Archive for 2005

  • 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.

  • Google Watch
    , October 19th, 2005 at 3:49 pm

    The Googloids are having a hard time understanding what “copyright” means.

    Google Inc. (GOOG) faces a lawsuit by the Association of American Publishers, or AAP, over the company’s plans to digitally copy and distribute copyrighted works under its Google Print program announced last year.
    The lawsuit, which was filed after lengthy discussions broke down between AAP and Google’s top management, seeks a court declaration that Google commits infringement when it scans entire books covered by copyright and a court order preventing it from doing so without permission of the copyright owner.
    In a press release Wednesday, U.S. book publishing trade association AAP said the suit was filed on behalf of five major publisher members of the group – McGraw-Hill Cos. (MHP), Pearson Plc’s (PSO) Pearson Education, Penguin Group (USA), Viacom Inc’s (VIA,VIAB) Simon & Schuster, and John Wiley & Sons Inc. (JWA).
    In the Google Print program, the company hopes to create an online, searchable database by scanning and digitizing millions of published books from the collections of three major academic libraries – Stanford University, Harvard University and the University of Michigan.
    Oxford University and the New York Public Library are also participating in the project, but are only making available works in the public domain.
    The lawsuit disclosed on Wednesday follows a Tuesday editorial in The Wall Street Journal by Google Chief Executive Eric Schmidt. In the editorial, Schmidt outlined the Google Print plan, stressing that copyright holders are free to send the company a list of titles they don’t want to include in the Google Print Index.
    “Recently, some members of the publishing industry who believe this program violates copyright law have been fighting to stop it. We respectfully disagree with their conclusions, on both the meaning of the law and the spirit of a program which, in fact, will enhance the value of each copyright,” wrote Schmidt.
    Despite consenting that its members understand how useful the search engine could be, AAP said it isn’t convinced the program properly compensates authors and publishers.
    “The bottom line is that under its current plan Google is seeking to make millions of dollars by freeloading on the talent and property of authors and publishers,” said AAP President and former Colorado Congresswoman Patricia Schroeder.

    Google will also report earnings tomorrow, however there’s one major caveat. This will be the first time Google reports pro-forma earnings as well as GAAP earnings. Wall Street’s consensus is for $1.36 a share. The pro-forma earnings will exclude tax benefits and stock-based compensation. Most analysts back out the stock-based compensation, but the community is divided on tax benefits. This is all rather confusing, and it won’t be cleared up tomorrow.
    One final Google note. Due to legal pressure, the company is changing the name of its Gmail in Britain to Google Mail. The company never bothered to see if the name was trademarked in Europe. Which they could have found out by Googling it.

  • The Chicago Board of Trade Goes Public
    , October 19th, 2005 at 3:00 pm

    One of the major changes on Wall Street over the past few years has been the explosion of derivatives trading, meaning futures and options. It’s become a very big business for the exchanges, and there’s no better sign of a business going well than a new IPO.
    After 157 years as a private exchange, the Chicago Board of Trade (BOT) started trading publicly on the NYSE today. The stock was priced at $54, and investors don’t seem too worried about the recent implosion of Refco. Shares of BOT are currently trading at $83. That’s a nice 54% profit which ain’t too bad for one day’s work.
    The Chicago Board of Trade only sold about 6% of its shares, which means that there will probably be a large offering in the future. The Chicago Mercantile Exchange (CME) went public three years ago and has been a great performer since. Shares of CME are up over 800%. The Nasdaq Stock Market (NDAQ) has also done well. Refco went public in August.

  • Q&A
    , October 19th, 2005 at 10:39 am

    Once again, I welcome any questions from my readers. Please feel free to e-mail me at eddy@crossingwallstreet.com. I’m happy to give you my opinion on any stock or investing in general; however per SEC rules, I’m not allowed to give personal portfolio advice.

