Archive for March, 2011

  • Today’s Case-Shiller Index
    , March 29th, 2011 at 9:22 am

    The latest Case-Shiller numbers came out this morning. This is a home-price index. There’s a bit of a lag in these numbers, so today’s report covers January.

    The bottom line is that home prices aren’t doing much of anything. In fact, they’re backsliding some. Below are the seasonally-adjusted numbers for the Case-Shiller’s 10 City Index and for their 20 City Index. The 10-City numbers go back to 1987. Both indexes have declined for the last seven months in a row.

    The 10-City Index is currently just 2.2% above its recent low from May 2009. The 20-City Index is less than 1% above its level from that same month.

    Both indexes peaked in April 2006 and both are currently down 31% since then.

    It’s odd, but I remember when folks thought the home price decline of the early 90s was severe. The chart shows us that this decline was nothing compared to what was going to happen.

  • Morning News: March 29, 2011
    , March 29th, 2011 at 7:12 am

    In Brazil, No Room for Leverage at Buyout Firms

    Crude Oil Trades Near One-Week Low in New York as Libyan Rebels Make Gains

    Gold Drifts Lower In Subdued Asian Trade

    Amber Waves to Ivory Bolls

    U.S. Stock Futures Rebound; Halliburton Drops on Middle East

    Fed’s Bullard Says QE2 Exit Debate Likely ‘Key’ 2011 Issue

    One Sign That The Housing Bust Could End Soon

    World Events Affect Your Mortgage Rate

    Exemptive Relief Update: Russell Pulls Out, Janus Pledges Transparency

    AT&T Outguns Sprint in Lobbying

    EBay scores over Amazon, Acquires GSI for $2.4-billion

    Hutchison Profit Beats Estimates on 3G Sales, Retail Chains

    Paul Kedrosky: Calling a Top to the Tech Bubble: June 17, 2013 at 10:17 a.m. (EST)

    Joshua Brown: Bernanke Represent

    Howard Lindzon: Ebay and The Telephone are Cool Again…WTF!

  • New High for JOSB
    , March 28th, 2011 at 10:31 am

    The stock market is up in early trading so far. It seems like a fairly quiet day on Wall Street. One of our Buy List stocks, Jos. A Bank Clothiers ($JOSB), is doing quite well and is at a new 52-week high. JOSB is a 20% winner for us on the year so far.

    Reynolds American ($RAI) is also doing well; the stock came within three pennies of hitting a new 52-week high this morning. Even with the higher share price, RAI still yields 6.2%.

    We had some decent economic news this morning. Consumer spending rose 0.7% last month which was an increase from 0.3% in January. Personal income rose by 0.3% so people are saving less.

    It’s still early but the S&P 500 may close today at a three-week high.

  • Morning News: March 28, 2011
    , March 28th, 2011 at 7:05 am

    European Central Bank’s Nowotny Sees Monetary Policy ‘Normalization’

    Most European Stocks Rise as Alcatel, Nokia Climb; Porsche Drops

    Ireland Seeks to Force Losses on Banks’ Senior Bondholders

    Egypt Rallies Most Since 2009 on Speculation Drop Overdone

    People’s Bank of China to Sell 99 Billion Yuan 1-yr Bills, Most In a Year

    Once Again, World Markets Are Rallying, And Totally Ignoring All The Crises

    Oil Drops for a Third Day Following Victories By Libyan Rebels

    Dollar Strengthens Before Spending Data on Fed Easing Concern

    Investing Like It’s 1999

    Sinopec 2010 Net Rises 14%, Curbed by State Anti-Inflation Efforts on Fuel

    Glencore to Seek Hong Kong IPO Approval This Week

    Philips Loss From Television Swells as Price Pressure Mounts

    Porsche, Schaeffler Sell $9.6 Billion in Stock to Reduce Debt

    Howard Lindzon: The ONLY ‘Bubble’ is at The Government and Federal Reserve

    Joshua Brown: Reality Check for the Big Bounce

  • Buffett In India
    , March 27th, 2011 at 1:00 pm

    The investing guru is touring India and charming them with his folksy wisdom:

    At one point, Mr. Buffett said Berkshire Hathaway kept about $10 billion in cash on hand just in case “Ben Bernanke runs off to South America with Lindsay Lohan,” a remark that of course drew laughter. “We have to be prepared for anything.”

