Archive for April, 2011

• Morning News: April 7, 2011
  Eddy Elfenbein, April 7th, 2011 at 7:05 am

  Euro Falls as Portugal Bailout Overshadows Rate-Increase Outlook

  Banks Rally as Portugal Seeks Aid, Talks Seen Quick

  German Industrial Production Rose More Than Forecast in February

  Bank of England Governor King Faces Isolation in Europe as ECB Prepares to Raise Rate
  
  The Dominoes Fall, As Spain’s Economic Minister Declares A Bailout Is “Absolutely Ruled Out”

  U.S. and Colombia Near Trade Pact

  Safe Haven Dubai Gains as Middle East Turmoil Disrupts Lives

  World Food Prices Seen Rebounding to Record After Grains Rally, UN Says

  Crude Oil Falls In Asia But Supply Concerns Persist

  Gold Down In Asia But Stays In Bull Mode

  Andreessen Horowitz Raises $200 Million Co-Investment Fund

  Cisco: What Went Wrong and What Needs to Be Fixed

  Blockbuster Auction Draws Liquidators

  The Money Network

  Joshua Brown: Long or Short Capital’s New Inflation Index

  Howard Lindzon: The TRUTH About Warren Buffett…GREAT Rolodex and Deep Pockets Always Win!

• Bed Bath & Beyond Earned $1.12 in Q4
  Eddy Elfenbein, April 6th, 2011 at 4:25 pm

  Wow! Bed Bath & Beyond ($BBBY) had an outstanding earnings report for the fourth quarter. The company earned $1.12 per share which was much higher than their earlier guidance of 91 cents to 95 cents per share. It was also much higher than I had been expecting. Sales rose 11.6% to $2.505 billion.

  For the fiscal year ended February 26, 2011, the Company reported net earnings of $3.07 per diluted share ($791.3 million), an increase of approximately 33% over net earnings of $2.30 per diluted share ($600.0 million) a year ago. Net sales for fiscal 2010 were approximately $8.759 billion, an increase of approximately 11.9% from net sales of approximately $7.829 billion in the prior fiscal year. Comparable store sales for fiscal 2010 increased by approximately 7.8%, compared with an increase of approximately 4.4% last year.

  For fiscal 2011, the Company is modeling net earnings per diluted share to be approximately $.58 to $.61 for the fiscal first quarter and to increase by approximately 10% to 15% for the full year.

  Bed Bath & Beyond earned 52 cents per share in last year’s Q1, so today’s forecast translates to a growth rate of 11.5% to 17.3%.

  If earnings grow this year at a 10% to 15% rate, that comes out to a full-year forecast of $3.38 to $3.53 per share. Wall Street had been expecting $3.33 per share.

  Year-over-year operating margins and net margins have increased for eight straight quarters. Here’s BBBY’s trailing four-quarter EPS, with the company’s forecast in red.

  

  Here’s a look at BBBY’s quarterly numbers for the past few years:

