Author Archive

  • Nike’s Incredible Track Record
    , November 21st, 2011 at 3:28 pm

    Nike ($NKE) is one of those great stocks that doesn’t get nearly as much credit as it deserves. In 1984, the shares were going for less than 50 cents each (split adjusted).

    Just a few weeks ago, NKE hit an all-time high of $97.68. That’s a gain of more than 21,000% in 27 years which is about 22% annualized. Not many hedge funds can do that. The S&P 500 is up about 610% over the same time span.

    I should add that those numbers don’t include dividends and Nike just raised its dividend by 16% to 36 cents per share. The new dividend works out to a yield of 1.6%.

    In early 1997, Nike got to be super-expensive — over $36 per share (again, split adjusted). Three years later, when the market was peaking, Nike was down to just $13. Still, Nike has managed to rebound and outperform the market even when we measure from its early 1997 peak.

    I like the company a lot but the stock is rather pricey. I think NKE would be a much better buy if it dropped down to $70.

    The chart below shows Nike’s stock along with the S&P 500. For comparison, I’ve given the S&P 500 the same starting base as Nike.

  • Medtronic Earnings Preview
    , November 21st, 2011 at 1:36 pm

    From the AP:

    Medtronic Inc., the world’s largest medical device maker, reports fiscal second-quarter earnings Tuesday morning, as investors continue to monitor weak demand, pricing pressures and other issues hurting the entire medical device industry.

    WHAT TO WATCH FOR: Last quarter Medtronic reported declines for its two leading franchises, heart defibrillators and spinal implants, as tighter hospital budgets, reduced patient procedures and safety concerns led doctors to scale back use of the devices.

    Industry competitors like Boston Scientific Corp. reported weaker-than-expected earnings last month, with noticeable declines in sales of defibrillators, which are heart-zapping implants used to treat heart failure. Leerink Swann analyst Rick Wise estimates the market for the devices declined 14 percent in the first nine months of the year, compared with 2010.

    WHY IT MATTERS: Medtronic relies on defibrillators and spinal implants for more than 50 percent of its total sales. Medtronic and other device makers have seen profits drop since the Department of Justice began investigating alleged overuse of defibrillators in January.

    Then in June Medtronic’s spinal business took a major publicity blow after a medical journal alleged that the company downplayed the risks of its InFuse spinal repair protein. According to reports in Spine Journal, Medtronic also failed to disclose millions of dollars in payments to the authors who wrote the initial studies of InFuse. The implant, which is approved to treat degenerative spinal disk disease, accounted for 85 percent, or $750 million, of Medtronic’s total spinal business last year.

    Leerink’s Rick Wise said the ongoing pressure could lead Medtronic to scale back its full-year earnings guidance.

    “Though Medtronic seems well positioned to benefit from recent and upcoming product launches, incremental volume declines in both ICDs (implantable cardioverter defibrillators) and spine, with no clear signs of improvement, could prompt management to take an even more cautious stance on fiscal year 2012 guidance,” Wise wrote in a note to investors. Medtronic has stated it expects fiscal year earnings per share between $3.43 and $3.50.

    WHAT’S EXPECTED: Analysts polled by FactSet expect earnings per share of 82 cents on revenue of $4.07 billion for the company’s fiscal 2012 second-quarter.

    LAST YEAR’S QUARTER: In the second quarter last year Medtronic Inc. earned 82 cents per share on an adjusted basis on revenue of $3.9 billion.

  • Gilead Deal on CNBC
    , November 21st, 2011 at 10:34 am

  • Some Perspective
    , November 21st, 2011 at 10:13 am

    Thanks to today’s sell-off, the Dow is currently only a few points away from where it ended the last century (11,487 on December 31, 1999). In other words, we haven’t gone anywhere in nearly 12 years.

    That’s rough but it’s not unprecedented. On December 12, 1905, the Dow closed at 96.05. It would close at the exact same level on April 17, 1942. That’s 36 years and four months which is roughly the time from Richard Nixon’s resignation to today. The Dow was below 800 back then. Just think if we had seen no gain since then.

  • Gilead Buys Pharmasset for $11 Billion
    , November 21st, 2011 at 9:33 am

    Gilead Sciences ($GILD) announced a gigantic deal today. The company will buy Pharmasset ($VRUS) for $11 billion. Gilead currently has a market value of $30 billion.

    I’m guessing that Pharmasset squeezed every nickel from Gilead. The deal calls for GILD to pay $137 per share for each share of VRUS. That’s 89% more than its closing price on Friday.

