Archive for October, 2011

  • Pepsi Beat Earnings
    , October 12th, 2011 at 9:53 am

    Pepsi ($PEP) isn’t on my Buy List but it’s a stock I like a lot. The company has raised its dividend for the last 39 years in a row. Also, Pepsi is a lot more than soft drinks. Close to half of its sales come from snacks.

    Pepsi just reported third-quarter earnings that were one penny better than expectations:

    PepsiCo Inc., the world’s largest snack-food maker, reported a 4.1 percent rise in third-quarter profit, helped by price increases and sales of snacks in Latin America.

    Net income advanced to $2 billion, or $1.25 a share, from $1.92 billion, or $1.19, a year earlier, Purchase, New York- based PepsiCo said today in a statement. Profit excluding some items totaled $1.31 a share, beating the $1.30 average of 14 analysts’ estimates compiled by Bloomberg.

  • Morning News: October 12, 2011
    , October 12th, 2011 at 5:33 am

    Europe Stocks Erase Losses as Carmakers, Chemical Companies Gain

    Germany’s Schaeuble Confident Slovakia Will Ratify EFSF

    As Greece Avoids a Default, Recapitalization Plans Emerge for European Banks

    China Shares End Sharply Higher On Policy Loosening Hopes

    Textile Makers Fight to Be Heard on South Korea Trade Pact

    U.K. Unemployment Jumps to Highest in 15 Years

    Gold Gains in London as European Debt Concerns Spur Demand

    IEA Cuts Demand Forecast

    Senate Blocks Obama’s $447 Billion Job Creation Plan

    Wall Street Sees ‘No Exit’ From Financial Woes

    Painful Job Cuts Coming to Wall St.

    Alcoa Profit Misses Estimates as Europe Cuts Aluminum Orders

    99 Cents Stores Agrees To $1.55 Billion Offer From Ares, Canada Pension

    European Semiconductor Equipment Giant ASML Forecasts Sales Rise in Fourth Quarter

    Roger Nusbaum: Forget About Stocks?

    Paul Kedrosky: Benford’s Law and the Decreasing Reliability of Accounting Data

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  • Stocks Mirroring Inflation Expectations
    , October 11th, 2011 at 3:43 pm

    I’ve run this chart before but I think it captures a fascinating aspect of this market. Stock prices seem to move with inflation expectations.

    The red line is the S&P 500 and it follows the right scale. The blue line is the difference between the 10-year Treasury yield and the 10-year TIPs, and it follows the left scale.

    The relationship isn’t perfect–few financial comparisons are–but this one looks pretty darn good. In fact, the correlation seems to be getting stronger in recent months.

    Correlation, of course, doesn’t mean causation. The two phenomena could be responding to a third. Or perhaps, the relationship is purely illusionary.

    But if the chart is to be believed, then Mr. Market is a major inflation dove.

  • Netflix Is Down $200 in Three Months
    , October 11th, 2011 at 12:13 pm

    Eighteen months ago, I called Netflix ($NFLX) “The Absolute Worst Stock to Buy Right Now.” Ugh; not one of my better calls. The posting even caused the CEO to send me a snippy email.

    This was part of my post:

    Last year, Netflix made $115.9 million of sales of $1.67 billion. That works out to earnings of $1.98 a share. The stock, however, is currently around $86 or 43 times trailing earnings. The shares were overpriced at the start of the year and they’re up another 55% since then.

    When the fourth-quarter earnings came out in January, Netflix said that it expects full-year earnings-per-share for 2010 to range between $2.28 and $2.50. So even going by the top end of forward earnings, NFLX is still trading with a P/E ratio of around 35 which is more than twice the S&P 500. That’s just crazy.

    Seems reasonable, but it was one of the worst calls I’ve ever made. At the time, the stock was at $87. Three months ago, NFLX hit $304.79.

    To be fair, I continued to call the stock horribly overpriced. For example, when it hit $110 or when it hit $188 or when it hit $230 or when it hit $267. Hey, at least I’m consistent.

