Archive for July, 2014

• Legacy of Benjamin Graham
  Eddy Elfenbein, July 23rd, 2014 at 10:29 am

  Here’s a video on Benjamin Graham, the father of investment analysis.

  (h/t Cullen Roche, Ben Carlson)

• Morning News: July 23, 2014
  Eddy Elfenbein, July 23rd, 2014 at 6:55 am

  BOE Vote 9-0 as Some MPC See Lower Risks From Rate Increase

  Bank of Spain Says Growth Accelerated in Second Quarter

  Chinese Banks Seen Discounting Mortgage Rates, Survey Shows

  China Detains Employees of Suspect Meat Seller

  SEC Poised to End $1 a Share For Some Money Funds

  Deutsche Bank Falls as N.Y. Fed Is Said to Fault Reports

  Comcast Profit Boosted by Internet Subscriber Growth, NBC

  Northrop Profit Rises 4.7% But Sales Decline

  Daimler’s Mercedes Widens Margin as Sedans Help Chase BMW

  LG Display Sees Q2 Profit Plummet 55.4% YoY

  Telenor Says 2014 Profit Margin to Improve as Earnings Rise

  LinkedIn Will Buy Bizo for $175 Million

  Herbalife Rallies in Face of New Attack by Ackman

  Cullen Roche: Investment Myth #1: You Too Can Become Warren Buffett

  Joshua Brown: 361 Weekly Research Briefing

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• Confusing Earnings Report from Microsoft
  Eddy Elfenbein, July 22nd, 2014 at 7:53 pm

  After the closing bell, Microsoft ($MSFT) released a rather confusing earnings report for their fiscal Q4. The software giant earned 55 cents per share which was five cents below consensus. The stock dropped sharply in the after-hours market. Then we got a closer look at the fine print, and adjusting for a three-cent charge, the bottom line was 58 cents per share. So bad, but not that bad.

  Digging further we learned that MSFT’s quarterly revenue rose a healthy 18% to $23.4 billion. Not bad at all. For the entire fiscal year, revenue rose 12% to $86.8 billion. The shares eventually recovered in the after-hours market, and were even up a bit. I think the company is still in the glow of the new CEO and the announced job cuts.

  The big problem is Nokia’s handset business which is a money loser. The division could turn into a winner in the long-term, but the outlook is rather iffy at the moment. This is what the WSJ had to say:

  Mr. Nadella has touted his vision for Microsoft as a “mobile-first, cloud-first” company. So far, the company has had much more success on second part of that mission statement.

  Even with the Nokia purchase, Microsoft sells fewer than 5% of all new smartphones purchased world-wide. The company said Thursday that it sold about 5.8 million Nokia smartphones since it acquired Nokia’s handset business in April. By comparison, rival Apple Inc. sold 35.2 million iPhones in the three months ended June 28.

  The cloud-related businesses are faring much better. Microsoft said Office 365 sales more than doubled in the quarter. Total cloud revenue, which includes its Azure computing service, is on pace to generate $4.4 billion in annual revenue.

  Microsoft also is posting heady growth in older products like its database software, called SQL Server, and the Windows operating software for computer servers. Microsoft’s revenue from server-software licenses rose 14% in the fourth quarter.

  The company also highlighted strong sales of the software to small-and-medium-sized businesses. Those smaller companies aren’t historically Microsoft’s best customers.

  Mr. Nadella, on a conference call with analysts, sketched out how he expected to invest money in the “core” areas like the Windows operating system and its software to help businesses and consumers live and work more efficiently.

• S&P 500 Hits All-Time High
  Eddy Elfenbein, July 22nd, 2014 at 12:47 pm

  Despite all the troubling geopolitical news this month, the S&P 500 continues its march higher. The index had made an all-time high of 1,985.59 on July 3rd. Today we broke through that and have been as high as 1,986.24. (Understandably, I can see why the market would be shy around 1,987).

  

• Inflation Chilled out in June
  Eddy Elfenbein, July 22nd, 2014 at 12:11 pm

  There had been a minor uptrend in core CPI recently that has apparently come to an end. The government reported this morning that headline CPI rose 0.3% last month while core prices rose by just 0.1%. Personally, I would like to see inflation creep up into the Fed’s target range.

• McDonald’s Misses Earnings
  Eddy Elfenbein, July 22nd, 2014 at 10:58 am

  Sluggish earnings this morning from McDonald’s. The fast food joint missed by four cents per share.

  Overall, McDonald’s reported a second-quarter profit of $1.39 billion, or $1.40 a share, compared with $1.4 billion, or $1.38 a share, a year earlier. The per-share figure was higher, despite lower total earnings, because the company’s number of shares outstanding declined.

  Revenue rose 1% to $7.18 billion.

  Analysts polled by Thomson Reuters had expected earnings of $1.44 a share and revenue of $7.29 billion.

  Sales at restaurants open more than a year were flat globally during the quarter. Consensus Metrix had estimated a 0.8% improvement.

  Same-store sales in the U.S. fell 1.5%, missing estimates of a 0.3% decline. The company said the decline reflected negative traffic trends amid ongoing broad-based challenges, and said it plans to strengthen the overall customer experience to help return the segment to growth. Key areas of focus for this plan include strong service, enhanced marketing, and initiatives around the restaurant’s core, value and breakfast menus.

