Archive for 2006

• FactSet Beat the Street
  Eddy Elfenbein, September 19th, 2006 at 9:55 am

  FactSet did it again! This company just keeps delivering the earnings.
  This morning, FactSet Research Systems (FDS) reported earnings of 46 cents a share for its fourth quarter (ending in August). Excluding charges for stock compensation, FDS earned 48 cents a share, six cents more than Street estimates.
  The shares are up 7% this morning to a new all-time high. Last year, the company made 37 cents a share for the fourth quarter. Sales were up 27% to $105 million.
  Not only does the company have strong growth, it has consistent growth. Here are the sales and EPS numbers for the past few years:
  Year………………….Sales (mil)…………..EPS
  1996…………………$44.35……………….$0.13
  1997…………………$58.36……………….$0.18
  1998…………………$78.91……………….$0.26
  1999…………………$103.83……………..$0.37
  2000…………………$134.18……………..$0.49
  2001…………………$167.56……………..$0.64
  2002…………………$198.29……………..$0.78
  2003…………………$222.30……………..$0.98
  2004…………………$251.91……………..$1.15
  2005…………………$312.64……………..$1.43
  2006…………………$387.35……………..$1.64
  

• The Future for Facebook
  Eddy Elfenbein, September 18th, 2006 at 3:14 pm

  Last year, Facebook was worth $100 million. This year, it received a $1 billion buyout offer from Yahoo (YHOO). Well…that is until Yahoo’s stock got head-butted in the chest this summer.
  MarketWatch’s Bambi Francisco has more on the social networking site:

  Facebook CEO and founder Mark Zuckerberg told me last week that the decision is aligned with his long-held mission statement at Facebook. “We’re a company trying to help people understand their world,” he said, suggesting that the word “people” is broad, comprising more than just those who are in colleges, high school and at work (except for those under 13 years of age, for now).
  Such a decision to open up, however, may have unintended negative consequences, much like last week’s community uprising over a new service that cast personal information as essentially news bulletins.
  If Facebook eases this new service across its 9-million member society without a glitch, it will mark a right of passage into the big leagues, to some extent.
  You see, Facebook — though only two years old — is on the fast track to being perceived and valued as a grown up. As such, every major decision is a test of its will to fit into such mature billion-dollar shoes.

  Here’s an unintentionally funny interview Bambi did with the Zuckerberg, the company’s 22-year-old CEO. Let’s just say that he doesn’t lack in self-confidence. Also, he seems completely baffled by the presence of his own hands.

• Northern Empire Soars on Buyout
  Eddy Elfenbein, September 18th, 2006 at 9:43 am

  Last November I wrote about stocks flying below Wall Street’s radar, meaning teeny micro-cap stocks that aren’t followed by any Wall Street analysts. Investors are often surprised to learn that some of the best publicly traded companies are completely ignored by Wall Street.
  In my original post, I mentioned three small banks. Today, the second one got bought out. Northern Empire Bancshares (NREB) is going to be acquired by Sterling Financial (STSA) for $335 million in cash and stock.

  Under the deal, approved by both companies’ boards, Sterling will pay 0.805 common shares and $2.71 in cash for each share of Northern Empire. Based on Sterling’s closing price of $33.04 on Friday, the offer values Northern Empire shares at $29.31 a piece, a 22 percent premium to its closing price of $23.98 the same day.

  Northern Empire is puny, just 150 employees, 11 branches and zero analysts covering it. But look at NREB’s earnings-per-share results for the last few years:
  1999 $0.55
  2000 $0.68
  2001 $0.77
  2002 $0.81
  2003 $0.97
  2004 $1.18
  2005 $1.51
  That stands up to any mega-cap bank. For the first half of 2006, NREB earned 82 cents share compared with 73 cents last year.
  The first bank that was bought out was a thrift, NewMil Bancorp (NMIL), in April. The only one left standing is also an S&L, Coastal Financial (CFCP).

• Spreading Financial Literacy
  Eddy Elfenbein, September 18th, 2006 at 7:39 am

  
  Kudos to Russell Simmons. The hip-hop mogul is working to spread financial literacy through his non-profit Hip-Hop Summit Action Network.
  Far too many Americans are financially illiterate, especially young people. The subject simply isn’t taught in many schools. Thirty percent of black households are “unbanked.” That’s disgraceful, and it needs to change.
  Here’s video of Simmons ringing the opening bell on the Nasdaq.

• Gas at $1.15 a Gallon?.
  Eddy Elfenbein, September 18th, 2006 at 7:09 am

  Philip Verleger says that oil could plunge to $15 a barrel, which would mean $1.15 gas at the pump.

  For most of the past two years, oil prices have risen because the world’s oil producers have struggled to keep pace with growing demand, particularly from China and India. Spare oil-production capacity grew so tight that market players feared that any disruption to oil production could create shortages.
  Fear of disruption focused on fighting in Nigeria, escalating tensions over Iran’s nuclear program, violence between Israel and Lebanon that might spread to oil-producing neighbors, and the prospect that hurricanes might topple oil facilities in the Gulf of Mexico.
  Oil traders bet that such worrisome developments would drive up the future price of oil. Oil is traded in contracts for future delivery, and companies that take physical delivery of oil are just a small part of total trading. Large pension and commodities funds are the big traders and they’re seeking profits. They’ve sunk $105 billion or more into oil futures in recent years, according to Verleger. Their bets that oil prices would rise in the future bid up the price of oil.
  That, in turn, led users of oil to create stockpiles as cushions against supply disruptions and even higher future prices. Now inventories of oil are approaching 1990 levels.

