• Dow Flirts with 12,500, Gets Number, Never Calls
    Posted by on December 22nd, 2006 at 10:51 am

    Yawn. Talk about light volume, not a trader is stirring. The market is down again today after coming oh-so-close to breaking the elusive 12.5K barrier on Wednesday.
    Walgreen (WAG) is up on an impressive earnings report. I like WAG a lot. It’s a great company, but I think the shares are a bit pricey here. The stock pulled back earlier this year, and it seems to have bounced off $40. Ideally, I’d like to see it go lower before I’d be interested.
    I strongly considered adding Progressive (PGR) to the Buy List, but in the end, I went with WR Berkley (BER). I’m happy with my choice, but make no mistake, Progressive is another great company. But I’m not so positive on the company’s outlook for this year. Either way, this is one to keep an eye on.
    In case you missed it, here’s my Buy List for 2007:
    AFLAC (AFL)
    Amphenol (APH)
    Bed Bath & Beyond (BBBY)
    Biomet (BMET)
    Donaldson (DCI)
    Danaher (DHR)
    FactSet Research Systems (FDS)
    Fair Isaac (FIC)
    Fiserv (FISV)
    Graco (GGG)
    Harley-Davidson (HOG)
    Jos. A Bank Clothiers (JOSB)
    Medtronic (MDT)
    Nicholas Financial (NICK)
    Respironics (RESP)
    SEI Investments (SEIC)
    Sysco (SYY)
    UnitedHealth Group (UNH)
    Varian Medical Systems (VAR)
    WR Berkley (BER)
    I’ll start tracking these stocks on the first day of trading of 2007.

  • “Cramer” on WallStrip
    Posted by on December 22nd, 2006 at 10:19 am

    Lindsay has a special guest audition.

    “Shirt on.”
    Here’s another Cramer outtake.

  • The Stock Market in 3D
    Posted by on December 22nd, 2006 at 7:43 am

    spherestock.jpg
    From Information Aesthetics:

    an artistic 3D visualization of New York stock exchange data. “I Deal Solution” uses the spiral metaphor for its ability to translate 1-dimensional data into 3-dimensional space. in practice, the sphere size corresponds to the stock price, color to change, vibration to relative change, sphere position on spiral to volume, & sound to total percentual change. “the point is not to transmit a particular meaning but rather to express the power of energy concentrated in space information”.

    Plus, it weirdly aligns with the Wizard of Oz.

  • Coastal Financial Soars on Buyout
    Posted by on December 21st, 2006 at 1:36 pm

    As long-time readers know, periodically I’ll write about little-known stocks that have strong businesses, but are unheard of on Wall Street. I’ve never understood why everyone wants to own the next Google or Apple, instead of investing in proven, well-run businesses.
    Last year, I mentioned three micro-cap financial stocks; NewMil Bancorp, Northern Empire Bancshares (NREB) and Coastal Financial (CFCP). These are all great stocks, just no one knew about them.
    Well, someone found out. In April, NewMil was bought out for a 41% premium. Then in September, Northern Empire agreed to a buyout for a 22% premium. The only one left was little Coastal. I was still a fan. A few weeks ago, I even mentioned CFCP as a contender for the 2007 Buy List.
    Today Costal announced that it’s being bought by BB&T (BBT) for $395 million or $17.04 a share. That’s an 18% premium to yesterday’s close.

  • Random Thoughts
    Posted by on December 21st, 2006 at 1:05 pm

    I watch CNBC in my office with the sound muted. Strangely, even with no sound, I can always understand what Rick Santelli is saying.
    Also, if you’re looking for high CD yields, check out Bank Deals. This is a cool site. It lists high-yielding bank rates all around the country. Many require branch visits or in-state residency to qualify (though not all). Check it out, there might be a six-percenter near you.
    And finally, Lenny Dykstra—all-star centerfielder, all-star options trader.

  • 3Q GDP Revised to 2.0%
    Posted by on December 21st, 2006 at 10:11 am

    This morning, the government revised third-quarter GDP growth to 2.0%. The initial estimate was for 1.6%. Then it went to 2.2%, and now it’s back to 2.0%.
    Here’s a look at GDP growth going back to 1994:
    image374.png

  • Sarkozy Calls Shareholders Hooligans
    Posted by on December 21st, 2006 at 9:45 am

    From Nicolas Sarkozy, a candidate for president of France:

    Our country has to get organised to stop the actions of shareholders who… aren’t entrepreneurs but who behave like hooligans….

