Archive for March, 2010

• JOSB Update
  Eddy Elfenbein, March 31st, 2010 at 12:02 pm

  Shares of JOSB have been as high as $54.89 today. On the Buy List, there’s now a close running for top-performer YTD between JOSB, SEIC and MOG-A.
  I see that NICK’s ask price fell below $7.40. That’s a great deal. This is the lull period between earnings. The next report isn’t due until early May. I expect a rally then.

• 12 Million Percent Profit
  Eddy Elfenbein, March 31st, 2010 at 11:27 am

  That’s what micro-caps have done since the Great Depression.
  Here’s a breakdown of market performance by size decile. The smallest have done the best and the biggest have done the worst.
  
  Here’s the annualized return by size decile:

  Decile 1	9.1%
  Decile 2	10.4%
  Decile 3	10.7%
  Decile 4	10.7%
  Decile 5	11.3%
  Decile 6	11.2%
  Decile 7	11.2%
  Decile 8	11.4%
  Decile 9	11.5%
  Decile 10	13.1%

• Joey Banks – Kicking It
  Eddy Elfenbein, March 31st, 2010 at 7:33 am

  More good earnings news for JoS. A. Bank Clothiers (JOSB). FY 2009 earnings-per-share came in at $3.84 up from $3.17 the year before and $2.72 the year before that. That’s very nice growth.
  The company didn’t give quarterly results (those come out tomorrow) but by walking back the cat, I figure the fourth-quarter earnings come to $1.91 a share which is 12 cents more than Street expectations.
  The odd thing here is that this is for Joe’s fiscal fourth quarter which is November, December and January. In other words, it’s a long time ago. Since companies often take longer with their Q4 report, Joe’s next earnings report will probably be out in just nine weeks or so. Also, since their fourth quarter covers the holiday season, it accounts for about half their annual profit. This is a big deal and JOSB did well.

  Net sales reached a record of $770.3 million in fiscal year 2009, representing a 10.7% gain as compared with net sales of $695.9 million in fiscal year 2008. Comparable store sales increased 6.3% during fiscal year 2009, while Direct Marketing sales increased 12.2%. The Company ended fiscal year 2009 with $21.9 million in cash, $169.7 million in short-term investments and no debt.
  “We are pleased to announce another solid year of sales and earnings growth,” commented R. Neal Black, President and CEO of JoS. A. Bank Clothiers, Inc. “Our core strategy to provide our customers with high quality men’s clothing at a great value and to actively promote this value through a diverse advertising and marketing campaign has again produced favorable results for fiscal year 2009. We have continued to be successful in expanding our market share, growing our profits and controlling our expenses, while further strengthening our balance sheet. Additionally, with this quarter’s results, we have achieved earnings growth in 33 of the past 34 quarters when compared to the respective prior year periods, including 15 quarters in a row,” continued Mr. Black.

• Happy MBS Day!
  Eddy Elfenbein, March 31st, 2010 at 7:10 am

  Today is the last day of the first quarter, but more importantly, it’s the last day that the Federal Reserve is buying mortgage-backed securities from Freddie and Fannie. The Fed has spent $1.25 trillion on buying this garbage from the GSEs but after today, no more!
  It turns out that when you dump huge, gigantic amounts of money at something there tends to be an effect. In this case, mortgage rates have remained very low. Now some people worry that without Ben buying up anything that moves mortgage rates will soar. I doubt that will happen. Sure, rates will probably creep up (a 30-year fixed is around 5% right now) but the market knew this day was coming and it’s had some time to adjust. Also, the Fed still has the ability to jump back in if things quickly head south.
  So who will now buy mortgage-backed securities? One answer is that banks, of all people, might do it with all the cash that the Fed has recently injected. Plus, even though the official Fed is going away, its shadow will still be around in the move of Fannie and Freddie buying out delinquent loans. This will be a lot of cash in investors’ hands.
  Some people are worried that higher mortgages rates will ruin any gains made by a still-weak housing market, and we might go back exactly where we were. Once again, I’m a doubter. The mortgage market is much healthier that it was. Mortgage spreads have plunged from 18 months ago. For now, it looks like private investors are ready to take the place of the Fed in the mortgage market.

