Archive for December, 2007

  • We’re Winning!
    , December 21st, 2007 at 4:32 pm

    Thanks to the big 23% surge from Respironics (RESP), our Buy List has finally surpassed the market this year. For the year, we’re up 5.38% to the market’s 4.66%. Over the next few days, I’ll choose a replacement for Respironics for next year’s Buy List.

  • CNBC Threatens Fox Guests
    , December 21st, 2007 at 9:53 am

    From Douglas A. McIntyre at Wall Street 24/7:

    Perhaps GE (GE) unit CNBC should let Fox Business succeed or fail on its own merits. Threatening guests who appear on Fox with banning them from CNBC seems a bit thuggish.
    In a note to Fox producers an executive at Jefferies & Co. said he could not appear on the new network without losing his place on CNBC. Arthur R. Hogan, the Director, Global Equity Product at the investment bank wrote Fox “CNBC has put pressure on me not to do spots for any other business news stations.”
    CNBC executive editor Nick Dunn must not think he can compete with Fox head-to-head. In another e-mail quoted by “Inside Cable News” he wrote a guest “Saw you on the new network. Please don’t make that a regular thing.”

  • Holy Crap! Royal Philips Electronics Is Buying Respironics
    , December 21st, 2007 at 9:19 am

    This is great news for the Buy List. I love Respironics (RESP) and the stock has been very good to us. The deal is for $66 a share, which is a 24.3% premium.
    Here’s more from the WSJ:

    Royal Philips Electronics of The Netherlands Friday said it would acquire U.S.-based health care firm Respironics Inc. for €3.6 billion ($5.1 billion) in cash.
    In joint statements, the companies said they had reached a definitive merger agreement under which Philips will acquire all of Respironics’ outstanding shares for $66 a share, or a 24.3% premium to Thursday’s closing price for Respironics of $53.11.
    The deal marks the second U.S. acquisition for the Dutch company this week. Tuesday, Philips said it would buy U.S. clinical information-technology and service provider Visicu Inc. for about €290 million in cash. Visicu enables critical care medical staff to actively monitor patients in hospital intensive care units from remote locations. And on Dec. 4, Philips announced the purchase of another U.S. clinical IT company, Emergin Inc. for an undisclosed amount. Emergin sells software to rapidly transmit medical alarm signals throughout hospitals, Philips said.
    Respironics, of Murrysville, Penn., provides sleep therapy and respiratory health-care solutions. Over a 12-month period ending in September, 2007, Respironics reported sales of approximately $1.2 billion. It has around 5,300 employees world-wide.
    “Respironics is an excellent strategic fit and will significantly drive our growth in health care both in the hospital and in the home,” said Gerard Kleisterlee, Philips’s president and chief executive, in a statement. “The acquisition of Respironics is another major milestone towards the completion of our objective to build market leadership positions in high-growth, high-margin businesses across the three market sectors of health care, lighting and consumer lifestyle.”
    The Amsterdam-based company, which makes a wide range of products from shavers and televisions to medical scanners and light-emitting diodes, has in recent years transformed itself from an electronics manufacturing company into a technology company focused on lifestyle and health. In September, the company launched its “Vision 2010” strategic plan, under which it will simplify its structure into three core sectors: Philips Healthcare, Philips Lighting, and Philips Consumer Lifestyle.
    Several divestments have left the company with a cash pile of several billion euros. The company said Tuesday it would buy back up to €5 billion of its own shares.
    The tender offer is expected to commence by Jan. 8, 2008, and isn’t subject to any financing contingency. It requires U.S. and European Union regulatory clearances. The transaction is expected to close in the first quarter of 2008, upon which Respironics will become the headquarters for Philips Home Healthcare Solutions group within Philips Healthcare.

    Here’s an old post I did on RESP from a year ago.

  • The Santa Claus Rally
    , December 21st, 2007 at 8:27 am

    Today marks the beginning of the Santa Claus Rally. Earlier this year, I crunched all the numbers of the Dow’s daily return from 1896 to present.
    The best time of year is a 17-day period from December 21 to January 7. Over the last 111 years, the Dow has gained an average of 3.39% during that 17-day period.
    To put that in some perspective, the Dow’s annual gain is 8.32%. This means that more than 40% of the Dow’s yearly gain has come during this brief stretch which is less than 1/20 of the entire year.
    image534.png

  • The Buy List So Far
    , December 20th, 2007 at 4:40 pm

    What was once unthinkable, now could happen. The 2007 Buy List might catch up to the market before the year ends. As of today’s close, the Buy List is up 2.76% just 19 basis points behind the S&P 500’s 2.95%. That doesn’t include dividends.
    On October 18, the Buy List was up just 1.77% compared with the S&P’s 8.59%. That’s a gap of 682 basis points. Here’s a look at how we’ve done:
    image564.png
    Note: Our total on the bottom of the Buy List page doesn’t exactly match our returns because I had to adjust for the Biomet buyout. I’ll have complete details in our year-end post.

