Archive for November, 2010

  • Morning News: November 25, 2010
    , November 25th, 2010 at 7:53 am

    Stocks Inch Up as U.S. Holiday Thins Trade

    Jobless Claims Lowest Since July 2008

    Americans Boost Spending as Incomes Grow

    No Risk of Euro Zone Breakup in Irish Crisis: EU

    ECB May Delay Exit Again as EU Bailout of Ireland Fails to Stem Contagion

    Shanghai Gains 1%; Low Coal Reserves at Power Plants

    Oil Turns Positive in Volatile Trading Session

    Airline Industry Rebound Hinges on Growth, Security and Seats, IATA Says

    Insider Trading Inquiry Accelerates

    Caterpillar to Issue Yuan Bond

    Blackstone’s Dynegy Bid Scrapped, Other Offers Sought

  • Amazon Makes New All-Time High
    , November 24th, 2010 at 12:51 pm

    Amazon (AMZN) was certainly one of the stars of the tech bubble. The stock went from $1.50 in its May 1997 IPO to an intra-day high of $113 in late 1999. From there, the stock fell to a low of $5.51 shortly after 9/11.

    So that’s the end of the story. We all learned that these tech stocks were silly and that no one should have bought them.

    Well…not exactly. Check out a complete chart:

    The stock broke out to a new all-time high today of $177.39. Even if you bought at the exact top 11 years ago, you’d still be up 57% today.

    Of course, that would be after having watched yourself lose 95% of your money.

  • Tiffany Beats, Guides Higher
    , November 24th, 2010 at 8:46 am

    Good news from Tiffany (TIF):

    Tiffany & Co., the world’s second- largest luxury jewelry retailer, reported a 27 percent gain in third-quarter profit that topped analysts’ estimates as sales rose globally.

    Net income advanced to $55.1 million, or 43 cents a share, from $43.3 million, or 35 cents, New York-based Tiffany said today in a statement. Excluding costs related to the relocation of headquarter employees, profit was 46 cents. Analysts projected 36 cents, the average of estimates in a Bloomberg survey.

    Revenue gained 14 percent to $681.7 million, exceeding the $652.5 million average of estimates. Stock market gains have helped improve confidence among luxury consumers, who will be the “stellar spender” this holiday season, according to Michael P. Niemira, chief economist at the International Council of Shopping Centers.

    Tiffany raised its full-year earnings forecast to as much as $2.77 a share, excluding some items    . In August, the retailer predicted as much as $2.65 a share, an increase from a May forecast. Analysts estimated $2.65, on average.

    Tiffany dropped 95 cents to $58.27 yesterday in New York Stock Exchange composite trading. The shares have gained 36 percent this year.

    Sales at all luxury stores open more than a year will increase as much as 8 percent in November and December from a year ago, according to the ICSC.

    That’s a very impressive earnings report. Tiffany beat by 10 cents per share, or nearly 28%. Sales beat estimates by over 4% and the company raised guidance to “as much as” $2.77 per share.

    Tiffany really isn’t going out on a limb here since there’s only one more quarter left in their fiscal year (ending January). But Tiffany’s news catches my attention for a few reasons. One is that their business is heavily skewed to the holiday season.

    Typically about half of Tiffany’s annual earnings come during the fourth quarter. If the third quarter was strong, that probably means the fourth will be as well. Of course that’s not a guarantee, but it does bode well.

    The other reason to pay attention to Tiffany is that it’s a good way of seeing retail strength at the high-end. Tiffany tends to be very cyclical. When times are tough, folks generally cut back on the bling. Today’s report is evidence that wealthy consumers are not only doing well but that they’re willing to spend.

  • Morning News: November 24, 2010
    , November 24th, 2010 at 7:47 am

    China, Russia to Drop Dollar in Bilateral Trade

    Ireland Rating Cut Two Steps by S&P as `Barbarians’ Gather

    Consumer, Business Spending in U.S. Probably Rose in October

    Fed Lowers Economic Expectations for 2011

    U.S. Hedge Funds and Mutual Funds Get Subpoenas

    Wallets Out, Wall St. Dares to Indulge

    10 Fascinating Facts About U.S. Currency

    Bloomberg Announcement: Keep Calm and Carry On

    Why Was 3rd Quarter GDP Revised Up to 2.5%?