  • Barron’s on Oracle
    , March 26th, 2011 at 6:39 pm

    In today’s Barron’s, Miriam Gottfried explains why Oracle ($ORCL) kicks ass:

    Fourth-quarter guidance was strong with management forecasting above-consensus revenue, new software licenses and earnings for the seasonally strong close to the year. Analysts say margins could come in at peak levels of 51%—reached before the 2010 acquisition of Sun Microsystems—over the next several years as businesses continue to ramp up spending. That Sun acquisition appears to be paying off, much to the surprise of numerous skeptics, driving sales of hardware without damaging margins.

    Oracle offers a squeaky clean balance sheet with $9.7 billion, or $1.87 a share, in cash. And to top it off, shares trade at a reasonable 14.5 times projected-forward earnings.

    “Oracle’s engineered systems are resonating (50% sequential-Exadata growth), enterprise application spending is firmly back, and gross and operating margins continue to positively surprise,” wrote Ross MacMillan, an analyst with Jefferies & Co.

    (…)

    Oracle shares have historically outperformed in June as investors anticipate strong fourth-quarter results, according to Citigroup analyst Walter H. Pritchard.

    “Shares trade at a 10% premium to the S&P versus a historical ceiling of 20%, leaving some room for multiple expansion,” he wrote in a note. “We’d continue to buy as we see trends as sustainable, seasonal strength on tap and headroom to valuation.”

    We would follow that advice and snap up some Oracle shares on the promise of a profitable, growth-fueled future.

  • Earl Scruggs And Lester Flatt – Cripple Creek
    , March 25th, 2011 at 4:12 pm

    The trading week is over. Let Lester and Earl get your weekend started right.

  • Good Day for Oracle
    , March 25th, 2011 at 12:48 pm

    Nice movement on the earnings report. The shares briefly broke $34 this morning.

    Oracle ($ORCL) also offered guidance for this quarter (fiscal Q4) of 69 to 73 cents per share.

  • Q4 GDP Growth = 3.1%
    , March 25th, 2011 at 9:26 am

    In January, the first report on Q4 GDP said that the economy grew by 3.2%. Then in February, that was revised down to 2.8%. Then this morning, it was revised back up to 3.1%.

    Glad that’s all cleared up!

    Economists had expected G.D.P. growth, which measures total goods and services output in the United States, to be revised up to 3.0 percent. The economy expanded at a 2.6 percent rate in the third quarter. For the whole of 2010, the economy grew 2.9 percent, while corporate profits grew 20.4 percent, the most since 2004.

    Data so far suggest that the economy maintained this growth pace in the first quarter of this year, but there are concerns that rising oil prices could crimp consumer spending and slow the economic recovery.

    The pick-up in growth has been acknowledged by the Federal Reserve, which injected huge amounts of money into the economy to stimulate demand. The central bank is expected to end its $600 billion government bond buying program at the end of June.

    The raised fourth-quarter growth estimates reflect stronger business spending and inventory accumulation.

    Business investment rose at a 7.7 percent rate instead of 5.3 percent, lifted by spending on equipment and software (Oracle Hint Hint!!), as well as on structures. Spending grew at a 10.0 percent pace in the third quarter.

    Spending on software and equipment increased at a 7.7 percent rate instead of 5.5 percent. Investment in structures rose at a solid 7.6 percent, the first increase since the second quarter of 2008.

    Business inventories increased $16.2 billion instead of the $7.1 billion estimated last month, subtracting a smaller 3.42 percentage points from G.D.P. growth rather than the previously reported 3.70 percentage points.

    Excluding inventories, the economy expanded at an unrevised 6.7 percent pace, the fastest increase in domestic and foreign demand since 1998. Domestic purchases grew at a 3.2 percent rate instead of 3.1 percent.

    Consumer spending, which accounts for more than two-thirds of United States economic activity, grew at a 4.0 percent rate in the final three months of 2010 instead of 4.1 percent. It was still the fastest since the last three months of 2006, and an acceleration from the third quarter’s 2.4 percent rate.

    The growth in exports was not as strong as previously estimated, while imports were revised a touch down. Trade added 3.27 percentage points to G.D.P. growth instead of 3.35 percentage points. Government spending contracted at a 1.7 percent rate rather than 1.5 percent, because of weak state and local government outlays.

    The G.D.P. report confirmed a pick-up in inflation pressures on surging food and gasoline prices. The personal consumption expenditures index rose at a revised 1.7 percent rate in the fourth quarter instead of 1.8 percent. That compared with the third quarter’s 0.8 percent increase.

    But a “core” price index closely watched by the Fed advanced at a revised 0.4 percent rate instead of 0.5 percent. The increase was the smallest rise on record.

