• The Morning Market
    Posted by on October 19th, 2005 at 10:13 am

    Stryker (SYK), one of our Buy List stocks, is getting hammered this morning. The company’s earnings were 40 cents a share, one penny below Wall Street’s consensus. Still, the company reiterated its forecast of 20% growth next year. This is just silly, there’s nothing wrong with Stryker. Zimmer (ZMH) is lower this morning as well.
    SEI Investments (SEIC), also on our Buy List, just reported four cents a share better than expectations. This company just grows and grows. Next year, the Street is looking for $2.00 a share. The stock is up this morning. Also, eBay (EBAY) will report after today’s close. Wall Street is looking for 20 cents a share.
    Not on our Buy List, Intel (INTC) is trading lower on its weak earnings. Motorola (MOT), one of the most over-rated stocks on Wall Street, had very strong earnings. The stock is trading higher.
    As I mentioned yesterday, the banking sector looks very good even if the share prices aren’t going anywhere. Both JP Morgan Chase (JPM) and Bank of America (BAC) reported very strong earnings this morning. JPM’s net income jumped 78%. The company also said that Jamie Dimon will take over as CEO six months earlier than expected.
    Hurricane Wilma is now the strongest storm ever. The good news is that it won’t hurt the oil and gas industry. The bad news is the orange crop is in danger. Orange juice futures closed at a six-year high. Randolph and Mortimer Duke couldn’t be reached for comment.
    Also, the Commerce Department reported that housing construction defied expectations and rose last month. Mortgage applications were also up. And finally, gasoline demand is plunging. Production is at its lowest level since 1943.

  • Dell Can’t Win
    Posted by on October 19th, 2005 at 8:51 am

    There’ve been some more ant-Dell articles in the news. The fear now is that Dell (DELL) is losing market share. Or rather, it’s not gaining market share as quickly as it used to. That’s all you need now to write an anti-Dell piece. Here’s an article on Dell from yesterday’s Financial Times:

    Although Dell continued to lead the PC industry in worldwide shipments, its shipment growth rate was 17.6 per cent, compared with an average growth rate of 17.2 per cent worldwide, according to Gartner, the IT consultants.
    “Dell normally has a premium,” said Loren Loverde at IDC, the IT research group, whose separate report showed similar results.
    Mikako Kitagawa, a Gartner analyst, said the change likely reflected a reduced focus on growing market share and an increased focus on profitability at Dell, which shocked Wall Street in August after second-quarter sales failed to meet forecasts in spite of aggressive price cuts.
    A Dell spokeswoman declined to comment on third-quarter shipments. However, she said the company’s strategy had not changed and that the company would “continue to drive balanced and profitable growth”. Dell is scheduled to report its third-quarter earnings on November 10.

    This is almost becoming a cliché. Let’s put this in some perspective: The “problems” at Dell are nearly trivial. The company is doing extremely well. Last quarter, Dell earnings were merely inline with the Street, and its sales were slightly below forecasts. From this, everyone is now assuming the worst. The CEO said that the company could have made up the shortfall with a $10-$15 increase in each unit sold. Now Dell is concentrating on higher margins, and the media is complaing that it’s losing market share. Dell can’t win! Meanwhile, the stock is at a 52-week low, and very close to a two-year low.
    dell.bmp

  • Today’s Market
    Posted by on October 18th, 2005 at 5:02 pm

    This is still a strange market. Today, it was energy stocks that held back everyone. There was a 24,000,000-share block trade for ExxonMobil (XOM) that threw the entire market on its side. The energy sector was down nearly 4.5% today, and the rest of the market was sluggish.
    Thanks to Varian (VAR) and St. Jude Medical (STJ), we beat the market again. The S&P 500 was down -1.00% today while the Buy List lost -0.55%. For the month, we’re down -2.65% compared to the S&P 500’s -4.12%.
    After the close, Stryker (SYK) reported earnings of 40 cents a share which was a penny below forecasts. The stock is trading lower in the after-market. The good news is that the company also reiterated its outlook for 2005 and forecast 20% EPS growth in 2006 despite increased pricing pressures in the sector:

    The Kalamazoo, Michigan-based company, which made the forecast on a conference call with analysts following its third-quarter earnings report, said it still expects 2005 earnings of $1.75 a share excluding one-time items. On a net basis, it forecast earnings of $1.67 a share.
    Stryker said it now expects 2005 annual sales of between $4.86 billion and $4.89 billion. Previously, the company had forecast 2005 sales of $4.9 billion.
    Analysts on average had expected Stryker to post a 2005 profit of $1.76 a share, excluding items, on revenue of $4.93 billion, according to Reuters Estimates.