• Morning News: July 22, 2014
  Eddy Elfenbein, July 22nd, 2014 at 6:56 am

  Real Economy Needs ‘Animal Spirits’, But RBA’s Glenn Stevens Leaves Jawbone at Home

  Putin Misses Global Rally as Micex Erases $28 Billion

  Crude Oil Futures Up on Overseas Cues

  Senate Report: Tax Move Helped Hedge Funds Save Billions

  Credit Suisse Posts Largest Loss Since 2008 After U.S. Fine

  DuPont Forecast Misses Expectations as Farm Sales Weigh

  Terence Corcoran: What a Difference a $53-Billion Hostile Threat Makes at Allergan Inc.

  Chipotle Raises Prices, America Orders More Burritos

  China Food Scandal Drags in Starbucks, Burger King and McNuggets in Japan

  Netflix Boosted by World Cup TV Sales in Latin America

  Verizon Beats Earnings Estimates on Stronger User Gains

  Comcast Profit Tops Estimates With Web Customer Sign-Ups

  CIT to Buy OneWest for $3.4 Billion

  Cullen Roche: The Concept of “Value” is Dynamic

  Joshua Brown: Biggie Smalls

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• Weak Arguments for Indexing
  Eddy Elfenbein, July 21st, 2014 at 10:46 am

  In the New York Times, Jeff Sommer writes of the difficulty mutual funds have in consistently outperforming the stock market. He highlights a recent study by Standard & Poor:

  The S.&P. Dow Jones team looked at 2,862 mutual funds that had been operating for at least 12 months as of March 2010. Those funds were all broad, actively managed domestic stock funds. (The study excluded narrowly focused sector funds and leveraged funds that, essentially, used borrowed money to magnify their returns.)

  The team selected the 25 percent of funds with the best performance over the 12 months through March 2010. Then the analysts asked how many of those funds — those in the top quarter for the original 12-month period — actually remained in the top quarter for the four succeeding 12-month periods through March 2014.

  The answer was a vanishingly small number: Just 0.07 percent of the initial 2,862 funds managed to achieve top-quartile performance for those five successive years. If you do the math, that works out to just two funds. Put another way, 99.93 percent, or 2,860 of the 2,862 funds, failed the test.

  Sommer writes that this is evidence in favor of investing in passively-managed index funds. Sorry, but I don’t see the connection. Just because a fund manager doesn’t beat the market every quarter is hardly a reason to ditch active management altogether.

  If an investor is comfortable with investing in an index fund, sure, go right ahead. Some investors simply don’t care about beating the market, and I understand that mindset. But if you’re going to try and beat the market, which I think is the smart thing to do, then you have to realize that you’re not going to do it all the time. That’s unrealistic. The most that you can hope for is that you’ll do it over the long term.

• The Used-Car Loan Bubble
  Eddy Elfenbein, July 21st, 2014 at 10:13 am

  The stock market is down this morning but in the present age of low volatility, it’s not by much. The S&P 500 is currently holding at 1,972.76. This is a very big week for Buy List earnings. No reports are due today, but a total of seven stocks will report this week. Monday is usually a light day for earnings reports.

  It’s still early, but 76% of the companies in the S&P 500 that have reported so far have topped earnings estimates; 68% have beaten on sales. Analysts expect to see an overall earnings increase of 6.2% and a sales increase of 3.3%.

  Yesterday, the New York Times had an article on the subprime bubble for used car loans. (“In a Subprime Bubble for Used Cars, Borrowers Pay Sky-High Rates”). I thought this was interesting because we had invested in used car loans years ago with Nicholas Financial (NICK). The difference is that when we got into NICK, no one was interested in this business, so it’s a shock to hear that it’s now officially “a bubble.” The article focuses on the sleazy tactics in the industry and the usual complaints about securitization, which NICK doesn’t do. We left NICK this year, and I’m glad we did, but it’s nice being well ahead of the crowd.

• Morning News: July 21, 2014
  Eddy Elfenbein, July 21st, 2014 at 7:03 am

  Russian Billionaires in ‘Horror’ as Putin Risks Isolation

  China Signs Currency Swap Worth $24.17 Billion With Switzerland

  Hong Kong Shares Slip Despite a Rebound by Casinos

  Shanghai Cracks Down on Meat Supplier for McDonald, KFC

  Russia’s Severstal Sells U.S. Steel Plants to AK Steel, Steel Dynamics

  CBS Outdoor to Buy Van Wagner Billboards for $690 Million

  Julius Baer Acquires Bank Leumi’s Private Banking Assets

  Philips Pledges to Boost Earnings Despite Profit Drop

  Valeant Pharmaceuticals Contacts Quebec and U.S. Regulators About Allergan’s False and Misleading Statements

  The Lions of Wall Street Are Finally Obeying Ordinary Investors

  Unsolicited Bidders Get Unwanted Appraisal

  BlackBerry Names Marty Beard Chief Operating Officer

  Philip Clarke Tells BBC of ‘Enormous Relief’ as He Quits Tesco

  NY DFS Tries to Put Bitcoin on Ice

  Jeff Miller: Weighing the Week Ahead: Can Earnings Growth Reignite the Stock Rally?

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