Author Archive

  • Why I Love the Stock Market
    , December 21st, 2011 at 1:39 pm

    Do yourself a favor and go to Google Finance and check out the long-term stock chart for RLI Corp. ($RLI). I’d embed the chart if I knew how.

    Ever heard of RLI? Don’t worry, you’re not alone. It’s a property and casualty insurer based in Illinois. RLI has 670 employees. Now check out how often the stock is discussed at the Yahoo Finance message boards or at StockTwits. It might as well not exist.

    RLI has been an outstanding stock for three decades yet it’s still nearly unknown. I may have to apologize to some readers when I say that insurance has been known to be one of the less-sexy businesses. Yet investors should know that the best insurance companies have often been some of the best investments. RLI is certainly in that category.

    This is why I love the stock market. You can find overlooked gems that have richly rewarded investors and yet no one knows about them. So much of the financial media focuses on the superstar stocks like Google ($GOOG) and Apple ($AAPL). I almost feel guilty telling people that Google has performed about as well as the market over the last four years.

    RLI has done so well recently that the company announced a special $5 per share dividend in addition to the regular 30-cent quarterly dividend. When they announced this, the stock was at $70 per share, so that was a nice gift for shareholders.

  • Oracle and CR Bard
    , December 21st, 2011 at 10:03 am

    The market is down about 0.5% this morning but there’s some rough news for our Buy List.

    Oracle‘s ($ORCL) earnings report wasn’t what I expected and it also fell short of what the company told us. That’s a very bad move on their part. Their shares are getting hacked this morning. Oracle has been as low as $25 per share this morning which is a 14% haircut.

    As disappointed as I am in Oracle, I think a three-penny miss shouldn’t translate into a 400-penny sell-off. Today’s selling is very overblown but this is what you get when you mislead the Street.

    The other news is for one of our new stocks for 2012, CR Bard ($BCR). In the company’s analyst call yesterday, they lowered their forecast for 2012 due to the impact of buying Lutonix:

    Without the impact of Lutonix our guidance would have been 7% to 8% adjusted EPS growth. As our press release noted today’s transaction will dilute the 2012 adjusted EPS by about $0.25 or 400 basis points of growth. So our 2012 all-in guidance is for between 3% and 4% EPS growth excluding items that affect comparability. I would also note that the lack of the R&D tax credit in 2012 cost us about a point of EPS growth.

    Bard should earn about $6.38 per share for 2011. So today’s news means that they should earn between $6.57 to $6.63 per share.

  • Morning News: December 21, 2011
    , December 21st, 2011 at 7:05 am

    ECB Lends Banks EU489B for Three Years, Exceeding Forecast

    British Tax Office Assailed for ‘Cozy’ Ties With Big Companies

    Successful Spanish Debt Auction

    Japan Posts Another Trade Shortfall

    Top EU Court Says Carbon Airline Law Valid

    Senate Starts Debate on Monti Budget as Italy Sees Recession

    China Hackers Hit U.S. Chamber

    Wall Street Revenue Falls as ‘Year to Forget’ Ends

    Oracle Sales, Profit Miss Estimates

    Tokio Marine to Buy Delphi Financial for $2.7 Billion

    Baidu Removed From U.S. ‘Notorious Markets’ Piracy List After Music Pact

    Japan Picks Lockheed to Build Its Next Fighter Jet

    E-Mail Clues in Tracking MF Global Client Funds

    The Benefits of Incorporating Abroad in an Age of Globalization

    Cullen Roche: There’s Still No Recession on the Horizon

    Joshua Brown: Dear Jamie Dimon,

    Be sure to follow me on Twitter.

  • Oracle Earns 54 Cents Per Share
    , December 20th, 2011 at 4:14 pm

    A horrible earnings report from Oracle ($ORCL). The company just reported fiscal Q2 earnings of 54 cents per share which was below the company’s range of 56 to 58 cents per share. The Street had been expecting 57 cents and I was expecting at least 60 cents.

    Oracle Corporation today announced fiscal 2012 Q2 GAAP and non-GAAP total revenues were up 2% to $8.8 billion. Both GAAP and non-GAAP new software license revenues were up 2% to $2.0 billion. Both GAAP and non-GAAP software license updates and product support revenues were up 9% to $4.0 billion. Both GAAP and non-GAAP hardware systems products revenues were down 14% to $953 million. GAAP operating income was up 12% to $3.1 billion, and GAAP operating margin was 35%. Non-GAAP operating income was up 3% to $3.9 billion, and non-GAAP operating margin was 45%. GAAP net income was up 17% to $2.2 billion, while non-GAAP net income was up 6% to $2.8 billion. GAAP earnings per share were $0.43, up 17% compared to last year while non-GAAP earnings per share were up 6% to $0.54. GAAP operating cash flow on a trailing twelve-month basis was $13.1 billion.

    “Non-GAAP operating margins increased to 45% in Q2,” said Oracle President and CFO, Safra Catz, “and we expect those margins to keep growing. Operating cash flow over the last twelve months grew to $13.1 billion; that’s up a remarkable 45% compared to the preceding twelve month period.”

    “We have expanded our worldwide sales capacity by adding over 1,700 sales professionals in the first half of this fiscal year,” said Oracle President, Mark Hurd. “We believe that this increase in our field organization combined with innovative new products like Fusion Cloud ERP and Cloud CRM will enable solid organic growth in the second half of this year.”

    “Sales of our engineered systems accelerated in Q2,” said Oracle CEO, Larry Ellison. “Exadata growth was well over 100% compared to last year, and Exalogic grew more than 100% on a sequential basis. We shipped our first SPARC SuperCluster in Q2 and expect to begin deliveries of our Exalytics system and the Oracle Big Data Appliance in Q3.”

