Archive for 2011

  • Packers Sell $400,000 in Stock in 11 Minutes
    , December 6th, 2011 at 1:23 pm

    The Green Bay Packers just sold $400,000 worth of stock in 11 minutes today.

    There is, however, some downside to owning the Packers. For example, the stock doesn’t pay any dividends and can never be sold. It will never appreciate.

    Come to think of it, it’s only downside.

    The team is riding their success on the field this year by raising money in this offering. The Packers are trying to sell 250,000 shares at $250 each for a total of $62.5 million. Let’s see how it goes. If you’re interested, you can buy the shares at PackersOwner.com.

    Some explanation is needed. This is from a post I wrote on the Packers five years ago:

    CNBC’s Darren Rovell has a good story on the business of the Green Bay Packers. Rovell only briefly touches on this, but the Packers are one of the more interesting businesses in America today. The team is organized as a non-profit, community-owned corporation.

    There are about 4.7 million shares, but they don’t pay a dividend and they can’t be traded. Think about that. You just buy them and watch. If you want, you can sell the shares back to the team for a teeny amount of money.

    The Packer fans are so loyal that they’ve bought shares, and financially rescued the team more than once over the past 80 years.

    The team was organized as a community-owned company in 1923. To add some context, this was at the high tide as progressive movement, which found its epicenter in Wisconsin (i.e., the Wisconsin Idea).

    In 1924, Senator Robert “Fighting Bob” La Follette, Sr. of Wisconsin ran for president as a third party candidate. He won 17% of the vote and carried his home state.

    The senior La Follette died in 1925, but was succeeded by his son, Robert La Follette, Jr., who held the seat until 1946 when he was upset by Joseph McCarthy (with the help of the Communist Party).

    Milwaukee was the country’s only large city to have a socialist mayor, or at least, an admitted socialist mayor. In fact, the city had three socialist mayors over 38 years between 1910 and 1960 (would they have nationalized Arnold’s?). The last one died a few weeks ago at the age of 93.

  • The Fed Strikes Back
    , December 6th, 2011 at 1:04 pm

    Last week, Bloomberg had an article claiming that the Federal Reserve gave $13 billion to banks without telling Congress. Today, Bernanke shot back and sent this letter to the Senate Banking Committee. The language in the letter is surprisingly strong.

  • Breaking Down Oracle
    , December 6th, 2011 at 11:03 am

    Sometime next week Oracle ($ORCL) will probably release its fiscal Q2 earnings report. Wall Street expects the company to report earnings of 57 cents per share. I think it will be closer to 60 cents per share.

    Even if I’m wrong, Oracle is still a fairly inexpensive stock. Below is a chart of Oracle’s stock along with its earnings-per-share. The stock follows the left scale and the earnings follow the right. The two are scaled at a ratio of 15-to-1 which means that the P/E Ratio is exactly 15 whenever the lines cross. The red line is Wall Street’s estimate.

    I use 15 not as a projection of what I think the earnings multiple ought to be but simply because that’s been a close enough valuation for the last several quarters. More recently, however, Oracle has fallen to a cheaper valuation.

    Using some rough interpolation, Wall Street thinks Oracle can earn $2.52 per share for the entire 2012 calendar year. (Note this is just an estimate, Oracle’s quarters don’t follow the March/June/September/December cycle.) At 15 times that, Oracle’s stock could reach $37.95 by the end of next year which is a 19% rise from here.

    This also doesn’t take into account the fact that Oracle has a decent track record of exceeding analysts expectations. You can even see how the red line’s trajectory seems a bit subdued from recent history. Understandably, we want our projections to be somewhat conservative.

    A few years ago, Oracle started paying a modest dividend. I wouldn’t call this a major factor in the share price but it’s very possible that the company will bump up the dividend in the next few months. If Oracle raises the quarterly dividend from six cents per share to eight cents per share, the stock will then have a yield of 1%. Not much, but it’s better than nothing.

    If Oracle’s earnings trend continues, then I think it’s very possible the share price will hit $40 sometime next year.