  Why should we listen to Verleger? Well, he was one of the few people who saw an oil price spike coming.

• BW: All Net New Jobs Since ’01 Are in Health Care
  Eddy Elfenbein, September 18th, 2006 at 6:19 am

  According to the latest Business Week, the health-care industry has added 1.7 million jobs since 2001. The rest of the private sector, none.

  For years, everyone from politicians on both sides of the aisle to corporate execs to your Aunt Tilly have justifiably bemoaned American health care — the out-of-control costs, the vast inefficiencies, the lack of access, and the often inexplicable blunders.
  But the very real problems with the health-care system mask a simple fact: Without it the nation’s labor market would be in a deep coma. Since 2001, 1.7 million new jobs have been added in the health-care sector, which includes related industries such as pharmaceuticals and health insurance. Meanwhile, the number of private-sector jobs outside of health care is no higher than it was five years ago.

  This is a good example of an accurate but misleading statistic. Always be wary of the numbers that talk about “all of the increase” coming from this or that. For example, since the beginning of 1999, the entire gain of the S&P 500 has come on just two days. That’s true, but it’s not the whole story.
  You can select crucial dates, then discount certain factors and presto, you’ve got a scary headline. The key to remember is that this stat talks about net new jobs. Sure, lots of folks were hired as Web developers and laid off six months later. I think I knew most of them. If you want to be even scarier, the U.S. economy destroys millions of jobs every year. But it usually creates even more.
  The interesting thing isn’t the sluggish job growth, but the fact that corporate profits have climbed so much despite the sluggish job growth. That’s productivity. The average worker is doing far more than he or she was five years ago.

• Stocks Heart CPI
  Eddy Elfenbein, September 15th, 2006 at 4:25 pm

  Larry Kudlow likes to quote the famous adage, “buy on the cannons, sell on the trumpets.”
  But Rothschild had it wrong. It should be “buy on the May CPI, and then on the August CPI…keep buying.” OK, it doesn’t have the same poetic ring, but it’s sure been working for us.
  On May 5, despite a sluggish jobs report, the S&P 500 rallied to close at a five-year high of 1.325.76. A few days later, the Fed raised rates to 5% (its second-to-last hike), and the market started its downturn.
  On June 13, the S&P 500 made its closing low of 1223.69. That day, gold had its biggest drop in 15 years. At the time I noted that energy, tech and materials made up one-quarter of the index but half of the losses. The next day, the May CPI report showed 0.4% headline and 0.3% core inflation. The market rallied and except for a July retest, it hasn’t looked back.
  Today the market stuck its head above 1,324 before closing at 1,319.87. In four months, we’ve almost erased all our losses. Because the recent rally has been skewed to large-cap stocks, broader indexes like the Wilshire 5000 (^DWC) have slightly more room to go.
  The Wilshire 5000 Total Return Index (^DWCT) is now just a little over 1% from an all-time high. Think about that for a moment. This means that the overall return of stocks including dividends is close to being positive, even measuring from the March 2000 high. It takes some patience, but the markets work!
  This was another good day for our Buy List. Sysco (SYY) and Fiserv (FISV) both hit new highs. Plus, Harley (HOG), SEIC (SEIC), Donaldson (DCI) and FactSet (FDS) aren’t far away from new highs. How about Bed Bath & Beyond (BBBY)? The shares rose for the seventh straight session. Boo-Yah!
  Next week we’ll have earnings reports from Bed Bath & Beyond, FactSet and Biomet (BMET).

• The Big Ripoff
  Eddy Elfenbein, September 15th, 2006 at 12:27 pm

  I just finished reading “The Big Ripoff: How Big Business and Big Government Steal Your Money” by Tim Carney. I highly recommend it, but be warned, the book will seriously ratchet up your cynicism.
  Carney takes on Corporate America but his argument is very different from your typical corporate bashing. Instead, he blames companies for using the government to enact regulations which help them and hurt consumers.
  Did you know that Enron supported the Kyoto Treaty? I sure didn’t. Or that Warren Buffett benefits from the estate tax he supports. How about this factoid: In 2000, self-identified “Upper Class” voters went for Gore over Bush by a 56-39 margin.
  The piece I found most disturbing was the War on Tobacco. In recent years, more and more government functions have been outsourced to employers. I’m not sure how wise this is. The problem is that corporations are actually far more fragile than most people realize.
  The Master Tobacco Settlement Agreement is a good example. First, it effectively creates a cartel. But now, state governments are so dependent on the revenue from the tobacco companies that they’re too big to fail. What if one of the companies goes under? The state would have too much to lose, and it might be forced to bail out the the company. Here’s a good article on the mess the settlement has become.
  By the way, Tim Carney is the brother of DealBreaker‘s John Carney. (Hey John, would it kill you to plug the book a little?)

• Fiserv Hits All-Time High
  Eddy Elfenbein, September 15th, 2006 at 10:45 am

  Finally! Fiserv (FISV) took out its March 2002 high this morning. The stock had been locked in a tight trading range for over a year despite very good earnings. Shares of Fiserv woke up last week on an upgrade from Prudential.
  Check out the plunging P/E ratio:
  

• Today’s CPI Report
  Eddy Elfenbein, September 15th, 2006 at 8:42 am

  
  The CPI report for August was just released. Both core and headline inflation increased by 0.2%. On a trailing 12-month basis, the headline number fell to 3.82%, and the core rate increased to 2.84%. This is the first time in over a year that the figures are within 1% of each other.