Archive for February, 2011

  • Chicago PMI at 22-Year High
    , February 28th, 2011 at 11:26 am

    Remember that Double Dip that was supposed to happen? Me neither.

    A gauge of Chicago manufacturing rose to a 22-year high in February, raising hopes for a national indicator due out Tuesday.

    The Chicago business barometer, which also is called the Chicago PMI, rose to 71.2 from 68.8 in January, a reading well above the 67.7 forecast by economists. The reading fell just below the 71.5 hit in July 1988.

    The big jump was led by a rise in production, and new orders also rose, though employment eased slightly from its high in January, to 59.8.

    Any reading above 50 indicates expansion.

    …

    The production subcomponent rose for the sixth straight month, up to 78.2 from 73.7.

    New orders edged up to 75.9 from 75.7, marking the highest level in 28 years.

    Employment slipped to 59.8 from 64.1 in January, which was a 27-year high.

    Prices paid fell slightly to 81.2 from 81.7. Prices paid readings in purchasing managers surveys typically reflect commodity prices, which have been surging.

    One respondent to the survey worried about the rising prices at a time of strong demand.

    “Costs continue to escalate. Tight inventories still slowing down supplier response and stretching out lead-times. Sales are robust causing challenging inventory balancing act when combined with the aforementioned lead-time issue,” the respondent said.

    Another pointed to the rising wage disparities. “Hiring is targeted to rock stars who make much much more than previously eliminated managers,” the respondent said.

  • Berkshire Hathaway Hits New High
    , February 28th, 2011 at 10:40 am

    For the first time in over two years, Berkshire Hathaway (BRKA) traded at $130,000. Thirty years ago you could have picked up one share for $250. Berkshire has done so well that the S&P 500 looks like a flat line in comparison (it’s actually up over 1,100%).

  • Hewlett-Packard Is Cheap, For Good Reason
    , February 28th, 2011 at 7:54 am

    I’ve long had a love/hate relationship with Hewlett-Packard (HPQ). In many ways, it’s a great company. They have their hands in nearly everything tech and they’ve grown to become the largest tech company in the world by revenue. I’m also a big fan of Mark Hurd’s business acumen (despite some of his personal, um…issues) and he engineered something you rarely see—a successful turnaround.

    Ultimately, Hurd had to leave HPQ due to inappropriate conduct with a porn actress who was, in fact, not his wife. I was sad to see Hurd go, but at the start of this year, I added his new home, Oracle (ORCL), to my Buy List and I’m glad I did.

    Since Hurd left HPQ, I’ve been down on the stock and fortunately I look smart today by telling investors to stay away six months ago. My concern is that the company’s aggressive acquisition plans may be doing more harm than good. HPQ has been going after IBM’s business in a big way and they’ve been shelling out major bucks to do it. I hated the 3Com purchase and the Palm acquisition still gives me nightmares. At the time, I gave Hurd the benefit of the doubt. Now that he’s gone, that benefit is also gone.

    It boils down to the question: “Can new CEO Léo Apotheker engineer a turnaround from the previous turnaround?”

    I say all of this in the context of last week’s earnings report. Hewlett-Packard reported earnings of $1.36 per share which was seven cents more than Wall Street’s forecast. Wall Street responded by tossing the shares in the garbage. The shares dropped nearly 10% on Wednesday. Since the stock is a Dow component, the plunge distorted the entire index.

    What freaked out Wall Street so much? Let’s dig into the numbers. The hitch was that quarterly revenue rose only 4% to $32.30 billion from $32.96 billion. Wall Street had been expecting $32.96 billion. In the wider scope of things, that’s really not a big miss, so what else was going on?

    Hewlett-Packard also gave guidance for Q2 and the entire year. For this quarter, HPQ said it expects revenues between $31.4 billion and $31.6 billion, and earnings-per-share between $1.19 and $1.21. Wall Street didn’t like that at all. The consensus was for revenues of $32.6 billion and earnings of $1.25 per share.

    HPQ’s full-year forecast (their fiscal year ends in October) was for total revenues between $130 billion and $131.5 billion. The consensus on Wall Street was for $132.91 billion. HPQ said it expects full-year earnings to range between $5.20 and $5.28 per share. The Street was expecting $5.23 per share, so I suppose that’s inline. HPQ has traditionally issued conservative forecasts so they can raise them later. Perhaps they’re doing that now to mask the poor Q2 guidance.