  • The Morning Market
    , October 19th, 2005 at 10:13 am

    Stryker (SYK), one of our Buy List stocks, is getting hammered this morning. The company’s earnings were 40 cents a share, one penny below Wall Street’s consensus. Still, the company reiterated its forecast of 20% growth next year. This is just silly, there’s nothing wrong with Stryker. Zimmer (ZMH) is lower this morning as well.
    SEI Investments (SEIC), also on our Buy List, just reported four cents a share better than expectations. This company just grows and grows. Next year, the Street is looking for $2.00 a share. The stock is up this morning. Also, eBay (EBAY) will report after today’s close. Wall Street is looking for 20 cents a share.
    Not on our Buy List, Intel (INTC) is trading lower on its weak earnings. Motorola (MOT), one of the most over-rated stocks on Wall Street, had very strong earnings. The stock is trading higher.
    As I mentioned yesterday, the banking sector looks very good even if the share prices aren’t going anywhere. Both JP Morgan Chase (JPM) and Bank of America (BAC) reported very strong earnings this morning. JPM’s net income jumped 78%. The company also said that Jamie Dimon will take over as CEO six months earlier than expected.
    Hurricane Wilma is now the strongest storm ever. The good news is that it won’t hurt the oil and gas industry. The bad news is the orange crop is in danger. Orange juice futures closed at a six-year high. Randolph and Mortimer Duke couldn’t be reached for comment.
    Also, the Commerce Department reported that housing construction defied expectations and rose last month. Mortgage applications were also up. And finally, gasoline demand is plunging. Production is at its lowest level since 1943.

  • Dell Can’t Win
    , October 19th, 2005 at 8:51 am

    There’ve been some more ant-Dell articles in the news. The fear now is that Dell (DELL) is losing market share. Or rather, it’s not gaining market share as quickly as it used to. That’s all you need now to write an anti-Dell piece. Here’s an article on Dell from yesterday’s Financial Times:

    Although Dell continued to lead the PC industry in worldwide shipments, its shipment growth rate was 17.6 per cent, compared with an average growth rate of 17.2 per cent worldwide, according to Gartner, the IT consultants.
    “Dell normally has a premium,” said Loren Loverde at IDC, the IT research group, whose separate report showed similar results.
    Mikako Kitagawa, a Gartner analyst, said the change likely reflected a reduced focus on growing market share and an increased focus on profitability at Dell, which shocked Wall Street in August after second-quarter sales failed to meet forecasts in spite of aggressive price cuts.
    A Dell spokeswoman declined to comment on third-quarter shipments. However, she said the company’s strategy had not changed and that the company would “continue to drive balanced and profitable growth”. Dell is scheduled to report its third-quarter earnings on November 10.

    This is almost becoming a cliché. Let’s put this in some perspective: The “problems” at Dell are nearly trivial. The company is doing extremely well. Last quarter, Dell earnings were merely inline with the Street, and its sales were slightly below forecasts. From this, everyone is now assuming the worst. The CEO said that the company could have made up the shortfall with a $10-$15 increase in each unit sold. Now Dell is concentrating on higher margins, and the media is complaing that it’s losing market share. Dell can’t win! Meanwhile, the stock is at a 52-week low, and very close to a two-year low.
    dell.bmp

  • Today’s Market
    , October 18th, 2005 at 5:02 pm

    This is still a strange market. Today, it was energy stocks that held back everyone. There was a 24,000,000-share block trade for ExxonMobil (XOM) that threw the entire market on its side. The energy sector was down nearly 4.5% today, and the rest of the market was sluggish.
    Thanks to Varian (VAR) and St. Jude Medical (STJ), we beat the market again. The S&P 500 was down -1.00% today while the Buy List lost -0.55%. For the month, we’re down -2.65% compared to the S&P 500’s -4.12%.
    After the close, Stryker (SYK) reported earnings of 40 cents a share which was a penny below forecasts. The stock is trading lower in the after-market. The good news is that the company also reiterated its outlook for 2005 and forecast 20% EPS growth in 2006 despite increased pricing pressures in the sector:

    The Kalamazoo, Michigan-based company, which made the forecast on a conference call with analysts following its third-quarter earnings report, said it still expects 2005 earnings of $1.75 a share excluding one-time items. On a net basis, it forecast earnings of $1.67 a share.
    Stryker said it now expects 2005 annual sales of between $4.86 billion and $4.89 billion. Previously, the company had forecast 2005 sales of $4.9 billion.
    Analysts on average had expected Stryker to post a 2005 profit of $1.76 a share, excluding items, on revenue of $4.93 billion, according to Reuters Estimates.

