Archive for 2005

  • Europe’s Economy
    , September 28th, 2005 at 1:17 pm

    Daimler Chrysler just announced that it will cut 8,500 jobs in Germany over the next year.

    The world’s fifth-biggest carmaker said the move would cost 950 million euros, to be offset by extraordinary income and efficiency gains.
    It reiterated its forecast for a slight rise in 2005 operating profit excluding charges to restructure its Smart minicar business.
    The Mercedes division employed around 105,000 staff at the end of last year, of which some 94,000 were in Germany.
    “These headcount reductions are indispensable. They will contribute to significant improvements in the competitiveness of Mercedes-Benz through an increase in productivity,” it said in a statement. “The measures will also contribute to the sustained safeguarding of production (in) Germany.”

    So if all lost for Europe’s economy? Matthew Lynn says, “Don’t Blame Oil for Europe’s Economic Slowdown.”

    If oil is so deadly to Europe’s economic prospects, then why is it that Japan appears to be emerging from a recession, when Europe is still stuck with miserable growth? Japan isn’t exactly famous for its oil wells.
    Likewise, the U.S. Because taxes on pump prices are so much lower there than they are in Europe, the impact that an increase in oil prices has on consumers is proportionately much greater. And yet, U.S. growth rates remain significantly higher than Europe’s. The U.S. economy expanded an annual 3.3 percent in the second quarter, compared with 1.1 percent for the euro area.

    Lynn concludes:

    The reasons why Europe’s economy is growing so slowly are familiar: high taxes, dysfunctional labor markets, and restrictive monetary policy. The first step toward fixing those is honesty. Right now, that appears to be a commodity in shorter supply than oil.

  • Fair Isaac Hits New All-Time High
    , September 28th, 2005 at 12:55 pm

    Fair Isaac finally hit a new all-time high today. It took nearly two years for the company to break into record territory.

    J.P. Morgan upgraded Fair Isaac today to overweight from neutral. I’m not a big fan of following analyst upgrades or downgrades, but this one is nice to see. Fair Isaac has a very strong business. I especially like the fact that its gross margins come to about 70% of sales. That’s the sign of a well-run business.

    The company will report its fiscal fourth-quarter earnings in late-October. The current estimate is for 49 cents a share. This means that although FIC’s stock is roughly where it was two years ago, its profits are nearly 30% higher. This is a solid stock to own.

    You can see my complete Buy List here.

  • Warren Buffett’s Shareholder Letters
    , September 27th, 2005 at 8:35 pm

    If you’re new to the world of investing, I recommend reading some of Warren Buffett’s annual shareholder letters. You can find a complete collection here.
    The letters have a folksy style and Buffett always makes a good point. This is the best way to get a nice summary of Buffett’s investing philosophy, and you can see how little it has changed over the years.

  • Google Watch
    , September 27th, 2005 at 11:38 am

    If you go to Google today, you’ll see that today is the search engine’s 7th birthday. Happy Birthday!!
    Wait a minute! Didn’t they just celebrate their 7th birthday three weeks ago? It turns out, Google has a few birthdays. Search Engine Watch is on the case.

  • Frontier Airlines
    , September 27th, 2005 at 10:01 am

    One of the best ways to look for a good stock to buy is to find the most-unloved industry, and pick out that sector’s best stock. It’s no secret that airlines stocks have performed horribly. Make no mistake, the industry is in rough shape, but there are good stocks out there. For example, I think the industry’s woes have given us a good opportunity in Frontier Airlines. The stock is now below $10.
    Frontier has a lot going for it. For one, it’s an airline that’s not in bankruptcy. That right there is a big advantage over it competitors. Frontier is small regional airline based in Denver with a solid balance sheet. The company has switched to using all Airbuses. Frontier has slowly expanded its market share.
    The airline is popular with its passengers. The company is ranked near the top in customer satisfaction surveys. The downside is rising fuel costs. Frontier is one of the least efficient airlines in handling higher fuel prices. The company should post third-quarter profits in late October. Frontier has posted better-than-expected earnings for the last two quarters.
    Frontier was originally based in Denver, one of United’s hubs, to piggyback on their business. Now that United is doing so poorly, Frontier can actually take some of United’s core business.
    Today, the Wall Street Journal highlights Frontier’s growing service to Mexico. Two years ago, Frontier flew 33,000 passengers to Mexico. Last year, it flew nearly 100,000, and this year it will fly over 200,000 people to Mexico.

