Archive for 2011

• ConocoPhillips Plans to Split Into Two
  Eddy Elfenbein, July 14th, 2011 at 9:05 am

  ConocoPhillips ($COP) announced today that it’s going to split itself into two companies. Marathon Oil split itself up earlier this year. Generally, in a commodities industry, when prices go down, the industry consolidates. When prices rise, the industry separates.

  COP’s CEO said, “We have concluded that two independent companies focused on their respective industries will be better positioned to pursue their individually focused business strategies.”

  The reason I highlight this is that you can often find good bargains when top-quality stocks break themselves up. The hitch is that it’s often the less glamorous company that does well.

  Earlier this year, Motorola split itself in two, years after promising us it would. I joked that the company would now be two lousy companies instead of one.

  At the time, I wrote that the one to watch was Motorola Solutions ($MSI), the less glamorous spin-off:

  The one to steer clear of is Motorola Mobility. I firmly expect these guys to be crushed to dust. Motorola Solutions, however, might be a compelling buy. They do the “everything else” part of Motorola’s business which is things like barcode scanners and two-way radios.

  So far, I’ve been right.

  

  Many people have experienced a situation at a company where one part of the firm is much more profitable than other parts are. This can often lead to problems when employees feel that they’re “carrying” the rest of the company.

  ConocoPhillips wants to become a refining and marketing company and an exploration and production company. The refining and marketing is probably the safer bet.

• JPMorgan Posts Good Earnings
  Eddy Elfenbein, July 14th, 2011 at 8:13 am

  I hadn’t expressed any opinion on JPMorgan Chase‘s ($JPM) second-quarter earnings because I didn’t have a good “feel” for how they were going to shake out. Sometimes the numbers are pretty clear but I just didn’t have that clarity this time around.

  From what I saw, it looks like Wall Street was pretty anxious about JPM and the entire banking sector. The Street was expecting JPM to earn $1.21 per share. The good news is that the bank reported Q2 earnings this morning of $1.27 per share.

  Analysts have expected strength in the bank’s capital market business. On Thursday, J.P. Morgan said its investment-banking arm’s profit jumped 49%. The retail financial services business, meanwhile, reported a 44% slide in profit.

  Credit-loss provisions were $1.81 billion, down from $3.36 billion a year earlier and $1.17 billion in the prior quarter. Many banks have seen earnings boosted by a reduction in loan-loss reserves as credit conditions improve.

  J.P. Morgan reported a profit of $5.43 billion, or $1.27 a share, up from $4.8 billion, or $1.09 a share, a year earlier. The latest period included a net seven cent charge, due in part to costs of foreclosure-related matters. The prior-year period included a net benefit of 12 cents related to a reduction in loan-loss reserves.

  Revenue on a managed basis, which excludes the impact of credit-card securitizations and is on a tax-equivalent basis, rose 7% to $27.41 billion.

  Analysts polled by Thomson Reuters most recently forecast a per-share profit of $1.21 on $25.13 billion in revenue.

  The bank resolved a number of legal problems during the quarter. Earlier this month, it agreed to a $228 million settlement with the U.S. Securities and Exchange Commission over claims it rigged municipal bond transactions. In June, it said it would pay $153.6 million to settle charges it misled investors by packaging complex securities tied to the housing market before its downturn.

  Here’s a PDF from the company with all the details.

  I added JPM to the Buy List this year because I felt the stock was underpriced. The shares had a great start to the year and broke $47 by early April. Ever since then, the stock has trended lower and it broke below $40 recently.

  Three months ago, JPM reported earnings of $1.28 which was 12 cents above the Street’s consensus. With today’s earnings report, the company has delivered again. Going by yesterday’s close, JPM is going for an absurd 8.1 times earnings.

  The bank got approval to raise its quarterly dividend from five cents per share to 25 cents per share. I think it’s pretty obvious the dividend can go a lot higher — probably even to 50 cents per share. Even by the current dividend, JPM yields 2.52%.

  The shares are up over 2% in the pre-market.

• Morning News: July 14, 2011
  Eddy Elfenbein, July 14th, 2011 at 7:58 am

  Italy Calls for Austerity Vote

  Italy Pays High Yields; Sells Bonds At Range Top

  Asian Stocks Decline as Concern Over U.S. Debt Rating Threatens Exporters

  EU: Hard To Understand Fitch’s Greek Credit Downgrade Decision

  Gold Hits Record Highs on U.S. Easing Talk, Euro Zone Debt Woes

  Moody’s Downgrade Warning Pressures U.S. on Debt Deal

  Bernanke Says Fed ‘Prepared to Respond’ If Stimulus Needed

  China Struggles to Tame Pork Prices

  Bank Delays Push 1 Million U.S. Foreclosures Into 2012 in ‘Ominous Shadow’

