Archive for September, 2010

• Hawkins Keeps Charging
  Eddy Elfenbein, September 23rd, 2010 at 1:03 pm

  A few months ago, I highlighted Hawkins (HWKN).

  One company that I’ve followed for many years is Hawkins Inc. (HWKN). Talk about unloved! Barely anyone follows widdle Hawkins. Yet, this has been an outstanding stock for decades! (BTW, I’m not recommending the stock. I’m just using them as an example.)

  Hawkins is a specialty chemical company based in Minnesota. So if you’re in, say, Fargo and you need a shipment of sodium hydroxide, well…these are the boys to call. They’ve been around for many years and the company is largely in family hands. They do what they do, and they do it well.

  The odd thing about Hawkins is that they used to split their stock almost every, but by small amounts. You’d get a 10%, 15% or 20% stock dividend each year. As a result, the nominal share and dividend price didn’t move much, but the stock really did very well.

  This is the kind of stock I love finding. It’s a tiny micro-cap that nobody follows. The odd thing is that the stock has taken off over the past two years. While the rest of the world was falling apart, Hawkins has soared.

  The stock hit $36.99 yesterday. Hawkins is up more than four-fold since early 2003, and it’s close to a triple in the last 18 months. Even after this impressive run, Hawkins is still less than 1/100th the size of DuPont (DD). Over the last 30 years, Hawkins’ stock is up about 80-fold. That’s better than Intel (INTC) yet no analyst currently follows it.

  

• From The Onion
  Eddy Elfenbein, September 23rd, 2010 at 11:05 am

  JPMorgan Chase (JPM) -$2.99 $34.72 (down 7.9%)

  Financial stocks plunged today on reports the House and Senate were nearing agreement on wide-scale banking reforms that, if enacted, would have the devastating potential to foster long-term stability in the national economy.

• Bed Bath & Beyond Hits $44
  Eddy Elfenbein, September 23rd, 2010 at 10:35 am

  The stock is very strong today. It seems like only a few weeks ago that BBBY was below $36, which, in fact, it was.

• McDonald’s Raises Dividend by 11%
  Eddy Elfenbein, September 23rd, 2010 at 10:10 am

  I recently noted that McDonald’s (MCD) stock hit an all-time high. I wrote, “Forty years ago you could have picked up the shares for just 29 cents apiece. That’s adjusted for nine stock splits; four 2-for-1s and five 3-for-2s which equals 121.5-for-1. That’s a gain of close to 26,000% or nearly 15% per year, and it doesn’t include dividends.”

  Well, dividends certainly mean something and McDonald’s just raised its quarterly dividend by 11% to 61 cents per share. The new dividend indicates a yield of 3.25% which is 75 bps more than a 10-year Treasury. If McDonald’s goes bankrupt, what’s the point of the government still being in business?

  McDonald’s is on a roll. The company has increased sales for 88 straight months. If you bought the stock 20 years ago, it’s now yielding you close to 40%. I’m lovin’ it.

  

• The Gold Bubble Bursts — 141 Years Ago
  Eddy Elfenbein, September 23rd, 2010 at 9:52 am

  Gold has been soaring higher and higher recently so I wanted to remind investors that tomorrow marks the 141st anniversary of Black Friday. That’s when Jay Gould and Jim Fisk tried to corner the gold market. And as the name Black Friday suggests, it didn’t end well.

  At the beginning of the Grant administration, the U.S. government was selling off its surplus gold and using the proceeds to get the fiat “greenbacks” off the market. There wasn’t a whole lot of faith in the dollar and the government was trying to restore some confidence.

  Fisk and Gould went into gold in a big way and tried to encourage officials in the Grant administration to let gold rise higher. George Boutwell, the SecTreas, saw what was going on and on Friday, September 24, 1869, he made his move. The Treasury dumped $4 million dollars worth of gold on the market. Almost immediately, the price of gold plunged from $160 to $130.

