Archive for July, 2012

• Morning News: July 11, 2012
  Eddy Elfenbein, July 11th, 2012 at 5:41 am

  Rajoy Announces 65 Billion Euros in Budget Cuts to Fight Crisis

  Rate Scandal Stirs Scramble for Damages

  Geneva Bankers Tap Old Ties to Find Riches Amid Arab Spring

  Greece Pressed to Resume Austerity Program

  Wen Says Investment Now Key to Stabilizing China Growth

  China Passenger-Vehicle Sales up 15.8% in June

  OECD Warns of Long-Term Damage to Unemployed

  In New Rules to Shine Light on Derivatives, Regulators Also Allow Exemptions

  Iowa Broker PFGBest Collapses After Hiding Millions

  In Manchester United’s I.P.O., a Preference for U.S. Rules

  Navistar Seeks Most of $73 Billion China School Bus Sales

  Advantest Falls as Applied Materials Cuts Outlook

  Alcoa Offering Alba At Least $45 Million To Settle Suit

  Airbus A350-1000 Buoyed as Cathay Order Ends Drought

  Joshua Brown: “MF Global Had Us Angry, But This Time It’s Personal”

  Credit Writedowns: European Banking Union Done Properly

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• Forgotten Lessons From the Financial Crisis
  Eddy Elfenbein, July 10th, 2012 at 12:37 pm

• Dow-to-Gold Ratio
  Eddy Elfenbein, July 10th, 2012 at 11:20 am

  The St. Louis Fed’s FRED charting site just added gold prices to their database so I was playing around with some charts.

  Here’s a look at the Dow divided by the price of gold.

  

  I have no larger point to make with this chart. I just think it’s interesting to see how this relationship has played out.

  At the beginning of 1980, the Dow and gold were nearly even. By August 1999, the Dow was 45 times gold. Then the trend reversed itself and the ratio fell below 6 by last August. Today the ratio is up to 8.0.

• Stocks Modestly Higher on Alcoa’s Earnings
  Eddy Elfenbein, July 10th, 2012 at 10:35 am

  The stock market is just slightly higher this morning. There’s some optimism that a German court will approve the eurozone’s new bailout fund. The bad news is that China’s trade growth plunged in June.

  After yesterday’s close, Alcoa ($AA) reported earnings of six cents per share which was one penny ahead of expectations. Since Alcoa is usually the first Dow component to report, its earnings report gets a lot of attention. The problem is that Alcoa is hardly representative of the larger economy.

  On Friday, we’ll get a better idea of how earnings season is going when JPMorgan Chase ($JPM) reports earnings. Obviously, we’ll also get an idea of how badly the bank has been shaken by the big trading losses that came from their London office.

  Bespoke Investment Group has a chart showing how Wall Street has chopped its earnings expectations for JPM. In May, the Street had been expecting $1.24 for JPM’s second quarter. Today it’s down to 79 cents per share. There have been similar drops from Morgan Stanley, Goldman Sachs and other big Wall Street firms.

  I’m hesitant to make any forecasts for JPM’s earnings report because the company has been very tight-lipped about what exactly happened. The key for us will be to see how well the bank’s fundamental business has performed. For the most part, that’s been good this year.

  On the Buy List, I see that Reynolds American ($RAI) has matched its 52-week high this morning. Johnson & Johnson ($JNJ) is only a few pennies away from hitting a fresh 52-week high. JNJ is up by more than 10% since its June 1st close. Not many people saw that rally coming.