    As a proud shareholder hooligan, I almost take offense. By the way, Sarkozy is running as the free-market reformer.

  • Biomet PE Group to Bid for Smith & Nephew
    Posted by on December 21st, 2006 at 9:33 am

    This is getting interesting. There’s a report that the private equity group that’s buying Biomet is now considering a bid for Smith & Nephew.
    Just before Biomet’s board accepted the private equity group’s buyout offer, Smith & Nephew considered making a bid for Biomet. Their bid must have been very low, or Biomet’s board wanted to make it clear that it had explored all options.
    In any event, the idea of Biomet merging with Smith & Nephew still lives.

  • Have Dwight Call Your Friends
    Posted by on December 21st, 2006 at 7:16 am

    rainn-wilson.jpg
    If you’re a fan of The Office, go to this site. Click on “Get a Call,” and follow the steps from there.

  • Update on Bed Bath & Beyond
    Posted by on December 21st, 2006 at 7:07 am

    I’ve had some time to review the Bed Bath & Beyond (BBBY) conference call (see here, via Seeking Alpha). First, the company had a charge to SG&A last quarter of $7.2 million related to the review of stock option grants and procedures. We already new this was coming. In fact, the company said it was going to be $8 million. After tax, that comes to about two cents a share, so we have our earnings shortfall right there. The company said there might be a little more this quarter.
    Next, CEO Steven Temares commented on employee tax charges the company was taking as a result of its stock options grants.

    We anticipate the potential cash payments pursuant to the program to be approximately $40 million. While we are still reviewing the accounting treatment related to the potential program, we anticipate the pre-tax income statement impact in the fourth quarter to be slightly higher than the total cash payments. The potential cash outlay primarily represents payments to our employees in connection with increasing the exercised prices on certain stock option grants so as to protect them from certain potential adverse tax consequences.
    It’s currently believed it is likely the company will recoup a substantial portion of the cash outlay over the next several years through higher proceeds from future stock option exercises, although this recovery will not flow through the income statement.
    I want to emphasize that any program arrived at by our Board will be consistent with our company’s beliefs that our people are the reason for our success. As such, we would want to protect them against any adverse tax consequences for events that were beyond their control.
    While the program has not been finalized, Warren, Len and I as executive officers, who are also members of the Board of Directors, has informed the Board that we decline to be considered for payments.

    That only seems fair. Employees shouldn’t be punished for this, and the company did the right thing. The charge will amount to about nine cents a share.
    Now let’s turn to SG&A, which I initially found a little troubling:

    Selling, general and administrative expenses for the fiscal third quarter were about $493 million, compared with approximately $410 million in the corresponding quarter a year ago. As a percentage of net sales, SG&A expenses were 30.4% compared with 28.3% a year ago, as a result of the previously mentioned $7.2 million increase in stock-based compensation expense along with legal and accounting charges related to the stock option review and a relative increase in advertising, which includes an increase in paper cost and postal rates.
    In addition, there were one-time benefits experienced in the prior year for settlement of credit card litigation and certain insurance recoveries which we did not have in this year’s third quarter. As a result of the deleverage in SG&A expense partially offset by the improvement in gross profit margin, the operating profit margin in the fiscal third quarter decreased by approximately 115 basis points. The company’s results also benefited from a reduction in its year-to-date effective tax rate from 36.6 to 36.3%, resulting in a third quarter effective tax rate of 35.8%.

    The company also said that it’s targeting earnings of 78 cents a share for the February quarter, which is a penny less than what it said on its last conference call.
    My view is that the operationally, BBBY look just fine. The company’s sales-per-share increased by 17.4% from last year. That’s darn good. It’s been helped by the company’s aggressive buyback program. Share buybacks don’t impress me much, but with BBBY, it really has an effect on its earnings statement. Today, BBBY said it’s going buy back another $1 billion worth of stock.
    Unfortunately, the company hasn’t had all the benefits of its growth in gross margins reach the bottom line. Gross profits-per-share were up 20% last quarter. Unfortunately, they dug around looking for one thing (back-dating), and the probe found an even bigger charge (this tax thing)!
    On today’s call, the company said that it’s looking for sales- and earnings-per-share growth of 10% next year…(cough)…low-ball..(cough).
    Conservatively, I’d say that BBBY’s calendar year-earnings will be about $2.34 a share next year. (Their fiscal year doesn’t follow the calendar year, but I’m estimating for sake of comparison.) That means that the stock is going for just 17 times next year’s earnings, which strikes me as a very good price.