Archive for 2006
-
Lagging Small-Caps
Eddy Elfenbein, July 25th, 2006 at 12:40 pmSmall-caps are having a big day today. In fact, that’s one of few areas of the market that is convincingly higher.
But that’s not how it’s been for the past few months. After a spectacular run, small-caps have been feeling the most pain in this market.
This chart shows the Russell 2000 (black line) against the S&P 500 (gold line):
This is a big change from the previous six years. It’s been one long small-cap party. From April 8, 1999 to April 19, 2006, the Russell 2000 gained 94.7% while the S&P 500 lost -2.5%. -
Second-Quarter GDP Report
Eddy Elfenbein, July 25th, 2006 at 10:24 amThis Friday, the government will report how much GDP grew in the second quarter. I’m curious what this report will say because I think it will be far stronger than most people realize.
The consensus on Wall Street is that the economy grew by 3% for the second three months of the year (this is after inflation). Speaking for myself, I would be surprised if GDP growth comes in any less than 3.4%.
The economy has grown pretty impressively for the last three years. The annualized growth rate is almost exactly 4% (3.997%). That’s faster than the 3.81% growth rate from 1998 through 2000. The fourth quarter of last year was a dud, probably due to Katrina, but we’ve apparently shaken off that slowdown.
For the first quarter, the economy grew by over 5.6%. Once the economy gets moving, it doesn’t often go off the rails so quickly. I should also mention that the GDP report will be updated twice more, and these revisions can be quite big. In fact, I wouldn’t mind seeing the Bureau of Economic Analysis ditch the early reports. I’d rather get good numbers later than bad ones early.
The GDP report will be released this Friday at 8:30 am. -
Brown & Brown Reported Earnings of 32 Cents a Share
Eddy Elfenbein, July 24th, 2006 at 5:22 pmBrown & Brown (BRO) earned 32 cents a share for the second quarer compared with 27 cents last year. Sales jumped 12.7% to $220.8 million.
J. Hyatt Brown, Chairman and CEO, noted, “We had a very good quarter. We are very pleased with the 6.8% internal growth rate of our core commissions and fees revenue. In fact, all but one of our seven business operating units showed improvement in their internal growth rates over the previous quarter. We are optimistic about the continued growth, development and strength of our company.”
President and Chief Operating Officer Jim W. Henderson added, “We are also pleased with the performance of our Producers who have completed our in-house sales school, ‘Brown & Brown University.’ These sales professionals are contributing significantly to our organic growth and give us an encouraging glimpse of our future leadership. On the acquisition front, we have completed 12 transactions so far in 2006 with combined annualized revenue of approximately $32 million and we continue to be very positive about acquisition opportunities.” -
Blogger Sentiment Poll
Eddy Elfenbein, July 24th, 2006 at 1:04 pmThe excellent Ticker Sense has started a Blogger Sentiment Poll. I’ve been invited to participate along with several others stock bloggers.
Here’s the latest:
Blogger currently have a slightly bearish outlook for the next 30 days, which seems about right. -
Brain Teaser
Eddy Elfenbein, July 24th, 2006 at 12:56 pmHere’s a fun puzzle I found at Cafe Hayek, via The Stalwart:
An American tourist goes to a remote island for a vacation. The natives live by a barter system-they have no money. When the tourist tries to pay for his lodging with a check, the owner laughs at first, but then decides that the design on the check is quite attractive and agrees to accept the check in return for lodging. This happens again when the tourist pays for food and some native artwork. The checks are never cashed. They begin to circulate on the island as money, replacing the barter system that had existed before.
If the checks are never cashed, who pays for the vacation of the tourist? Or is it free?What do you think? My thoughts after the jump….
-
Media Star
Eddy Elfenbein, July 24th, 2006 at 6:46 amIf you caught Kudlow & Company on Friday, no, that wasn’t an imposter. It was really me! Thanks for all the e-mails. I was nervous, but once it started, it was a lot of fun.
Here are some interesting numbers that I wanted to pass along. Right now, a one-year Treasury note is yielding 5.18%. That means you can “lock in” the equivalent of 563 Dow points for the next 12 months. The important point is, while doing this, you’re greatly reducing your market risk.
Think about it. You can walk away from stocks right now, and say “enough of you.” You wouldn’t have to worry about oil prices or Hezbollah or elections, or any icky stuff like that. Those 563 points are locked in and it translates to a future Dow of over 11,430.