  • GM’s Debt Downgraded Again
    , September 27th, 2005 at 9:34 am

    GM’s outlook is actually getting worse. I didn’t think that could even happen. Its debt is already rated as “junk.” Today, Fitch lowered its rating to even junkier junk (double-B). The Delphi story is going to end soon and it’s not going to end well.
    Here’s a short history of GM’s debt rating. It wasn’t that long ago that GM was one of the bluest blue chips on Wall Street. Last quarter, GM lost over $250 million, and over $1 billion in the quarter before that.

  • SEC Investigating Taser
    , September 27th, 2005 at 9:19 am

    The SEC said it’s expanding its investigation into Taser.

    The U.S. Securities and Exchange Commission has now upgraded its probe to a formal investigation, allowing it to subpoena documents. The SEC had opened an informal probe of the company over statements about the safety of its stun guns and a distribution deal struck in December 2004.
    Taser also said it understands the SEC is looking into the possible unauthorized acquisition of material nonpublic information by individuals outside the company in an effort to manipulate Taser’s stock price.
    Taser shares were down 8.6 percent to $6.68 Tuesday in premarket trading on the Inet electronic brokerage system.
    Taser has stood by the safety of its weapons, saying the stun guns have never been named as the primary cause of death when suspects were in custody.
    Taser Chief Executive Rick Smith said in a statement that he hoped the SEC probe would address “all pertinent issues,” including what he said was data indicating that “there may be a large, improper, naked short position” in the stock.

    The stock is down sharply in the pre-market. The stock is down over 75% since the beginning of the year. However, Rich Smith, at the Motley Fool is still bullish on Taser.

  • Citi Ungrouped
    , September 26th, 2005 at 11:50 am

    Tom Brown has a “modest proposal” to increase Citigroup’s value. Break it up.

    I should say up front I was never a big fan of the supermarket strategy that was behind the 1998 creation of the Citi monolith in the first place. Huge scale doesn’t count for much in financial services, for one thing. And in financial services, smaller, focused players tend to outcompete large, diversified ones. That’s why, for instance, community banks reliably take deposit market share from the large national banks. And it’s why the monoline card industry was able to drive all but a handful of players out of the card business. The idea behind Citi was flawed from the beginning—which is one reason the stock’s P/E has eroded steadily for the past seven years.
    By contrast, a breakup of the company would be a great strategic move and profound gesture to shareholders and competitors. In our view, a leaner, more focused group of legacy Citi businesses would emerge and be vastly preferable to the current bureaucratic Byzantium. The units would be much more effective competitors as smaller, focused players than they are now. So management can and should admit the obvious: the company is so big that, strictly by the law of large numbers, it can no longer generate meaningful company-wide organic growth. To put matters in perspective, if the company were to grow by 9% annually, net income would have to rise by $1.6 billion in 2006, which is roughly the equivalent of creating a brand-new BB&T. Incremental acquisitions, meanwhile, would have to be huge to make a meaningful difference, and would be tough to execute well (as management has publicly conceded).

  • Reuters Vs. Bloomberg
    , September 26th, 2005 at 8:52 am

    The same speech on the same day is covered by different journalists.
    Bloomberg:

    U.S.’s Bernanke Is ‘Pretty Optimistic’ About Economy

    Reuters:

    Energy prices risk to US economy—Bernanke

  • Wall Street Art
    , September 25th, 2005 at 5:58 pm

    Four years ago, the stock exchange repealed its requirement for engravings on stock certificates. To some poeple, this is a lost art.
    Bankers Trust.jpg