Archive for November, 2011

• My Quick Take on Jefferies
  Eddy Elfenbein, November 29th, 2011 at 12:58 pm

  A number of you have asked my opinion on Jefferies ($JEF). My short answer is that the stock is very undervalued, particularly at $9.50, though it’s still cheap at $11.

  However, even if it’s fully valued (about $15 per share), I don’t think it’s a great stock to own.

• Becton Raises Dividend
  Eddy Elfenbein, November 29th, 2011 at 12:41 pm

  The S&P 500 is back above 1,200 and our Buy List is currently up 0.40% on the day. Reynolds American ($RAI), our boring high-yield stock, just broke $41 which is an all-time high.

  I said in the CWS Market Review from October 14th that I expected to see Becton, Dickinson ($BDX) raise its dividend for the 39th year in a row. I neglected to mention it this last week, but Becton did indeed raise its quarterly dividend from 41 cents to 45 cents per share. Based on the new dividend, the stock now yields 2.5%.

• Some Cautious Signs for Optimism
  Eddy Elfenbein, November 29th, 2011 at 10:55 am

  The economic news continues to be…not horrible. Today we learned that consumer confidence had its biggest jump in more than eight years.

  New homes figures are still terrible, but they increased a tiny bit last month. Here’s an interesting fact I didn’t know: “Each home built creates an average of three jobs for a year and generates about $90,000 in tax revenue, according to the National Association of Home Builders.”

  While initial jobless claims rose last week, that was up from a seven-month low.

  The big news this week will be Friday’s jobs report. The unemployment rate is currently stuck at 9%. The economy has slowly added new jobs but it’s barely kept pace with the natural growth of the population. Wall Street’s forecast for the November jobs report is that the jobless rate will be at 9% and that the economy created 120,000 new jobs. For the last 10 months, the unemployment rate has bounced between 8.83% and 9.18%.

  I’m also looking forward to Thursday’s ISM report. Wall Street expects a reading of 51.5 which isn’t strong but any reading above 50 means that the economy is expanding.

• AMR Files for Bankruptcy
  Eddy Elfenbein, November 29th, 2011 at 10:13 am

  A few years ago, someone had run the numbers and found that the historical profits of the airline industry added up to less than zero. In other words, in aggregate, one person paying another person to be flown on an airplane had been at less than cost.

  The sad fact is that airlines are often terrible investments. Even Warren Buffett lost money on the airlines. He said that if a stockbroker had been at Kitty Hawk, he would have shot the plane down.

  Today we get the news that AMR ($AMR), the parent of American Airlines, has filed for bankruptcy. This is particularly sad for American since it had been the only legacy carrier that hadn’t filed for bankruptcy. In early 2007, the stock had been over $40 per share. Yesterday it closed at $1.62. The airline has lost money for the last three years in a row.

  I’m not sure what it is about airlines that have made them such poor investments. They seem to have endless union trouble. They’re hurt by price wars. They’ve managed to be hurt by both regulation and deregulation.

  A few years ago, Money Magazine celebrated its 30th anniversary by looking at which stocks had been the best performers over the previous 30 years. Interestingly, the #1 stock over the three decades came from the worst-performing industry. The stock was Southwest Airlines ($LUV).

  

• Morning News: November 29, 2011
  Eddy Elfenbein, November 29th, 2011 at 6:08 am

  German Exports Breach EU1 Trillion Sales

  Crisis in Europe Tightens Credit Across the Globe

  Search for Olympus Scam Advisers Highlights Hong Kong Links

  Italy Pays More Than 7% at Bond Auction for Third Time

  China Solar Makers Say U.S. Petition Will Hurt Consumers

  Moody’s Signals Possible Cut for Europe Banks

  Obama Meets Leaders of the European Union

  U.S. Household Debt Falls by 0.6% in Third Quarter

  Facebook Said to Plan IPO at $100 Billion Valuation

  AT&T’s 11th-Hour Plan to Save Its Deal With T-Mobile

  Citigroup Deal With SEC Gets the Rough Legal Treatment It Deserved

  Corzine Pushed Bet on Europe Debt to $11.5 Billion

  New China Life Seeking Up to $2.3 Billion in Initial Offer

  Groupon Is Going Down — Here’s Why

  Roger Nusbaum: It’s Not an Apocalypse, But In Case It Is…

  Jeffrey Carter: Historical Reality Missing In Action

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• Facebook to IPO in the Spring
  Eddy Elfenbein, November 28th, 2011 at 10:47 pm

  The WSJ is reporting that Facebook is now aiming for an initial public offering next spring. Of course, investors have been expecting an IPO for some time but now it finally seems to be coming. The offering could value the company at more than $100 billion.

  The market’s appetite for IPOs is a bit questionable. Groupon ($GRPN) has done poorly and LinkedIn ($LNKD) has fallen off after an initial surge.

  Until now, Facebook’s financial numbers have been shrouded in secrecy. The company now has over 500 shareholders so by April, it would have to file with the SEC if it were public or not. I’m sure that played a role in the timing of the IPO.

  Earlier this year, Facebook got a bunch of money from some investors including Goldman Sachs ($GS). Going by those numbers, the deal valued Facebook at $50 billion.

