Archive for May, 2010

• Happy Memorial Day
  Eddy Elfenbein, May 31st, 2010 at 12:46 pm

  

• Monsanto -7%
  Eddy Elfenbein, May 27th, 2010 at 1:19 pm

  Monsanto (MON) is down 7% today on the news of sharply lower guidance. A reader writes:

  I wrote you a few weeks ago about MONSANTO. And you were talking about lowered guidance, and how it’s like “cockroaches”, they keep coming out. Well, you were right. Thanks for the tip. I decided to sell shortly afterwards — it was difficult because I felt that I had spent so much time understanding their business and the prospects, but you were right, the stock has no idea I own it.

  The point is that companies aren’t like sports teams that can suddenly rally. If there’s one problem you see, there are usually several more you don’t see (like cockroaches).
  Just because a stock is down from its highs doesn’t mean it’s cheap. Monsanto missed its last two earnings reports and that was a tip-off to today’s news.

• The Calendar Says Buy
  Eddy Elfenbein, May 27th, 2010 at 11:50 am

  A few years ago, for reasons unclear, I decided to look at the entire history of the Dow Jones to see how it performed during a typical year. Once I emerged from my dark laboratory, I was able to compile this chart.
  
  We’ve just entered one of the best times for the market. From May 25 to June 12, the Dow has gained an average of 1.27%. From May 25 to September 6, the Dow has gained an average of 4.72%. That’s more than half of the Dow’s entire historic capital gain coming in a little over three months.
  On top of that, all of the market’s gains have come on the last four trading days of the month plus the first three of the following month. Outside that, the market is down.

• Q1 GDP Growth Revised Lower
  Eddy Elfenbein, May 27th, 2010 at 10:45 am

  The government pared back its estimate of first-quarter GDP growth. The original report said the economy grew by 3.2% for the firth three months of the year but now the Feds say it was 3.0%. That’s not a big change but it highlights the issue that the economy isn’t growing nearly fast enough to pull us from the recession.
  Compare the last bar on this chart to the long stretch of GDP growth in the late 1990s.
  
  As an investor, this caught my eye:

  The latest report showed consumers increased their spending by 3.5%. That was below the previously estimated 3.6% gain but more than double the 1.6% increase of the fourth quarter.

  That’s a good sign. Sure enough, this comes out today: Tiffany raises outlook as profit, sales soar. As always, company guidance is key. If you’re a publicly traded company, you don’t want to shout out good news unless you can back it up. If Tiffany (TIF) is doing well, that means the high-end market is recovering.

  Excluding one time items, Tiffany earned 48 cents per share, beating Wall Street forecast of 37 cents, according to Thomson Reuters I/B/E/S.
  Sales at its stores open at least a year, or same-store sales rose 10 percent, lifted by growing international sales.
  In Asia, sales rose 50 percent, while at its flagship store on Manhattan’s Fifth Avenue, sales were up 26 percent.
  Overall sales rose 22 percent to $633.6 million during the quarter.
  Tiffany raised its full year profit forecast to a range of $2.55 to $2.60 per share, above the average Wall Street estimate of $2.51. Tiffany expects sales to be up 11 percent this year and to open 16 stores.

  So they beat estimates by nearly 30% and raised their full-year. I’m not suggesting TIF is a buy, the stock is a bit pricey, but it gives us a clue where business is strong.
  The advantage of looking at Tiffany is that its fiscal cycle is slightly off most other companies. Their fiscal calendar ends at the end of January instead of the beginning. This makes sense because they want any lingering Christmas sales in the same reporting period. As a result, today’s report covers February, March and April — whereas the last earnings season for most stocks was for January, February and March. This off-cycle report could mean that consumers are in a better mood than Wall Street thinks.

• 100 Years Ago — King Edward’s Funeral
  Eddy Elfenbein, May 26th, 2010 at 11:12 pm

  This week marks the 100th anniversary of the funeral of King Edward VII. This was an interesting event in world history since it was the last great gathering of European monarchs.
  Just about every king or crown prince was invited (see a listing here). In fact, many of them were related to the late king. The soon-to-hated Kaiser was Edward’s nephew. You’d hardly know that in just a few years the whole world these people knew was to be blown apart by the Great War.
  King Edward’s funeral is also used as an entry point in George Dangerfield’s book “The Strange Death of Liberal England.” For a student of history, the ceremony serves as a good dividing line between two periods. Two worlds, really. If you want to read really good writing, check out pages 18 and 19 here.
  The Library of Congress has some footage of the funeral which I’ve embedded below. Everyone is marching by rank so in the very back of the line is a commoner—the representative of a still-strange form of government—Former President Teddy Roosevelt. This is oddly symbolic because even though the U.S. was at the back of the line, it was about to become the world’s most powerful nation.
  
