Archive for April, 2011

  • Return on Equity Capital Futures
    , April 19th, 2011 at 2:20 pm

    Pardon this thinking-out-loud post, but I’m curious if there could be a futures product that’s somehow tied to expected return on equity capital.

    I have no idea how it would work, but it would be a boon to financial academics everywhere.

  • Alpha Indices
    , April 19th, 2011 at 2:12 pm

  • Is J&J’s 48-Year Dividend Streak in Jeopardy?
    , April 19th, 2011 at 12:21 pm

    One more item on Johnson & Johnson ($JNJ): The company has raised its dividend for 48 years in a row. Number 49 should come any day now.

    The issue is that the company’s earnings haven’t grown very much, so the board probably won’t raise the dividend a lot. Earnings-per-share rose from $4.63 in 2009 to $4.76 in 2010. That’s an increase of 2.8%.

    If the board kept the payout ratio constant, that would mean the quarterly dividend would rise from 54 cents per share to roughly 55.5 cents per share.

    On one hand, the board certainly feels they need to keep the dividend streak going. On the other hand, they can’t raise the dividend too much. Nearly all the free cash will be going to a possible Synthes deal. On the third hand, a dividend increase of a penny per share will look pretty lame.

    I think we’ll see an increase of two or three cents per share. Still, the stock currently yields more than a 10-year Treasury bond.

    Of course, they could shock us by foregoing a dividend increase.

  • J&J Beats Earnings and Guides Higher
    , April 19th, 2011 at 12:00 pm

    Finally some good news from Johnson & Johnson ($JNJ). This company has made just about every mistake possible over the last year but at least they’re still making a good profit.

    For the first quarter, JNJ earned $1.35 per share (after charges) which beat Wall Street’s estimate by nine cents per share.

    But more importantly, JNJ raised its full-year EPS guidance. The earlier guidance was $4.80 to $4.90. Now it’s $4.90 to $5.00. That’s excellent news. In January, the company gave the initial guidance numbers which disappointed Wall Street. Today’s news should help restore some faith in JNJ.

    The stock is currently up about 3% today. Also, here’s more on the impact a Synthes deal could have on the medical device industry.

  • Morning News: April 19, 2011
    , April 19th, 2011 at 7:28 am

    EU Denies Greek Restructuring Reports, Markets Wary

    With Much at Stake, Asia Voices Confidence in U.S. Debt

    Best BRIC Stock Rally Since 1997 Seen Doomed as Rates Increase

    NEWSFLASH: Ratings Downgrades Do NOT Equal Higher Interest Rates

    Bernanke May Sustain Stimulus to Avoid ‘Cold Turkey’ End to Aid

    Builders Probably Broke Ground on More U.S. Homes in March

    U.S. Hurries to Sell GM Stake

    Samsung Sells Hard Disk Drive Business To Seagate For $1.375B In Cash, Stock

    Citigroup Shares Rise as Profit Beats Estimates, Bad Loans Drop

    Halliburton 1Q Profit More Than Doubles

    Sony Ericsson Q1 Profit Drops By Half

    Zillow Files for $51.8 Million IPO Amid Zeal for Fast-Growing Web Startups

    Deutsche Bank’s $4 Billion Las Vegas Bet

    Microsoft: Very Cheap?

    The Default Major: Skating Through B-School

    Y2K=QE2

  • More on Synthes/J&J
    , April 18th, 2011 at 5:14 pm

    The deal would help Johnson & Johnson‘s ($JNJ) finances:

    Health giant Johnson & Johnson could boost its revenue and profit in the short term by buying Switzerland’s Synthes Inc., while quickly gaining a dominant position in the growing market for orthopedic surgery products.

    The Swiss maker of implants and instruments for bone and tissue repair confirmed Monday that it’s in talks about a possible purchase by Johnson & Johnson, one of the world’s biggest manufacturers of medical devices, drugs and consumer health products.

    The sale of Synthes could make multibillionaire chairman Dr. Hansjorg Wyss the richest man in Switzerland. He owns 40 percent of the company, and his family’s trust owns an additional 8 percent, according to Synthes’ 2010 annual report.

    For Johnson and Johnson, based in New Brunswick, N.J., buying Synthes would make sense on multiple fronts.

    “From many different angles, it looks like this deal would be a good deal for Johnson & Johnson, if it’s at the right price,” said analyst Linda Bannister of Edward Jones. “$20 billion seems reasonable.”

    That is the rumored purchase price, as reported last Friday by the Wall Street Journal, an amount far bigger than a typical J&J acquisition.

    Buying Synthes would double J&J’s market position in spine repair products, Bannister said.

