at 7:28 am

  For a studio apartment in midtown Manhattan?
  $1,000,000?

  Higher.

  Higher??

  River View.

  $1,500,000?

  Dishwasher.

  Of course, $1,502,000?

  Hardwood Floors.

  Um, $1,700,000?

  **Foot Tapping**

  No way…$2,000,000?

  Look, I bet you’d love Jersey.

  Yep, this is a studio. Is it worth it?

• The Earnings Scorecard
  Eddy Elfenbein, November 8th, 2005 at 7:15 am

  According to Zacks, 80% of the S&P 500 has reported earnings so far; 279 companies have beaten expectations, 89 have missed and 50 have nailed it on the head. For 2005, profits are expected to rise by 12.1%, and 12.5% for next year.
  Profit growth is now expected to be 11.7% for the fourth quarter. Every sector but tech is expecting to have slower growth this quarter compared with the third quarter.
  Here’s what Zacks has to say about revisions:

  Positive estimate revisions are widespread, eight of the sectors had more positive than negative revisions over the past four weeks.
  Energy loses the lead for 2005. While the estimates are still rising, it falls to third place in terms of average estimate change up (1.04%) and eighth place in terms of the revisions ratio (1.15).
  Energy still firmly in the lead for 2006. Its average estimate has increased 4.27% on a revisions ratio of 2.84.
  Technology has the highest 2005 increase in average estimate, rising 2.71% on a revisions ratio of 1.35.
  Telecom has the highest 2005 revisions ratio at 3.39, which powered a 1.85% increase in the average estimate.
  Eight of the ten sectors have more positive revisions than estimate cuts for 2005, five of ten for 2006.
  The Consumer Discretionary sector suffered an average decline of 5.47% for this year and 3.48% for next year.

• Dividends and the S&P 500
  Eddy Elfenbein, November 8th, 2005 at 6:46 am

  Standard & Poor’s reports that cash dividends in the S&P 500 will set another record in 2005. For the year, dividend payments have increased by 12.4%. The indicated dividend is now $22.70. Currently, 386 of the 500 stocks pay dividends, and 256 stocks have increased their dividend this year. What’s interesting is that 63 of those stocks are financial stocks. Through November 7, dividend-paying stocks have gained 5.29% while non-dividend-payers are up 3.81%.

• Slow and Steady Wins the Race
  Eddy Elfenbein, November 7th, 2005 at 6:42 pm

  If you invested $600 in the S&P 500 every month for the past 25 years and reinvested the dividends, today you’d have $1,011,700.47.
  Pretty cool, huh?