Archive for January, 2007

  • Rollins is Out at Dell
    , January 31st, 2007 at 5:39 pm

    From Bloomberg:

    Dell Inc. Chairman and founder Michael Dell replaced Kevin Rollins as chief executive officer and said fourth-quarter results will miss analysts’ estimates. The shares rose 4.3 percent.

    My thoughts exactly.

  • The Buy List So Far
    , January 31st, 2007 at 5:26 pm

    One month down, eleven to go. The Buy List had a great first half of January, followed by a blah second half. For the month, the S&P 500 was up 1.41% while our Buy List was up 1.66%.
    The big winners were Respironics (12.85%), Bed Bath & Beyond (10.73%) and Amphenol (9.09%). Our losers for January were Sysco (-6.01%), Nicholas Financial (-4.24%) and WR Berkley (-4.11%).

  • Fiserv Earns 64 Cents a Share
    , January 31st, 2007 at 5:00 pm

    Fiserv (FISV) just reported fourth-quarter earnings, after charges, of 64 cents a share. This was in line with expectations. Sales were up 19%.
    For 2006, Fiserv earned $2.53 a share, up from $2.19 in 2005. The company is also forecasting 2007 earnings growth of 13% to 16%, which works out to earnings of $2.86 to $2.94 per share. That means that Fiserv is going for about 18 times forward earnings.
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  • Today’s Fed Statement
    , January 31st, 2007 at 2:32 pm

    For the fifth meeting in a row, the Federal Reserve does nothing:

    The Federal Open Market Committee decided today to keep its target for the federal funds rate at 5-1/4 percent.
    Recent indicators have suggested somewhat firmer economic growth, and some tentative signs of stabilization have appeared in the housing market. Overall, the economy seems likely to expand at a moderate pace over coming quarters.
    Readings on core inflation have improved modestly in recent months, and inflation pressures seem likely to moderate over time. However, the high level of resource utilization has the potential to sustain inflation pressures.
    The Committee judges that some inflation risks remain. The extent and timing of any additional firming that may be needed to address these risks will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information.
    Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Susan S. Bies; Thomas M. Hoenig; Donald L. Kohn; Randall S. Kroszner; Cathy E. Minehan; Frederic S. Mishkin; Michael H. Moskow; William Poole; and Kevin M. Warsh.

    This is a very positive statement.
    The “somewhat firmer economic growth” line replaces “has slowed over the course of the year” from December. That’s a big change. Also, the “substantial cooling” of the housing market is gone and has been replaced with “some tentative signs of stabilization.” In the world of Fedspeak, that’s a jump for joy.
    Core inflation has now “improved modestly,” where last month it was “elevated.” With Jeffrey Lacker off the committee, the vote was unanimous.

  • GDP Grew By 3.5% in Q4
    , January 31st, 2007 at 9:10 am

    The economy continues to plow along. After two quarters of below-trend growth, the economy grew by 3.5% (annualized) in the fourth quarter. This happened even though residential private investment (i.e., home construction) dropped by 19%, the largest decline since 1991.
    Here’s GDP growth since 1997:
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    The drop in residential private investment took 1.2% off GDP growth. Here’s a look at home construction’s share of the economy since 1987:
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    Over the last four years, the economy has grown by 27.3% (not adjusted for inflation).

  • AFLAC’s Earnings
    , January 30th, 2007 at 4:58 pm

    AFLAC‘s (AFL) stock is getting beaten up in the after-hours market. The supplemental insurance company reported earnings of 66 cents a share (with insurers, the important number is operating earnings). This was a nice improvement over the 59 cents from last year, but it was a penny shy of expectations. The good news is that AFLAC guided higher for 2007. The company now sees EPS of $3.28 to $3.31.

  • Eatin’ Good Far from the Neighborhood
    , January 30th, 2007 at 3:20 pm

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    Michelle Leder at Footnoted.org spotted this letter from former SEC Chairman Richard C. Breeden to Campbell Soup’s CEO Douglas Conant. Conant is also chairman of Applebee’s compensation committee:

    On 29 occasions from from April 2006 through January 2007, Applebees’s corporate aircraft flew into and out of Galveston, Texas, where former CEO Lloyd Hill happens to own a beach house. The nearest Applebees’s restaurant is more than 40 miles away. Though Mr. Hill ceased to be CEO in September 2006, company planes continue the Galveston shuttle.”