    Not on our Buy List, Yahoo (YHOO) earned 16 cents a share, two cents ahead of estimates. Intel (INTC) earned 32 cents a share, which was a penny off forecasts. That’s a really disappointing report. Intel can’t seem to catch a break. I think the Street low-balled the forecast just to get good news from Intel, but the company still missed. The Journal has more:

    The world’s largest maker of semiconductors continues to benefit from robust demand for personal computers. The PC market, bucking expectations and negative economic trends like rising interest rates, posted 17% growth in the third quarter, according to research firms Gartner Inc. and IDC.
    “In the third quarter, we achieved all-time records in company revenue and unit shipments across all of our major product lines,” said Paul Otellini, Intel president and CEO, in a prepared statement.
    But Intel has struggled to meet demand for some of its products, even though its factories are running at full capacity. The company recently said it would invest $345 million to increase production at two plants.
    It has also been pressured by Advanced Micro Devices Inc. (AMD), especially in the market for server chips. AMD beat its larger rival to market in April with “dual core” chips and gained some ground on Intel, which recently released new chips to close the performance gap. Last week, AMD posted a 73% jump in quarterly profit.

  • Banking Profits
    , October 18th, 2005 at 3:16 pm

    This quote from a Business Week article summed up my thoughts exactly:

    “There seems to be a conviction on the part of investors that you can’t make money in banks and banks are in trouble, even though every company that has reported to this point reported better earnings than expected,” says Richard Bove, an analyst with Punk, Ziegel & Co.

    Despite all the concern over inflation and higher interest rates, the banking sector looks pretty good. Wells Fargo (WFC), SunTrust (STI) and Wachovia (WB) all reported good earnings.

    “San Francisco-based Wells Fargo, the No. 5 U.S. bank, said net income rose to $1.98 billion, or $1.16 per share, from $1.75 billion, or $1.02, a year earlier.
    Revenue rose 16 percent to $8.5 billion. Analysts polled by Reuters Estimates on average forecast profit of $1.15 per share on revenue of $8.07 billion.
    The bank’s earnings per share have increased at least 10 percent in 15 of the last 16 quarters. Most of Wells Fargo’s consumer and commercial business lines posted double-digit profit growth and mortgage banking revenue nearly tripled.
    “Interest rates remain at relatively low levels and consequently the mortgage business remains robust,” Chief Financial Officer Howard Atkins said in an interview. Wells Fargo, the No. 2 U.S. mortgage lender, took a $100 million charge for losses from Hurricane Katrina.
    Minneapolis-based U.S. Bancorp, the No. 6 bank, said profit rose to $1.15 billion, or 62 cents per share, from $1.07 billion, or 56 cents. Analysts expected 61 cents.
    Chief Executive Jerry Grundhofer said the bank benefited from higher fees from deposits, credit cards and debit cards, and declines in expenses and bad loans.
    Atlanta-based SunTrust, the No. 7 bank, said profit rose to $510.8 million, or $1.40 per share, from $368.8 million, or $1.30. Excluding merger costs, profit totaled $1.42 per share, topping forecasts for $1.39.
    Mortgages were “the biggest driver” behind a 33 percent surge in fee revenue, analyst Kevin Fitzsimmons of Sandler O’Neill & Partners LP said. SunTrust also benefited from its $7.4 billion acquisition last year of Memphis, Tennessee’s National Commerce Financial Corp.”

    Business Week likes JP Morgan Chase (JPM), largely due to one man.