    Zombie Bears: Time to Admit the Recession is Over

    Oracle Ruling Tarnishes SAP’s U.S. Reputation

    A Trading Style Not Easily Executed

    San Francisco Board Overrides Veto of Happy Meal Ban

  • Eaton Vance Beats By Two Cents
    , November 23rd, 2010 at 3:02 pm

    Medtronic (MDT) wasn’t our only Buy List stock to report earnings. Eaton Vance (EV) reported fiscal Q4 earnings of 41 cents per share, two cents better than expectations.

    This was a good quarter for EV. Net inflows rose to $3.4 billion from $500 million. Revenue jumped 19% to $303.6 million from $254.1 million. Wall Street was looking for revenue of $287.4 million.

    The details here look solid:

    Investment advisory and administration fees — money the Boston-based company collects for managing mutual funds and separate accounts — increased 18 percent, reflecting an increase in assets under management. Eaton Vance’s managed assets total was $185.2 billion as of Oct. 31, up 20 percent from the year-ago figure of $154.9 billion.

    The higher asset total was the result of investment gains, and of investors putting more money in than they took out. Eaton Vance reported a net inflow of $3.2 billion into funds and separate accounts in the latest quarter. However, the inflow total fell from $5.5 billion in last year’s fourth quarter, and from $4.8 billion in this year’s third quarter.

    Operating expenses rose 11 percent to $197.5 million from $177.3 million in the year-ago quarter. The increase was driven in part by higher employee compensation expenses, and growth in asset- and sales-based distribution expenses.

    Unfortunately, this stock has been stuck in a trading range for the past six months. Shares of EV have barely strayed from $30.

    Last month, Eaton Vance raised its dividend for the 30th year in a row. The new dividend is 18 cents per share which is a 12.5% increase from the old dividend of 16 cents per share.

  • Medtronic Beats Earnings, Lowers Guidance
    , November 23rd, 2010 at 1:30 pm

    Medtronic (MDT) reported fiscal Q2 earnings (quarter ending in October) this morning of 82 cents per share. Wall Street’s consensus was for 81 cents per share. I had seen earlier reports that the consensus was for 82 cents; perhaps it came down some. If so, we have an earnings beat.

    I had said in last week’s CWS Market Review (what, you still haven’t signed up? It’s FREE) that I thought Medtronic could lower their full-year guidance. Well, that’s exactly what they did. To recap, in August they lowered their 2011 EPS guidance to a range of $3.40 to $3.48 from $3.45 to $3.55. Today, they brought it down to $3.38 to $3.44.

    Let’s see how that stacks up: For the first half of their fiscal year, MDT has earned $1.61 per share. That means they need to earn between $1.77 and $1.83 per share for the second half to hit their guidance. Last year they made $1.67 per share in the back half, so given the recent growth rate, the new forecast is very reasonable.

    Sales of defibrillators and pacemakers fell 2 percent to $1.25 billion for the quarter, while sales of stents, heart valves and other heart implants grew 6 percent to $738 million, helped by sales in China, Latin America and other emerging markets.

    Sales of restorative therapies, which include spinal, diabetes and other products, rose 2 percent to $1.81 billion. Within that group, spinal sales fell 1 percent to $850 million, but that was well ahead of analyst estimates for $825 million.

    Medtronic spent nearly $4 billion to acquire spinal implant maker Kyphon in 2007 and sales have continued to lag behind Wall Street expectations.

    “Our pipeline, which we’ve been talking about for some time, is starting to show results and is going to allow us to drive market growth and ultimately put us in position to gain share,” said Chief Executive Bill Hawkins.

    Spinal procedures tend to be expensive and highly invasive and the rate of procedures has not kept pace with company estimates.

    Despite improved performance, the company still scaled back its scaled back its overall growth expectations for the device market to 2-3 percent from 2-4 percent for the second half of the year.

    I haven’t been thrilled with Medtonic’s earnings recently, and this quarter is no exception. Put it this way: the CFO said, “The fact that it’s not getting any worse out there gives us the excitement that we are in the right markets and they will eventually return to their historical growth.”

    Still, the numbers are very favorable. Medtronic should make $3.40 per share this fiscal year. The stock is currently going for slightly more than 10 times that. On top of that, the shares currently offer a nice 22.5-cent quarterly dividend (2.6% annualized). Medtronic is an excellent buy below $34 per share.

  • Monday Is the Best Day of 2010
    , November 23rd, 2010 at 12:26 pm

    Even with yesterday’s slight loss, Monday is shaping up to be the big winner for 2010.

