Archive for March, 2012

  • The Turnaround at Ford
    , March 31st, 2012 at 7:04 pm

    This is from a NYT review of “American Icon: Alan Mulally and the Fight to Save Ford Motor Company.”

    In 2008, the Ford Motor Company seemed caught in a death spiral.

    The company was hemorrhaging cash — more than $83 million a day — as the bottom fell out of the car market. In late autumn, Ford’s stock price bottomed out at $1.01.

    Move forward three years. For 2011, Ford turned a net profit of $20 billion on sales of $128 billion. It distributed profit-sharing payments of about $6,200 to each of 41,600 eligible employees. On Friday, its stock closed at $12.48.

    (…)

    First, Mr. Mulally knew that Ford could not hope to improve its market performance without simultaneously changing its culture. Some of the book’s most interesting passages deal with his efforts — often one person at a time — to improve accountability and to foster commitment among executives.

    Mr. Mulally’s chief instrument here was data-driven management, in which each executive was responsible for consistently knowing and reporting how his — very few women appear in this story — department was performing. Concentrating on consistent metrics, he argued early on, would focus managerial attention on the big picture while increasing transparency.

    He eliminated all corporate-level meetings except for two he introduced: the weekly, mandatory business plan review, when the senior team reported its progress on specific goals, and the special-attention review, when executives took up issues needing in-depth consideration. Over time, both meetings — which occurred daily in crucial periods — would become the highway on which Ford’s leaders drove change.

  • Technical Issues
    , March 30th, 2012 at 1:22 pm

    I apologize for the delay in getting this week’s CWS Market Review emailed out to everyone. We’re having some technical issues that we’re trying to address. Fortunately, we were able to post the text below.

  • CWS Market Review – March 30, 2012
    , March 30th, 2012 at 7:48 am

    Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it.

    — Warren Buffett

    Since February 22nd, the S&P 500 has rallied 3.36% while our Buy List is up even more, 4.31%. The lesson is that investors are gradually gravitating to the kinds of high-quality stocks that we favor.

    In this week’s issue of CWS Market Review, I want to take a closer look at some of the challenges ahead for Wall Street. I also want to discuss the shellacking that Joey Banks ($JOSB) took on Wednesday. (Ugh!) Finally, I’ll highlight some of the exceptional bargains on our Buy List. As well as we’ve done both in overall terms and against the broader market, I think the Buy List will do even better this spring and summer.

    Expect the Market to Enter a Holding Pattern

    Now let’s take a closer look at what’s been happening on Wall Street. On Monday, the S&P 500 closed at its highest point since May 2008. But like last week, Wall Street quickly gave back our gains. Actually, the stock market seems to be following the same pattern as last week—up on Monday, down on Tuesday, Wednesday and Thursday.

    I think it’s very likely that the market will be in a holding pattern until we clear two important events. The first will be next week’s jobs report. The second will be the first-quarter earnings season which will start during the second week of April. The last earnings season wasn’t too hot, so investors may have grown skeptical.

    The stock market has rallied almost consistently since the beginning of October, and much of the recent strength is due to the jobs market. As I’ve explained before, the stock market has become highly focused on the jobs outlook. The reason is that corporate profit margins have been stretched about as far as they can go. Historically, the stock market hasn’t done quite as well after profit margins have peaked. Since inflation is still low, many companies don’t have the market power to raise their prices. As a result, businesses need to get more customers.

    The latest jobs news has been pretty good. On Thursday, the Labor Department said that jobless claims fell by 5,000 to 359,000. That’s the lowest reading since April 2008. Wall Street had been expecting a little bit better number, so that may have prompted the sell-off on Thursday. The weekly jobless claims report tends to have a lot of “noise” so economists prefer to look at the general trend which has been very favorable.

    But Wall Street is waiting for the big daddy of jobs reports: the Labor Department’s March jobs report. The two big numbers to watch for are non-farm payrolls and the overall unemployment rate. You can be sure that this report will also be closely scrutinized by Governor Romney and President Obama. The March jobs report is due out next Friday, April 6th; and to make matters more dramatic, the stock market will be closed that day for Good Friday. This means we won’t know the market’s reaction until the following Monday.

    I was very optimistic for the February jobs report (you might say too optimistic although the future revisions may prove me right). But I’m a bit less sanguine for the March report. My concern is that traders are already factoring in a strong jobs report into current stock prices, and I’d prefer to see the facts before we take action.