Don’t worry. I’m not saying that investors ought to pull up stakes and head for the hills, but I want to show you how the markets work. There’s a constant battle going on between the stock and bond markets for your money. When bond yields creep up, and earnings growth slows, investors rotate out of stocks and gobble up bonds. When the opposite happens, investors drive stocks higher.
Earnings growth has been impressive, and I think it will continue to be strong. But Price/Earnings ratios have been compressed. In fact, they’ve compressed and compressed, and compressed some more.
That’s a rough environment for stock investing. It’s like a runner trying to fight a strong headwind. Even very profitable companies have seen their stocks flat line. But the reason I still like stocks is that earnings are projected to grow by 14.1% for this year, and 10.5% for next year. Plus, that 10.5% number seems a little low. This means that the Dow could advance by, say, 7% and P/E ratios would still have compressed.
It’s never safe to expect earnings multiples to expand, but even if P/E ratios continue to fall, stocks can still beat bonds. The next thing to watch for is earnings guidance from companies for the third quarter.
This week, six more Buy List stocks report earnings. Brown & Brown (BRO) reports later today. AFLAC (AFL) and Fiserv (FISV) are up tomorrow. Fair Isaac (FIC) and Varian Medical (VAR) follow on Wednesday. Then Respironics (RESP) on Thursday. -
Private Equity Strikes Again
Eddy Elfenbein, July 24th, 2006 at 6:36 amThe HCA (HCA) deal is on again! I guess no one wants to be on the stock market anymore.
Last week, the WSJ reported that the deal fell apart at the last minute. Now it looks like Bain, KKR and Merrill Lynch will offer $21 billion for HCA.
The company is the largest hospital operator in the country. It was started by Bill Frist’s father and brother, although the senator no longer owns any HCA stock.
Private equity is up 77% this year, and I think it will continue. Companies are sitting on huge amounts of cash. Microsoft (MSFT) currently has about $34 billion in the bank, and ExxonMobil (XOM) has $36 billion. -
Dell Delivers Another Profit Warning
Eddy Elfenbein, July 21st, 2006 at 12:06 pmFrom Reuters:
Dell Inc. slashed its outlook on Friday, warning that quarterly earnings would fall about 30 percent short of forecasts because of a slowdown in the computer market, driving its stock to nearly five-year lows.
Shares of the world’s biggest personal computer maker fell 12 percent after it issued the disappointing outlook, which it blamed on discounting in a softening market for computers. The result, it said, would be second-quarter earnings of 21 cents to 23 cents a share on revenue of about $14 billion.
The company, whose sales have slowed in recent quarters amid tough competition from Hewlett-Packard Co. and complaints about poor after-sale services, had been expected to earn 32 cents a share on revenue of $14.2 billion, according to analysts polled by Reuters Estimates.
“Dell, they are having problems because internally they are in disarray,” said Eric Ross, an analyst at ThinkEquity Partner, who has a “sell” rating on the stock.
“Dell has done an amazing job of growing, but they don’t know how to retrench very well. Inside Dell, they don’t know where to turn,” he said.
Rather than its own problems, Dell pointed to broader industry challenges as the reason for its earnings warning. Analysts said those issues could indeed bite rivals like HP, whose stock fell 3.5 percent.
But they also said any industry troubles would hurt Dell more than others, exacerbating problems that have already caused the company to post disappointing revenue in four straight quarters. -
At Least the Brits Are Impressed
Eddy Elfenbein, July 21st, 2006 at 6:40 amThe London Telegraph looks at U.S. corporate earnings reports for the second quarter, and is impressed:
America is on track to record its longest unbroken run of profits growth with most of the country’s biggest companies continuing to beat expectations in the unfolding second-quarter results season.
The better than expected numbers will quell fears that high energy prices and a housing slowdown are holding back the US’s economic expansion. Figures from Thomson Financial show that for every company disappointing Wall Street forecasts, more than five are coming in ahead of target.
With results already announced by a fifth of the companies in the S&P 500 index, average earnings growth of 13pc so far puts the consensus forecast of 12.8pc growth for the second quarter within reach.