  • Morning News: December 6, 2011
    , December 6th, 2011 at 5:32 am

    Merkel, Sarkozy Unite as S&P Issues Warning

    Wal-Mart Debate Rages in India

    BNP, Credit Agricole Knocked Off Top Equity Spot

    Telecom Italia Sees Tech Lag Hampering Cloud Growth

    In Ireland, Austerity Is Praised but Painful

    Power in Numbers: China Aims for High-Tech Primacy

    S.&P. Warns Euro Zone of Ratings Downgrades

    Oil Snaps Two-Day Gain as S&P Threatens European Credit Rating Downgrades

    Gold Ends Lower as European Progress Dulls Demand

    Geithner to Add U.S. Weight to Euro Zone Talks

    It’s Tone, Not Taxes, a Tycoon Tells the President

    Afghanistan Taps Aussie Miners

    Birinyi Says Buy Iconic Brands to Beat Market

    Olympus Remains Delisting Risk After Report, Exchange Says

    Jeff Carter: CFTC Might Perpetuate Fraud

    Roger Nusbaum: The Slog Continues

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  • Highest Close Since Mid-November
    , December 5th, 2011 at 6:24 pm

    Although we gave back some of our gains in the afternoon, this was still a pretty good day for the market. The S&P 500 gained 1.03% to reach its highest close since November 15th. Our Buy List added 1.33% to extend its lead over the overall market. The S&P 500 is still below its 200-day moving average.

    Nicholas Financial ($NICK) briefly touched $12 per share. We also saw decent gains from Stryker ($SYK) and Medtronic ($MDT). Some of the medical supply companies were hit hard late last week. On the Buy List, every stock but Johnson & Johnson ($JNJ) and Fiserv ($FISV) was up today.

    Leucadia ($LUK) just announced its annual dividend of 25 cents per share. I’m not sure why they even bother. The dividend amounts to just over 1%.

  • “Essentially Identical”
    , December 5th, 2011 at 4:14 pm

    From Scott Sumner:

    Consider the following:

    Banks pour huge amounts of money into one particular asset class. They are encouraged to do this by public policymakers, although there is some dispute about whether that was the main reason for their decisions. These assets have a long tradition of doing well, although a close look at the evidence would have raised red flags. The asset market in question suddenly takes a big dive as default risk increases sharply. This drags down many large banks, forcing policymakers to provide assistance.

    What have I just described? The sub-prime fiasco or the PIGS sovereign debt fiasco? I’d say both. I’d say these two crises are essentially identical. (I should clarify that by “essentially identical” I mean in essence, not in every detail.)

  • The S&P 500 Is Up to 1,265
    , December 5th, 2011 at 10:40 am

    The market is rallying again today. The S&P 500 has been as high as 1,265 this morning. That’s a gain of 9.1% since the Friday after Thanksgiving which was only six trading days ago.

    Keep a close eye on 1,264.56. That’s the average of the last 199 days so if we close above that, we’ll be above the 200-DMA.

    The market now has a real shot of making a four-month high soon. The current high close of the last four months was 1,285.09 from October.

    The financials and Energy sectors are leading the charge. On our Buy List, the standouts are Ford ($F), JPMorgan Chase ($JPM) and Medtronic ($MDT). AFLAC ($AFL) is about to poke its head above $45 per share. Ten weeks ago, AFL was trading near $31.

    The next earnings report for the Buy List will be from Oracle ($ORCL) and that should come some time next week, though I don’t know which day. Wall Street expects earnings of 57 cents per share compared with 51 cents per share one year ago. I think that’s a little low. My numbers say that Oracle should earn 60 cents per share. I think this company is doing very well right now.

  • Morning News: December 5, 2011
    , December 5th, 2011 at 6:01 am

    Merkel Heads to Paris as EU Leaders Seek Debt Strategy

    Monti’s Austerity Debut Risks Italian Wrath

    U.K. Service-Sector Job Losses Gather Pace

    Indian Retailers Slump as Singh May Suspend FDI Decision

    China Signals Reluctance to Rescue E.U.

    China’s Stocks Decline, Extending Fourth Weekly Loss, on Property Concerns

    Faulty Forecasts Roil Corn Market

    Zynga Lets Bing Gordon Turn $35 Million Into $650 Million

    British Airways Bid for BMI to Plug Asia Gaps

    SAP Sheds M&A Shyness as Oracle Rivalry Moves to the Cloud

    SAP to Buy SuccessFactors for $3.4 Billion

    Commercial Metals Rejects Icahn’s $1.7 Billion Bid

    Commerzbank to Boost Capital

    Troubled Bank Dexia Gets New Financing Lifeline

    Rich-Poor Divide Is Widening, OECD Says

    Howard Lindzon: Bring on 2012…The Abundance Showdown!

    Stone Street: (O’)Taylor Rules!

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  • November Unemployment Drops to 8.6%
    , December 2nd, 2011 at 8:48 am

    Non-farm payrolls rose by 120,000 in November, and 140,000 private sector jobs were created. Since the labor participation rate dropped, the unemployment number dropped down to 8.6% which is a big move considering the economy didn’t create that many jobs. I looked at the details and the jobless number actually comes out to 8.645%. I’m not exaggerating when I say that if November had been 12 hours shorter, the figure could have rounded up to 8.7%.

