Archive for January, 2013

  • Nicholas Financial Spikes Higher
    , January 9th, 2013 at 11:20 am

    Shares of Nicholas Financial ($NICK) have spiked higher today. I don’t know why. The stock has been as high as $13.89 today. Remember that’s equivalent to $15.89 pre-dividend.

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  • Stryker Raises Guidance
    , January 9th, 2013 at 11:07 am

    Even though none of our Buy List stocks has reported earnings yet, a second stock of ours raised its guidance today. Well, it was only by a penny, but still, we’ll take it. This morning, Stryker ($SYK) said that it expects to earn $4.05 to $4.07 per share for all of 2012. That’s an increase of one penny to the low end.

    Stryker also said full-year sales rose 4.2% to $8.7 billion, compared with its October forecast for 4% to 5.5% sales growth.

    Sales for the fourth quarter climbed 5.5% to $2.3 billion, while analysts surveyed by Thomson Reuters were expecting a 2% increase to $2.27 billion.

    Stryker also said it will book an estimated fourth-quarter charge of $133 million, or 35 cents a share, for its previously disclosed voluntary recall of Rejuvenate and ABG II modular-neck hip stems.

    For 2013, Stryker expects current foreign currency exchange rates to reduce sales by as much as 1% in both the first quarter and full year. On a constant currency basis, the company predicts 3% to 5.5% sales growth.

    For 2013, Stryker reiterated its full-year forecast for earnings of $4.25 to $4.40 per share. Wall Street had been expecting $4.30 per share. The stock is up 2.3% this morning.

  • Morning News: January 9, 2013
    , January 9th, 2013 at 6:50 am

    Euribor Rates Unchanged As ECB Seen On Hold

    German Industrial Output Misses Expectations

    Merkel Economy Shows Neglect as Sick Man Concern Returns

    Global Shares Buoyed By Alcoa Earnings, Dollar Gains On Yen

    Bank Hacks Were Work of Iranians, Officials Say

    Gold Gains a 2nd Day in London on Signs of China Demand

    No More Paper Social Security Checks Come March

    IRS Delays Tax Season, Will Start Accepting Returns On January 30

    A Bold Dissenter at the Fed, Hoping His Doubts Are Wrong

    What The $8.5 Billion Foreclosure Deal Means For Borrowers

    Barge Owners Say Drought May Wipe Out Mississippi Gains

    Blackstone Steps Up Home Buying as Prices Jump

    UBS Says Focused On Restoring “Honor” After Scandals

    Epicurean Dealmaker: Wherein Your Droll, Semi-Victorian Bloggist Jumps the Shark

    Joshua Brown: This is Why We Should Have Saved the Financial SYSTEM Rather Than the Financial COMPANIES

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  • Be Wary of Top-Down Investing
    , January 8th, 2013 at 12:28 pm

    Investors often ask me a question that follows this pattern: “I think X industry is going to be very big in the future, so I want to invest in Y stock. What do you think?”

    The X industry is usually something like biotech or green energy or perhaps biotech using green energy. In any event, this thought process towards investing is a mistake. First, X industry may in fact turn out to be a big winner in the future, but that doesn’t mean Y will follow. .

    Embryonic industries are notoriously difficult sectors to invest in. There’s a great deal of innovation, prices are plunging and anyone not in first is quickly left behind.

    A century ago, if you thought automobiles were the wave of the future, you would have been correct. But, as Wikipedia notes, “there were over 1,800 automobile manufacturers in the United States from 1896 to 1930. Very few survived and only a few new ones were started after that period.” Think on that.

    The problem with top-down investing is that it misses that point that profits can be found anywhere. Profits are made wherever a good or service intersects with a need. It’s just that simple; there’s no magic formula. The trick isn’t finding that special industry. Rather, it’s finding that special stock.

    Consider the stock of Donaldson ($DCI). What does Donaldson do? I’ll let Hoovers explain:

    Grime fighter Donaldson is cleaning up the industrial world. The company makes filtration systems designed to remove contaminants from air and liquids. Donaldson’s engine products business makes air intake and exhaust systems, liquid-filtration systems, and replacement parts; products are sold to manufacturers of construction, mining, and transportation equipment, as well as parts distributors and fleet operators. The company’s industrial products include dust, fume, and mist collectors and air filtration systems used in industrial gas turbines, computer disk drives, and manufacturers’ clean rooms. Founded in 1915, Donaldson now operates in 43 countries worldwide and has 39 manufacturing plants.

    My apologies to anyone in the filtration biz but I have to confess that it sounds rather dull. Now imagine that it’s 1989 and you’re trying to think of companies that would be the “wave of the future.” I doubt filtration systems would have been at the top of your list. Yet, Donaldson’s stock is up 50-fold since then and that doesn’t include a dividend that’s risen every year since 1996.

    The reason Donaldson has done well is that it’s a very good company. But you only could have known that through analysis that’s bottom-up. For the most part, don’t worry so much about the industry. First, find a very good company.

  • Wall Street Prepares to Celebrate Blah Earnings
    , January 8th, 2013 at 10:33 am

    The stock market is down again today but nothing too severe. What’s really interesting is how far the VIX has fallen. It’s been below 14 recently. It seems that once the Fiscal Cliff episode ended, that trade simply collapsed.

    Earnings season begins today when Alcoa reports its fourth-quarter earnings. For the broader market, earnings growth is expected to increase by 2.8% from a year ago. That’s not great, but it’s the best growth rate in three quarters.

    What’s disturbing is how far expectations for Q4 have fallen. Paul Vigna at the WSJ notes that at the end of September, the Street was expecting Q4 earnings growth of 9.2%. That’s been cut by two-thirds.

