• The Market Today
    Posted by on November 1st, 2005 at 5:23 pm

    OK class, today’s lesson is on diversification. Even though Dell (DELL) is on our Buy List, we not only beat the market today, but we were up while the market was down.
    That’s di-ver-si-fi-ca-tion. Even if one of your stocks gets a super-atomic wedgie, you can still make money. It really works.
    The Fed’s rate hike put a slight damper on Wall Street today. Our two-day rally came to an end as the S&P 500 dropped 0.35%, but the Buy List gained 0.32%. Our big winner was Expeditors International (EXPD) which surged to a new high on great earnings. Fair Isaac (FIC), the credit scorer, reports tomorrow. The current estimate for FIC is 49 cents a share.
    Dell (DELL) closed down 8.3% on 105 million shares. It was the most active stock today. Did you see that Frontier Airlines (FRNT) got to $9.60 today? The stock is up over $2 from its lows of two weeks ago.
    Dell didn’t drag down the entire tech sector like I thought it would. The Nasdaq was down 0.29%. The Nasdaq 100, which is the 100 largest nonfinancial stocks on the Nasdaq, fell 0.17%. That index is traded under the QQQQ symbol.
    Outside our Buy List, Procter & Gamble (PG) reported earnings of 77 cents a share, one penny ahead of estimates. P&G is a great company, but I’m very nervous of the merger with Gillette. I like Gillette too, but I hate mergers. I judge all mergers guilty until proven innocent. I’m rooting for them, but I’ll pass on the shares.
    Electronic Arts (ERTS) earned 16 cents a share, which is about half of what it made last year. The stock got absolutely trashed earlier this year. Wall Street was expecting earnings of 5 cents a share so this is good news.
    TXU Corp. (TXU), which had been a juggernaut for a few years, missed expectations today and fell 10.2%. The company raised guidance for next year. Interestingly, even though their profits plunged, their earnings-per-share increased due to heavy share buybacks. Also, Ford (F) and General Motors (GM) reported dramatically lower sales for October. This is a reflection of the end of employee pricing.
    Here’s a chart of Dell today.
    Dell2.bmp
    If you haven’t done so, check out The Kirk Report. Also, Footnoted.org is digging through the third-quarter earnings reports.

  • Found Deep Within a 10-Q Report
    Posted by on November 1st, 2005 at 3:34 pm

    From Fieldpoint Petroleum‘s (FPP) 10-Q report:

    Administration
    Office Facilities- The office space for the Company’s executive offices at 1703 Edelweiss Drive, Cedar Park, Texas 78613, is currently provided by the majority shareholder at a cost of $2,500 per month as of December 31, 2004.
    Employees – As of March 31, 2005, the Company had 4 employees. The Company considers its relationship with its employees satisfactory.

    Take that, Wal-Mart.

  • The Fed Raised Rates
    Posted by on November 1st, 2005 at 2:19 pm

    The Federal Reserve just raised interest rates for the 12th straight time. The Fed funds rate now stands at 4%. The Fed will probably raise rates on December 13 and January 31, which will be Alan Greenspan’s last meeting. After that, Ben Bernanke takes over.
    The market has barely budged since mid-morning.
    Here’s the full statement:

    The Federal Open Market Committee decided today to raise its target for the federal funds rate by 25 basis points to 4 percent.
    Elevated energy prices and hurricane-related disruptions in economic activity have temporarily depressed output and employment. However, monetary policy accommodation, coupled with robust underlying growth in productivity, is providing ongoing support to economic activity that will likely be augmented by planned rebuilding in the hurricane-affected areas. The cumulative rise in energy and other costs have the potential to add to inflation pressures; however, core inflation has been relatively low in recent months and longer- term inflation expectations remain contained.
    The Committee perceives that, with appropriate monetary policy action, the upside and downside risks to the attainment of both sustainable growth and price stability should be kept roughly equal. With underlying inflation expected to be contained, the Committee believes that policy accommodation can be removed at a pace that is likely to be measured. Nonetheless, the Committee will respond to changes in economic prospects as needed to fulfill its obligation to maintain price stability.
    Voting for the FOMC monetary policy action were: Alan Greenspan, Chairman; Timothy F. Geithner, Vice Chairman; Susan S. Bies; Roger W. Ferguson, Jr.; Richard Fisher; Donald L. Kohn; Michael H. Moskow; Mark W. Olson; Anthony M. Santomero; and Gary H. Stern.
    In a related action, the Board of Governors unanimously approved a 25-basis-point increase in the discount rate to 5 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of Boston, New York, Philadelphia, Cleveland Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas and San Francisco.