    To be a good investor, you need to look at your mistakes. So why was I so off about Netflix? I think my analysis was right but I was wrong on just how irrational the market can be — and how long it be irrational for. In the end the facts win, but that can take awhile.

    Today, shares of Netflix hit $103.13 which is a loss of $201.66 in just three months. I don’t believe that Netflix is down so much because they upset their customers and made some bad moves at damage control. Of course, that’s part of the move but that alone doesn’t cause a company to lose two-thirds of its value in a matter of weeks.

    Instead, the severe drop was due to a vastly inflated share price. The price issue was merely a catalyst for the momentum investors to get out. And they did.

  • The Market Is Down on News from…Slovakia?
    , October 11th, 2011 at 9:38 am

    The stock market looks to open lower this morning. Once again, investors are looking at events in Europe. Each country needs to approve a deal to increase the size of the European bailout fund. The only country left is Slovakia. I can’t remember the last time investors in the U.S. were concerned about events in Slovakia, but here we are.

    After today’s close, Alcoa ($AA) will be the first major company to report earnings. Wall Street expects 22 cents per share compared with nine cents one year ago.

    Interestingly, while many large “capital markets” banks are feeling the squeeze, many retails banks are doing quite well. Goldman Sachs ($GS) may report a quarterly loss in a few days, but banks like Wells Fargo ($WFC) are thriving. Every stock in the KBW Bank Index ($BKX) is down for the year.

    On Thursday, JPMorgan Chase ($JPM) will report its third-quarter earnings. Here are some interesting comments from Bloomberg:

    The split between Wall Street businesses and other types of banking will be demonstrated by JPMorgan, the second-biggest U.S. bank by assets. The New York-based company will report 95 cents of earnings per share for the quarter, just 6 percent lower than a year earlier, according to the average estimate of 30 analysts surveyed by Bloomberg.

    Those earnings, the lowest in six quarters, may reflect gains in consumer lending and credit-card revenue as well as declines at the investment bank. James Staley, 54, who runs the investment bank, said at an investor presentation on Sept. 13 that “markets revenue” will decline about 30 percent from the second quarter and that fees from investment banking will be about $1 billion.

  • Morning News: October 11, 2011
    , October 11th, 2011 at 5:48 am

    Slovak PM: EFSF Vote To Be Linked To Confidence Vote

    Euro Declines From Three-Week High Versus Dollar Before Slovakia EFSF Vote

    Trichet Sees ‘Systemic’ Danger as Greek Writedowns Divide EU

    Bank Indonesia Surprises With Rate Cut

    Chinese Banks Rally After Huijin Begins Increasing Holdings

    Japan Courts the Money in Reactors

    Currency Forecasters Say Best Over for Dollar

    Regulators to Set Forth Volcker Rule

    Netflix, in Reversal, Will Keep Its Services Together

    Advisory Firm Urges Ouster Of Murdoch and His Sons

    Goldman Sachs Earnings Collapse, Wells Fargo Thrives

    Wal-Mart China Staff Detained in Probe

    Paulson Clients Said to Pull Less Than 10% From Two Hedge Funds

    Groupon: ‘Transparent About Our Lack of Transparency’

    Cullen Roche: The 5 Most Likely EMU Scenarios

    James Altucher: How to Use Gratitude to Get Rich

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  • IBM Hits New All-Time High
    , October 10th, 2011 at 3:32 pm

    Shares of IBM ($IBM) broke out to a high of $186.37 today which is a new all-time high. In the summer of 1993, the stock reached a split-adjusted low of $10.25. That’s a growth of 18-fold in 18 years. Annualized, that’s close to 18%.

    Below is a 50-year look at the stock. I Don’t think IBM gets the props it deserves.

    IBM was the glamor stock of the go-go 1960s. Due to its rapid growth and relatively few splits, the nominal share price was often over $500.