    Estimates for the first half’s numbers are already coming down as well. Profit growth for the first quarter is now estimated to be about 2.5%, down from a 5.3% estimate at the end of September, and the second-quarter’s forecast has come down to 6.7% from 9.1%.

    One curious thought to ponder is the trend in earnings multiples. In October 2011, the P/E Ratio for the market reached a multi-year low. Since then, it’s started to creep higher.

    As an investor, it’s unwise to assume earnings multiples will rise. However, historically P/Es have to tended to move in large, multi-year trends. Meaning, if they’re rising, they’ve tended to rise for a long time. When they’ve fallen, they’ve continued to fall for many years. Was a major low reached 15 months ago? I just don’t know.

  • Morning News: January 8, 2013
    , January 8th, 2013 at 6:54 am

    Fiscal, Pay Imbalances Biggest Risks to Economy, WEF Says

    Euro-Area Unemployment Rate Rises to Record 11.8% Amid Recession

    Euro-Area Economic Sentiment Increased in December

    London Quantitative Hedge Funds Report Second Year of Losses

    China Throws Gillard Lifeline as Iron Ore Revives

    US Banks To Pay $8.5 Billion In Mortgage Settlement

    In Mortgage Settlements, B of A Comes Up $5 Billion Short

    Rescued by a Bailout, A.I.G. May Sue Its Savior

    Samsung Forecasts Record $8.3 Billion Profit

    Shutterfly Acquires Cloud-Based Thislife

    Sony and BMG Are Said to Team Up on Bid for EMI

    Sears Holdings CEO Louis D’Ambrosio Stepping Down

    Virgin Atlantic Names U.S.-Born AMR Executive Kreeger as CEO

    Roger Nusbaum: The Dakar Rally!

    Cullen Roche: Philip Diehl, Former Head of the US Mint Addresses Confusion Over the Platinum Coin Idea

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  • Medtronic Raises Guidance
    , January 7th, 2013 at 1:56 pm

    Good news from Medtronic ($MDT) today. The company raised the lower end of their full-year guidance by four cents per share.

    Ever since May, Medtronic has told us to expect fiscal year earnings to range between $3.62 and $3.70 per share. They’ve held firm to that forecast all year. Now they see earnings ranging between $3.66 and $3.70 per share.

    Medtronic, which provided the update in conjunction with a presentation at the J.P. Morgan Healthcare Conference in San Francisco, estimated the tax credit will boost full-year earnings by $30 million to $35 million, or 4 cents a share. It expects about 3 cents in the third quarter and 1 cent in the fourth quarter of fiscal 2013.

    The fiscal year ends in April, so Q3 earnings are due in about six weeks. For the first six months of this fiscal year, Medtronic earned $1.73 per share. That means we can expect $1.93 to $1.97 for the back end. Medtronic earned $3.46 per share last year.

  • Amazon Breaks $1,600
    , January 7th, 2013 at 1:05 pm

    In December 1998, Henry Blodget famously gave Amazon.com ($AMZN) a price target of $400. At the time, the stock was at $242. That day, the stock rose $46, and it went on to break $400 three weeks later.

    Since then, AMZN has had two stock splits which add up to 6-to-1. The stock is over $266.66 today which in terms of the day Blodget made his call, is $1,600 per share. Here’s how Amazon has done since its IPO.

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    Would you have had the nerve to hold on? I know I wouldn’t have. Shortly after 9/11, the stock got as low as $6 per share.

  • Most-Hated Stocks Are Rallying
    , January 7th, 2013 at 12:47 pm

    From Bloomberg:

    Speculators are abandoning money- losing bets that stocks with the closest links to the U.S. economy will fall as America’s most-hated shares stage the best rally in a year relative to the broader market.

    The 20 stocks with the highest short sales in the Standard & Poor’s 500 Index rose an average of 5.1 percent in December, compared with 0.7 percent for the full gauge, according to data compiled by Bloomberg. The performance gap is the widest since January 2012. Companies from U.S. Steel Corp. (X) to J.C. Penney Co. are gaining at the expense of phone companies and utilities, which usually do best when the economy contracts.

    Market bulls say the capitulation underscores growing confidence in the U.S. recovery, while bears say the rally shows indiscriminate buying as earnings estimates fall close to a one- year low. The change echoes money manager Laszlo Birinyi’s prediction that the four-year bull market will finally attract investors who have stayed away from equities.

    “Let’s put it this way, I made more money on my longs than on my shorts,” Gilles Sitbon, who helps oversee $2.1 billion at Sycomore Asset Management in Paris, said in a phone interview on Jan. 3. His Sycomore Long-Short Opportunities fund rose 15 percent in 2012. “It’s not just hard to be short, it is painful.”

  • The Market Is Down on a Boring Day
    , January 7th, 2013 at 10:52 am

    I have to confess that today’s a rather boring day on Wall Street. Earnings season hasn’t started yet and there’s not much in the way of economic reports or news. The stock market is down a bit today but that’s coming off Friday’s multi-year high close.

    The euro has dropped to a three-week low against the dollar. The European Central Bank meets this week and traders are beginning to think they’ll cut rates. The ECB currently has interest rates at 0.75% but the European economy has been looking pretty weak lately. I’m not sure why they haven’t cut rates before.

    Alcoa will be the first major company to report earnings, and that will come tomorrow. For the overall market, earnings growth is expected to improve from the third quarter which was pretty mushy.

    Here’s an interesting investing story that’s come to an end today. I always say that hostile buyouts can be tricky for investors. Roche has been trying to buy Illumina for the past year. First, Roche offered Illumina $44.50 per share. They shot that down so Roche went to $51 per share. Well, they shot that down too. Now Roche has said “enough!” and they’re pulling out. Shares of Illumina are down 8% to $50. It will be interesting to see if they regret that move three years from now.

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