  Quarter	Sales	Gross Profit	Operating Profit	Net Profit	EPS
  May-99	$356,633	$146,214	$28,015	$17,883	$0.06
  Aug-99	$451,715	$185,570	$53,580	$33,247	$0.12
  Nov-00	$480,145	$196,784	$50,607	$31,707	$0.11
  Feb-00	$569,012	$238,233	$77,138	$48,392	$0.17
  May-00	$459,163	$187,293	$36,339	$23,364	$0.08
  Aug-00	$589,381	$241,284	$70,009	$43,578	$0.15
  Nov-01	$602,004	$246,080	$64,592	$40,665	$0.14
  Feb-01	$746,107	$311,802	$101,898	$64,315	$0.22
  May-01	$575,833	$234,959	$45,602	$30,007	$0.10
  Aug-01	$713,636	$291,342	$84,672	$53,954	$0.18
  Nov-02	$759,438	$311,030	$83,749	$52,964	$0.18
  Feb-02	$879,055	$370,235	$132,077	$82,674	$0.28
  May-02	$776,798	$318,362	$72,701	$46,299	$0.15
  Aug-02	$903,044	$370,335	$119,687	$75,459	$0.25
  Nov-03	$936,030	$386,224	$119,228	$75,112	$0.25
  Feb-03	$1,049,292	$443,626	$168,441	$105,309	$0.35
  May-03	$893,868	$367,180	$90,450	$57,508	$0.19
  Aug-03	$1,111,445	$459,145	$155,867	$97,208	$0.32
  Nov-04	$1,174,740	$486,987	$161,459	$100,506	$0.33
  Feb-04	$1,297,928	$563,352	$231,567	$144,248	$0.47
  May-04	$1,100,917	$456,774	$128,707	$82,049	$0.27
  Aug-04	$1,273,960	$530,829	$189,108	$120,008	$0.39
  Nov-05	$1,305,155	$548,152	$190,978	$121,927	$0.40
  Feb-05	$1,467,646	$650,546	$283,621	$180,980	$0.59
  May-05	$1,244,421	$520,781	$150,884	$98,903	$0.33
  Aug-05	$1,431,182	$601,784	$217,877	$141,402	$0.47
  Nov-06	$1,448,680	$615,363	$205,493	$134,620	$0.45
  Feb-06	$1,685,279	$747,820	$304,917	$197,922	$0.67
  May-06	$1,395,963	$590,098	$148,750	$100,431	$0.35
  Aug-06	$1,607,239	$678,249	$219,622	$145,535	$0.51
  Nov-07	$1,619,240	$704,073	$211,134	$142,436	$0.50
  Feb-07	$1,994,987	$862,982	$309,895	$205,842	$0.72
  May-07	$1,553,293	$646,109	$154,391	$104,647	$0.38
  Aug-07	$1,767,716	$732,158	$211,037	$147,008	$0.55
  Nov-08	$1,794,747	$747,866	$203,152	$138,232	$0.52
  Feb-08	$1,933,186	$799,098	$259,442	$172,921	$0.66
  May-08	$1,648,491	$656,000	$118,819	$76,777	$0.30
  Aug-08	$1,853,892	$739,321	$187,421	$119,268	$0.46
  Nov-08	$1,782,683	$692,857	$136,374	$87,700	$0.34
  Feb-09	$1,923,274	$785,058	$231,282	$141,378	$0.55
  May-09	$1,694,340	$666,818	$142,304	$87,172	$0.34
  Aug-09	$1,914,909	$773,393	$222,031	$135,531	$0.52
  Nov-09	$1,975,465	$812,412	$245,611	$151,288	$0.58
  Feb-10	$2,244,079	$955,496	$370,741	$226,042	$0.86
  May-10	$1,923,051	$775,036	$225,394	$137,553	$0.52
  Aug-10	$2,136,730	$874,918	$296,902	$181,755	$0.70
  Nov-10	$2,193,755	$896,508	$305,110	$188,574	$0.74
  Feb-10	$2,504,967	$1,076,467	$461,052	$283,451	$1.12

• The Middies Rule!
  Eddy Elfenbein, April 6th, 2011 at 12:48 pm

  Here’s something odd. The top-performing size category has been the mid-caps.

  On the chart below, the black line is the S&P 400 Mid-Cap Index ($MID). The middies have outpaced the blue line which is the S&P 600 Small-Cap Index ($SML). The monster-cap S&P 100 ($OEX) in red trails everyone.

  I say that this is odd because the middies are rarely at the extreme. They can usually been found mid-way between whatever the large-caps and small-caps are doing.

  

• Trading Volume at Citigroup
  Eddy Elfenbein, April 6th, 2011 at 11:17 am

  If you ever want to check some insane numbers on Wall Street, look at trading volume for Citigroup ($C). This is the usually the most-traded stock each day. The trading volume isn’t just high, it’s amazingly high.

  There are two main reasons for Citi’s huge volume. One is that the share price is low (currently $4.51, though it once was $57) and the other is that Citi has 29 billion shares outstanding. This makes Citi a favorite for day traders and high-frequency traders.