    “It would move (J&J) to a dominant position in orthopedics, particularly in trauma,” she said.

    Medical devices became the largest of J&J’s three businesses in 2009. Their appeal? They don’t see sales suddenly plunge when generic competition arrives, as drugs do. And they’re far more profitable than commodity over-the-counter drugs such as Motrin and Tylenol.

    In addition, those pain relievers are among the dozens of nonprescription J&J products hit by an astounding series of recalls over the past 19 months. The recalls cut 2010 revenue by about $900 million and have severely hurt J&J’s image.

    With an aging population around the world and emerging markets spending more on advanced health care, devices and implants to repair fractures in the spine and other bones are in increasing demand. Synthes revenue rose almost 9 percent in 2010 to $3.87 billion, and its net income increased 10 percent, at $908 million.

  • 408 Bps Ahead of the S&P 500
    , April 18th, 2011 at 12:26 pm

    Although the market has stumbled recently, our Buy List is opening a nice lead over the S&P 500. By the close on Friday, our lead stood at 4.08%.

  • Industrial Production Continues to Rise
    , April 18th, 2011 at 12:05 pm

    On Friday, the government reported that industrial production rose by 0.8% in April. Industrial production has climbed sharply off its low but it still has a long way to go to surpass its September 2007 high.

    Industrial production increased more than forecast in March, led by a rebound in consumer goods manufacturing, a sign that factories will keep driving the U.S. economy.

    Output rose 0.8 percent, the fifth straight gain, after a revised 0.1 percent rise in February, the Federal Reserve said today in Washington. Economists surveyed by Bloomberg News projected a 0.6 percent gain, according to the median estimate. Manufacturing, which makes up 75 percent of the total, climbed 0.7 percent following a 0.6 percent increase. Utility output and mining also rose.

    Factories in the U.S. are benefiting from gains in business investment, expanding economies overseas and inventory rebuilding. The pace of production may cool temporarily as some factories scramble to replace supplies of parts interrupted after last month’s earthquake and tsunami in Japan.

    “The economy is really starting to take shape,” said Bricklin Dwyer, an economist at BNP Paribas in New York. While “we expect a cool down” in the next couple of months because of events in Japan, that will be “a short-lived phenomenon,” he said. “We’ve seen global manufacturing increase since the crisis.”

  • S&P 500 Breaks Below 1300
    , April 18th, 2011 at 10:03 am

    Ugly day today. Standard & Poor’s put a “negative” outlook on America’s debt rating.

    “We believe there is a material risk that U.S. policy makers might not reach an agreement on how to address medium-and long-term budgetary challenges by 2013,” New York-based S&P said in a report today. “If an agreement is not reached and meaningful implementation does not begin by then, this would in our view render the U.S. fiscal profile meaningfully weaker than that of peer ‘AAA’ sovereigns.”

    I really don’t understand a debt rating for the U.S. Treasury bonds. America’s debt is “rated” every day in that it’s priced by traders.

    Sure, the long-term numbers look awful but the reality is that investors keep buying our debt, and they’re willing to give us a good deal.

    The S&P 500 is again below its 50-DMA.

  • Taibbi Swings and Misses — Again
    , April 18th, 2011 at 9:44 am

    As long-term readers know, I’m not a fan of Matt Taibbi. I think he’s a dishonest journalist who distorts facts and bends narratives to suit his agenda.

    I hate giving Taibbi any time but since he’s respected by so many, I feel compelled to point out his lousy reporting. Taibbi’s MO is take a perfectly understandable yet slightly complex story and retell it.

    But in Taibbi’s retelling, he’ll leave out key facts and imply sinister motives to people he doesn’t like. He’ll then sprinkle in forced sex and drug references to give his lousy reporting a sophomoric “edge.”

    Fortunately for us, Ari I. Weinberg at the WSJ tears apart his latest:

    Taibbi, famous for dubbing Goldman a “vampire squid,” is simply piling on the gotchas, trying to whip disparate, innocuous facts into one scary soufflé of ominousness.

    Back to his story, and items omitted or glossed over.

    The women, directly along with other investors, invested in a fund called Waterfall TALF Opportunity, LLC. The fund was one of over 100 funds set up specifically to borrow and invest through the Term Asset-Backed Securities Loan Facility (TALF).

    This program, as Taibbi begrudgingly concedes, was designed to restart the market for pooled loans of credit cards, auto loans, mortgages, student and small business loans. Somehow Taibbi, and Rolling Stone, omit the notion that you, me and the magazine’s readers were the ultimate beneficiaries of revived credit markets. Neither Taibbi nor Rolling Stone responded to a request for comment.