  • CWS Market Review – March 25, 2011
    , March 25th, 2011 at 8:11 am

    After overreacting to the events in Japan and Libya, the stock market is slowly returning to normal. On Thursday for the first time in two weeks, the S&P 500 finished the trading day above its 50-day moving average, closing at 1,309.66, an impressive turnaround from the March 16th intra-day low of 1,249.05. That’s nearly a 5% bounce in less than six days.

    Another good example of the market’s return to normalcy is the fall-off in the $VIX , which is often called “the fear index.” Before the earthquake, the VIX was ranging in the upper-teens. Then everyone freaked out and on March 16th, the VIX got up to a high of 31.28. But on Thursday, it closed at just 18. The message is clear: the fear is subsiding.

    Several of our stocks have rebounded quite well. Leucadia National ($LUK), for example, just hit another new 52-week high. The stock is already a 25% winner for us this year. I love LUK, but I never would have guessed it would be our top-performer in the first quarter. Sometimes you never know which stock will be your breakout star!

    I’m also impressed by how well our Buy List stocks are holding up versus the market. In the last week, our Buy List gained 3.42% compared with 2.82% for the S&P 500. For the year, we’re up 5.72% to the S&P 500’s 4.14%.

    I’m also pleased to see that shares of AFLAC ($AFL) have come back strongly, but I still think they have a way to go. AFL closed Thursday at $53.07 which is a big turnaround from touching $48 only a few days ago. On the blog, I posted two videos of CEO Dan Amos reiterating that the company is doing well and that they have no change to their full-year forecast. It was also nice to see shares of Ford ($F) break $15 on Thursday. The stock had its highest close this month.

    But now let’s focus on the great earnings report from Oracle ($ORCL). The company had already said that it was expecting earnings for the February quarter (the third of their fiscal year) to range between 48 cents and 50 cents per share. Wall Street’s consensus was 50 cents per share. In last week’s issue of CWS Market Review, I said that I was expecting Oracle to earn 53 cents per share. Well…I was right in that they beat their forecast, but I was off by a penny. Oracle earned 54 cents per share!

    This is very good news for Oracle. For last year’s third quarter, they earned 38 cents per share, so 54 cents this year represents very strong growth. Oracle also announced that it is raising its small quarterly dividend from five cents per share to six cents per share. I’m particularly impressed by the way Oracle is integrating Sun Microsystems into the Oracle universe. Sales of new software licenses jumped 29% to $2.21 billion. That’s often a good indicator of future revenue. Total revenue rose 37% to $8.76 billion.

    I had been hoping that the company would offer guidance for its fourth quarter, which is historically its strongest quarter, but I haven’t seen anything yet. (BTW, Larry Ellison missed the conference call due to…jury duty. I’m completely serious.) On Thursday, the stock closed at $32.14. I think it’s very likely that ORCL will break its current 52-week high of $33.71 very soon. I had said that Oracle was an excellent buy below $32 per share. After looking at these earnings, I’m raising my buy price to $34 per share.

    Next week is the final week of the first quarter (that was fast!). On Friday, April 1st, we’ll get the ISM report and the jobs report for March. I don’t expect much change in the ISM. The number will probably be in the high-50s or low-60s. I’ve often said that this is one of the best barometers for how well the economy is doing. The overall economy continues to expand but at a frustratingly slow pace.

    The employment report is a different story. The economy simply hasn’t been creating enough jobs and I’m afraid that at some point, this will hurt the ability of companies to expand their profits. The unemployment rate peaked at 10.1% in October 2009. But even in the most recent report, 16 months after the peak, unemployment is still at 8.9%. Since the recession officially ended in the middle of 2009, the economy has created a grand total of 22,000 non-farm jobs.

    Looking out a little further, Bed Bath & Beyond ($BBBY) is due to report its fiscal fourth-quarter earnings on April 6th. As odd as it sounds coming in April, this is the report that covers the crucial holiday shopping season (December, January and February). In December, BBBY said it expects its earnings-per-share to be between 91 cents and 95 cents. I wouldn’t be surprised to see BBBY beat this by a few cents per share.

    For the first three quarters of BBBY’s fiscal year, they’ve earned $1.95 per share, so they’re on track to earn $2.86 to $2.90 per share for their 2010 fiscal year. That means the company is going for about 16.5 times trailing earnings which means that the shares are fairly priced.

    I hope BBBY will be able to give full-year guidance for 2011. If they do, I’m looking for something in the neighborhood of $3.30 to $3.40 per share. I like the stock a lot but I wouldn’t say it’s a screaming buy unless it dropped about 20% from here.

    That’s all for now. Be sure to keep visiting the blog for daily updates. I’ll have more market analysis for you in the next issue of CWS Market Review!