Archive for June, 2012

  • Is This the New Trading Range?
    , June 13th, 2012 at 12:06 pm

    The S&P 500 may have entered a new trading range. The index seems locked in the upside by its 50-day moving average, and on its lowside by its 200-DMA.

    We tested the low-end once but that didn’t last long. Something will have to give because the 50- and 200-DMAs are quickly coming together.

  • Is Zynga a Buy?
    , June 13th, 2012 at 10:09 am

    No. But it’s no longer overly expensive either.

    Eric Savitz notes that some analysts are starting to pound the tables for Zynga (ZNGA). For example, Richard Greenfield at BTIG writes:

    In recent weeks, Zynga has been trading as if it is going out of business, despite the fact that the company is free cash flow positive and has net cash of over $2/share. Investors simply do not believe Zynga online gaming is a sustainable business, especially Facebook-based gaming, which is now hated by investors. We estimate Zynga is currently trading at 6.7x current year EV/EBITDA and 4.4x our estimated 2013 EBITDA, with a 2013 free cash flow multiple of just over 9x and just over 5x excluding cash on hand (2012 FCF is burdened by acquiring Zynga’s office building, a one-time hit to cap/ex).

    The World’s Simplest Stock Value Tool puts ZNGA at $7.09. The stock is currently at $5.17. That’s a 27% discount but given that it’s still so new, I’d want to see a larger discount.

  • Stocks Decline on Poor Retail Sales
    , June 13th, 2012 at 9:46 am

    This morning, the government reported that retail sales fell by 0.2% last month. This is the second 0.2% monthly decline in a row.

    Let’s remember that retail sales means total dollars, not number of things bought. Since inflation remains low and gas prices are falling, that tends to distort how much actual consumer activity is out there. The government also reported that wholesale prices dropped by 1% in May. That’s the biggest fall in three years.

    If we knock out auto sales from the retail sales report, then sales dropped by 0.4% last month. Of the Big Three, only Ford ($F), a member of our Buy List, beat sales expectations for May. Lower gas prices are probably aiding sales at lower-end stores like Walmart ($WMT) and Target ($TGT). Next week, we’ll find out how well business is going at Bed Bath & Beyond ($BBBY) when they report earnings.

    The stock market is lower at the open. One stock that’s doing well is Johnson & Johnson ($JNJ). Jeffrey Holford, an analyst at Jefferies, raised the stock to buy from hold. He raised his target price from $68 to $72.

  • Morning News: June 13, 2012
    , June 13th, 2012 at 7:05 am

    Bailout in Spain Leaves Taxpayers Liable for the Cost

    Rajoy Declares War On Central Bankers To Counter Crunch

    Euro Strength Seen By Stiglitz Removing Greek Debt

    Greek Bank Deposit Outflows Said To Rise Before Elections

    Monti Calls on European Leaders to Emphasize Growth

    German Sale Underscores Bund’s Safe-Haven Appeal

    Iran’s Oil Exports Plummet As Sanctions Bite, Agency Says

    China Government Adviser Predicts Second-Quarter Growth Below 7%

    ING Bank to Pay $619 Million to Settle Inquiry Into Sanctions Violations

    Dell Rises On Start Of 8-Cent-A-Share Quarterly Dividend

    Facebook Combats Criticism Over Ads

    Yahoo!, US Cable Station Team Up For Finance News

    Zynga Shares Dive As Facebook Game Craze Wanes

    Frito-Lay Takes New Tack on Snacks

    Jeff Carter: Breakfast Links

    Roger Nusbaum: European S&%# Storm

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  • Oil Versus Stocks
    , June 12th, 2012 at 1:00 pm

    It’s still too early to say if this is a trend, but for the first time in four years, stocks and oil are headed in different directions:

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  • Despite Europe, We’re Holding On
    , June 12th, 2012 at 11:52 am

    After the market’s late-day sell-off from yesterday, we’re holding on to some early gains. Today’s rally is being led by energy and materials stocks. I see that Boeing ($BA) is up by more than 3%. I think we’re going to see more investors shift to high-yielding stocks. Altria ($MO), for example, is at a 52-week high this morning.