    Earlier this week, the Grand Poobah of the Fed, Ben Bernanke, said that he was a bit mystified that the economy is creating jobs despite our subdued economic growth. The Bearded One suggested that one possibility is that companies “have become sufficiently confident to move their workforces into closer alignment with the expected demand for their products.” I think that, combined with the catch-up effect, may be correct. This is probably related to our theme that investors have been willing to shoulder more risk. Bottom line: There’s optimism out there, and it will help our portfolios later this spring and summer.

    Don’t Give Up on Joey Banks

    Now let’s talk about this week’s problem child, Jos. A. Bank Clothiers ($JOSB). The company reported Q4 earnings of $1.78 per share which hit Wall Street’s consensus on the button. On top of that, they wrapped up a very successful year. Sales rose 14.2% to nearly $1 billion. The key metric for the industry is comparable store sales, and that rose by 7.6% last year. Net income increased by 13.6% to $97.5 million and earnings-per-share rose from $3.08 to $3.49. Not many companies have numbers like that.

    The problem, however, is what they had to say about the current quarter:

    The first quarter of 2012 has started out more slowly than we had planned with declines in both comparable store sales and Direct Marketing sales for the first 8 weeks of the quarter. The declines are primarily due to weaker than expected traffic and also due to the warmer winter weather which is resulting in significantly lower sales of outerwear and cold weather merchandise. We are making marketing changes to address the sales trend. We believe that these changes will be effective and appealing to our customers; however we remain cautious about the outcome of the first quarter of 2012.

    The stock dropped 8.55% on Wednesday. I’m disappointed, but I’ll remind you that this has happened before. JOSB often gets knocked around after earnings — good or bad — and eventually recovers. Last June, the stock dropped 13.3% after the company missed earnings by two cents per share. Yet by October, the stock had nearly made up all the lost ground. (The next two earnings reports beat by six cents and by two cents.)

    I was pleased to see the stock recover a bit on Thursday. I want investors to play this one safely. I’m lowering my buy price on Jos. A. Bank from $54 to $52.

    Our next Buy List earnings report will be from Bed Bath & Beyond ($BBBY) on Wednesday, April 4th. This will be for the all-important holiday quarter. The company has told us to expect earnings to range between $1.28 and $1.33 per share. That’s very doable.

    As I explained last week, BBBY’s recent rally has made me slightly queasy on the price. Don’t chase it. Let’s see what the earnings report and guidance are like. For now, Bed Bath & Beyond is a very good buy up to $66 per share.

    Outstanding Bargains on Our Buy List

    I want to highlight some bargains on the Buy List. A few of our financial stocks have drifted lower recently. AFLAC ($AFL) is below $46 and Nicholas Financial ($NICK) is under $13.50. Both are very good buys. Reynolds American ($RAI) hasn’t done much of anything this year. At $41 per share, the stock yields more than 5.4%. I’m confident we’ll see another dividend increase near the end of the year.

    CR Bard ($BCR) is one of our quieter stocks, but it’s climbed steadily all year. We already have a 15.72% YTD gain. Bard has increased its dividend every year since 1972 and it will happen again in a few months. I’m raising my buy price from $96 to $102.

    Let me add a quick word on Oracle ($ORCL). If you recall, the stock initially bounced on better-than-expected earnings. Then the stock market had second thoughts and Oracle pulled back below $29 per share. The stock stabilized this week above $29 and I still believe it’s an excellent buy up to $32 per share.

    One more thing: Oracle and Google ($GOOG) are about to go to court in a fight over patent issues surrounding Android. The trial will get a lot of attention, but don’t be too worried. Relative to the size of these companies, the dollar amount involved is small potatoes.

    That’s all for now. Remember that the market will be closed on Friday, April 6th for Good Friday. 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

  • Morning News: March 30, 2012
    , March 30th, 2012 at 7:09 am

    Europe Moves to Bolster Firewall to Protect Spain, Italy

    Europe Agrees to $1 Trillion Bailout Fund for Euro

    Eurozone Inflation Slows Less Than Expected

    Greek Leader Puts a Halt To Jockeying Ahead of Vote

    Spain Gives Assurances on Austerity Budget

    Santander Proves Greenest as No. 2 Bank of America Becomes Solar

    Case Based in China Puts a Face on Persistent Hacking

    PetroChina Plans ‘Large Scale’ Acquisitions to Expand Output

    Large Hedge Funds Fared Well in 2011

    Oaktree Capital Files to Raise as Much as $595 Million in IPO

    Three Major Banks Prepare for Possible Credit Downgrades

    RIM Earnings, Sales Fall Short as BlackBerry Demand Wanes

    AIG Targets China Drivers in $50 Billion Insurance Market

    Phil Pearlman: Doug Kass and the Housing Recovery

    Joshua Brown: Intermarket Correlations – Ten Years Ago and Today

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  • Bernanke’s Third Lecture
    , March 29th, 2012 at 12:55 pm

    Here’s the third installment of Ben Bernanke’s lecture series at GW.

