Archive for January, 2006

  • Sysco’s Earnings
    , January 30th, 2006 at 9:48 am

    Today will be another busy day for earnings. ExxonMobil (XOM) reported that it earned $10 billion for the fourth quarter. According to Reuters, the company’s profit last year was larger than the economies of 125 countries.
    Sysco (SYY) reported that it earned 33 cents a share, but had a charge of four cents a share due to stock options. Including that charge, Wall Street was expecting 37 cents a share. Sales also came in above expectations.
    AFLAC (AFL) and Fiserv (FISV) will report after the close.
    Dell’s (DELL) CEO said that its sales will grow faster than the market’s. The company is going to hire another 5,000 people in India, bringing its total in that country to 15,000.

  • A Look at the Long Term
    , January 27th, 2006 at 2:18 pm

    Here’s a question for you.
    Including dividends and inflation, what’s the average rate of return for the broad stock market?
    12%?
    15%?
    Not even close. Over the last 80 years, the real return of equities is just 7.1%. Pretty small. At that rate, you’ll double your money every 10.1 years.
    I don’t think most investors realize how small the historical rate of return is.
    Below is an interesting graph I made, but bear with me, it takes some explaining. I took the 80-year real return data and divided it by a line growing at 7% a year. By doing this, the unusual bull and bear periods stand out a lot better.
    (If you’re confused, think of it this way: When this line is moving straight, equities are growing at 7% a year. Also, the line roughly begins and ends at 1.0.)
    Interestingly, the 1987 crash only appears as a rather minor blip. From 2000-2002, the line gave back everything it gained from 1995 to 2000. Six years ago, it was hard to tell people that this isn’t normal. Now I think you can see what an outlier that period was.
    It looks like there’s only been three truly great bull markets: one in the late-20’s, another in the early-50’s and another from 1982-2000.
    I also think it’s interesting that the peaks and troughs are fairly symmetrical (1942 and 1982, 1966 and 2000).
    graph1.bmp

  • Happy 250th Birthday Mozart
    , January 27th, 2006 at 12:45 pm

    Mozart.jpg
    Wolfgang Amadeus Mozart was born in Salzburg on January 27, 1756. During his life, he wrote over 600 works. His output was astounding; 41 symphonies, 21 operas, 15 masses, 12 violin concertos, 27 concert arias, 17 piano sonatas, 26 string quartets and much, much more. He did it all in 35 short years.
    Tom Lehrer said, “when Mozart was my age, he had been dead for two years.”

  • Biomet Up 6%
    , January 27th, 2006 at 11:34 am

    Another good day for us. Biomet (BMET) is soaring. The shares are up over 6% today. Varian Medical (VAR) is up another 4% today. The stock is up 19% for us this year. Donaldson (DCI) is up to a new 52-week high, and Fiserv (FISV) is up over 3%. There’s still 4-1/2 hours of trading but this is a nice finish to week.

  • GDP Report
    , January 27th, 2006 at 9:55 am

    Today, the government released its first report on fourth-quarter GDP growth. They released a GDP report at the end of each month, so this report will be revised twice more.
    According to today’s report, the economy grew by 1.1% (annualized) for the last three months of 2005. That’s pretty bad and it’s about half of what economists were expecting.
    Until now, the economy had delivered over 3.3% growth for ten straight quarters. So I guess we shouldn’t be too greedy. Also, this was positive growth so we can say that the economy isn’t receding.
    The economy has grown at a faster rate over the last 3-1/2 years than it did during the 1990’s.
    Reuters is declaring: “GDP growth at weakest in three years.” That’s accurate, but that headline can be used, on average, once every three years. For any set of 12 quarters, one will have to be the weakest. Of course, only three quarters ago we were being warned about the “Slowest GDP growth in 2 years.”

  • The Market Today
    , January 26th, 2006 at 4:17 pm

    This was the Buy List’s best day of the year. In fact, we more than doubled our second-best day. We also doubled the S&P 500.
    The S&P 500 rose 9.15 points to 1273.83, an increase of 0.72%. The 20 stocks of our Buy List rose 1.64%. For the year, we’re still trailing the market 2.05% to 1.49%.
    Sixteen of our 20 stock went up. The big winner was Respironics (RESP) which was up 7.20%. Our other big winner was Varian Medical Services (VAR) which was up 5.01%.
    Expeditors (EXPD) was also up big, jumping 3.58%. Golden West Financial (GDW) closed 3.66% higher.
    Chipotle (CMG) closed at $44 a share, a nice 100% for its first day on the market.
    General Motors (GM) dropped 3.35%. The stock is still about five dollars above its 52-week low.
    The Oil Service Holders ETF (OIH) has a nice turnaround today and closed 0.60% higher.

  • Breaking Down The OIH
    , January 26th, 2006 at 3:58 pm

    Here’s a closer look at the 18 stocks in the Oil Service Holders ETF (OIH). This has become one of the most popular exchange-traded funds on Wall Street. Since May 13, the ETF is up 75%.
    I’ve thought that this sector has been overpriced for some time. Yet, despite what I think, the stocks keep going up, up, up.
    With this chart, I wanted to show you just how high Wall Street’s expectations are. Look at the projected five-year growth rates. It’s rare for a company to grow its earnings 20% a year for five years, much less 30% or 50%. Thess projections are very optimistic.
    Note: This is a corrected version of my original post where I had listed the 35 stocks in the Dow Jones Oil Equipment Services Index. Thanks to Roger Nusbaum for pointing me in the right direction. You can see more info on the OIH here.