  • Avoid Turnaround Stocks
    , December 20th, 2007 at 9:52 am

    One of my repeated warnings to investors is to avoid turnaround stocks. Companies rarely turnaround smoothly.
    Poor-performing companies do indeed turn around, but it’s much rarer than people think. Hewlett-Packard (HPQ), under Mark Hurd, is an excellent example of a good turnaround story.
    The difficulty in spotting a true turnaround is that the problems that initially hurt the company are often too complex to solve by changing a few items, like the person at the top. Vikram Pandit was just named the new CEO of Citigroup (C) and I wish him all the success in the world. Unfortunately, I think an organization with $2 trillion in assets in the middle of a credit crisis won’t be easily managed. (Note to Vikran: Break it up).
    I think investors are easily tempted by possible turnaround stories. They see a cheap stock price and think there’s a bargain. Investors also like to personify a company, but this too can be a mistake. A professional athlete can have an “off night.” A large-scale public company usually doesn’t have an “off quarter.” The problem isn’t just execution. It’s also a host of variables from environment, competition, legal problems and a fickle public.
    One stock that looks very tempting right now is Home Depot (HD). The shares have been plunging and it’s currently going for about 11 times next year’s earnings. So is it a turnaround? Maybe. Bob Nardelli is gone. Year-over-year earnings have been falling (although still positive) for the past four quarters. In February, we’ll find out if it’s five.
    If the company does show that it has pulled out of its tailspin, then I think the shares could be worth it. Still, I’m hesitant. All turnarounds should be assumed failures until proven innocent.

  • The 2008 Buy List
    , December 20th, 2007 at 6:51 am

    I apologize for being a little late with this, but without further ado…here’s the Crossing Wall Street Buy List for 2008. (Woo!)
    AFLAC (AFL)
    Amphenol (APH)
    Bed Bath & Beyond (BBBY)
    Clarcor (CLC)
    Donaldson (DCI)
    Danaher (DHR)
    FactSet Research Systems (FDS)
    Fiserv (FISV)
    Harley-Davidson (HOG)
    Jos. A Bank Clothiers (JOSB)
    Leucadia National (LUK)
    Lincare (LNCR)
    Medtronic (MDT)
    Nicholas Financial (NICK)
    Respironics (RESP)
    SEI Investments (SEIC)
    Stryker (SYK)
    Sysco (SYY)
    UnitedHealth Group (UNH)
    WR Berkley (BER)
    Looks familiar? It should, I’m only making a few changes. Once again, I have 20 stocks. Out are Biomet (BMET), Fair Isaac (FIC), Graco (GGG) and Varian Medical Systems (VAR). Biomet was bought out earlier this year.
    The four new stocks are:
    Clarcor (CLC)
    Leucadia National (LUK)
    Lincare (LNCR)
    Stryker (SYK)
    I’ll begin tracking the new list on January 2, 2008, the first day of trading of the new year. The rules state that I’m not allowed to make any changes to the Buy List throughout the year.
    My purpose is to show investors that by buying and holding a well-diversified portfolio of high-quality stocks, you can do well in the market. For the Buy List, my self-imposed rule is to make changes just once a year. You’ll also notice that I don’t make many changes. Last year, I added five new stocks. This year, I added just four.
    Last year, the Buy List made 10.68%. Including dividends, it was 11.43%. Through yesterday’s close, this year’s Buy List is up just 1.68%. So even though I lost to the market slightly last year, and I’m barely behind this year, I still like most of stocks on my list.
    As usual, you can assume that I own any of the stocks on the Buy List. I won’t buy any of the new names until the new year.

  • The Fed and Britney’s Sister’s Boyfriend
    , December 19th, 2007 at 11:38 am

    The Federal Reserve has announced new rules to curb risky lending. Bess Levin sees a perfect analogy.

    Is the Fed’s announcement that it’s going to start to try and prevent questionable lending practice NOW kind of like Jamie Lynn Spears’s boyfriend saying, “Hey, I’m going to run out to the Duane Reade for condoms, you need anything? Gatorade? Q-tips? (Oh, and by the way, do you have any money I can borrow?…I’m good for it…)” THIS MORNING?

    Exactly. (But would that make Greenspan kinda like K-Fed?)

  • Best Subprime Story You’ll Read Today
    , December 19th, 2007 at 7:49 am

    From Bloomberg:

    One week in 2002, Daniel Sadek was $6,000 short of covering the payroll for his new subprime mortgage company, Quick Loan Funding Corp. So he flew to Las Vegas and put a $5,000 chip on the blackjack table.
    “I could have borrowed the money, I suppose,” Sadek says.
    That wouldn’t have been his style. With his shoulder-length hair and beard, torn jeans and T-shirts with slogans such as “Where is God?” Sadek looked more like a guitarist for Guns N’ Roses than a mortgage banker.
    Sadek says he was dealt a jack, then an ace. Blackjack. He would make payroll. Quick Loan Funding, based in Costa Mesa, California, would survive and, for a while, prosper as one of 1,300 mortgage lenders in the state vying to satisfy Wall Street’s thirst for subprime debt.
    As home prices rose and hunger for high-yield investments grew, Sadek found his niche pushing mortgages to borrowers with poor credit. Such subprime home loans grew to $600 billion, or 21 percent, of all U.S. mortgages last year from $160 billion, or 7 percent, in 2001, according to Inside Mortgage Finance, an industry newsletter. Banks drove that growth because they could bundle subprime loans into securities, parts of which paid interest as much as 3 percentage points higher than 10-year Treasury notes.
    “I never made a loan that Wall Street wouldn’t buy,” Sadek says. He worked hard to build the business, he says, and the company did nothing illegal.

  • My Solution to the Subprime Mess
    , December 19th, 2007 at 6:44 am