    The October NFP was revised to a gain of 100,000 while the September number was revised to a gain of 218,000.

    Over the last four years, the civilian non-institutional population has grown by 7.5 million. The labor force has grown by 38,000. Since the recession ended 29 months ago (officially), NFP has increased by 0.93%

    Stock futures look pretty strong this morning.

  • CWS Market Review – December 2, 2011
    , December 2nd, 2011 at 8:04 am

    If you were expecting a calm, reasoned financial market going into the holidays, I’m afraid you may be disappointed. On Wednesday, the Dow soared 490 points for its single-best day in nearly three years. This came after the stock market suffered its worst Thanksgiving week since 1932.

    Usually, when the market does as well as it did on Wednesday, it’s following a big down day. But Wednesday’s move came after a slight rally on Tuesday. The S&P 500 gained 4.33% on Wednesday which was its eighth-best gain following an up day in the last 70 years.

    I was pleased to see that stocks only finished modestly lower on Thursday. The S&P 500 is now back above its 50-day moving average and it’s only a small push from breaking above its 200-day moving average.

    In this issue of CWS Market Review, I want to delve into some of the reasons for the market’s abrupt about-face. I’ll also tell you how to position your portfolios for the last few weeks of 2011. Remember that historically, the best time of year for stocks is a 17-day run from December 22nd to January 7th. More than 40% of the Dow’s historical gain has come during this period which is less than 5% of the calendar year.

    The catalyst for Wednesday’s rally was—we’re told—the news that the Fed teamed up with other central banks to provide more liquidity for the global financial system. Allow me to explain; it’s all very simple. The Federal Reserve and other central banks agreed to lower the pricing on the existing temporary U.S. dollar liquidity swap arrangements from OIS +100 basis points to…ugh…getting sleepy…can’t…stay…awake…zzzzzzzz.

    Look, forget all the mumbo-jumbo. The stock market did not see one of its best rallies in decades because some bureaucrats put out a press release. Thankfully, they’re not that important. Instead, the market rallied because the market’s cheap. It’s that simple. The problem is that no one wanted to be first in the pool. I don’t blame them. Playing the bear had been the winning trade for three-straight weeks. Screaming you’re scared from the rooftops is the only trade that’s made anyone any money. Plus, our friends across the pond have been doing their best to show that they’re as clueless on how to run their economies as we are in running ours.

    To borrow from Comrade Trotsky, you may not be interested in the European financial crisis but the European financial crisis is interested in you. The news from Europe has been the main driver of the U.S. market for the last several weeks. But as I mentioned in the CWS Market Review from two weeks ago, our markets are slowly disentangling themselves from the mess in Europe.

    Just look at the decent economic news we’ve had recently. Please note that I’m not saying “good news,” just that there’s zero evidence of an imminent Double Dip. The fact that we can say that in December would have surprised a lot of folks this summer. For example, this past earnings season was pretty good. Thursday’s ISM report was decent. The Chicago PMI just hit a seven-month high. I’m writing this in the wee hours of Friday morning so I don’t know what the jobs report will say (check the blog for updates), but this week’s ADP report was very encouraging.

    Next Friday will be the big EU summit. This is it—Zero Hour. The Germans want more fiscal integration, and I think they’ll get it (of some sort). The Germans finally got religion once one of their bond auctions fizzled. When the country that’s supposed to bail everyone else out can’t get a loan, well…then it’s time to worry.

    But now the Germans have stopped dragging their heels. Anyone with a sense of history will have to appreciate the recent quote from Radek Sikorski: “I will probably be the first Polish foreign minister in history to say so, but here it is: I fear German power less than I am beginning to fear German inactivity.” Strange days, no?

    For Europe, this is beginning to feel like the fall of 2008. France’s AAA credit rating is on life support. Despite the bond auction disaster, the German one-year note recently went negative meaning that investors would prefer to take a loss just so they can be a creditor to Germany. This is exactly the kind of hysteria that’s been rattling our markets since August. It’s a mystical aura of fear, and that’s masking a truly inexpensive American market (Ford’s at 5.6 times 2012 earnings!)

    Now that everyone’s been suitably freaked out, they can finally do something. In fact, we’re starting to get an idea of what the game plan will look like. The basics are that Germany wants the ECB on a tight leash while it wants to set hard rules for how budgeting is done in the Euro zone. No surprises there. I suspect the Germans may give up their opposition to joint euro-bonds if the member states agree to some sort of debt-reduction fund. I’m not sure of the details, but something the market likes will come out of the summit. That’s not a guess. There’s no other alternative.