• Trends Caused by the Great Recession
  Eddy Elfenbein, September 23rd, 2010 at 9:05 am

  LiveScience lists some changes caused by the Great Recession:

  Shark attacks declined
  Energy consumption declined
  Fewer babies were born
  Violent crime went down
  Heavier women became more beautiful
  Dead bodies piled up
  Adulthood was delayed

• Morning News: September 23, 2010
  Eddy Elfenbein, September 23rd, 2010 at 8:38 am

  The Fed, Translated Into English
  Amid Tension, China Blocks Vital Exports to Japan
  Central Banks Struggle for Exit as Recovery Weakens
  Blockbuster to Slash Debt by $900 Million via Bankruptcy
  Dollar Recoups Losses; Euro Pulls Back
  Buyers Send iPhones on a Long Relay to China
  Warren Buffett to CNBC: “We’re Still In a Recession”
  Bill Gates Tops Forbes 400 Ranking of Richest Americans With $54 Billion
  Here’s the Cookie Monster dressed as Issac Hayes singing the theme from Shaft and eating the set. Also, it’s in Dutch. After that, it gets a little strange.

• Bed Bath & Beyond’s Earnings: I Freakin Called It
  Eddy Elfenbein, September 22nd, 2010 at 4:16 pm

  Me a week ago:

  I wouldn’t be surprised to see BBBY smash earnings next week. The stock could even make as much as 70 cents per share (look at me being all bold).

  Today’s earnings report:

  Bed Bath & Beyond Inc. today reported net earnings of $.70 per diluted share ($181.8 million) in the fiscal second quarter ended August 28, 2010, an increase of approximately 35% versus net earnings of $.52 per diluted share ($135.5 million) in the same quarter a year ago.

  That wasn’t a small beat either. Wall Street was expecting 63 cents per share.

  Net sales for the fiscal second quarter of 2010 were approximately $2.137 billion, an increase of approximately 11.6% from net sales of approximately $1.915 billion reported in the fiscal second quarter of 2009. Comparable store sales in the fiscal second quarter of 2010 increased by approximately 7.4%, compared with a decrease of approximately 0.6% in last year’s fiscal second quarter.
  Also during the fiscal second quarter of 2010, the Company repurchased approximately $193 million of its common stock representing approximately 4.9 million shares.
  For the fiscal first half ended August 28, 2010, the Company reported net earnings of $1.22 per diluted share ($319.3 million), an increase of approximately 42% over net earnings of $.86 per diluted share ($222.7 million) in the corresponding period a year ago. Net sales for the fiscal first half of 2010 were approximately $4.060 billion, an increase of approximately 12.5% from net sales of approximately $3.609 billion in the corresponding period a year ago. Comparable store sales for the fiscal first half of 2010 increased by approximately 7.9%, compared with a decrease of approximately 1.1% in last year’s fiscal first half.
  For the fiscal third quarter of 2010, the Company is modeling net earnings per diluted share to be approximately $.61 to $.65. For fiscal 2010, the Company is now modeling net earnings per diluted share to increase by approximately 20%, up from the previous model of approximately 15%.

  That last line is great news. BBBY made $2.30 per share last year so the company is effectively increasing its EPS projection from $2.64 to $2.76. The Street was at $2.71.
  Here are the earnings results going back a few years:

  Quarter	Sales	Gross Profit	Operating Profit	Net Profit	EPS
  May-99$356,633	$146,214	$28,015	$17,883	$0.06
  Aug-99	$451,715	$185,570	$53,580	$33,247	$0.12
  Nov-99	$480,145	$196,784	$50,607	$31,707	$0.11
  Feb-00	$569,012	$238,233	$77,138	$48,392	$0.17
  May-00	$459,163	$187,293	$36,339	$23,364	$0.08
  Aug-00	$589,381	$241,284	$70,009	$43,578	$0.15
  Nov-00	$602,004	$246,080	$64,592	$40,665	$0.14
  Feb-01	$746,107	$311,802	$101,898	$64,315	$0.22
  May-01	$575,833	$234,959	$45,602	$30,007	$0.10
  Aug-01	$713,636	$291,342	$84,672	$53,954	$0.18
  Nov-01	$759,438	$311,030	$83,749	$52,964	$0.18
  Feb-02	$879,055	$370,235	$132,077	$82,674	$0.28
  May-02	$776,798	$318,362	$72,701	$46,299	$0.15
  Aug-02	$903,044	$370,335	$119,687	$75,459	$0.25
  Nov-02	$936,030	$386,224	$119,228	$75,112	$0.25
  Feb-03	$1,049,292	$443,626	$168,441	$105,309	$0.35
  May-03	$893,868	$367,180	$90,450	$57,508	$0.19
  Aug-03	$1,111,445	$459,145	$155,867	$97,208	$0.32
  Nov-03	$1,174,740	$486,987	$161,459	$100,506	$0.33
  Feb-04	$1,297,928	$563,352	$231,567	$144,248	$0.47
  May-04	$1,100,917	$456,774	$128,707	$82,049	$0.27
  Aug-04	$1,273,960	$530,829	$189,108	$120,008	$0.39
  Nov-04	$1,305,155	$548,152	$190,978	$121,927	$0.40
  Feb-05	$1,467,646	$650,546	$283,621	$180,980	$0.59
  May-05	$1,244,421	$520,781	$150,884	$98,903	$0.33
  Aug-05	$1,431,182	$601,784	$217,877	$141,402	$0.47
  Nov-05	$1,448,680	$615,363	$205,493	$134,620	$0.45
  Feb-06	$1,685,279	$747,820	$304,917	$197,922	$0.67
  May-06	$1,395,963	$590,098	$148,750	$100,431	$0.35
  Aug-06	$1,607,239	$678,249	$219,622	$145,535	$0.51
  Nov-06	$1,619,240	$704,073	$211,134	$142,436	$0.50
  Feb-07	$1,994,987	$862,982	$309,895	$205,842	$0.72
  May-07	$1,553,293	$646,109	$154,391	$104,647	$0.38
  Aug-07	$1,767,716	$732,158	$211,037	$147,008	$0.55
  Nov-07	$1,794,747	$747,866	$203,152	$138,232	$0.52
  Feb-08	$1,933,186	$799,098	$259,442	$172,921	$0.66
  May-08	$1,648,491	$656,000	$118,819	$76,777	$0.30
  Aug-08	$1,853,892	$739,321	$187,421	$119,268	$0.46
  Nov-08	$1,782,683	$692,857	$136,374	$87,700	$0.34
  Feb-09	$1,923,274	$785,058	$231,282	$141,378	$0.55
  May-09	$1,694,340	$666,818	$142,304	$87,172	$0.34
  Aug-09	$1,914,909	$773,393	$222,031	$135,531	$0.52
  Nov-09	$1,975,465	$812,412	$245,611	$151,288	$0.58
  Feb-10	$2,244,079	$955,496	$370,741	$226,042	$0.86
  May-10	$1,923,051	$775,036	$225,394	$137,553	$0.52
  Aug-10	$2,136,730	$874,918	$296,902	$181,755	$0.70

  Here’s a closer look at the critical factor, the rebound in BBBY’s margins.
  
  For financial newbies, net margin is a fancy way of saying the “bottom line.” Operating margin is just like net margin but it doesn’t include interest expense or taxes. What’s interesting is that BBBY is able to charge more for its products while sales are still growing at a healthy pace. Net sales have grown by double-digits for the last four quarters in a row.
  I said last week that I would be leery of starting a position over $40. I still feel that way but the new guidance makes me willing to go as high as $42. The shares are up after hours. If you’re looking to buy BBBY, don’t it chase it — wait for it to come to you.

• CNBC Debuts!
  Eddy Elfenbein, September 21st, 2010 at 10:14 am

  From 1989:
  
  
  

• The Trading Range is Finally Broken
  Eddy Elfenbein, September 21st, 2010 at 10:05 am

  We finally did it yesterday. The S&P 500 had closed between 1022.58 and 1127.79 for 86 straight days.

  Thanks to a surge yesterday, the market not only broke though 1130 but finished at 1142.71.

  I can’t tell if this bodes well for the market, but I do believe that the market continues to be underpriced, particularly the stock on our Buy List. AFLAC (AFL) broke through $53 per share. Reynolds American (RAI) is getting very close to $60 per share. (I thought dividend stocks were supposed to be boring!)

  Although it’s not on the Buy List, I noticed that ConAgra (CAG) just upped its dividend by 15%. The quarterly dividend is now 23 cents per share which is up from 20 cents per share. The stock now yields 4.3% which is about 45 bips above the 30-year Treasury.