  • All Eyes on the Fed
    Posted by on November 1st, 2005 at 11:47 am

    We’re about two-and-a-half hours from the Fed announcement. It’s mostly a soggy day so far. Financial stocks are lagging, although I’ve been surprised by how well they’ve done over the past few weeks. Bill Cara thinks the Financial Spyders (XLF) are “headed for a tumble soon.”
    Energy stocks are positive even oil is slightly lower today. Utility stocks are down the most. The Dow Utility Index is now down pretty sharply off its early October high. The index is still up about 17% this year, and over 130% in the last three years.
    If you recall, the Dow Utility Index plunged in late-2002. At one point, it was less than 20% above its September high.
    Its September 1929 high.
    Dell (DELL) is getting squashed this morning. It seems to have found some stability around $29.30 a share. Keith Bachman at Banc of America Securities reiterated his “buy” although he trimmed his forecasts and lowered his price target.
    Expeditors (EXPD) is up to a new high, as is Progressive (PGR). It’s a good day for dull stocks! Despite Dell’s news, the Buy List is ahead of the market today. At least, so far.

  • Milton Friedman on the Social Responsibility of Business
    Posted by on November 1st, 2005 at 10:32 am

    In 1970, Milton Friedman wrote an article in The New York Times saying that corporations have no social responsibility whatsoever, except to make profits. Thirty-five years later, here he is in Reason magazine debating the same point with Whole Foods’ (WFMI) CEO John Mackey.

    I believe Mackey’s flat statement that “corporate philanthropy is a good thing” is flatly wrong. Consider the decision by the founders of Whole Foods to donate 5 percent of net profits to philanthropy. They were clearly within their rights in doing so. They were spending their own money, using 5 percent of one part of their wealth to establish, thanks to corporate tax provisions, the equivalent of a 501c(3) charitable foundation, though with no mission statement, no separate by-laws, and no provision for deciding on the beneficiaries. But what reason is there to suppose that the stream of profit distributed in this way would do more good for society than investing that stream of profit in the enterprise itself or paying it out as dividends and letting the stockholders dispose of it? The practice makes sense only because of our obscene tax laws, whereby a stockholder can make a larger gift for a given after-tax cost if the corporation makes the gift on his behalf than if he makes the gift directly. That is a good reason for eliminating the corporate tax or for eliminating the deductibility of corporate charity, but it is not a justification for corporate charity.

  • Expeditors International’s Earnings
    Posted by on November 1st, 2005 at 10:18 am

    Here’s a nice break from Dell’s news. Expeditors (EXPD) had another great quarter. This is one of those companies that always seems to come through. The company earned 50 cents a share for the third quarter versus 39 cents last year. Expectations were for 46 cents a share.
    For the first three quarters, EXPD has made $1.24 a share compared with $1.02 last year. They just grow and grow and grow. Here’s CEO Peter Rose on the third quarter:

    “Execution and efficiency were the tale of this record quarter,” said Peter J. Rose, Chairman and Chief Executive Officer. “While we continued to experience significant volume increases in air and ocean freight during the third quarter of 2005, our real profitability increases came from our ongoing efforts to increase productivity in the delivery of our services,” Rose continued.
    “This has not been a one year story. If you go back to the third quarter of 2001, you would see that Expeditors has basically doubled in size in the last four years. That is a real accomplishment, particularly when you look at the magnitude of the numbers. And, we didn’t really purchase this growth–we did it ourselves, organically. A stable environment fosters consistent, reliable and focused customer service by eliminating the distractions that employees in merged companies feel. As always, we’d like to formally acknowledge the contribution of each employee to these third quarter results. Once again, you really made it happen,” Rose concluded.