    But the best reason for long-term investors to take a risk on JPMorgan Chase may be Dimon, who is slated to take over the CEO job from William Harrison, Jr., in June, 2006. A wunderkind with a knack for numbers, Dimon sharpened his talents for merging companies and cutting costs as Citigroup, where he was former CEO Sandy Weill’s right-hand man for many years.
    But it’s his skill as a manager that has gone overlooked, says Jeffrey Cohn, managing partner of succession planning firm Bench Strength Advisors in New York.
    “This guy has inspired Pied-Piper-like loyalty among his management team,” he says of Dimon. “He inspires people in a way that very few people can do.” Cohn believes the skill and experience of the operating team Dimon is assembling will show up in the next few quarters, even before Dimon takes the helm.
    Bove notes that Dimon has “demonstrated that he has detailed knowledge of the business and a passion for solving business problems,” which makes him perfect for the task at hand at JPMorgan Chase.

    JP Morgan Chase (JPM) and Bank of America (BAC) report tomorrow. My favorite is still Commerce (CBH).

  • Considering Alternatives?
    , October 18th, 2005 at 12:25 pm

    Johnson & Johnson (JNJ) had a great earnings report today. Sales and profits were up. The company even raised its forecast for next year. But during the conference call, J&J’s CEO dropped a tiny two-word bombshell.

    During a conference call to discuss its results, J&J said it is taking another look at its agreement to buy medical device maker Guidant Corp. in light of recent product recalls and a Food and Drug Administration probe of Guidant’s actions.
    “We believe these are serious matters, and we’re continuing to closely monitor the situation at Guidant,” said J&J Chief Financial Officer Bob Darretta, during the call. “In light of these matters, we’re continuing to consider alternatives under our merger agreement.”

    Consider alternatives? That doesn’t sound good. Guidant’s stock is getting pummeled today on very heavy volume. This deal was announced last December, and Guidant, which makes pacemakers, has done just about everything it could to screw it up. For example, their patients keep dying on them. That’s not good. Guidant has had five recalls this year alone.
    Until today, J&J had been silent. There were rumors that J&J might want to lower the $76 price. The worst fear was that J&J would simply walk away. It still might happen. I’m not sure what “consider alternatives” entails but if I owned shares of Guidant I wouldn’t be happy.
    This was a lousy move by J&J. As you can tell from the Buy List, I love medical device stocks, but I’ve stayed away from Guidant. Johnson & Johnson rarely makes missteps, but this is clearly one. The odd thing is that J&J had basically shut Guidant out of the lucrative coated stent market. Guidant had been desperately trying to get in for years. What was J&J looking for? For Guidant, the news just goes from bad to worse. There’s also a criminal investigation going on. Ironically, J&J’s medical devices unit showed the strongest growth last quarter.
    The medical devices stocks on our Buy List are largely unaffected today. St. Jude Medical (STJ) is up. Zimmer (ZMH) and Medtronic (MDT) are down. Stryker (SYK) will report after the close.

  • Wholesale Inflation Has Biggest Jump in 15 Years
    , October 18th, 2005 at 10:54 am

    Today the government reported that wholesale inflation had its biggest jump in 15 years last month. The Producer Price Index rose by 1.9% in September. However, just like the CPI report, the “core rate” was much less, increasing by 0.3%. Economists were expecting a 0.2% increase. The long-end of the bond market is rallying today, however the 90-day T-bill is finally moving higher. Today’s theme: The yield curve is getting narrower.
    The best news today is that it looks like Tropical Storm Wilma may miss the Gulf Coast. Oil is trading lower.

    Dealers had worried that Wilma, the 21st named storm of the 2005 Atlantic season, could delay a recovery in U.S. output ahead of peak winter heating fuel demand in the northern hemisphere.
    As much as 66.4 percent of the Gulf of Mexico region’s normal 1.5 million barrels per day (bpd) production remains shut after Hurricanes Katrina and Rita. Five refineries amounting to 1.3 million bpd, or 7.7 percent of U.S. capacity, remain shut.