• “Epic Errors”
  Eddy Elfenbein, November 28th, 2011 at 1:30 pm

  Shares of Jefferies ($JEF) took a major bath after rating firm Egan-Jones downgraded the stock (Leucadia owns a big slice of Jefferies). E-J said that Jefferies needed to raised $1 billion while Jefferies continually said that they were doing fine. Now an analyst at Oppenheimer said that Egan-Jones’ analysis contained (get this) “epic errors.”

  The analysis contains “epic errors of fact,” Chris Kotowski, an analyst at Oppenheimer, said today in an interview with Stephanie Ruhle and Erik Schatzker on Bloomberg Television’s “InsideTrack.”

  Jefferies “is a fine company,” he said. “It’s conservatively leveraged compared to any other fixed income trader historically.”

  ‘Deeply Flawed’

  Jefferies climbed 36 cents, or 3.4 percent to $11.01, as of 12:57 p.m. New York time. The shares had declined 60 percent this year through Nov. 25, outpacing the 17 percent drop in the Standard & Poor’s Midcap Financials Index.

  “The fact that this kind of deeply flawed work can get the media traction it has, just indicates to me that we’re living through something that is kind of like the inverse of the Internet bubble,” Kotowski said. “By 2000 it got to the point where people were just buying tech stocks no matter what the valuation or what the project. Now they’re shorting banks because shorting banks has worked for five years in a row, so people have this mentality of short a bank, get a check.”

• Gilead Back Above $40
  Eddy Elfenbein, November 28th, 2011 at 10:28 am

  Ugh! I take a few days off and the stock market plunges. Fortunately, we’re rallying today and gaining back much of what we lost. The market is currently up 314 points. The S&P 500 is closing in on 1,200 and the Dow is now over 11,500.

  Still, last week was the worst Thanksgiving week since 1932. The Dow shed over 560 points. So far today is a good day for the cyclicals. Energy and Material stocks are leading the way while Financials aren’t too far behind.

  Many stocks on our Buy List like Wright Express ($WXS), JPMorgan Chase ($JPM) and Deluxe ($DLX) are doing very well.

  I was surprised to see Nicholas Financial ($NICK) get as low as $10.01 on Friday but since it was on such light volume, I wasn’t too concerned. Of course, there hasn’t been any news which ought to impact the stock greatly. NICK opened at $10.97 today and is now at $10.50. I don’t see any reason why it shouldn’t be back over $11.70 soon.

  Interestingly, Gilead Sciences ($GILD) has recovered all the ground it lost since it announced the $11 billion deal to buy Pharmasset. One week ago, shares of Gilead plunged 9% on several times’ normal trading volume. If you held (as we did), you would now be ahead.

  

• Morning News: November 28, 2011
  Eddy Elfenbein, November 28th, 2011 at 4:54 am

  Central Banks Ease Most Since 2009 to Avert Contagion

  IMF Denies in Italy Aid Talks

  Euro-Zone Shark Still Has Its Appetite

  Crisis Threatens EU Sovereign Ratings: Moody’s

  Indian Politicians Unite to Slam Plan for Wal-Mart Entry

  Bank Of Japan Governor: Japan Faces Severe Situation

  Brazilian Steel: Ternium, Tenaris Buy 27.7% Voting Stake in Usiminas for $2.66 Billion

  Effects of Flooding Show in Thai Data

  Oil Advances a Second Day on Economic Outlook, Syrian Sanctions

  Copper Gains Most in Two Weeks on Italy Loan Report, Record Thanksgiving

  Secret Fed Loans Gave Banks Undisclosed $13B

  For a Weekend, at Least, Retailers See Record Numbers

  Asset Sale May Be Next for AT&T

  Zynga’s Tough Culture Risks a Talent Drain

  Three Top BSkyB Shareholders to Vote Against Murdoch

  Jeff Miller: Weighing the Week Ahead: A Deluge of Data

  Phil Pearlman: Black Friday Redux: One Nation Conditioned To Shop Madly at Midnight

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• Morning News: November 25, 2011
  Eddy Elfenbein, November 25th, 2011 at 6:56 am

  India’s Sharma Says FDI in Retail to Create 10 Million Jobs

  Japan Benchmark 10-Year Yield Completes Biggest Weekly Gain Since January

  Bank Of Russia Leaves Rates Unchanged, As Expected

  Hungary Credit Rating Cut to Junk at Moody’s

  In Debt Crisis, a Silver Lining for Germany

  China Starts Probe Into U.S. Renewable Energy-Policy, Subsidies

  Renewable Power Trumps Fossils for First Time

  “Fair value” Accounting Rule Tweak Raises Concerns

  Crude Futures Head for Second Weekly Loss on Europe; Mirae Sees Iran Risk

  T-Mobile and AT&T Edge Closer to Scrapping Merger

  Gap Says to Triple China Network in 2012

  Russian Oil Giant Lukoil’s Quarterly Net Slumps 21% on Output Dip

  Hong Kong Jeweler Plans $3 Billion IPO

  John Muellbauer: How Germany Could Save the Euro

  Howard Lindzon: Venting…Not Vente…AND Humor in Finance

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