  I’ve watched this a few times. I can’t be sure but I think TR appears at 4:53 in the lower right part of the screen. Here’s the NYT‘s coverage and it confirms that TR is carrying his overcoat.

• John Wren’s $41 Million ‘Golden Coffin’
  Eddy Elfenbein, May 26th, 2010 at 1:02 pm

  This is one of the most outrageous executive perks I’ve ever heard of. The heirs of John Wren, the CEO of Omnicom Group (OMC), will receive $41 million from the company at the time of his death.

  At Omnicom Group, the chief executive gets paid until death does him part — and then even after that.
  The holding company offers CEO John Wren and other top employees a perk commonly known as a “golden coffin” — a death benefit granted to heirs after the officer’s ultimate demise. Omnicom investors today rejected a proposal calling on the company to rein in this form of generosity, which could mean an additional $41 million in payouts to the 57-year-old Mr. Wren’s survivors.
  The proposal’s proponent, Amalgamated Bank’s LongView investment fund, argued that it makes no sense for shareholders to make payments to the CEO in return for no services. It added that senior executives have ample time while alive to build a pension fund, buy life insurance or engage in other estate-planning activities.
  “Instead of pay-for-performance, golden-coffin provisions are simply ‘pay for no pulse,'” said Scott Zdrazil, director of corporate governance at Amalgamated Bank of New York.

• FinReg’s from Mays Past
  Eddy Elfenbein, May 26th, 2010 at 12:44 pm

  From Gary Alexander:

  The Aldrich-Vreeland Act was passed May 30, 1908, in response to the Panic of 1907. The punitive measures included a tax of up to 10% on notes based on securities other than federal bonds. It also established a commission to investigate the currency and banking systems. President Theodore Roosevelt named Aldrich – a Rhode Island Republican and namesake for his grandson, Nelson Aldrich Rockefeller – as chairman of the National Monetary Commission. All this came about five years before the birth of the Federal Reserve and Internal Revenue Service in 1933.
  The Securities Act of 1933 was signed into law on May 27, 1933. It was designed to prevent future Panics – now called Depressions. This federal legislation of securities required all new issues to be registered with the Federal Trade Commission. A year (and a week) later, the Securities and Exchange Commission (1934) was formed on June 6, 1934 to enforce the Securities Act. Before that, states oversaw securities offerings under a variety of “blue sky” Kansas enacted the first blue sky law in 1911. By 1933, 47 states (all but Nevada) enacted them
  Ironically, May 27, 1933 was also the opening day of the “Century of Progress” World’s Fair in Chicago, and the opening day for Walt Disney’s early cartoon effort, “Who’s Afraid of the Big Bad Wolf?”

• Unitedhealth Group Offers Huge Dividend Increase
  Eddy Elfenbein, May 26th, 2010 at 11:41 am

  Hooray for Unitedhealth Group (UNH)! The company is jumping on my lonely call for much-increased dividends. UNH said it’s going to start paying a quarterly dividend of 12.5 cents per share instead of its measly three cents a share it paid annually.
  My only question is why they didn’t they do this years ago? For the past few years, Unitedhealth has made about $3 per share, yet they only paid out about 1% of that to shareholders. What did they do with their money? You guessed it—large share buybacks. And what did shareholders get for all those buybacks? Not much at all. For over four years, the stock has been a dud.
  The AP writes: “UnitedHealth is the largest publicly traded health insurer based on revenue. Stifel Nicolaus analyst Tom Carroll says it is extremely unusual for a health insurer to offer more than a token dividend.” I don’t think UNH will be the last. The projected dividend yield works out 1.7%.

• Fascinating Factoid of the Day
  Eddy Elfenbein, May 26th, 2010 at 9:39 am

  From Matt Ridley’s The Rational Optimist:

  Pollution from driven cars has fallen so fast it is now below that of parked cars in 1970.

• Back Up to 10,000
  Eddy Elfenbein, May 25th, 2010 at 3:27 pm

  The market has turned around sharply since this morning. The Dow is currently at 9987 which is over 200 points above today’s low.
  Bed Bath & Beyond (BBBY), Jos. A Bank Clothiers (JOSB) and Intel (INTC) are now up for the day. Hang on. The last half hour of trading will be crucial.