    Daniel Gross has more on the troubling mix of CEOs and corporate jets.

  • LoveLEHGirl Is Watching
    , January 30th, 2007 at 1:24 pm

    The Wall Street Journal profiles Yolanda Holtzee, an “Internet investigator in sweatpants.”

    Wall Street is full of corporate gadflies, many of whom agitate for corporate-governance reform or focus on arcane bylaw changes. Ms. Holtzee, a self-styled Internet investigator in sweatpants, focuses on exposing out-of-bounds behavior and catching bad guys. And after pointing regulators in the right direction more than once, Ms. Holtzee has achieved two things every gadfly craves: attention from those she targets — and action.
    “I think people take her seriously because she has good instincts and actually produces cases,” says former senior SEC official Ari Gabinet, now an executive at Vanguard Group Inc., the fund management giant. “If I could have hired her, we would have had an endless stream of cases.”

  • The Biomet CD?
    , January 30th, 2007 at 11:18 am

    First let me state clearly that I’m not recommending this as a fixed-income investment, but let’s consider what the market is saying about Biomet (BMET).
    Assuming all goes smoothly, the company is to be bought by a private equity consortium in nine months at $44 a share. Yesterday’s close was $41.90 a share. That translates to a gain of 5.01% over the next nine months. That’s not a bad return. Think of it in Dow terms—it would be like bringing the index to over 13100.
    On an annualized basis, the Biomet investment is about 6.7% which beats almost any CD you can find. On top of that, the stock could pay another annual dividend this summer. Last year’s was for 30 cents a share, which is another 0.7% return. I don’t see why they’ll cut out the dividend this year.
    Of course, the stock isn’t exactly like a bond. The deal still needs to be approved by shareholders and regulators (incidentally, I oppose the deal). But the stock is starting to behave like a fixed-income investment.
    If I were a CFO and I needed to park some cash for the next nine months, picking up shares of Biomet could be a shrewd low-risk investment.

  • Davos Is for Wimps
    , January 30th, 2007 at 8:57 am

    Michael Lewis nails the professional worriers who gather every year in Davos:

    Davos is where people with no talent for risk-taking gather to imagine what actual risk-takers might do. Davos Man needs to sit in judgment; Davos Man needs to brood. So great is this need that he will brood about virtually anything, no matter how little he knows about it.

    It’s only January, but I’m ready to name that, the Paragraph of the Year.
    He’s exactly right. When analyzing the market or the economy, it’s easy to fall into the “over-worrying trap.” I’m often surprised by how many otherwise intelligent people can fall into this trap and wind up saying silly things. I mean, there’s always something to worry about.
    The professional worriers remind me of the Major General in HMS Pinafore who knows many “cheerful facts about the square of the hypotenuse.” They know the facts, but they can’t see them in proper context.
    The free market is a highly complex system. It simply has a way of working things out. Naturally there are crises which always seem to be “looming,” but people are surprisingly good about mastering them.
    A few years before Y2K, I remember reading a story about a power plant that ran a drill to prepare for the new millennium. The plant failed and everything went to pieces. So a quick-thinking engineer jumped in and reset all the plant’s clocks to 1972, which had the same day and date alignment of 2000 (28 years is seven days of the week times four years in a leap cycle). Presto. The plant was up and running and they had time to fix the bugs.
    But in the minds of the professional worriers, that scenario could never happen. They think if some problem comes along, people will never adapt. They assume market participants will run head-first into a brick wall, then pick themselves up, and do it again.
    Lewis writes:

    Thailand installs capital controls and the markets force it to reverse its policy, virtually overnight — again with nary a ripple. The Brazilian real is now less volatile than the Swiss franc; Botswana’s debt is now more highly rated than Italy’s. Oil prices double, the U.S. housing market tanks — no matter what happens, financial markets adjust quickly and without hysteria.
    There are obviously a few things to worry about just now in the world, but the inability of traders to find a sensible price for the spread between European junk and European Treasuries isn’t one of them.

    That problem will also be solved. And the answer won’t come from Davos.