Archive for February, 2007

• 15 Get a Mac Ads
  Eddy Elfenbein, February 23rd, 2007 at 10:03 pm

  
  John Hodgman is brilliant.

• Buy List So Far
  Eddy Elfenbein, February 23rd, 2007 at 6:46 pm

  Thanks to Donaldson, our Buy List eeked out a slight gain despite the overall market’s sell-off. For the year, the Buy List is up 3.36% compared with 2.32% for the S&P 500 (not including dividends).
  Here’s how our stocks have done year-to-date:
  Bed Bath & Beyond (BBBY) 11.73%
  Respironics (RESP) 11.10%
  FactSet Research Systems (FDS) 10.75%
  Jos. A Bank Clothiers (JOSB) 10.43%
  Amphenol (APH) 9.26%
  Donaldson (DCI) 8.47%
  SEI Investments (SEIC) 6.70%
  Graco (GGG) 6.69%
  AFLAC (AFL) 5.63%
  Fiserv (FISV) 4.33%
  Biomet (BMET) 2.71%
  Danaher (DHR) 2.25%
  Varian Medical Systems (VAR) 2.17%
  Fair Isaac (FIC) -1.25%
  UnitedHealth Group (UNH) -1.30%
  WR Berkley (BER) -1.68%
  Harley-Davidson (HOG) -2.07%
  Medtronic (MDT) -4.04%
  Nicholas Financial (NICK) -6.44%
  Sysco (SYY) -8.19%

• Gold Vs. the Fed
  Eddy Elfenbein, February 23rd, 2007 at 1:11 pm

  B-Riz is in the Zone:

  In this corner, weighing 195 pounds, standing 5 foot 10, hailing from Washington D.C. via Harvard, MIT and Princeton, New Jersey, wearing the M1 green trunks, the Charlemagne of Currency, the prince of paper, the bearded bard of the Fed, monarch of monetary policy, Benjamin GOLDILOCKS Bernanke!
  And in the opposing corner, weighing 2046 metric tonnes — one ounce at a time — the shiny, precious, storehouse of value, the standard for monetary exchange, the most malleable and ductile of the known metals, that master of disaster, hailing from most of the world, that dense, soft, shiny, yellow metal, GOLD.

• Values Hidden in Plain Sight
  Eddy Elfenbein, February 23rd, 2007 at 10:51 am

  Many investors think that to be successful at investing requires lots of time and very advanced research on companies. But I’m surprised how often great values are perfectly obvious to anyone who is simply paying attention. Malcolm Gladwell recently wrote in the New Yorker that Enron’s financial mess was visible to people who looked for it.
  Consider the case of Pfizer (PFE). Obviously, the company has problems. It just announced that it’s cutting 10,000 jobs. But now the stock is below $26 a share. After its latest earnings report, Pfizer said it was projecting adjusted EPS of $2.18 to $2.25 for 2007, and $2.31 to $2.45 for 2008. If the company’s forecast is accurate, this means that the stock is going for about 10 or 11 times next year’s earnings. That’s pretty cheap. On top of that, the dividend yield is 4.4%, which isn’t far behind a Treasury bill.
  I’m not necessarily saying that Pfizer is a great buy here, or that a forward P/E is the end of any analysis. But the key information here isn’t any state secret we’re talking about. We’re using information right from the company. They’re telling is what to expect, and the shares are still falling.
  Another example is Amgen (AMGN). Historically, this has been a rapidly growing company. Today, the stock is going for about $66 a share. The company recently said that it expects 2007 EPS to be in the range of $4.30 to $4.50 (not including 10 to 12 cents for stock options). That’s means the stock’s “earnings yield” (the inverse of the P/E ratio) is over 6%. That’s certainly worth looking into.
  I don’t know what either stock will do over the next 12 months. But if they do well, I’m sure some investors will kick themselves and say, “if they had only known.”