  Average daily volume for Citi usually runs around 500 million shares. Since the financial crisis broke, Citi’s volume has topped one billion shares in a single day 60 times. Last December, when the government said it was ditching the last of its Citi stock, the total volume topped 3.2 billion in a single day. Over a trading day, that’s an average of 140,000 shares per second.

  The trading bonanza must come to a close soon as Citi said it will have a 1-for-10 reverse stock split. This means that shareholders will have one-tenth as many shares but the price will increase by ten-fold.

  I’ll be curious to see if trading volume drops by far more than one-tenth. I bet it will.

  

• Rising Inflation Expectations
  Eddy Elfenbein, April 6th, 2011 at 10:29 am

  One of the criticisms we hear from bearish investors is that the Federal Reserve has set us up for massive inflation. Personally, I tend to be pragmatic on these issues. If there is inflation coming, it’s certainly hiding itself well. While commodity prices are on the rise, we have yet to see a large surge in consumer prices. That may change soon.

  But I’m not concerned with the political implications of inflation — hyper or not. I’m much more concerned with inflation’s impact on equity prices.

  The danger of inflation is that it hurts bond prices and that, in turn, hurts stock valuations. Generally speaking, inflation doesn’t impact the stock market until it reaches a 5% annualized rate.

  Once inflation passes 5%, stocks have historically been lousy investments. The only thing worse than inflation is deflation. What the market likes best is a low, boring rate of inflation.
  One of the goals of the Fed’s policies has been to increase the market’s inflation expectations. The chart below shows the spread between the yield on the 10-year Treasury bond and the yield on the 10-year TIPs. In other words, this is the market’s view on the inflation premium.

  Since last summer when the Fed announced QE2, the inflation premium has risen about 100 basis points. That’s a big rise. According to the market, however, inflation is far from being problem. For now.

  I’m not always willing to accept the market’s judgment as correct. I find it very curious that the market doesn’t see much acceleration in the inflation premium.

  While the spread between the 10-year Treasury and the 10-year TIPs is about 256 basis points, at five years, it’s only 232 basis points. That means the market expects inflation of 2.32% for the next five years and then 2.8% for the five years after that. That seems very optimistic.

  

• Morning News: April 6, 2011
  Eddy Elfenbein, April 6th, 2011 at 7:26 am

  Euro Appreciates Before ECB Rates Meeting; Yen Falls on BOJ Stimulus Bets

  Basel Develops Method to Identify Banks Posing Systemic Risk

  European Central Bank: This Time, Politicians Content With Rate Rise

  Toyota May Be Downgraded by Moody’s After Japan Earthquake

  Contrarian Adding Bets in Mideast

  Gold Climbs to Record in ‘Flight to Safety’ as Silver Reaches 31-Year Peak

  Bernanke Faces Possible Fed Split on Maintaining Stimulus

  Treasurys Rise Amid Debate On Fed; FDIC Rule Adds To Buying

  Global Miner Rio Tinto Secures 49.49% Stake in $4 Billion Bid for Riversdale Mining

  Pringles: Once a Great Flop, Now Sold for Billions

  Dish Network Wins Blockbuster Auction With $320 Million Bid

  Commerzbank to Repay $20.4 Billion of German Bailout

  Chambers Vows ‘Fix’ as Cisco Stumbles

  Sbarro Files for Chapter 11 Protection

  Joshua Brown: So Many Black Swans that Only the White Ones are Rare

• Nicholas Financial Opens Two New Branches
  Eddy Elfenbein, April 5th, 2011 at 11:05 am

  Here’s the latest press release:

  Nicholas Financial, Inc. today announced the opening of two (2) new branch offices located in St. Louis, Missouri and Villa Park, IL, a Chicago area suburb. The new offices are Nicholas Financial’s first entries in both major metropolitan areas and continues the Company’s planned expansion of its branch office network, which now includes, fifty-six (56) offices in Florida, Alabama, Georgia, Kentucky, Indiana, Maryland, Michigan, North Carolina, Ohio, South Carolina, Tennessee, Virginia, Illinois and Missouri.

  Nicholas employees have been working to develop business in each area for several months prior to the opening of the new locations. Each of the offices is a full-service lending and collection facility. Nicholas Financial acquires and services automobile and light truck installment sales finance contracts that it purchases from new and used car dealers.

