Archive for September, 2010

• DuPont Hits new 52-Week High
  Eddy Elfenbein, September 13th, 2010 at 12:51 pm

  Just a quick note on DuPont (DD). Here’s another good example of a boring company that can be a great buy.
  
  Back when the world blew up, the stock dropped as low as $16 a share. But let’s look at the recent earnings trend. Last quarter, DD beat Wall Street’s forecast by 24%. The quarter before that, they beat by 17%. Then by “just” 7%. But the two before that were earnings beats of 36% and 15%. That’s a great run.
  When the last earnings report came out, DuPont raised their full-year guidance range from $2.50 to $2.70 per share to $2.90 to $3.05 per share. That’s a hefty increase.
  In June, DuPont’s CFO spoke of the company’s bold goals:

  Fanandakis reaffirmed the company’s commitment to deliver about 20 percent compound annual earnings growth for the 2009-2012 periods. By executing on priorities, DuPont expects to generate about 10 percent top-line compound annual growth for the 2009-2012 periods. As previously disclosed, the company also plans to capture $1 billion in fixed cost productivity and $1 billion in working capital productivity gains during the 2010-2012 timeframe.

• AFLAC’s Strange Ride
  Eddy Elfenbein, September 13th, 2010 at 10:48 am

  This is shaping up to be a very good morning. All 20 Buy List stocks are up. AFLAC (AFL) has been as high as $52.35 which is the highest price in over four months.
  By the way, let’s take a step back and laugh at Wall Street for a moment. AFLAC reported Q2 earnings-per-share of $1.35 on July 27. That was two cents better than expectations. In April, they said to expect Q2 to range between $1.33 and $1.38 per share. In other words, this last earnings report was hardly a major surprise.
  Yet, how did AFLAC’s shares respond to the earnings report? They sold off! The stock closed at $50.41 on July 27. The next day, they dropped 2.3%. By late August, the stock was off by more than 12%. Then, suddenly, everything turned around. AFLAC not only gained back everything it lost but it’s actually higher than where it was before the earnings report. This makes no sense. There’s been no critical news between then and now. We’ve simply seen traders push a staid stock down and up by a few billion dollars for really no reason. Remember that next time you place a buy order.

• Morning News: September 13, 2010
  Eddy Elfenbein, September 13th, 2010 at 10:06 am

  Why Some Gloomy Investors are Bullish on Stocks
  Bank Stocks Climb as Basel Gives Firms Eight Years to Comply
  
  At Goldman, Partners Are Made, and Unmade
  Asian Shares Gain on Economic Optimism
  
  Geithner Urges Action on Economy
  Consumers Will Pay More for Goods They Can Touch
  U.S. Debt Fund Shuns Dubai World Debt Deal
  The Era of Expert Failure

• Greece: “The Country Sank the Banks”
  Eddy Elfenbein, September 12th, 2010 at 4:09 pm

  
  I strongly urge you to read Michael Lewis’ very long article in Vanity Fair on the massive disaster called the Greek economy. Here’s a sample:

  Moody’s, the ratings agency, had just lowered Greece’s credit rating to the level that turned all Greek government bonds into junk—and so no longer eligible to be owned by many of the investors who currently owned them. The resulting dumping of Greek bonds onto the market was, in the short term, no big deal, because the International Monetary Fund and the European Central Bank had between them agreed to lend Greece—a nation of about 11 million people, or two million fewer than Greater Los Angeles—up to $145 billion. In the short term Greece had been removed from the free financial markets and become a ward of other states.
  That was the good news. The long-term picture was far bleaker. In addition to its roughly $400 billion (and growing) of outstanding government debt, the Greek number crunchers had just figured out that their government owed another $800 billion or more in pensions. Add it all up and you got about $1.2 trillion, or more than a quarter-million dollars for every working Greek. Against $1.2 trillion in debts, a $145 billion bailout was clearly more of a gesture than a solution. And those were just the official numbers; the truth is surely worse. “Our people went in and couldn’t believe what they found,” a senior I.M.F. official told me, not long after he’d returned from the I.M.F.’s first Greek mission. “The way they were keeping track of their finances—they knew how much they had agreed to spend, but no one was keeping track of what he had actually spent. It wasn’t even what you would call an emerging economy. It was a Third World country.”
  As it turned out, what the Greeks wanted to do, once the lights went out and they were alone in the dark with a pile of borrowed money, was turn their government into a piñata stuffed with fantastic sums and give as many citizens as possible a whack at it. In just the past decade the wage bill of the Greek public sector has doubled, in real terms—and that number doesn’t take into account the bribes collected by public officials. The average government job pays almost three times the average private-sector job. The national railroad has annual revenues of 100 million euros against an annual wage bill of 400 million, plus 300 million euros in other expenses. The average state railroad employee earns 65,000 euros a year. Twenty years ago a successful businessman turned minister of finance named Stefanos Manos pointed out that it would be cheaper to put all Greece’s rail passengers into taxicabs: it’s still true. “We have a railroad company which is bankrupt beyond comprehension,” Manos put it to me. “And yet there isn’t a single private company in Greece with that kind of average pay.” The Greek public-school system is the site of breathtaking inefficiency: one of the lowest-ranked systems in Europe, it nonetheless employs four times as many teachers per pupil as the highest-ranked, Finland’s. Greeks who send their children to public schools simply assume that they will need to hire private tutors to make sure they actually learn something. There are three government-owned defense companies: together they have billions of euros in debts, and mounting losses. The retirement age for Greek jobs classified as “arduous” is as early as 55 for men and 50 for women. As this is also the moment when the state begins to shovel out generous pensions, more than 600 Greek professions somehow managed to get themselves classified as arduous: hairdressers, radio announcers, waiters, musicians, and on and on and on. The Greek public health-care system spends far more on supplies than the European average—and it is not uncommon, several Greeks tell me, to see nurses and doctors leaving the job with their arms filled with paper towels and diapers and whatever else they can plunder from the supply closets.
  Where waste ends and theft begins almost doesn’t matter; the one masks and thus enables the other. It’s simply assumed, for instance, that anyone who is working for the government is meant to be bribed. People who go to public health clinics assume they will need to bribe doctors to actually take care of them. Government ministers who have spent their lives in public service emerge from office able to afford multi-million-dollar mansions and two or three country homes.
  Oddly enough, the financiers in Greece remain more or less beyond reproach. They never ceased to be anything but sleepy old commercial bankers. Virtually alone among Europe’s bankers, they did not buy U.S. subprime-backed bonds, or leverage themselves to the hilt, or pay themselves huge sums of money. The biggest problem the banks had was that they had lent roughly 30 billion euros to the Greek government—where it was stolen or squandered. In Greece the banks didn’t sink the country. The country sank the banks.