  • Coke Nears All-Time High
    , March 29th, 2012 at 10:30 am

    Although the stock market is down this morning, shares of Coke ($KO) are at a 52-week high. In fact, the stock is at its highest point in more than 13 years. It’s interesting that the company hasn’t been able exceed its high from July 1998.

    When you look at the chart, it’s interesting to see how much smoother the line has become over the years. It’s gone from highly jagged to pretty stable.

  • Is the U.S. Economy Still Accelerating?
    , March 29th, 2012 at 9:56 am

    That’s the big question: Is the rate of growth of the U.S. economy still increasing?

    It may sound odd to many to say that the U.S. economy is not only growing but also it’s accelerating. But I assure you that’s what happened during much of 2011.

    Bear in mind that the economy went from near-0% growth to very mediocre growth, but that still counts as acceleration. Check out the last four bars on this chart:

    The government updated its Q4 GDP report this morning to show no change in its original number that the economy grew, in real terms, by 3.0% for the final three months of 2011.

    But growth for this quarter may come in below that. The major bright spot is that jobless claims continue to decline. Today’s report showed that, once again, jobless claims fell to their lowest point since April 2008. The Labor Department said that claims fell by 5,000 to 359,000. Wall Street was expecting an better number of 350,000.

    The fact that it was slightly below expectations may be the reason the market is down this morning. The S&P 500 is currently at 1,397 which is down about eight points from yesterday’s close.

  • Muppets Vs. Goldman Sachs
    , March 28th, 2012 at 10:48 am

    From Funny or Die

    HT Josh Brown

  • Joey Bank Drops After Earnings Report
    , March 28th, 2012 at 10:12 am

    Shares of Jos. A. Bank Clothiers ($JOSB) are down sharply today after the company reported fiscal Q4 earnings of $1.78 per share. The stock has been down as much as 10% today. Despite the sharp drop in the stock, the earnings were inline with Wall Street’s forecast.

    In the earnings report, the CEO warned:

    The first quarter of 2012 has started out more slowly than we had planned with declines in both comparable store sales and Direct Marketing sales for the first 8 weeks of the quarter. The declines are primarily due to weaker than expected traffic and also due to the warmer winter weather which is resulting in significantly lower sales of outerwear and cold weather merchandise. We are making marketing changes to address the sales trend. We believe that these changes will be effective and appealing to our customers; however we remain cautious about the outcome of the first quarter of 2012.

    The company just wrapped up a very strong year. Sales rose 14.2% to nearly $1 billion. The key metric for the industry is comparable store sales, and that rose by 7.6% last year. That’s very good. Net income increased by 13.6% to 97.5 million, and earnings-per-share rose from $3.08 to $3.49.

    I’d urge shareholders not to be too worried about today’s sell-off. The stock often gets knocked around after earnings — good or bad — and eventually recovers. Last June, shares of JOSB dropped 13.3% after the company missed earnings by two cents per share. Yet by October, the stock had nearly made up all the lost ground. (The next two earnings reports beat by six cents and by two cents.)

    I’m going to lower my buy price from $54 to $52 per share.

  • Morning News: March 28, 2012
    , March 28th, 2012 at 8:13 am

    ECB: Private-Sector Loan Growth Slows In February

    Italy Sells Bills at Lowest Since 2010 as Crisis Concerns Ease

    News Corp. Piracy Claims Are Serious, Australia Says

    Total Downplays Risks From North Sea Leak

    Disasters Hit Lloyd’s of London

    Brent Breaches $125 on Crude Stocks Rise, Possible Release

    Gross Says Credit Expansion to Create Inflation, Slow Growth

    Consumer Confidence in U.S. Holds Close to One-Year High

    Court Considers Health Law Fate If Coverage Rule Voided

    Knowing Cost, the Customer Sets the Price

    Pentair, Tyco’s Flow Unit Plan $4.53 Billion Combination

    Magic Johnson Group to Buy L.A. Dodgers for $2 Billion

    Foxconn Counts on Apple’s Future Through Sharp Investment

    Roger Nusbaum: Volatility is Not an Asset Class

    Epicurean Dealmaker: Altar of a Minor God

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