  According to Douglas Marohn, Senior Vice President, “We are reaping rewards from the performance of our branch business model in the Midwest. We intend to add additional branches in our new Missouri and Illinois markets as soon as they can be developed. Our success in Ohio, Michigan and Indiana has convinced us that the opportunity for successful growth in these markets is excellent.”

  NICK’s business is traditionally heavily weighted towards Florida. The company is somewhat limited in its ability to expand since state laws vary on permissible chargeable interest.

• Oracle’s Weighting Will Double in Nasdaq 100
  Eddy Elfenbein, April 5th, 2011 at 10:27 am

  The Nasdaq 100 Index ($QQQ) is one of the most important indexes for tech investors. The index represents the 100 largest non-financial stocks on the Nasdaq. One of the problems with the Nasdaq 100 is that Apple ($AAPL), which I believe is some sort of fruit company, currently represents more than one-fifth of the entire index.

  Such a heavy weighting isn’t good for any index and it’s greatly disproportionate to Apple’s market value. As a result, the Nasdaq has announced that it’s rebalancing the Nasdaq 100.

  This rebalancing will shift Apple’s weighting from 20.49% to 12.33%. This will have a big impact on the market since tons of ETFs own Apple, and the $QQQ ETF is one of the most popular investments on Wall Street.

  While Apple will be a big loser in the rebalancing, one of the big winners will be our very own Oracle ($ORCL). The Nasdaq 100’s weighting for Oracle will more than double from 3.3% to 6.7%. You can see the full details of the rebalancing here.

• Morning News: April 5, 2011
  Eddy Elfenbein, April 5th, 2011 at 7:14 am

  What’s Next for Singapore and the ASX?

  China Raises Interest Rates to Counter Inflation Pressure

  Moody’s Cuts Portugal, Says Bailout Needed Urgently

  The Bank of Japan Answers The Trillion Dollar Question: What Is Causing The Commodity Rally?

  Oil Declines for First Day in Four on Qaddafi Ouster Plan Report, Supplies

  Silver Hits Fresh Peak In Asia; Gold Edges Higher

  Dollar Strengthens Versus Euro on Bernanke Inflation Preparedness Comment

  Geithner Sees ‘Severe Hardships’ If Debt Limit Isn’t Raised

  Nasdaq Rebalance to Cut Apple’s Weighting

  Texas Instruments Bets $6.5 Billion That Sales Force Can Stoke National Semiconductor’s Growth

  The Antitrust Noose Is Tightening Around Google’s Neck

  Buffett’s Ruthlessness Is Oddly Absent on Sokol

  In Race With Groupon, LivingSocial Raises $400 Million

  Erik Swarts: Where Rubber Meets the Road

  Joshua Brown: Talking Cloud Computing Stocks on Yahoo

• Buy List +9.19% YTD
  Eddy Elfenbein, April 4th, 2011 at 10:53 pm

  Today was another outstanding day for our Buy List. We gained 0.71% today compared with just 0.03% for the S&P 500. We’re now up 9.19% for the year to the S&P 500’s 5.98%. This is a pretty impressive run we’ve been on: we’ve beaten the S&P 500 for eight of the last nine days.

  Ford ($F) got a big lift today thanks to an analyst upgrade from Credit Suisse. Bespoke notes that the stock is back above its 50-day moving average. Ford got as high as $15.74 today which is the highest level since February 18th. The next earnings report should be out in about three weeks.

  Shares of Oracle ($ORCL), Deluxe ($DLX) and Leucadia (LUK) hit new 52-week highs today. Oracle got as high as $34.43 today. The stock seems to be experiencing a delayed positive surge from its recent earnings report.

  I was happy to see Reynolds American ($RAI) briefly get over $36 per share. AFLAC ($AFL) closed today at $54.35 which is a post-quake high.

  Remember that on Wednesday, the Bed Bath & Beyond ($BBBY) earnings report comes out. I’m not looking for spectacular earnings, but I’ll be very curious to hear what guidance they offer.