    So what does Pharmasset have to offer? The WSJ:

    Clinical-stage drug developer Pharmasset last month reported it was further expanding a trial of its hepatitis C treatment, citing the oral drug’s rapid and consistent antiviral effects.

    Gilead’s research and development portfolio includes seven unique molecules in various stages of clinical development for the treatment of the disease.

    Gilead expects the deal will be dilutive to earnings through 2014 and begin adding to profit in 2015. The company expects to give further guidance after the deal closes, anticipated in the first quarter of next year.

    Gilead is down about 10% today. So far, I have to agree with the conventional wisdom that this is a great fit but it’s awfully darn expensive. I really wish Gilead’s board was in my fantasy football league.

  • Morning News: November 20, 2011
    , November 21st, 2011 at 6:42 am

    Stocks, So Far Resilient, Face a Week of Challenges

    Spain’s Rajoy Says ‘Hard Times Ahead’ After Landslide

    Global Economic Outlook Grim, China Tells U.S. Trade Talks

    Japanese Exports Decline as China Sees Prolonged Global Slowdown: Economy

    Moody’s Warns on French Rating Outlook

    Thai GDP Growth ‘Disappointing’

    Buffett: Euro Zone Not Working, Words Alone Won’t Fix It

    Nymex Crude Oil Falls In Asia; China Outlook Warning Weighs

    Stocks Extend Losses as U.S. Budget Talks Stall

    Foreign Banks Double Dollar Deposits at Fed

    Supercommittee Likely to Announce No Deal on Deficit Cuts

    Mixed Results as Google Enters Microsoft’s Turf

    Cigna in Deal to Sell Health Insurance in India

    Transatlantic Is Said to Be Near a Sale to Alleghany for $3.4 Billion

    Lessons for U.S. From Canada’s “Basket Case” Moment

    Epicurean Dealmaker: Sovereign Triviality

    Howard Lindzon: Facebook is NOT Ruining Anything…More Like Pressured and Relentless

    Be sure to follow me on Twitter.

  • Can Technology Be Society’s Economic Engine?
    , November 18th, 2011 at 12:36 pm

    Watch live streaming video from techonomy at livestream.com

  • Oracle Is a Good Buy Here
    , November 18th, 2011 at 12:15 pm

    Here’s a very short post.

    Oracle ($ORCL) is a very good buy below $31 per share. People rightfully quibble that Oracle’s earnings are messy due to all their acquisitions. That’s true, but even after that, Oracle has often hit 15 times earnings. At that rate, the stock would hit $36 in six months.

  • LEI Up 0.9% Last Month
    , November 18th, 2011 at 11:05 am

    There’s more good economic news today. The Index of Leading Economic Indicators rose 0.9% last month.

    “The [index] is pointing to continued growth this winter, possibly even gaining a little momentum by spring,” said Ken Goldstein, economist at the board.

    While next year’s economy looks better than this year’s performance, William Dudley, president of the New York Federal Reserve Bank, said in a speech in Albany, N.Y., earlier Friday that, “As we look toward 2012, the U.S. economy continues to face several obstacles to a robust recovery.” Dudley thinks the U.S. economy can grow about 2.75% for 2012.

    In October, nine of the 10 leading indicators increased. The most positive indicators were building permits and the interest rate spread. The only negative indicator was supplier deliveries.

    The coincident index was up 0.2% last month, after a revised flat reading in September, first reported as a 0.1% increase. The lagging index increased 0.6% in October after a revised 0.1% advance, first reported as 0.2%.

    I’m surprised at the strength of the consumer.

  • Investing for the Long Run
    , November 18th, 2011 at 10:54 am

    New academic paper on the benefits of investing for the long haul:

    Long‐horizon investors have an edge. They can ride out short‐term fluctuations in risk premiums, profit from periods of elevated risk aversions and short‐term mispricing, and they can pursue illiquid investment opportunities. The turmoil we have seen in the capital markets over the last decade has increased the competitive advantage of a long investment horizon. Unfortunately, the two biggest mistakes of long‐horizon investors – procyclical investments and misalignments between asset owners and managers – negate the long‐horizon advantage. Long‐horizon investors should harvest many sources of factor risk premiums, be actively contrarian, and align all stakeholders so that long‐horizon strategies can be successfully implemented. Illiquid assets can, but do not necessarily, play a role for long-horizon investors, but investors should demand high premiums to compensate for bearing illiquidity risk and agency issues.