Archive for May, 2011

  • WSJ Table on CEO Compensation
    , May 9th, 2011 at 9:30 am

    The Wall Street Journal has a cool table today on CEO compensation at 350 top companies. Oracle‘s ($ORCL) Larry Ellison pulled in $68 million while Steve Jobs at Apple ($AAPL) made nothing.

  • Sysco Earns 44 Cents Per Share
    , May 9th, 2011 at 8:51 am

    Good news this morning. Sysco ($SYY) just reported fiscal Q3 earnings of 44 cents per share which was three cents more than Wall Street was expecting. The shares look to open about 5% higher.

    This was a surprise to traders but not to me. I said on Friday’s CWS Market Review that I was expecting earnings from Sysco of 43 cents per share.

    Here are some more details:

    Sales were $9.8 billion, an increase of 9.1% from $8.9 billion in the third quarter of fiscal 2010.

    Operating income was $427 million, including a $36 million charge related to the withdrawal of an operating company from a multi-employer pension plan (MEPP). This result was $5 million, or 1.1%, lower than last year’s third quarter.

    Diluted earnings per share (EPS) were $0.44, including a $0.04 negative impact related to the MEPP withdrawal discussed above, and a $0.02 tax benefit related to the recognition of deferred tax assets. This result was 4.8% higher compared to $0.42 in last year’s third quarter.

    This is welcome news for Sysco especially since they had a poor earnings report three months ago. In February, SYY reported fiscal Q2 earnings of 44 cents per share which was three cents below estimates. At the time, I said I was disappointed by the quarter but ultimately, I felt that the problems were manageable. That appears to be correct.

    Sysco has earned $1.42 so far is the first three quarters of their fiscal year. They’re on track to earn about $1.97 for the year. We haven’t heard any guidance from the company, but I think they can earn $2 per share next year.

    I said that Sysco could be a $30 stock, and it may be one before the day is out.

  • Morning News: May 9, 2011
    , May 9th, 2011 at 7:27 am

    Iran Bases Budget on Oil Around $81.50 Per Barrel

    HSBC May Take Three Years to Meet Cost-Reduction Goal After Expenses Surge

    Euro Holds No. 1 Spot as EU Shows Resolve on Greece Debt

    Goldman Sees Commodity Recovery as Slump Erases $99 Billion

    Gold, Silver Prices Recover After Carnage

    Hedges Clip Gas Producers’ Earnings

    U.S. ‘Underwater’ Homeowners Increase to 28 Percent, Zillow Says

    Seeking Business, U.S. States Loosen Insurance Rules

    Apple Usurps Google as World’s Most Valuable Brand

    Hertz Makes $2.36 Billion Bid for Dollar Thrifty

    Alkermes to Buy Elan Unit for $960 Million

    Unilever Learns What Happens When Foreign Corporations Try To Raise Prices In China

    How to Shrink the Deficit

    When Should You Fire Your Mutual Fund Manager?

    If You Have the Answers, Tell Me

    Who Will Be The Next Osama Bin Laden? Top Counterterror Expert Sizes Up the Candidates

  • April Jobs Report
    , May 6th, 2011 at 9:30 am

    The April jobs report came out this morning. The economy added 244,000 jobs last month. For March, the jobs gain was revised higher to 221,000.

    As has been the case for several months, all of the increase came from private employers, which added another 268,000 jobs last month on top of the revised 231,000 in March, the monthly report said. Results of the previous two months were revised to show an additional 46,000 jobs were added.

    Governments, struggling to balance budgets as they deal with shrinking revenues and growing deficits, cut 24,000 jobs last month. Most of the drop came at the local level, where 14,000 jobs were lost in April after a decline of 15,000 in March.

    April’s numbers exceeded the forecasts of analysts, who had expected a gain of 185,000 jobs over all, with the change in private payrolls of 200,000. The uptick in the unemployment rate that came even as employers were adding jobs was an indication that more people were entering the work force as hopes for hiring increased.

    The job market peaked in April 2000, so let’s see what’s changed over the last 11 years. The non-institutional population has grown by 27.13 million. The civilian labor force has increased by 10.67 million. That’s a participation rate at the margin of less than 40%. A typical number is close to two-thirds.

    Over the last 11 years, the number of employed Americans has grown by 2.40 million and the number of unemployed has grown by 8.27 million. That’s a marginal unemployment rate of 77%.

    If the economy were employing people at the same rate as April 2000, there would be 15.16 million more jobs today.

  • CWS Market Review – May 6, 2011
    , May 6th, 2011 at 9:01 am

    What an odd, bizarre and exciting week! Osama Bin Laden was killed, silver plunged and the stock market fell every day this week!

    Our Buy List continues to do much better than the overall market. Through Thursday, we’re up 10.21% for the year compared with 6.16% for the S&P 500. That’s a spread of 4.05% which is nearly the highest all year.