    On our Buy List, Bed Bath & Beyond ($BBBY) is back over $71 per share after a brief dip below $70. Oracle ($ORCL) is right at $27 even. I think we’ll see in a rally in ORCL after the earnings report comes out next week.

    The bond market continues to give Spain its worst beat-down since the Spanish Armada. Yields on Spanish bonds jumped over 6.8% today. That’s the highest since the advent of the euro and it’s 537 bips over German bonds. This is a strong signal from the market that what the authorities just did wasn’t big enough. Now folks are worried about Italy. The spread between Italian and German bond yields is 482 points.

    Two quick points: One of our former Buy List stocks, FactSet Data Research ($FDS) came out with decent earnings today. As much as I like this company, the shares are WAY too expensive. I wish it were cheaper but until it is, I’m staying far away.

    One compelling stock is Seagate Technologies ($STX). David Einhorn disclosed that he’s got a big stake in this stock. Einhorn is always someone worth paying attention to. The numbers and dividend yield at Seagate look very good.

  • Morning News: June 12, 2012
    , June 12th, 2012 at 5:42 am

    Goirigolzarri’s Aid Demand Helped Push Spain to Bailout

    Cyprus Explores a Limited Bailout

    Spanish Aid To Offer CDS Fleeting Respite

    Pulling Plug on Greece Sells in German Town Opposing Merkel Plan

    China Oil Imports To Top May Record On Low Prices, Stockpiling

    China Could Impound European Planes In Carbon Row

    IMF: Yen Is Overvalued; Yen Falls on Remarks

    In a Time to Shine, India Can’t Get Off the Ground

    UAE Amends Stock Ownership Rules In Transparency Move

    Crude Ends Lower, Hits New 2012 Low As Rally Fades

    Average U.S. Family’s Wealth Plunged 40% In Recession, Fed Says

    How the SEC Could Pursue A Case Against JPMorgan

    Apple Takes On Google With Own Maps, Better Siri

    Buffett Pounces in Private-Jet Slump With $9.6 Billion

    Nobel Prize Amounts to Be Reduced

    Financial Astrologer Charts Stock Market’s Course

    Credit Writedowns: Will Globalization Go Bankrupt?

    Howard Lindzon: Mood Over Math…How to Profit In a Connected World

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  • Some Retail Stocks Are Heating Up
    , June 11th, 2012 at 2:50 pm

    Even though the stock market hasn’t been doing well lately, a number of retail stocks have bucked the trend. Target ($TGT), for example, just hit a new 52-week high today, and it’s not far from an all-time high. I expect Tar-Zhay to announce its 45th-straight dividend increase any day now. Last month, the company said it’s aiming to have its dividend at $3 per share by 2017. That’s pretty optimistic, but I like to see folks who have big plans.

    Walmart ($WMT) has also been doing well. On Friday, the Behemoth of Bentonville broke $68 per share for the first time since January 2000.

    Ross Stores ($ROST) hit a new all-time high today. The stock has practically been in a nonstop bull market for 18 years. In January 1994, shares of ROST were going for 74 cents. Now they’re at $64. That’s an annualized gain of over 27% a year, and it doesn’t include the dividend.

    On our Buy List, Bed Bath & Beyond ($BBBY) has pulled back from its all-time high of $74.67 (reached on May 29th). The company had an outstanding earnings report in early April. They beat Wall Street’s consensus by 15 cents per share. What’s interesting, though, is that the stock market took a while to react. After a small bump up after the earnings report, it was almost all gone three weeks later. Then the stock started to rally.

    BBBY will report earnings again on June 20th. The company sees fiscal Q1 earnings ranging between 79 cents and 83 cents per share.

  • Goldman Sachs Hires Single Morally Decent Human Being To Work In Separate, Enclosed Cubicle
    , June 11th, 2012 at 10:33 am

    The Onion:

    NEW YORK—Seeking to mollify critics over its role in the global financial crisis, Goldman Sachs announced Friday the hiring of junior analyst Greg Kohler, who executives said is the investment bank’s first and only employee to possess a clear set of morals or a basic understanding of right and wrong.

    Officials confirmed the upstanding Kohler, 24, will be based out of the company’s Lower Manhattan headquarters, working from within a small cubicle strategically located in a remote corner of the building where he is unlikely to have contact with his morally bankrupt coworkers.