    So this seems odd. It appears that HPQ gave lousy near-term guidance but the long-term guidance is still what the Street expects. Yet the stock’s popularity is somewhere between Kim Jong-il and Diphtheria. (Did Hurd get out at the right time? Sure looks like it.)

    According to the company’s guidance, the stock is selling for just eight times earnings. The good sign is that their enterprise storage, servers and networking division saw its revenues increase by 22%. Also, the gross margins are up 1.5% to 23.4%.

    The stock is tempting, but I’m still steering clear.

    HPQ has a few problems to work through. They’re experiencing weakness in consumer PCs and services. I’m also not a big fan of the quality of their earnings. Always be wary when a company grows too much through acquisition. That’s often a sign of trouble. A company should be focused on making earnings not buying them.

    I should add that things may change soon. On March 14th, Apotheker will unveil his business plan for Hewlett-Packard. (BTW, Léo, that shouldn’t take six months to do). I’m curious to hear what he has to say, but I don’t have enough confidence to buy before then. Until then, HPQ is a sell.

  • Morning News: February 28, 2011
    , February 28th, 2011 at 6:46 am

    Hang Seng Bank’s Full-Year Profit Climbs 14% as Fee Income Rises

    India Unveils $273-Billion Budget

    Saudi Aramco Says Ready to Make Up for Shortfall in Libyan Crude

    Banks Drag FTSE Lower as HSBC Results Disappoint

    Japanese Stocks Climb the Most in Two Weeks as Concern on Oil Price Eases

    China 2010 Energy Consumption Rises 5.9%, National Statistics Bureau Says

    South African Corn Advances, Tracking Gains by U.S. Benchmark

    Economists List U.S. Budget Deficit as No. 1 Worry

    Big February Sales Results on Tap for U.S. Autos

    J.P. Morgan Fund in Talks to Take Twitter Stake

    Groupon Starts China Service; Tencent, Alibaba’s Jack Ma Among Investors

    Li’s Hutchison Seeks $5.8B in Chinese Ports IPO

    Equinox Minerals Offers $4.9 Billion for Lundin

    Leigh Drogen: RIAs Must Follow Testimonial Rules On Social Networks

    Howard Lindzon: The US Dollar is Drek…And Getting Drekker!

    Joshua Brown: Top 10 Names for JPMorgan’s Venture Fund

  • Warren Buffett’s 2010 Shareholder Letter
    , February 26th, 2011 at 11:37 am

    The 2010 shareholder letter from the Oracle of Omaha is online. Here’s a sample:

    Last year – in the face of widespread pessimism about our economy – we demonstrated our enthusiasm for capital investment at Berkshire by spending $6 billion on property and equipment. Of this amount, $5.4 billion – or 90% of the total – was spent in the United States. Certainly our businesses will expand abroad in the future, but an overwhelming part of their future investments will be at home. In 2011, we will set a new record for capital spending – $8 billion – and spend all of the $2 billion increase in the United States.

    Money will always flow toward opportunity, and there is an abundance of that in America. Commentators today often talk of “great uncertainty.” But think back, for example, to December 6, 1941, October 18, 1987 and September 10, 2001. No matter how serene today may be, tomorrow is always uncertain.

    Don’t let that reality spook you. Throughout my lifetime, politicians and pundits have constantly moaned about terrifying problems facing America. Yet our citizens now live an astonishing six times better than when I was born. The prophets of doom have overlooked the all-important factor that is certain: Human potential is far from exhausted, and the American system for unleashing that potential – a system that has worked wonders for over two centuries despite frequent interruptions for recessions and even a Civil War – remains alive and effective.

    We are not natively smarter than we were when our country was founded nor do we work harder. But look around you and see a world beyond the dreams of any colonial citizen. Now, as in 1776, 1861, 1932 and 1941, America’s best days lie ahead.