    Symbol Company Proj. Five-Year Growth Rate Forward P/E Market Cap
    BHI Baker Hughes 15.0% 21.6 $24.8
    BJS BJ Services Company 22.0% 19.6 $12.9
    CAM Cooper Cameron 16.0% 23.1 $5.4
    DO Diamond Offshore Drilling 40.0% 15.6 $10.4
    ESV ENSCO International 44.0% 12.2 $8.0
    GSF Globalsantafe 45.0% 14.0 $14.1
    GRP Grant Prideco 25.0% 18.9 $6.2
    HAL Halliburton 17.5% 20.0 $38.1
    HC Hanover Compressor 7.5% 53.8 $1.5
    NBR Nabor Industries 58.8% 13.0 $12.3
    NOV National Oilwell Varco 25.0% 23.2 $12.4
    NE Noble 43.0% 15.0 $11.3
    RDC Rowan Companies 25.0% 12.9 $4.7
    SLB Schlumberger Limited 17.5% 26.7 $72.3
    SII Smith International 17.0% 21.1 $8.8
    TDW Tidewater 29.0% 12.8 $3.1
    RIG Transocean 50.0% 17.6 $25.5
    WFT Weatherford International 25.0% 21.0 $15.0

  • For Nerds Only
    , January 26th, 2006 at 2:24 pm

    Here’s a fascinating article on Pythagoras’ theorem. Robert P. Crease says that the theorem is about a lot more than the sides of triangles. It’s about “the idea of proof itself.”

  • How Much Does Government Spending Really Change? Answer: Not Much.
    , January 26th, 2006 at 1:16 pm

    Each January, the Congressional Budget Office releases its massive budget outlook report. This report details what the country is (in theory) going to spend over the next ten years.
    The official release date is a big day for public policy geeks. That’s today, and the report was posted at 10 a.m this morning. The CBO’s Web site was so jammed that I couldn’t get through until a few minutes ago.
    Personally, I think ten-year forecasts are a waste of time, and I ignore most of that data. What I like to look at is the historical numbers. By the way, the CBO should get major props for presenting so much data in an easy-to-read and accessible format.
    What I find fascinating is that despite all political rhetoric we hear, what the government spends each year is fairly consistent. This might upset some people who are convinced that government spending is either out-of-control, or hopelessly being slashed to the done. Sorry, but it’s just not true. The level of government spending is remarkable steady. I’m not saying that there aren’t major changes in spending patterns, but it’s far less than you might think.
    Over the last thirty year, total government outlays minus defense spending as a percent of GDP, has averaged 16.31%. Quite simply, that number hasn’t fluctuated much. The high reading was 17.38% in 1983, and the low was 15.39% in 2000. As you might expect, government spending rises in recessions and falls during expansions. The standard deviation is just 0.63%.
    Last year, non-defense spending rose to 16.10% from 15.93% in 2004 (this is the government’s fiscal year, which ends on September 30).
    Some of you may take issue with me excluding defense spending. I understand that, so like me explain my reasoning. Defense spending can—and has—changed quite dramatically in response to real world events. Over the last 30 years, the standard deviation of defense spending is over 1%, which is higher than the budget as a whole.
    I see defense spending as similar to a company declaring a one-time earnings charge. Obviously, defense spending is important and it affects our national debt, but I don’t see it as a reflection of Washington’s spending habit.
    Here’s the big CBO report. You can download my data here (which is all pulled from the historical tables of the CBO report), and here’s my chart of non-defense spending as a percent of GDP. As you can see, the budget soared in the 60’s and early 70’s, but since 1976, spending hasn’t changed that much.
    budget.bmp

  • Respironics Soars
    , January 26th, 2006 at 11:21 am

    It’s a good day so far. Respironics (RESP) is soaring. The stock is currently up about 8%. Until today, it had been one of the poorer-performing stocks on our Buy List.
    Danaher (DHR) is doing well. The stock is up about 2.6% today. Varian Medical Systems (VAR) is also having a strong day. The stock is up about 2.8% to a new 52-week high. The stock is up over 12% for us, year-to-date. Expeditors (EXPD) and SEI Investments (SEIC) are also looking good.
    We don’t have any more earnings results this week. The next three Buy List stocks to report will be Sysco (SYY), Fiserv (FISV) and AFLAC (AFL) on Monday.
    Today is the kind of market action I like to see. The energy sector is down sharply. The Energy Spyders ETF (XLE) is off 1.48%, and the Oil Service Holders ETF (OIH) is down 2.35%. The Financial Spyders ETF (XLF) is leading the market, rising 1.3%. The Consumer Staples ETF (XLP) is also doing well, currently up 0.6%.
    As long as those core sectors do well, the overall market rally can last. When the market becomes so tilted towards energy and tech, I get concerned that a downturn is near.
    Update: Chipotle (CMG) opened at $45.