    This is the only stock on Wall Street whose 8-K reports are actually fun to read. For more, here’s a good article on Rose and EXPD.

  • More on Dell
    Posted by on November 1st, 2005 at 9:22 am

    I’m still pretty rattled by the news from Dell (DELL). Already, at least two firms have downgraded the stock this morning. In the pre-market, the stock fell below $30. There’s still a lot we don’t know, and won’t know until next week’s earnings report.
    Some of my questions are: Were the forecasts overly aggressive? How much of this is due to pricing? Is it just PCs? Is this mostly at the low-end? I was impressed by the company’s frankness last quarter. Let’s see what they have to say now.
    I’m still holding on. The shares are too cheap here to let go. The New York Times has more:

    Dell, which is known for driving down PC prices, has decided to sacrifice market share for profit growth, said Brent Bracelin, senior research analyst at Pacific Crest Securities in Portland, Ore. “Dell’s been less aggressive in the entry level,” he said, noting that the lowest-price Dell system has moved up to $399 from $299. The company announced in September that it would also market a line of desktop and laptop computers as luxury models.
    Much of the industry’s growth is coming from robust demand in China and India. While Dell is reporting strong growth there, others are reporting even stronger growth. Lenovo’s sales, for instance, grew 250 percent worldwide, according to a report by market analysts at IDC. Mr. Smulders, the Gartner analyst, said that part of the problem was that Dell’s direct-sales business model was not outgunning the competition in the smaller cities of China.
    Analysts, while observing Dell’s problems, have been optimistic about the company’s prospects. Laura Conigliaro, an analyst at Goldman Sachs, said in a research report in early October that she did not fault Dell’s execution, but said its “biggest miscue was in chasing a higher growth rate for so long.”
    She lowered her rating on Dell in August after the company’s second-quarter earnings report signaled that its high-growth days were behind it. But in early October she said she thought that Dell’s 15 percent premium to the Standard & Poor’s 500 seemed “very reasonable.” Ms. Conigliaro could not be reached for comment after the Dell announcement. A few other analysts upgraded the stock in October.
    Investors have been wary of the company’s new strategy. The stock was trading around $40 a share during much of 2005 and began falling in August.
    “There have been lots of signals that Dell’s business was falling,” Mr. Bracelin said. He said he was not shocked by the news, but he still did not see a clear indication that the company had figured out a way to re-accelerate growth.

    For more, you can read this, this and this. And this.

  • Dell: The True Hollywood Story
    Posted by on October 31st, 2005 at 5:43 pm

    Heavens to Murgatroyd! What’s wrong with Dell (DELL) now? I still like Dell, but warnings like this aren’t making it easy.
    After the bell, Dell just said that its earnings will be around 39 cents a share, which is at the low-end of expectations. No one ever really means to come in at the low-end of expectations. This is bad. Dell also said that sales will come in at $13.9 billion, which is below the low-end of their previous guidance of $14.1 million to $14.5 million.
    Dell said it will also take a charge of 14 cents a share. I really don’t need this. The stock is down in after-hours trading. Dell will report earnings next Thursday.