  • Theo Jansen’s Strandbeests
    , February 25th, 2011 at 4:35 pm

    The stock market finally broke its losing streak today (although our Buy List was up yesterday). That’s enough stock talk for today. Check out this amazing video:

  • Leucadia National Reports Earnings
    , February 25th, 2011 at 10:41 am

    Here’s today’s press release from Leucadia (LUK). I have to mention that LUK refuses to play the quarterly earnings game. As a result, they don’t give any guidance, nor do they adjust their earnings reports to make historic comparisons easier.

    NEW YORK–(BUSINESS WIRE)– Leucadia National Corporation (NYSE:LUK – News) today announced its operating results for the year ended December 31, 2010. On December 31, 2010, the Company recorded an adjustment that reduced the deferred tax valuation allowance and credited income tax expense by $1,157,100,000. The adjustment resulted from the Company’s conclusion that it is more likely than not that it will have future taxable income sufficient to realize that portion of the net deferred tax asset. Net income attributable to Leucadia National Corporation common shareholders was $1,939,312,000 (including the $1,157,100,000 adjustment to income tax expense) or $7.85 per diluted common share for the year ended December 31, 2010 compared to net income of $550,280,000 or $2.25 per diluted common share for the year ended December 31, 2009. Net income attributable to Leucadia National Corporation common shareholders for 2010 and 2009 also included income from discontinued operations, including gain on disposal of $51,149,000 or $.19 per diluted common share and $16,621,000 or $.07 per diluted common share, respectively.

    According to the balance sheet, LUK’s equity is $6.96 billion and they have 243.8 million shares. That works out to a book value of $28.56 per share. I think it’s reasonable for LUK to go for 1.5 times book which is close to $43 per share.

  • Apple From 1983 to 2005
    , February 25th, 2011 at 9:23 am

    Here’s a fact investors ought to consider. From Apple‘s (AAPL) peak in the middle of 1983, the stock underperformed the S&P 500 for the next 22 years.

    By the way, you may want to keep this in mind if you’re thinking of buying Netflix (NFLX).

  • Q4 GDP Revised Down to 2.8%
    , February 25th, 2011 at 8:37 am

    Ugh! Fourth-quarter GDP growth was revised down to 2.8% from the previous estimate of 3.2%. I always find these news items a little odd since we’re learning what happened between five months ago and two months ago.

    The simple fact is that 2.8% GDP growth simply absorbs new workers coming into the work force; it’s not enough to lower the unemployment rate.

    This is important for investors because the expanding profit margin story has mostly run its course. We need to see expanding sales growth soon and that will mean more jobs and higher wages.

    The U.S. economy grew at a 2.8 percent annual rate in the fourth quarter, slower than previously calculated and less than forecast as state and local governments made deeper cuts in spending.

    The revised increase in gross domestic product compares with a 3.2 percent estimate issued last month and a 2.6 percent gain in the third quarter, figures from the Commerce Department showed today in Washington. The economy, excluding inventories, grew at a 6.7 percent pace, the most since 1998.

    Americans may be in a better position to keep spending after tax cuts put more money in their pockets, while companies such as Caterpillar Inc. benefit from faster economies overseas and business investment. A surge in oil prices sparked by turmoil in Africa and more cutbacks by state and local governments represent risks to growth.

  • Morning News: February 25, 2011
    , February 25th, 2011 at 8:01 am

    German Stocks Advance, Trimming Weekly Loss; Daimler, Douglas Shares Rise

    Asian Shares End Mostly Up; Investors Look Past Mideast, North Africa

    Russian Central Bank Unexpectedly Raises Main Rates, Reserve Requirements

    Korea Exchange Imposes Record Fine on Deutsche Unit

    Japan to Spend 110 Billion Yen to Cut Rare Earth Usage

    Obama Tells Panel U.S. Recovery Harmed by Jobless Rate

    Rising Oil Prices Pose New Threat to U.S. Economy

    Regulators Decry Proposed Cuts in Commodity Futures Trading Commission Budget

    The Biggest Company You Never Heard Of

    Resurgent G.M. Posts 2010 Profit of $4.7 Billion

    AIG Posts First Profit in Three Quarters on Asset-Sale Gains

    Huawei Calls on U.S. to Investigate Accusations

    Joshua Brown: Mary Meeker: The US Needs a Corporate Turnaround

    Leigh Drogen: RIAs Must Follow Testimonial Rules On Social Networks