  JPMorgan Chase Quarterly Profit Rises 13% to $5.4 Billion

  ConocoPhillips Plans to Split in Two

  Amazon Takes on California

  Borders Faces Liquidation After Takeover Bid’s Rejection

  Todd Sullivan: Are LinkedIn’s Users Becoming Less Engaged?? The Data Says Yes…

  Stone Street: A Chinese Reverse Merger “Fraud” CEO Speaks

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• Surprising Results for Gilead’s AIDS Drugs
  Eddy Elfenbein, July 13th, 2011 at 2:46 pm

  This sounds pretty impressive:

  Two studies released Wednesday show AIDS drugs can sharply reduce the risk of heterosexuals acquiring HIV, adding to a growing number of new methods to slow the spread of the virus world-wide.

  Many researchers now believe science has developed sufficient tools to contain the pandemic, which is thought to infect about 2.6 million people annually. But tight budgets may limit deployment of these methods.

  The results are the latest to demonstrate that existing medications are an important tool for prevention as well as treatment of HIV/AIDS, and show their effectiveness in the population hit hardest by HIV globally—heterosexuals in Africa. The findings also are likely to help alleviate concerns that emerged in April after another study was unable to determine whether the drugs protected women at high risk.

  Both of the new studies, conducted in different African countries, found that giving antiretroviral drugs to heterosexuals reduced the risk of HIV infection by at least 62%—”which is huge,” said Jared Baeten, co-chairman of one of the studies, led by researchers at the University of Washington International Clinical Research Center.

  That study examined 4,758 heterosexual couples in Kenya and Uganda in which one partner had HIV and the other didn’t. Researchers found that those who received a daily dose of a drug called tenofovir had an average of 62% fewer infections than those taking a placebo, while those who received a drug combining tenofovir and another medication, emtricitabine, had an average of 73% fewer infections. The drugs, marketed by Gilead Sciences Inc. under the brand names Viread and Truvada, respectively, are thought to work by preventing the virus from replicating and establishing an infection.

  The study, funded by the Bill and Melinda Gates Foundation, wasn’t supposed to end until late 2012. But after reviewing partial results, an independent data and safety monitoring board decided Sunday to halt the trial early because the findings were so strong, Dr. Baeten said.

• The Onion: Banks Introduce 75-Cent Surcharge For Using Word ‘Bank’
  Eddy Elfenbein, July 13th, 2011 at 2:35 pm

• Gold Soars
  Eddy Elfenbein, July 13th, 2011 at 12:25 pm

  While Bernanke speaks. (Click on graph for ultra-massive version.)

  

• Is Gold Money?
  Eddy Elfenbein, July 13th, 2011 at 12:11 pm

• Bernanke’s Testimony
  Eddy Elfenbein, July 13th, 2011 at 11:04 am

  Twice each year, the Chairman of the Federal Reserve is required to testify before Congress. I’ve actually hauled over to Capitol Hill a few times to see this. It’s a very odd experience since the hearing room is mostly empty.

  The two testimony dates usually come on the hottest day of the year and the coldest day of the year. Today is one of the hottest and Bernanke spoke before the House Financial Services Committee.

  Before Bernanke starts speaking, the Fed releases the transcript of what he’s going to say. Here’s today’s testimony.

  I’ve said before that there’s been a surprising gap between what Ben Bernanke says and what other people say he says. If you want to get a handle on what the Fed thinks, I encourage you to give it a read. It’s pretty clear.

  He said that the economy has been hurt by some temporary issues. Bernanke also noted that inflation has picked up some but that should also be temporary.

• Morning News: July 13, 2011
  Eddy Elfenbein, July 13th, 2011 at 8:17 am

  Draghi Says EU Debt Crisis Is in New Phase

  E.U. Vows to Back Banks That Fail Stress Tests

  Moody’s Downgrades Ireland Debt to Junk Status

  China’s Economy Slowed a Bit in the 2nd Quarter

  Italian Borrowing Costs Rise on Debt Crisis Fears

  French Banks Face Greatest Italian Risk

  IEA: Saudi Domestic Crude Demand May Cap Exports

  Bernanke to Face Grilling on Jobs, Debt, Europe

  Stock Index Futures Gain on Signs of China’s Growth

  Netflix Rates Rise Up to 60% for DVD, Streaming

  Amazon Backs End to Online Sales Tax in California

  Capital One’s Earnings Rise 50%

  Electronic Arts to Buy PopCap Games

  Jeff Miller: How the Individual Investor Can Trade Like a Pro

  Joshua Brown: UBS: Apple TV Could Be Worth $100 Billion

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• Couldn’t Hold the 50-DMA
  Eddy Elfenbein, July 12th, 2011 at 4:19 pm

  So close but the S&P 500 just slipped below its 50-day moving average.