• Greenwich Family Values
  Eddy Elfenbein, February 23rd, 2007 at 10:10 am

  From the AP:

  A Greenwich mortgage broker who admitted she helped her college-age son recruit investors in a multimillion-dollar hedge fund scam pleaded for a reduced sentence Thursday, downplaying her role and blaming her son and others.
  Ayferafet Yalincak, who pleaded guilty last year to conspiracy to commit wire fraud, is scheduled to be sentenced March 2. Her 22-year-old son, Hakan, faces up to 50 years in prison for managing the scheme when he is sentenced March 27.
  Prosecutors say Hakan Yalincak charmed his way into the exclusive world of Greenwich high finance by posing as an heir to a wealthy Turkish family, shuttled counterfeit checks across the world and brokered deals with a Kuwaiti financier. Prosecutors said investors lost more than $7 million in the fake fund, an amount he contests.
  Ayferafet Yalincak, who faces up to 5 years in prison under guidelines, asked for a short sentence in court papers filed Thursday. She rejected a presentence report that concluded Hakan’s fraud stemmed from the negative role model she provided.

  She’s got a point. If he blamed it on his kids, then she would be a role model.

• Donaldson Beats the Street
  Eddy Elfenbein, February 22nd, 2007 at 5:30 pm

  After the close, Donaldson (DCI) reported earnings of 38 cents a share, one penny better than estimates.

  Donaldson Company, Inc. announced record second quarter diluted earnings per share of $.38, up from $.32 last year. Net income was $31.3 million, versus $26.9 million last year. Sales were a record $463.7 million, up from $392.9 million in fiscal 2006.
  For the six month period, EPS was another record at $.81, up from $.69 last year. Net income increased 14 percent to $67.3 million compared to $59.1 million last year. Sales were a record $910.2 million, up 14 percent from $796.3 million in fiscal 2006.
  “Sales growth was very strong during the quarter, supporting our outlook for another record year,” said Bill Cook, Chairman, President and CEO. “Our sales were especially good in Europe and Asia, where solid economic conditions and our well-developed market presence combined to deliver growth in excess of 25 percent in both regions. Our year-to-date operating margin of 10.6 percent compares favorably to 10.2 percent a year ago. Global economic conditions remain healthy for most of our businesses, giving us confidence in delivering our 18th consecutive year of record earnings.”

  Here’s a look at the streak:
  Year………….Sales……………..EPS
  1990…………$422.9……………$0.19
  1991…………$457.7……………$0.21
  1992…………$482.1……………$0.23
  1993…………$533.3……………$0.26
  1994…………$593.5……………$0.30
  1995…………$704.0……………$0.37
  1996…………$758.6……………$0.42
  1997…………$833.3……………$0.50
  1998…………$940.4……………$0.57
  1999…………$944.1……………$0.66
  2000…………$1,092.3…………$0.76
  2001…………$1,137.0…………$0.83
  2002…………$1,126.0…………$0.95
  2003…………$1,218.3…………$1.05
  2004…………$1,415.0…………$1.18
  2005…………$1,595.7…………$1.27
  2006…………$1,694.3…………$1.55
  2007…………$1,820.0…………$1.76 (est)
  2008…………$1,940.0…………$1.95 (est)
  The company expects this year’s earnings to be betweem $1.72 and $1.82 a share. For the first half of this fiscal year (ending in July), DCI’s EPS is up 17.3%. If that trend continues in the back half, Donaldson will net $1.82 a share.

• Defending the Bull. Again.
  Eddy Elfenbein, February 22nd, 2007 at 1:39 pm

  
  I defended the bull market four months ago, and I’ll try to do it again today. This time, however, I want to take a look at some of the bearish arguments making the rounds. David Gaffen at Marketbeat outlines a few.
  For example:

  The VIX, commonly known as the “fear index,” is hovering around 10, a low point, suggesting a lot of carefree folks out there these days. This level is often a turning point, a calm before the storm, so to speak.