    “We are very pleased to welcome Mr. Kohler, who will be adhering to the letter of the law in a workspace physically detached from the rest of our firm’s operations,” public relations chief Richard Siewert said during a press conference. “He’ll be joining a select group of 33,000 talented individuals at Goldman Sachs as our sole employee not motivated purely by the pursuit of obscene wealth at the expense of society.”

    “While Mr. Kohler won’t be attending a single meeting or influencing any of our business decisions, we’re confident his acute sense of professional integrity will prove a valuable asset,” Siewert continued. “He will technically be on our staff, collecting a paycheck, and that’s really all that counts.”

    According to Siewert, Kohler’s unique values of fairness, honesty, and social responsibility will be put to the test immediately, with daily tasks that include not searching for SEC loopholes to exploit, not deliberately misleading clients into unwise investments and then betting against them, and not taking massive risks at the expense of American taxpayers.

    Working in the seclusion of his 16-square-foot office in a seldom-traveled hallway adjacent to the office cafeteria’s dishwashing facility, Kohler will report to a vice president of private wealth management who will be barred from communicating with him in person, by phone, or over e-mail in the event Kohler accidentally hears about, and thus has to report, any instances of duplicitous behavior.

    In a recent letter to shareholders, CEO Lloyd Blankfein stressed that the firm has taken every precaution to ensure Kohler has no influence on Goldman’s culture of rampant amorality, writing, “Trust me, no one here is going to be listening to [Kohler]. He’ll only be allowed to access our building through the freight entrance.”

    “Unlike the numerous members of our organization who have brazenly done so in the past, Mr. Kohler will be prohibited from ever taking a high-ranking position within the U.S. government, as that would present a serious conflict of interest,” Siewert told reporters. “Nor will he be allowed, as our lone ethically minded employee, to draw upon those dubious connections to secure favorable treatment for Goldman Sachs or any of its global interests.”

    “Our plan is to ask for his advice on strategy and then immediately abandon anything he believes to be a good idea,” he added.

    Despite the official announcement welcoming Kohler, several employees voiced concerns that Kohler’s hire represents a shift away from the firm’s long-standing commitment to making as much money as possible, as quickly as possible, without any regard for human decency.

    “On a certain level, I’m not worried about having him on board—he’s just one guy, after all—but the mere fact that we’ll be sharing an office with someone who plays by the rules is extremely depressing,” said a managing director who spoke on condition of anonymity. “At the end of the day, you just want to cut loose with a few of your coworkers and expense a $2,000 meal without having to think that someone’s back at the office doing his job with professionalism and character.”

    “It’s just that I value the tradition we’ve all worked so hard to create here,” he continued. “I wouldn’t want one virtuous person to ruin that.”

    In addition to Kohler, Goldman Sachs also announced the hiring of 10 unscrupulous profit-mad sociopaths as a hedge against any of his moral convictions actually costing the company money.

  • That Was Quick….
    , June 11th, 2012 at 10:30 am

    That rally didn’t last long. There are now concerns that the aid headed Spain’s way won’t be nearly enough. The S&P 500 has now given back almost all of its gains. Markets in Spain reversed course, and Italy’s market fell as well. The authorities are concerned that Italy is next.

    Spain became the fourth euro member — following Greece, Ireland and Portugal — to seek a bailout since the debt crisis began almost three years ago after its borrowing costs approached euro-era highs. The amount sought by the nation is about 2.7 times the funds deemed necessary for its banks by the International Monetary Fund in a report released on June 8.

    Prime Minister Mariano Rajoy, who took office in December and denied the need for a banking bailout as recently as May 28, is trying to complete the cleanup of Spanish lenders after past efforts fell short. He’s also faced with an economy in recession and an unemployment rate higher than 24 percent.

    The bailout “takes the pressure off the Spanish government in the short term but Spain still has deep economic problems,” said Lyn Graham-Taylor, a fixed-income strategist at Rabobank International in London.

    Italian 10-year bonds dropped for a fourth day, with the yield climbing 12 basis points to 5.89 percent. It earlier reached 6.02 percent, the highest level since Jan. 31.