    IBM was removed from the Dow in 1939 and put back in 1979. In those 40 years, the stock gained an astounding 22,000%. If IBM had been in the index, the Dow would have broken 1,000 in 1961 instead of 1972. By my rough estimate, the index would be over 4,000 points higher today.

    IBM reached an out-performance peak in January 1970. For the next 16 years, IBM was mostly a market performer, perhaps slightly below average. Then the bottom fell out and IBM was a sell until September 1993. Since then, the stock has been a top performer.

  • The S&P 500 Breaks Above Its 50-DMA
    , October 10th, 2011 at 10:54 am

    For the first time since July 28th, the S&P 500 broke above its 50-day moving average.

  • The S&P 500 Breaks 1,190
    , October 10th, 2011 at 10:48 am

    The stock market is getting another bump this morning. The S&P 500 has been as high as 1,190.15 so far which is an 8.27% rally from last Monday’s close.

    The cyclicals are in charge today as the Energy, Financial and Materials sectors are doing the best. On Thursday of this week, JPMorgan Chase ($JPM) will be the first of the major banks to report earnings. The shares got as low as $27.85 last week. Today it’s the top-performing stock on our Buy List. This earnings report will probably tell us a lot about where banks earnings stand for this earnings season. I’m pleased to see that both AFLAC ($AFL) and Ford ($F) are strong today.

    Bloomberg sums up the good news:

    German Chancellor Angela Merkel and French President Nicolas Sarkozy said yesterday they will deliver a plan to recapitalize European banks and address the Greek debt crisis by the Nov. 3 Group of 20 summit. Belgium said today it will buy part of Dexia SA and provide security for depositors as part of a plan to rescue the lender.

  • Happy Sixth Birthday to Abnormal Returns!
    , October 10th, 2011 at 10:39 am

    Today marks the sixth birthday for the great blog, Abnormal Returns, which is the home of the indefatigable Tadas Viskanta.

    If you’re not familiar with Abnormal Returns, Tadas does a daily linkfest — though I’m hesitant to use that word since what he does is so much more — he captures the best of the financial blogosphere.

    The entire staff here at Crossing Wall Street congratulate Tadas on his success. Josh Brown at the Reformed Broker gathered a collection of praise from all across the world of financial blogs.

    Here’s a sample:

    Howard Lindzon (StockTwits): “Tadas has style. He loves curating and sharing and understands the link economy and the social web. We are lucky to have him in the financial blogosphere.”

    Mebane Faber (World Beta): “Tadas is a must read at our shop, and I’d pay more to subscribe to his site than to any newspaper.”

    JC Parets (All Star Charts): “It’s the best stuff out there. Plain and simple. If you want to know what’s going on – look no further. I tell this to everyone.”

    Eli Radke (Trader Habits): “Abnormal Returns has impacted me and countless others, that impact is measured by the inability to remember what life was like before. Meeting Tadas will only make you a bigger fan.”

    Felix Salmon (Reuters): “Abnormal Returns ROCKS. Happy blog-birthday, Tadas!”

    Justin Paterno (ZeroBeta): “Abnormal Returns is the motivating force of the financial blogosphere. If you write a blog post, you can’t wait to see if Tadas picks you up – not for the traffic but to see if what you wrote was worth linking to.”

    Mark Gongloff (WSJ MarketBeat): “Abnormal Returns is so important to my daily blogging life that I named my first child “Abbie Normal.” My wife of course had other ideas, but I told her ‘Ritholtz’ was a terrible name for a baby girl.”

    Joe Weisenthal (Business Insider): AR is awesome. In many ways, I consider Tadas a blog soulmate, as he started AR right around the same time I started my first financial blog, TheStalwart.com. Before anyone else he sensed that this financial blogging thing would be big, and since then that sense has served him identify and aggregate exactly what needs to be read right at any given time.

    TED (The Epicurean Dealmaker): “Abnormal Returns is an essential component of my toolkit for rapine, pillage, and world domination. Without Tadas, I’m sure I would be a hemp-wearing, dreadlocked slacker getting pepper-sprayed on Broad Street.”