  No! No! A thousand times No! A low VIX does not mean that investors are complacent. It means the exact opposite—investors are being cautious. Notice how all the other risk spreads are also low.

  The current rally is now the third longest since 1900 without a 10% correction.

  That’s true, but what’s so special about 10%? The S&P 500 had a 7.7% correction last spring, and it kept going. This bull hasn’t exactly been a roaring bull. In almost ten months, we’re up almost 10%. That’s less than both earnings growth and dividend growth. Look at some sentiment indicators. Value stocks are still leading growth. The Nasdaq is still less than one-fifth of the Dow. These aren’t the signs of an overheating market.

  Margin debt has hit an all-time high, surpassing the heady days of the technology stock boom, as more people borrow money to buy stocks than ever before.

  But what about equity growth? The proper way to look at margin debt is its relation to equity. Why isn’t margin growth a good thing, reflecting investor optimism? (Update: Bill Rempel makes several good points on this misleading stat.)

  The Dow industrials, transports and utilities all closed at new highs on the same day last week — something that became a routine occurrence in just two years, 1929 and 1986, both preludes to big market falloffs.

  The last two triple highs came in March 1998, and the Nasdaq promptly tripled. The time before that came in April 1993, and the market rallied for another nine months. Nearly anything can prelude a big market falloff.
  Another bearish talking point is that the market hasn’t had a 2% down day in nearly four years. Once again, I don’t see what’s so bad about that. The market is in a period of low volatility. There’s nothing unusual or dangerous about it. Today’s volatility is roughly equal to other periods of low volatility. Was their anything dangerous about the market of the mid-1990s? There were just three 2% down days from November 1991 to July 1996, and we survived. Some of us even made money. Remember this was the market that led to Irrational Exuberance.
  Also, what’s so special about 2%? Since the last 2% day, we’ve had over 60 1% falls, including a few 1.8%-ers and one 1.9%-er. Change the parameters slightly, and the talking point goes away. We’ve gone almost nine months since a 1% correction, and that’s far from the longest streak ever.

• Chicks on the Street
  Eddy Elfenbein, February 22nd, 2007 at 11:47 am

  
  From an actual academic study:

  We study the relation between gender and job performance among brokerage firm equity analysts. Women’s representation in analyst positions drops from 16% in 1995 to 13% in 2005. We find women cover roughly 9 stocks on average compared to 10 for men. Women’s earnings estimates tend to be less accurate. After controlling for forecast characteristics, the difference in accuracy is roughly equivalent to four years of experience. Despite reduced coverage and lower forecast accuracy, we find women are significantly more likely to be designated as All-Stars, which suggests they outperform at other aspects of the job such as client service.

  (Pictured is Hetty Green.)

• The Best Airline You’ve Never Heard Of
  Eddy Elfenbein, February 22nd, 2007 at 9:48 am

  Dublin-based Ryanair (RYAAY) is revolutionizing air travel in Europe. They’ve borrowed their business model from Southwest Airlines (LUV), and they’re having the same kind of success.
  What’s their base rate for a round-trip flight from London to Pisa? One euro cent. Of course, there are some setbacks.

  Not everyone is happy with Europeans’ unchecked mobility. People in countries newly served by budget airlines complain that British bachelor and bachelorette parties are taking over Eastern European cities such as Riga.
  European Weekends, a Nottingham-based events coordinator, offers one package that features a “Soviet nurse banquet,” with prices starting at 55 pounds ($108) per person.
  The cost covers five shots of vodka, five female entertainers, a “lesbian nurse show” and a meal.
  “I know about guys who go to Prague for a weekend of cheap beer, prostitutes and fighting,” Vertovec says. “People there really complain about it — and that’s due to low-cost airlines.”

  In the last nine years, the stock is up more than 15-fold.
  

• Cyclicals Do It Again
  Eddy Elfenbein, February 21st, 2007 at 4:02 pm

  
  That’s eight straight days of beating the S&P 500.
  This morning, it looked like the streak was done for, but the cyclicals did it again.