• Crossing Wall Street Nine Years Ago
  Eddy Elfenbein, September 11th, 2010 at 1:39 pm

  

• Happy Birthday, Maria
  Eddy Elfenbein, September 11th, 2010 at 10:41 am

  The Money Honey turns 43.
  

• The Dow’s 1-for-11 Streak
  Eddy Elfenbein, September 10th, 2010 at 11:41 am

  I just looked at some recent data and found that ten of the last 11 stocks added to the Dow Jones Industrial Average have under-performed the index since their addition date.

  Company	Ticker	Date Added	Gain/Loss	Dow’s Gain/Loss
  Home Depot	HD	01-Nov-99	-42.14%	-2.19%
  Intel	INTC	01-Nov-99	-52.63%	-2.19%
  Microsoft	MSFT	01-Nov-99	-48.02%	-2.19%
  AT&T	T	01-Nov-99	-47.53%	-2.19%
  Pfizer	PFE	08-Apr-04	-52.89%	-0.26%
  Verizon	VZ	08-Apr-04	-7.80%	-0.26%
  Bank of America	BAC	19-Feb-08	-68.36%	-15.58%
  Chevron	CVX	19-Feb-08	-8.81%	-15.58%
  Kraft Foods	KFT	22-Sep-08	-7.10%	-5.45%
  Cisco Systems	CSCO	08-Jun-09	3.72%	18.83%
  Travelers	TRV	08-Jun-09	14.46%	18.83%

  Note that AT&T was added as SBC Communications.

• Hurray for Spin-Offs
  Eddy Elfenbein, September 10th, 2010 at 11:13 am

  In general, I like spin-offs and hate mega-mergers: which leads me to smoking stocks and they’ve been smoking lately. Altria (MO) is at a 52-week high and it’s close to an all-time high.
  The company spun-off Kraft (KFT) in 2007. Kraft was already publicly traded but MO decided to ditch its remaining 88% in the company. Then in 2008, MO spun-off Philip Morris (PM).
  Here’s a look at how they’ve done:
  
  Every stock has beaten the S&P 500 which is the gold line at the bottom. Kraft is the red line, Philip Morris is the blue and Altria is the black.
  Mega-mergers sound great. They make a lot of news, but the results are usually pretty unimpressive. Spin-offs, however, can often be good places to find cheap stocks. I should add that after the spin-off, MO was kicked out of the Dow which is another index it has outperformed.

• Stocks Aganst Bonds
  Eddy Elfenbein, September 10th, 2010 at 10:10 am

  Here’s an interesting chart. This shows how the S&P 500 ETF (SPY) has done compared with the Long-Term Treasury ETF (TLT). Since April, they’ve become almost mirror images of each other.
  
  I ran the numbers and found that since April 21, the daily correlation between the two is -0.55. In other words, when stocks go up, long-term bonds go down. When bonds go down, long-term stocks go up. Now let’s place “generally” before those last two statements, but you get the idea.
  What does it mean for the market? It’s hard to say. It usually means that capital is undecided. Money has a simple rule: It goes where it’s treated best. Right now, equity and debt are slugging it out.
  The 10-year bond has been taking a hit recently but that’s hardly a shocker considering how low the yield went. On August 25, the intra-day yield dropped to just 2.42%. Think about that for a moment. At that rate, even after 10-years, you still won’t have made 25% on your dough. The yield has crept up and it just jumped above 2.8% today.
  I’m happy to see the market go up, but we need to bear in mind that it’s only coming at the bond market’s expense. Personally, I can live with that. But if I had my preference, I’d like to see new money come in from commodities that would fuel both asset classes.

• Morning News: September 10, 2010
  Eddy Elfenbein, September 10th, 2010 at 9:41 am

  FOREX-Dollar bounce loses steam, Swissie slides
  
  Nokia Hires Microsoft’s Elop as CEO to Reverse Losses to Apple
  China Posts $20 Billion Trade Surplus as U.S. Seeks Yuan Gains
  Goolsbee to Lead Panel on Economy
  Dubai World Close to Agreement on Debt
  
  Ozawa win may push Bank of Japan to buy government bonds
  Deutsche Bank Said to Weigh Share Sale of Up to $11.4 Billion
  SEC Examines Funds of Hedge Funds