    This report is just ugly. Oracle told investors to expect new software license sales to grow by 6% to 16%. Instead, it was 2%. I knew hardware was going to be rough. Oracle said to expect 0% to -5% sales. Instead, hardware sales dropped by 14%. The stock is down about 8% after hours.

  • The Power of the Yield Curve
    , December 20th, 2011 at 11:47 am

    This is from Wikipedia:

    All of the recessions in the US since 1970 (up thru 2011) have been preceded by an inverted yield curve. Over the same time frame, every occurrence of an inverted yield curve has been followed by recession as declared by the NBER business cycle dating committee.

    I knew it was a strong relationship but I didn’t realize it was that strong. I went to FRED and dug up a chart, and sure enough, it is that strong.

    A few years ago I found that the entire capital gain of the S&P 500 from 1962 to 2007 came when the yield curve has been wider than 65 basis points. Anything less than that has added up to zero.

  • Housing Starts Best in 19 Months
    , December 20th, 2011 at 11:10 am

    After dropping 4.4% since December 7th, the market is rallying today. Part of the reason was a good housing report, and we haven’t seen much of those. The Commerce Department said that housing starts jumped 9.3% last month. That’s the biggest gain in 19 months.

    The Dow is currently up 277 points. Treasuries are up, yields and the $VIX are down.

    Jefferies ($JEF) had a very good earnings report which lifted the stock by 9%. That helped lift Leucadia ($LUK), which will be leaving our Buy List soon, to a 5% gain today.

    Stayed tuned for Oracle’s ($ORCL) earnings which are due out after the close.

  • Morning News: December 20, 2011
    , December 20th, 2011 at 7:02 am

    German Push to Remodel Europe May Backfire

    E.C.B. Warns of Dangers Ahead for Euro Zone Economy

    Spanish Yields Drop at T-Bill Auction

    Sweden Cuts Interest Rate

    Lenders Losing Battle of ‘Basel’

    Bankers Seek to Debunk ‘Imbecile’ Attack on Top 1%

    FBI Runs ‘Perfect Hedge’ to Nab Inside Traders

    U.S. Backs Apple in Patent Ruling That Hits Google

    AT&T Left With Few Options After T-Mobile Bid

    Deutsche Telekom silent on Plan B for T-Mobile USA

    Lockheed Wins Japanese Order for F-35 Fighters

    Bi-Lo to Buy Winn-Dixie for $560 Million

    Spanish Oil Major Repsol to Buy 10% Of Own Shares

    Saab Files for Liquidation After G.M. Balks at China Deal

    Stone Street: Two New ZAGG Datapoints

    James Altucher: How to Have a BIG Idea

    Howard Lindzon: The Year 2012…Sales Matter even for Web Startups

    Be sure to follow me on Twitter.

  • AT&T and T-Mobile
    , December 19th, 2011 at 5:30 pm

    Just a quick note about the news that AT&T ($T) is ditching its plans to buy T-Mobile. I thought this might happen. I like AT&T a lot and I strongly considered adding it to next year’s Buy List, but the T-Mobile issue was too much to bear.

    Even without the deal, AT&T will still take a $4 billion charge.

    The charge is part of a break-up fee agreement, giving Deutsche Telekom a cash payment of $3 billion, roaming services agreement and a package of mobile licenses for T-Mobile USA.

    Ultimately, AT&T made the right decision. I just wish it didn’t cost so much money.

  • The Dow-To-S&P 500 Ratio
    , December 19th, 2011 at 1:44 pm

    The Dow has been beating up the S&P 500 this year. The two indexes generally follow each other, but some gaps do open up.

    The Dow is currently 9.758 times the S&P 500 (I mean index values, not market value). This is close to the highest level in three years. As a very general rule, the ratio rises as economic recessions approach.

    On November 20 and 21, 2008, the Dow-to-S&P 500 Ratio closed above 10. That was the first time it happened since November 1966. If the next two months are like the last two, we might break 10 again very soon.

  • Dividends Have Been Big Winners This Year
    , December 19th, 2011 at 11:14 am

    Bloomberg notes that dividend stocks have done well this year:

    In a year when American companies piled up record amounts of cash, the worst stocks were the savers and the best gave the money back to investors with dividends and buybacks.

    Companies that hoarded cash such as CareFusion Corp. (CFN), Western Digital Corp. and 18 other members of the Standard & Poor’s 500 Index lost an average 15 percent in 2011, according to data compiled by Bloomberg. The 40 that repurchased the most stock or offered the biggest dividends climbed 5.7 percent, led by DirecTV and Reynolds American Inc. (RAI), the data show.

    Bulls say gains in companies that returned money will help unlock almost $1 trillion of cash that chief executive officers have been hoarding for three years. Thomas Lee, the chief U.S. equity strategist at JPMorgan Chase & Co., says distributions should increase 28 percent to $1.1 trillion into next year. Bears say dividends and buybacks will be insufficient to keep the rally going as mandated budget cuts curb growth.

    When investors get nervous, they seek stability and that means higher dividends. What’s also attractive about dividends is that they’re easy to understand and somewhat easy to project. Dividend payments tend to be much more stable than earnings.

    The big change in recent years is that so many financial stocks slashed their dividends or got rid of them entirely. The Financial Sector ETF ($XLF), for example, used to pay more than 90 cents per share a year in dividends. That dropped as low as 17 cents per share but should start climbing higher as the Fed allows more dividend payments.