    For the year so far, the S&P 500 is up a collective +13.27% on Mondays. The other four days of the week combined are down -5.17%.

    Tuedays combined are -3.29% (today not included). Wednesdays are the only other positive day, +7.35%. Thursdays are -2.08%. Fridays are the biggest loser, -6.72%.

  • Corporate Profits = 11.24% of GDP
    , November 23rd, 2010 at 10:44 am

    I wanted to follow-up on the earlier post about corporate profits hitting an all-time high. Not only are profits so high in nominal terms but they’re also very high as a portion of the GDP.

    According to today’s report, corporate profits make up 11.24% of the GDP. This figure plunged dramatically during the recession, reaching a 21-year low of 7.01% for the fourth quarter of 2008.

    Before the recession started, profits rose to 12.3% of GDP in the third quarter of 2006. That was the highest level since 1950. The number for last quarter is higher than any reading from 1966 to 2004.

    Think of the chart below as a profit margin chart for the entire economy. The good news is that corporate profits have grown thanks to margin expansion. The problem is that, judging by historical standards, profits margins can’t improve that much more.

    For profits to continue to grow, sales need to start growing. That means the economy had better start improving by adding new consumers, meaning more workers. More workers, more sales, more profits.

  • Becton Dickinson Raises Dividend for 38th Straight Year
    , November 23rd, 2010 at 9:19 am

    Good news for shareholders of Becton Dickinson (BDX)! The company has announced that it’s raising its quarterly dividend from 37 cents per share to 41 cents per share. That’s an increase of 10.8% and BDX has now increased its dividend for 38 straight years!

    Going by the new yearly payout of $1.64, BDX currently yields 2.1%. The 5-year Treasury is going for 1.37%. If you bought the stock 20 years ago, you’re currently yielding close to 20%.

    The dividend appears to be very safe. Earlier this month, BDX gave guidance for the fiscal year ending September 2011 of $5.45 to $5.55 per share. They made $4.90 this past year. In my opinion, any entry below $80 is a good value.

    Here’s a look at their quarterly dividends for the past few years:

  • Third-Quarter GDP Revised to +2.5%
    , November 23rd, 2010 at 8:49 am

    This is some good news. The GDP report for the third quarter was revised higher from the initial report of 2% growth to 2.5% growth. The good news is that this was higher than Wall Street’s consensus of 2.4% growth. The downside is that 2.5% is right about the rate the economy needs to grow in order to absorb new workers.

    In other words, the good news is that we’re standing still. At least we’re not where we were, which was falling backwards very quickly.

    The revised increase in gross domestic product compares with a 2 percent estimate issued last month and a 1.7 percent rise in the second quarter, figures from the Commerce Department showed today in Washington. Corporate profits grew last quarter at a slower pace and an increase in employee wages in the prior three months was almost twice as much as initially reported.

    While gains in earnings are giving companies the wherewithal to hire, the pace of growth is failing to bring down a jobless rate hovering near 10 percent. Unemployment along with a cooling of inflation as retailers such as Wal-Mart Stores Inc. reduce prices underscore the Federal Reserve’s decision to inject more money into the economy.

    “This is still, by the standards of history, only a half- speed expansion,” said Avery Shenfeld, chief economist at CIBC World Markets in Toronto, who correctly forecast the revised increase in GDP. Inflation “is very tame and 2.5 percent growth is not fast enough to put Americans back to work by any extent.”

    Today’s figures showed bigger gains in exports, consumer spending and business investment in new equipment than previously estimated.

    An interesting tidbit is that corporate profits are now at the highest level ever recorded.

    The nation’s workers may be struggling, but American companies just had their best quarter ever.

    American businesses brought in $1.66 trillion at an annual rate in the third quarter, according to a Commerce Department report released Tuesday. That is the highest figure recorded since the government began keeping track over 60 years ago, at least in nominal or non-inflation-adjusted terms.

    Corporate profits have been going gangbusters for a while. Since their cyclical low in the fourth quarter of 2008, profits have grown for seven consecutive quarters at some of the fastest rates in history.

    This breakneck pace can be partly attributed to strong productivity growth — which means companies have been able to make more with less — as well as the fact that some of the profits of American companies come from abroad. Economic conditions in the United States may still be sluggish, but many emerging markets like India and China, are expanding rapidly.

    See that teeny little crook at the end of the chart? That’s what all the Double Dip fuss was about this summer. Yes, that’s all it was.