  • The Market Today
    Posted by on October 31st, 2005 at 4:30 pm

    The stock market finished a lousy October on a positive note today. The S&P 500 rose by 0.72%, while our Buy List increased by 1.33%. For the month, S&P 500 lost 1.75% and our Buy List dropped 1.03%. This doesn’t include dividends. For our tracking purposes, I rebalance the portfolio at the end of each month.
    Of our 25 stocks, 21 closed higher today. The best performer was Frontier Airlines (FRNT) which is still doing well after its great earnings report. The stock briefly touched $9.50 a share today. Expeditors (EXPD) hit a new high today ahead of tomorrow’s earnings report. AFLAC (AFL) also hit a new high.
    Today saw an unusual split between “early” cyclical stocks and “late” cyclical stocks. Merrill Lynch maintains an index for each group. Today, the early index was up 2.75% (led by retailers) while the late index was up just 0.34% (held back by basic materials). You rarely see a gap that wide. It may be a one-day event, but it fits with our theme that the economy is getting stronger.
    There were two contrasting stories today that caught my eye. The first is that oil continues to fall. Oil is now down about 15% from its peak. Here’s a little fact you don’t often here: Oil peaked before Katrina made landfall. The man-made storm has been far worse. It was seven months ago today that Goldman Sachs said that oil could spike to $105 a barrel. Despite all the hysterics, that storm has passed.
    The other story was Valero Energy’s (VLO) earnings, and the retirement announcement of its CEO, Bill Greehey. Valero is Bill Greehey. He’s been the top dog there for 30 years. One of the many things I’ve liked about Greehey is that he’s unafraid to criticize analyst estimates. When he thinks they’re too low, he’s says so.
    I have to give him a lot of credit. A few years ago, he went around buying refiners on pennies to the dollar. People must have thought he was nuts. Then, all the variables swung his way. For the third quarter, Valero netted $4.37 a share, compared with estimates of $4.23. The company also said that estimates were too low for the fourth quarter. Cramer will go nuts tonight.
    Congratulations to Greehey and Valero, but don’t go anywhere near this stock. Oil and energy stocks are going down.
    For reasons I’ll never get, today General Motors (GM) said it will keep its quarterly dividend at 50 cents a share. This makes no sense to me. Kellogg (K) got nailed today for its worst loss in three years. The stock dropped 4.9% today as it guided lower.
    In other news, Apple (AAPL) said that iTunes users have downloaded more than 1 million videos since October 12. Also, Google (GOOG) came within inches of $375.
    Researchers at the University of Massachusetts rank Delaware as the best state to work in. Louisiana is last. The SEC now says it will randomly check up on investment advisors instead of regular five-year visits.
    Did you know Barbados has a Fed? Me neither.
    Expeditors (EXPD) reports tomorrow (forecast: 46 cents a share) and we have the Fed tribal council meeting (forecast: dark suits, jargon).
    And finally, Jeff Matthews has some thoughts on Octobers 1987 and 2005.

  • King Win Bids for ExxonMobil?
    Posted by on October 31st, 2005 at 12:47 pm

    This has to be one of the weirdest stories I’ve seen in awhile. An unknown Chinese company called King Win Laurel Ltd. has filed to buy out ExxonMobil (XOM) for $450 billion. In cash.
    BWAHAHAHAHAHAHA
    **wiping tear**
    Apparently, they’re serious, or at least, they think they’re serious. This isn’t some Halloween Orson Wells Martians are in New Jersey thing. I’m curious where they keep $450 billion stashed right now.

    King Win said it was incorporated in New Zealand on October 21 for the sole purpose of buying Exxon. A call to the Beijing number for King Win in the SEC documents elicited only a busy signal.
    “It’s difficult to measure this offer as little is known about how the bidder would finance the transaction,” BOSC Inc. debt analyst Jon Cartwright said. “While our initial feeling is to ignore the offer, it is academically possible that the bidder could receive funding, making this offer real.”
    Last year, an entity called King Win Laurel International Ltd. launched an unsolicited offer to acquire Telstra, which was also dismissed as a hoax. King Win Laurel International also launched a bid in 2004 for Restaurant Brands, which was dismissed by New Zealand regulators.

    Dr. Evil and I would like to make a counter offer of $450 gazillion bagillion. I’ll even answer the phone.