Archive for October, 2010

  • Google Pays 2.4% Taxes on Overseas Profits
    , October 21st, 2010 at 11:55 am

    How much are you paying on your overseas taxes? Or do you even have overseas taxes? Well, if your name is Google then you’re only paying 2.4% on the profits you generate outside the country.

    For the record, the U.S. corporate tax rate is 35%.

    One analyst thinks that if Google followed the normal rules the stock would be $100 lower. Mind you, Google isn’t doing anything illegal, at least not as the laws now stand. Also, there are plenty more companies doing the exact same thing.

    These companies use a complicated maneuver where they send their taxes through Ireland to a tax-haven island. This is known at the “Double Irish.” Google uses Bermuda after a stop in the Netherlands. From 2007 to 2009, Google saved $3.1 billion.

    This Bermuda-managed entity is owned by a pair of Google subsidiaries that list as their directors two attorneys and a manager at Conyers Dill & Pearman, a Hamilton, Bermuda law firm.

    Tax planners call such an arrangement a Double Irish because it relies on two Irish companies. One pays royalties to use intellectual property, generating expenses that reduce Irish taxable income. The second collects the royalties in a tax haven like Bermuda, avoiding Irish taxes.

    To steer clear of an Irish withholding tax, payments from Google’s Dublin unit don’t go directly to Bermuda. A brief detour to the Netherlands avoids that liability, because Irish tax law exempts certain royalties to companies in other EU- member nations. The fees first go to a Dutch unit, Google Netherlands Holdings B.V., which pays out about 99.8 percent of what it collects to the Bermuda entity, company filings show. The Amsterdam-based subsidiary lists no employees.

    At least no one can be laid off.

  • Three More Earnings Reports
    , October 21st, 2010 at 10:37 am

    The most-hated rally in history continues to rally, and our Buy List is now up over 10% for the year. The S&P 500 finally broke through 1,185 this morning after failing two times before.

    First, though, let’s get to three more earnings reports this morning. They all sound the same—beating forecasts and raising guidance.

    Eli Lilly (LLY) reported earnings of $1.21 per share which is six cents more than Wall Street’s consensus. That’s a good showing, but the weak spot is that revenues rose only 1.7% to $5.65 billion, $120 million short of Wall Street’s estimates. As a result, the stock has pulled back modestly this morning.

    Bloomberg writes    :

    Top-selling Zyprexa fell 0.8 percent to $1.21 billion, while the antidepressant Cymbalta gained 4.4 percent to $825.3 million and the cancer treatment Alimta rose 21 percent to $560.3 million. Higher demand outside the U.S. drove revenue growth, Lilly said.

    Watch for Lilly to make some acquisitions soon. They need new drugs in the pipeline. The good news is that Lilly raised its full-year EPS forecast to a range of $4.65 to $4.75. Two months ago, the company said to expect $4.50 to $4.65. The shares are currently down about 1%.

    Baxter International (BAX) is up nearly 4% today thanks to a very good earnings report. For the third quarter, Baxter earned $1.01 per share which is four cents more than Wall Street’s forecast. The company also said to expect full-year earnings of $3.96 to $3.98 per share. (Wow—that’s a narrow range, but there’s only one quarter to go.) The earlier range was $3.93 to $3.98. For Q4, Baxter sees earnings of $1.09 to $1.11 per share.

    Sales of $3.22 billion, up 2.5%, topped Wall Street’s $3.16 billion forecast. Baxter noted that international sales growth was nicked by unfavorable foreign currency rates.

    Sales in the bioscience business were flat at $1.39 billion, or up 3% excluding the currency impact, but Baxter noted better performance there. Contributing factors included hemophilia treatments and strong demand for a plasma-based treatment for immune disorders and another that treats an inherited condition that can hurt the lungs.

    Sales in medication delivery, which includes items like intravenous solutions and drug infusion pumps. rose 5% to $1.23 billion, with growth reduced by the currency impact. Sales in the renal unit, which includes products for managing patients with end-stage kidney failure, grew 3% to $594 million.

    Reynolds American (RAI) earned $1.35 per share, one penny more than estimates. The company also raised the low end of its full-year forecast. Reynolds now expects full-year EPS to range between $4.95 and $5.05. The earlier range was $4.90 to $5.05.

    The number of cigarettes the company sold fell 2.6 percent to 20.1 billion sticks, but its market share rose slightly to 28.2 percent with increases in the market shares of both Camel and Pall Mall. Camel volumes grew 1.5 percent, and Pall Mall grew 45.1 percent in the quarter.

    Although the company has been selling fewer cigarettes, they’ve been able to raise the price. The AP writes:

    Reynolds American has aggressively promoted Pall Mall as a longer-lasting and more affordable cigarette as smokers weather the weak economy and high unemployment. During the quarter, the brand’s market share increased 2.8 points to 7.8 percent of the U.S. market.

    “Pall Mall is the right product at the right time,” Daniel M. Delen, the head of R.J. Reynolds Tobacco Co., said in a news release.

    Reynolds American and other tobacco companies are also focusing on cigarette alternatives — such as snuff and chewing tobacco — for future sales growth as tax increases, smoking bans, health concerns and social stigma make the cigarette business tougher.

    Reynolds American said third-quarter volumes of its Kodiak and Grizzly smokeless tobacco grew only 1.2 percent due to higher levels of promotion from its competitors.

    Shares of RAI are currently down about 1%.