• What If the Stock Market Was an Inflation-Protected Bond?
  Eddy Elfenbein, March 30th, 2010 at 11:40 am

  Who’s up for a very off-the-wall post? Good, you’re at the right place.
  As I mentioned yesterday, I just got the new Ibbotson Yearbook which is a great resource for historical stock market data.
  A few years ago, I took the historical performance data of the stock market and wanted to see what it would look like if the stock market were a bond. In order words, what if a bond performed exactly the same way the stock market had? What would its yield-to-maturity look like through the decades?
  I took all of the monthly return data going back to the 1920s and assumed we had a bond of infinite maturity that paid a fixed coupon each month.
  Let me stress that even though this bond is complete make-believe, the results are what the stock market actually did. I ran this scenario again but this time I changed the bond to an inflation-protected bond. Here’s what it looks like:
  
  There were three major troughs; 1929 around 2.7%, 1968 at 3.3% and 2000 at 3.5%.
  The highest peak came in 1932 at 15%. There were other peaks in 1949 at 12.5%, 1982 at 12.9% and last year at 13%. At the end of 2009, the yield-to-maturity stood 9.3%. Thanks to the rally, that’s come down some since.
  There’s one hitch with this study. I have to choose a starting yield-to-maturity for December 1925. So this isn’t a completely kosher experiment because the starting point is based on my guess. If I choose a number that’s too high, then the historical performance won’t be able to keep up, and the yield-to-maturity would grow higher and higher and soon leave orbit. Conversely, if my starting YTM is too low, the yield would gradually get pushed down to microscopic levels.
  Based on trial and error, I used 6.76% as a starting point. That made the graph symmetrical with an historical average yield of 6.79%.

• More Historical Stats
  Eddy Elfenbein, March 29th, 2010 at 2:44 pm

  In the olden days, investors tended to look at stocks similar to the way we look at bonds today — it was all about yield. Stocks often traded around $100 a share (or whatever the par value was) and you waited to hear from the board what the annual or semi-annual dividend was. Retained earnings were so small as to nearly be irrelevant.
  The idea of expecting continuous capital gains is something fairly new. According to data from Ibbotson, the market’s annualized capital gain from 1824 to 1942 was 0.90%. Dividends, however, grew by 5.90%. Since 1942, capital gains have grown by an average of 7.33% while dividends have grown by 3.75%.
  Inflation has obviously been much higher since 1942 than before (3.93% to 0.47%), but the distribution of the market’s overall gain is what I find most striking.

• What History Says
  Eddy Elfenbein, March 29th, 2010 at 11:17 am

  I just got the new Ibbotson Yearbook. It’s a great resource for historical asset performance. Here are a few items that caught my eye.
  **Over the last 25 years, long-term Treasuries have slightly outperformed long-term corporate bonds.
  **After inflation, T-bills have gone nowhere for nearly ten years.
  **Over the last 25 years, long-term Treasuries have fairly consistently outperformed T-bills by about 4.5% a year.
  **Over the last 30 years, large-cap stocks have barely outperformed long-term corporates and long-term Treasuries.
  The lesson is that long-term T-bonds have been a decent investment especially considering their risk. However, I’m not sure that level of performance will continue.

• So…How’d Ford Do With Volvo?
  Eddy Elfenbein, March 29th, 2010 at 9:12 am

  Not so well.
  The NYT: January 29, 1999:

  The Ford Motor Company, by agreeing yesterday to buy the car operations of Volvo A.B. of Sweden for $6.45 billion, has taken its biggest step yet toward becoming a large-scale seller of high-profit luxury cars as well as more humble vehicles like the Escort and pickup trucks.

  The NYT: March 28, 2010:

  Ford Motor reached an agreement on Sunday to sell its Volvo subsidiary to a Chinese conglomerate, in the clearest confirmation yet of China’s global ambitions in the auto industry.
  The Zhejiang Geely Holding Group, based in Hangzhou, agreed to pay $1.8 billion for Volvo, with $1.6 billion in cash and the rest in a note payable to Ford.

  Actually, dumping Volvo is a smart move on Ford’s part. I continue to reiterate my call that Ford is the Stock of the Decade. (Hey, why wait?)

• Bed, Bath & Beyond estimates, price target raised
  Eddy Elfenbein, March 29th, 2010 at 8:39 am

  From MarketWatch:

  Home-furnishings retailer Bed, Bath & Beyond Inc.’s profit estimates and price target are raised by Bank of America Merrill Lynch on Monday ahead of the company’s fourth-quarter release on April 7. Broad-based improvement in home goods sector and the lack of its former rival Linens ‘n Things’ liquidation sales in December 2008 should both benefit the retailer, analyst Alan Rifkin said. He raised his target price on the stock to $50 from $44 a share. He raised his fourth-quarter profit estimate to 77 cents a share from 71 cents a share previously with same-store sales projected to rise 6%.

• Now for Some Top-Line Growth
  Eddy Elfenbein, March 25th, 2010 at 2:35 pm

  The Pragmatic Capitalist has a good post on what to expect this earnings season. I agree with the overall thesis–the rally to date has been powered by profit margin expansion.
  Lots of naysayers somehow think margin-expansion doesn’t count or it’s somehow illegitimate. It counts but the problem is it can only take you so far. I think we’ve reached that point or it’s very close to us. Now we need some revenue growth.
  Another key fact is that earnings estimates have been very low. That’s not going to last either. As expectations rise, earnings beats will fade. I’m on the lookout for companies that provide solid guidance for the latter half of 2010.