• High-Conviction Stocks on the Buy List
  Eddy Elfenbein, July 10th, 2012 at 9:07 am

• Morning News: July 10, 2012
  Eddy Elfenbein, July 10th, 2012 at 7:34 am

  EU to Speed $123 Billion Aid for Spanish Banks

  Fed Knew Of Libor Issue In 2007-08, Proposed Reforms

  Libor Woes Threaten to Turn Companies Off Syndicated Loans

  China’s June Trade Growth Plunges In New Sign Of Economic Slowdown Amid Weak Global Demand

  Investment Bankers Face Termination as Europe Fees Fall

  OECD Warns of Long-Term Damage to Unemployed

  Intel Investing $4.1 Billion in ASML to Speed Production

  Campbell to Buy Bolthouse for $1.55 Billion to Add Juices

  Five Firms To Test IPO Market In The Wake Of Facebook Debut

  WellPoint Aims To Profit From Medicaid With Amerigroup Purchase

  Alcoa Beats Estimates, Lifted by Carmakers

  As They Lose Traffic, Once Bustling Airports Have Space to Rent

  Diamond to Forgo Deferred Bonuses

  Jeff Carter: Dark Pools: High-Speed Traders, A.I. Bandits, and the Threat to the Global Financial System

  Cullen Roche: Hyperinflation – Some Lessons From a Scenario Analysis

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• Why I Don’t Like Stock Screens
  Eddy Elfenbein, July 9th, 2012 at 12:30 pm

• Why I’m Staying Away from Dell
  Eddy Elfenbein, July 9th, 2012 at 12:23 pm

  One of my more embarrassing investments was Dell ($DELL). I still have nightmares. I totally missed the story going on there and I rode the stock to a big loss. But with investing, we always want to learn from our mistakes.

  Dell’s stock currently appears to be a very good bargain, but I want to tell you why I’m not going near it. Wall Street currently expects the company to earn $2.03 per share for the fiscal year ending in January 2014. That means Dell is going for just over six times next year’s earnings. But those estimates used to be a lot higher.

  In May, Dell’s earnings report was a complete dud. They earned 43 cents per share which was three cents below estimates. Wall Street hacked the stock from $15 to $12 per share.

  Dell is a good example of a stock that appears to be a deep value stock, but we haven’t yet seen signs that the profits are still strong. Investors shouldn’t be drawn to Dell solely by the low share price. Remember that a trend will mostly likely last longer than you thought possible.

  I have no interest in trying to pick the exact bottom. I can’t do that and I don’t know anyone who can. But I can spot a troubled company that’s able to muddle through. Until Dell gives us solid evidence that its business is still growing strongly, then I won’t go near it.

  Value investing isn’t just about price. I’m perfectly willing to have someone else make the first 20% or 30% in a stock. What I want to see is proof of a strong business. Note how I’m still a firm believer in Ford despite all of its troubles. The reason is that the firm’s business is fundamentally sound. I was also impressed that they paid a dividend. Dell could improve its image in my eyes if they did the same.

  The equation is price and proof. We need to see both.

• The Scary Bomb Not on Netflix’s Balance Sheet
  Eddy Elfenbein, July 9th, 2012 at 11:52 am

  David Merkel alerted me to this:

  I think Netflix ($NFLX) would still be overpriced at half the current price. If all goes well, the company may make a small profit this year. I don’t see how anyone can justify paying $80 for this stock.

• Stocks Are Down as Earnings Season is Set to Begin
  Eddy Elfenbein, July 9th, 2012 at 10:44 am

  The stock market is down a bit this morning. We’ve basically given back the surge from late Friday. This week, the market is focused on the start of earnings season. Alcoa ($AA), the big aluminum company, is due to report earnings today.

  Even though profits are expected to decline slightly, Wall Street is optimistic for stocks right now. Of the 500 stocks in the S&P 500, 247 have net buy ratings. That’s the most in 12 years. According to numbers from Bloomberg, Wall Street analysts have 9.4 times the number of buy ratings than the number of sell ratings. That’s actually up from 8.4 one year ago.

  Healthcare is the only sector that’s doing well today. Financials, Energy and Basic Materials are down the most. I see that Wal-Mart ($WMT) is at a new all-time high this morning. It took them 12 years, but they finally took out their high from late 1999.