    Once again, by focusing on high-quality stocks and holding them through rough patches, we’ve been able to outperform the market and the vast majority of actively-managed mutual funds. This week had a theme: our stocks beating earnings followed by higher full-year guidance.

    On Monday, Moog ($MOG-A) reported fiscal Q2 earnings of 66 cents per share. That topped Wall Street’s consensus by two cents per share. As I’ve said often, what I really like to see from our stocks is a raising of full-year guidance—and that’s exactly what we got from Moog.

    This is the second time that Moog has increased their full-year guidance. In January, they raised it from $2.70 per share to $2.75 per share. On Monday, Moog raised this year’s guidance to $2.80 per share.

    So how did the shares react to this good news? By going down, of course! For the first four days of the week, Moog lost a total of 7%. Going by Thursday’s close, Moog is currently trading for 14.66 times this year’s estimate. That’s not a screaming buy, but it’s not a bad deal either. Moog is a solid stock and I think it would be an excellent buy if it dropped below $40 per share.

    On Wednesday, it was Wright Express’ ($WXS) turn for the beat-and-guide-higher dance. For Q1, WXS earned 75 cents per share which was six cents more than estimates. Wright raised its 2011 guidance by 23 cents per share! The old EPS range was $3.17 to $3.37. The new EPS range is $3.40 to $3.60. That’s a huge increase. Wright also raised its revenue guidance from $497 million to $517 million to a new range of $533 million to $553 million.

    Much like Moog, Wright Express didn’t react well to the good news, although Wright’s reaction wasn’t nearly as bad as Moog’s was. The issue is probably that Wright said that it’s looking to issue debt to fund some future acquisitions. I’m not terribly wild about growth through acquisition. I strongly prefer organic growth.

    Shares of WXS mostly scattered between $54 and $55 on Wednesday and Thursday. I suppose we shouldn’t be too disappointed since WXS has had a great rally over the last six months. Ever since the earnings report from last November, WXS is up over 40% for us. Perhaps a bit of a rest is needed. My take is that Wright Express is a good buy below $53 per share.

    In last week’s CWS Market Review, I said Nicholas Financial ($NICK) could “earn as much as 40 cents per share.” It turns out, I got that exactly right. Make no mistake–this was an outstanding quarter for NICK. A little over two years ago, the shares got down as low as $1.64. That means the stock was going for four times quarterly earnings that were just two years away.

    I continue to believe that Nicholas Financial is a great bargain. As I see it, the company can earn between $1.60 and $1.70 per share this fiscal year (which ends in March). I think it’s very reasonable that NICK could trade as high as $17 per share. Obviously, the stock isn’t there just yet (Thursday’s close was $12.98).

    If you’re not familiar with Nicholas Financial, they make used-car loans. This is a great business to be in. What’s different about NICK is that they hold their funds to maturity and their accounting tends to be very conservative. What impresses me is that NICK’s loan portfolio has improved dramatically over the last several quarters. Nicholas Financial is a great buy below $14.

    This Monday, Sysco ($SYY) will be the final stock on our Buy List to report Q1 earnings. I’m very curious to find out how much money Sysco earned last quarter. The company had a poor earnings report three months ago and the stock hasn’t performed very well this year. Sysco tends to be a very steady stock, so the market was a bit rattled by the weak earnings report.

    Wall Street currently expects Sysco to report earnings on Monday of 41 cents per share. My numbers say Sysco will earn 43 cents per share. I also like that the dividend currently yields 3.63%. Since bonds have done well lately, Sysco now yields 0.46% more than a 10-year Treasury bond. Sysco is a good buy up to $30 per share.

    A few other stocks have been doing well for us. Jos. A Bank ($JOSB) just hit a new 52-week high. Oracle ($ORCL) got as high as $36.50 before pulling back the past few days. Johnson & Johnson ($JNJ) also started to show some strength (finally!) after raising its dividend.

    One of the recent positives for the stock market is the decline in bond yields. So many people have been expecting yields to rise. Every down tick is seen as the beginning of the end, but bonds keep holding up well. I think this is good for us for two reasons. One is that bonds provide tougher competition for investors’ money than stocks do, and that should lead to higher stock prices. Also, lower bond yields means that it’s less expensive for companies to borrow money, and that helps profit margins.

    This is a very good market for patient investors. Our Buy List just had another great earnings season. As always, I urge you to be patient and well-diversified. The stock market is definitely swinging our way!