    But this crazy correlation we’ve had to Europe makes no sense. Here in the U.S., investors are quietly warming up to risk. We’ve already seen high-yield spreads in the U.S. begin to narrow as Treasury yields have climbed. Since December 23rd, the yield on the 30-year Treasury has risen by 30 basis points to 3.12%. The 10-year yield is up to 2.11% which is its highest yield in more than one month. As recently as July 25th, the 30-year was at 4.31%.

    Now let’s turn to some recent news from our Buy List. On Tuesday, Jos. A. Bank Clothiers ($JOSB) reported very good earnings for its fiscal third quarter. The company earned 54 cents per share for the three months ending on October 29th, which was three cents better than Wall Street’s estimate.

    JOSB’s business continues to hum along: earnings grew by 19% last quarter and revenues rose by more than 20%. The company has now reported higher earnings in 40 of its last 41 quarters including the last 22 in a row. However, there was one hitch. In the earnings report, JOSB warned that the fourth quarter “has started out more slowly than we had planned.”

    The market didn’t like that at all and chopped 3.7% off the stock on Wednesday in the face of a big rally plus another 2.4% on Thursday. Until we hear more, I’m inclined to side with Joey Banks. This is a very solid company. Some of you may recall six months ago when the market slammed JOSB for a 13% one-day loss after it missed earnings by—are you ready?—one penny per share. JOSB is a very good buy below $54 per share.

    In the CWS Market Review from October 14th, I said that I expected Becton, Dickinson ($BDX) to soon raise its dividend for the 39th year in a row. Sure enough, Becton came through and announced a 9.8% increase dividend increase on November 22nd. The new quarterly dividend is 45 cents per share and based on Thursday’s market close, BDX now yields 2.43%. There aren’t many stocks that can boast a dividend streak like Becton’s. Honestly, the stock is a bit pricey here in the low $70s. My advice is: don’t chase it. Instead, wait for a pullback below $65 before buying BDX.

    Last week, Medtronic ($MDT) reported fiscal Q2 earnings of 84 cents per share which was two cents better than estimates. This is pretty much what I expected. Two weeks ago I wrote that “they can beat by a penny or two.” I have to explain that the market has dismally low expectations for Medtronic even though the company is still doing well with pacemakers and insulin pumps. The trouble spot is Infuse, its bone growth product used in spinal fusions. Sales for Infuse dropped by 16% last quarter.

    The key for us is that Medtronic also reiterated its full-year EPS forecast of $3.43 to $3.50 per share. This means the stock is going for just over 10 times earnings. I’m raising my buy price for Medtronic to $40 per share.

    On November 22nd, Gilead Sciences ($GILD) stunned Wall Street when it announced that it’s buying Pharmasset ($VRUS) for $11 billion. That’s an insanely rich price for a company that doesn’t have any products on the market yet. (I had to reread that sentence just now after typing it. Yep, it’s still nuts.)

    So what does Pharmasset have? The company is pretty far along in developing oral drugs for hepatitis C. That could be a very lucrative market. Still, I think this was a terrible move on Gilead’s part. This is a business deal made out of fear rather than trying to spot an opportunity. Gilead was simply nervous that someone else would snatch up Pharmasset. I very much doubt that Gilead will be on our Buy List next year.

    You may have noticed that Nicholas Financial ($NICK) has been especially volatile of late. Why? I have no idea. There’s been no news. I suspect that it’s pure market jitters. Of course, it’s the market’s irrationality that helps us find bargains, so that means we have to deal with bad volatility as well. Over the last two weeks, little NICK has gone from $11.75 per share down to $10.01 and then back up to as much as $11.56 yesterday. I don’t have any more to say than “ride out the storm.” NICK is an excellent stock.

    Some other stocks on our Buy List that look attractive include Oracle ($ORCL), Moog ($MOG-A) and Ford ($F). Oracle should be coming out with its fiscal Q2 earnings in two weeks. Ford just reported a 13% sales increase for November. Also, Reynolds American ($RAI) has recently broken out to a new 52-week high. The stock is currently our top-performing stock for the year (+28%). The shares currently yield 5.37% which is equivalent to 645 Dow points.

    That’s all for now. Today is the big jobs report. 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!

    – Eddy

    P.S. I’m going to unveil the 2012 Buy List on Thursday, December 15th. As usual, I’m only adding and deleting five stocks from the current list. (Low turnover is my BFF.) I won’t start tracking the new Buy List until the start of the year. I like to make the names known publicly beforehand so no one can claim I’m front-running the market somehow.