  • Morning News: October 21, 2010
    , October 21st, 2010 at 7:39 am

    Federal Reserve Bank Pay Soars

    China Yuan Up Late On Lower Central Parity, Weak Dollar

    G-20 Seeks To Forge Currency Consensus, But Deal Elusive

    Nokia Third Quarter Results Beat Forecasts

    New York Fed Faces `Inherent Conflict’ in Mortgage Buybacks

    Germany Doubles Growth Forecast

    French Industry ‘Losing at Least £100 Million a Day’

    Toyota To Recall 1.5M Vehicles for Brake Concerns

    Government Should Subsidize the Québec Nordiques

    Infinera Shatters Optical Land

  • CWS Earnings Calendar
    , October 20th, 2010 at 6:59 pm

    Here’s an update of our Buy List earnings calendar:

    Company Ticker Symbol Earnings Date Estimated EPS Reported EPS
    Intel INTC 12-Oct $0.50 $0.52
    Gilead GILD 19-Oct $0.87 $0.90
    Johnson & Johnson JNJ 19-Oct $1.15 $1.23
    Stryker SYK 19-Oct $0.77 $0.80
    SEI Investments SEIC 20-Oct $0.26 $0.30
    Baxter BAX 21-Oct $0.97
    Eli Lilly LLY 21-Oct $1.15
    Reynolds American RAI 21-Oct $1.34
    Fiserv FISV 26-Oct $1.00
    AFLAC AFL 27-Oct $1.39
    Moog MOG-A 4-Nov $0.70
    Wright Express WXS 4-Nov $0.68
    Becton Dickinson BDX 4-Nov $1.25
    Sysco SYY 8-Nov $0.51

  • The Macbeth Market
    , October 20th, 2010 at 4:42 pm

    The S&P 500 close one week ago: 1178.10.

    The S&P 500 close today: 1178.17.

    This market is “a tale told by an idiot, full of sound and fury, signifying nothing.”

    But there is good news. Nicholas Financial (NICK) got to $9.99 today, just one penny from the big One-Oh.

    Gilead Sciences (GILD) and Stryker (SYK) held on to their gains today. Medtronic (MDT) also did well thanks to a good earnings report from Boston Scientific (BSX). The Buy List gained 1.29% for the day which was 0.24% better than the S&P 500. Since the end of August, the Buy List is up 16.00% compared with 12.28% for the S&P 500.

    Tomorrow we have earnings reports from Baxter (BAX), Eli Lilly (LLY) and Reynolds American (RAI).

  • The One-Point Trend Finally Ends
    , October 20th, 2010 at 3:02 pm

    To paraphrase Churchill: “Never in the field of capital markets have so many taken so much confirmation from so little.”

  • The Return of the Nifty Fifty
    , October 20th, 2010 at 2:20 pm

    In the early 1970s, there was a spectacular run in a small group of stocks known as the Nifty Fifty. Here’s a list of the names.

    These stocks were popular because they were seen as stable growing stocks. There was also a belief at the time that capitalism could help “bring people together” after the tumult of the 1960s.

    I think the Coca-Cola ad of kids on a hilltop singing the Coke Song best captured this worldview. Other stocks like McDonalds, Disney and Eastman Kodak really tapped this idea.

    What I’ve noticed recently is that a lot of these Old School Nifty Fifty guys have been doing quite well recently.

    Coke (KO) just gapped up higher earnings. McDonalds (MCD) hit an all-time high today. Also, 3M (MMM), Altria (MO) and Procter & Gamble (PG) are near new 52-week highs (Philip Morris was a Nifty Fifty stock).

    Is this 1972 or 2010?

  • Bailout Profits Beat Treasuries
    , October 20th, 2010 at 1:55 pm

    Bloomberg notes that the government’s profits from TARP are running ahead of the yield on U.S. Treasury bonds so far. In other words, the proceeds have covered the expenses:

    The government has earned $25.2 billion on its investment of $309 billion in banks and insurance companies, an 8.2 percent return over two years, according to data compiled by Bloomberg. That beat U.S. Treasuries, high-yield savings accounts, money- market funds and certificates of deposit. Investing in the stock market or gold would have paid off better.

    When the government first announced its intention to plow funds into the nation’s banks in October 2008 to resuscitate the financial system, many expected it to lose hundreds of billions of dollars. Two years later TARP’s bank and insurance investments have made money, and about two-thirds of the funds have been paid back. Yet Democrats are struggling to turn those gains into political capital, and the indirect costs of propping up banks could have longer-term consequences for the economy.

    “From the perspective of the taxpayers getting their money back, TARP has been a great success,” said Todd Petzel, chief investment officer at New York-based Offit Capital Advisors LLC, which has more than $5 billion of assets under management. “But there are other costs as the government made it possible for the banks to pay back TARP. Those costs can turn out to be larger, and their legacy could last longer.”

    That’s good news. The problem is that taxpayers could have — and should have — made a much larger profit. Warren Buffett was able to loan money to Goldman Sachs for 10%. That’s twice what the government got.

  • Bill Miller: Best Time to Invest Since Early 1980s
    , October 20th, 2010 at 10:41 am

    This is pretty long (27 minutes) but worth it. Bill Miller beat the market for 15-straight years. He said he’d be surprised if the market isn’t up 20% in the next 12 months.

  • SEI Investments Earns 30 Cents Per Share
    , October 20th, 2010 at 10:25 am

    The market is shaking off yesterday’s loss and trading higher this morning. The good news is that Stryker (SYK) and Gilead (GILD) are doing well thanks to their positive earnings reports.

    Our only earnings report today is from SEI Investments (SEIC). For the third quarter, SEIC earned 30 cents per share which is four cents more than Wall Street was expecting. The stock is currently up about 0.6%.

    The weak spot today is coming from Eli Lilly (LLY) due to the FDA, once again, not approving a weekly version of Byetta, a diabetes drug.