Hitting that target will see Wall Street celebrating a 12th consecutive quarter of double-digit earnings growth, matching the 1992 to 1995 winning streak. With gains of about 15pc already pencilled in for the third and fourth quarters, the current surge is set to be the longest run of success since 1950. -
From the New York Times Conference Call
Eddy Elfenbein, July 20th, 2006 at 7:42 pmCourtesy of Seeking Alpha:
Peter Appert – Goldman Sachs
Is the newsprint — can you just give us a rough idea of percentages from each of those?
Leonard P. Forman
No, Peter. We don’t disclose that information.
Peter Appert – Goldman Sachs
Well, you’re leaving, so now could be the time. By the way, we’re going to miss you a ton, Len.
Leonard P. Forman
I signed a non-disclosure agreement, Peter.
Peter Appert – Goldman Sachs
Okay, thanks.
- Tweets by @EddyElfenbein
-
Archives
- October 2024
- September 2024
- August 2024
- July 2024
- June 2024
- May 2024
- April 2024
- March 2024
- February 2024
- January 2024
- December 2023
- November 2023
- October 2023
- September 2023
- August 2023
- July 2023
- June 2023
- May 2023
- April 2023
- March 2023
- February 2023
- January 2023
- December 2022
- November 2022
- October 2022
- September 2022
- August 2022
- July 2022
- June 2022
- May 2022
- April 2022
- March 2022
- February 2022
- January 2022
- December 2021
- November 2021
- October 2021
- September 2021
- August 2021
- July 2021
- June 2021
- May 2021
- April 2021
- March 2021
- February 2021
- January 2021
- December 2020
- November 2020
- October 2020
- September 2020
- August 2020
- July 2020
- June 2020
- May 2020
- April 2020
- March 2020
- February 2020
- January 2020
- December 2019
- November 2019
- October 2019
- September 2019
- August 2019
- July 2019
- June 2019
- May 2019
- April 2019
- March 2019
- February 2019
- January 2019
- December 2018
- November 2018
- October 2018
- September 2018
- August 2018
- July 2018
- June 2018
- May 2018
- April 2018
- March 2018
- February 2018
- January 2018
- December 2017
- November 2017
- October 2017
- September 2017
- August 2017
- July 2017
- June 2017
- May 2017
- April 2017
- March 2017
- February 2017
- January 2017
- December 2016
- November 2016
- October 2016
- September 2016
- August 2016
- July 2016
- June 2016
- May 2016
- April 2016
- March 2016
- February 2016
- January 2016
- December 2015
- November 2015
- October 2015
- September 2015
- August 2015
- July 2015
- June 2015
- May 2015
- April 2015
- March 2015
- February 2015
- January 2015
- December 2014
- November 2014
- October 2014
- September 2014
- August 2014
- July 2014
- June 2014
- May 2014
- April 2014
- March 2014
- February 2014
- January 2014
- December 2013
- November 2013
- October 2013
- September 2013
- August 2013
- July 2013
- June 2013
- May 2013
- April 2013
- March 2013
- February 2013
- January 2013
- December 2012
- November 2012
- October 2012
- September 2012
- August 2012
- July 2012
- June 2012
- May 2012
- April 2012
- March 2012
- February 2012
- January 2012
- December 2011
- November 2011
- October 2011
- September 2011
- August 2011
- July 2011
- June 2011
- May 2011
- April 2011
- March 2011
- February 2011
- January 2011
- December 2010
- November 2010
- October 2010
- September 2010
- August 2010
- July 2010
- June 2010
- May 2010
- April 2010
- March 2010
- February 2010
- January 2010
- December 2009
- November 2009
- October 2009
- September 2009
- August 2009
- July 2009
- June 2009
- May 2009
- April 2009
- March 2009
- February 2009
- January 2009
- December 2008
- November 2008
- October 2008
- September 2008
- August 2008
- July 2008
- June 2008
- May 2008
- April 2008
- March 2008
- February 2008
- January 2008
- December 2007
- November 2007
- October 2007
- September 2007
- August 2007
- July 2007
- June 2007
- May 2007
- April 2007
- March 2007
- February 2007
- January 2007
- December 2006
- November 2006
- October 2006
- September 2006
- August 2006
- July 2006
- June 2006
- May 2006
- April 2006
- March 2006
- February 2006
- January 2006
- December 2005
- November 2005
- October 2005
- September 2005
- August 2005
- July 2005