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

  • Morning News: May 6, 2011
    , May 6th, 2011 at 7:59 am

    Trichet Says ECB Is ‘Extremely Alert’ on Inflation Ahead of June Forecasts

    China Yuan Steady Late Ahead Of China-US Meeting

    Spanish Economy Grew 0.2% From Previous Quarter, Bank of Spain Estimates

    Crude Oil Falls More In Asia; Bounce-Back Rally Falters

    Gold, Copper Rebound as Silver Futures Set for Worst Week in Three Decades

    US Stocks Decline As Jobless Claims Disappoint; DJIA Off 66

    Restaurants Lift Prices as Inflation Hawks See Fed Behind Curve

    A Robust Rise in April’s Retail Sales Comes With a Hint of Concern

    Glencore IPO Orders Continue to Roll In Amid Commodities Rout

    A.I.G.’s 1st-Quarter Profit Tumbles 85%

    Deutsche Telekom, Telecom Italia Profits Slide on Southern Europe Woes

    Indonesia Slaps 1-Year Ban on Citigroup for Wealth Clients

    Goldman Brushes Off the Gadfly

    Preventing the Next Flash Crash

    Joshua Brown: “but can we tie it to Stevie?”

    Howard Lindzon: Silver Silver Bang Bang…The Top Ten Reasons James Altucher Should Write About My Silver Trade

  • Leucadia’s Earnings Report
    , May 5th, 2011 at 9:38 pm

    I like to call Leucadia National ($LUK), “the Greta Garbo of stocks.” They only say exactly what they have to say, and no more.

    This is from their press release which came out after today’s close:

    Leucadia National Corporation today announced its operating results for the three month period ended March 31, 2011. Net income attributable to Leucadia National Corporation common shareholders for the three month periods ended March 31, 2011 and 2010 was $10,507,000 ($.04 per diluted common share) and $191,479,000 ($.78 per diluted common share).

    Well, that’s pretty much it except for the financial statements. Here’s the 10-Q which goes into much greater detail.

    Unlike most other companies, Leucadia doesn’t break down their earnings into non-GAAP numbers to make the earnings easier-to-understand.

    My rule is to look at LUK’s book value per share. According to today’s report, that’s running at $28.25. The guideline I use is that LUK should go for 1.5 times book value which gives us $42.47. LUK closed today’s trading at $36.16 so I still think it’s a good buy.

  • Not A Happy Day for Silver
    , May 5th, 2011 at 9:14 pm

    Earlier, I mentioned the dramatic plunge in silver. Dave Kansas at the WSJ has a nice summary:

    Silver selling continued after the official Comex market close, sending poor man’s gold down more than 11% on the day to $34.980. Silver has lost nearly 30% this week.

    And the pressure may continue. At the close today, CME, which owns Comex, will enforce a 16.7% increasing in trading deposit requirements. That means speculators in the benchmark 5,000-ounce silver contract will now be asked to put up $18,900 per contract to open a position, and maintain $14,000 of that to keep the contract overnight.

    Investors must exit positions if they can’t afford the higher margins requirements. The exchange raises margins during times of high volatility to ensure market participants are adequately capitalized.

    Silver traded as high as $48 at the start of the week. It is still up more than 100% in the last year.

    Joe Weisenthal of Business Insider has described silver as being like a highly-leveraged equity position (aka, a high Beta trade) and I think he’s exactly right. In other words, whatever the market does, silver is likely to do two to three times that.

  • The Flash Crash One Year On
    , May 5th, 2011 at 12:13 pm

    One year ago tomorrow was the Flash Crash. Between 2:42 pm and 2:47 pm on May 6, 2010, the Dow lost 600 points.

    The WSJ’s Evan Newmark said: “Today’s market was neither orderly nor efficient nor trustworthy. It was just a bunch of computers making ugly, messy love with each other. And your money hung in the balance.” (Here’s CNBC in fast motion.)

    The next day, Felix Salmon told you it was time to sell your stocks.

    Since the close of trading on May 7, 2010, the S&P 500 is up 21.28%.

    Oopsie!

    I don’t mean to tweak Felix. Seriously, I don’t. He’s not a stock-picker and I am so I can assure you I’ve made countless more bad calls than he has (Netflix anyone?).

    I do want to show you that plenty of smart people can be wrong about the market’s direction. In fact, if you want to look at it closely, Felix was correct about the market for the first two months.

    Plus, Felix offered wise cautions about investing in stocks. I’d add that I’m precisely the kind of greedy speculator that Felix granted an exception to. My qualm is that Felix said that we were entering a period of massive volatility. As it turns out, we weren’t. When Felix recorded that, the $VIX was around 40. Last week, it got as low as 14.27.

    Even if we were entering a period of high volatility, that shouldn’t dissuade people who are long-term stocks investors (assuming they’re aware of the risks in owning equities to begin with).

    My point is that there’s nothing inherently bearish about high volatility. For the most part, volatility doesn’t seem to play a large role in equity returns. When the $VIX is at very low levels — below 13 — the market has performed a little bit better, but that’s at the extreme.

    Volatility simply means that stocks will bounce around a lot from day to day. The best cure for high volatility is patience.

  • Remember That Silver Rally…Yeah, About That
    , May 5th, 2011 at 10:52 am

    The Silver ETF ($SLV) is down 24% this week.

    In 1980, Silver Thursday came four weeks before Desert One. So from two data points, I can conclude that U.S. military raids are bearish for silver.