    Not on our Buy List, Yahoo (YHOO) earned 16 cents a share, two cents ahead of estimates. Intel (INTC) earned 32 cents a share, which was a penny off forecasts. That’s a really disappointing report. Intel can’t seem to catch a break. I think the Street low-balled the forecast just to get good news from Intel, but the company still missed. The Journal has more:

    The world’s largest maker of semiconductors continues to benefit from robust demand for personal computers. The PC market, bucking expectations and negative economic trends like rising interest rates, posted 17% growth in the third quarter, according to research firms Gartner Inc. and IDC.
    “In the third quarter, we achieved all-time records in company revenue and unit shipments across all of our major product lines,” said Paul Otellini, Intel president and CEO, in a prepared statement.
    But Intel has struggled to meet demand for some of its products, even though its factories are running at full capacity. The company recently said it would invest $345 million to increase production at two plants.
    It has also been pressured by Advanced Micro Devices Inc. (AMD), especially in the market for server chips. AMD beat its larger rival to market in April with “dual core” chips and gained some ground on Intel, which recently released new chips to close the performance gap. Last week, AMD posted a 73% jump in quarterly profit.

  • Banking Profits
    Posted by on October 18th, 2005 at 3:16 pm

    This quote from a Business Week article summed up my thoughts exactly:

    “There seems to be a conviction on the part of investors that you can’t make money in banks and banks are in trouble, even though every company that has reported to this point reported better earnings than expected,” says Richard Bove, an analyst with Punk, Ziegel & Co.

    Despite all the concern over inflation and higher interest rates, the banking sector looks pretty good. Wells Fargo (WFC), SunTrust (STI) and Wachovia (WB) all reported good earnings.

    “San Francisco-based Wells Fargo, the No. 5 U.S. bank, said net income rose to $1.98 billion, or $1.16 per share, from $1.75 billion, or $1.02, a year earlier.
    Revenue rose 16 percent to $8.5 billion. Analysts polled by Reuters Estimates on average forecast profit of $1.15 per share on revenue of $8.07 billion.
    The bank’s earnings per share have increased at least 10 percent in 15 of the last 16 quarters. Most of Wells Fargo’s consumer and commercial business lines posted double-digit profit growth and mortgage banking revenue nearly tripled.
    “Interest rates remain at relatively low levels and consequently the mortgage business remains robust,” Chief Financial Officer Howard Atkins said in an interview. Wells Fargo, the No. 2 U.S. mortgage lender, took a $100 million charge for losses from Hurricane Katrina.
    Minneapolis-based U.S. Bancorp, the No. 6 bank, said profit rose to $1.15 billion, or 62 cents per share, from $1.07 billion, or 56 cents. Analysts expected 61 cents.
    Chief Executive Jerry Grundhofer said the bank benefited from higher fees from deposits, credit cards and debit cards, and declines in expenses and bad loans.
    Atlanta-based SunTrust, the No. 7 bank, said profit rose to $510.8 million, or $1.40 per share, from $368.8 million, or $1.30. Excluding merger costs, profit totaled $1.42 per share, topping forecasts for $1.39.
    Mortgages were “the biggest driver” behind a 33 percent surge in fee revenue, analyst Kevin Fitzsimmons of Sandler O’Neill & Partners LP said. SunTrust also benefited from its $7.4 billion acquisition last year of Memphis, Tennessee’s National Commerce Financial Corp.”

    Business Week likes JP Morgan Chase (JPM), largely due to one man.

    But the best reason for long-term investors to take a risk on JPMorgan Chase may be Dimon, who is slated to take over the CEO job from William Harrison, Jr., in June, 2006. A wunderkind with a knack for numbers, Dimon sharpened his talents for merging companies and cutting costs as Citigroup, where he was former CEO Sandy Weill’s right-hand man for many years.
    But it’s his skill as a manager that has gone overlooked, says Jeffrey Cohn, managing partner of succession planning firm Bench Strength Advisors in New York.
    “This guy has inspired Pied-Piper-like loyalty among his management team,” he says of Dimon. “He inspires people in a way that very few people can do.” Cohn believes the skill and experience of the operating team Dimon is assembling will show up in the next few quarters, even before Dimon takes the helm.
    Bove notes that Dimon has “demonstrated that he has detailed knowledge of the business and a passion for solving business problems,” which makes him perfect for the task at hand at JPMorgan Chase.

    JP Morgan Chase (JPM) and Bank of America (BAC) report tomorrow. My favorite is still Commerce (CBH).

  • Considering Alternatives?
    Posted by on October 18th, 2005 at 12:25 pm

    Johnson & Johnson (JNJ) had a great earnings report today. Sales and profits were up. The company even raised its forecast for next year. But during the conference call, J&J’s CEO dropped a tiny two-word bombshell.

    During a conference call to discuss its results, J&J said it is taking another look at its agreement to buy medical device maker Guidant Corp. in light of recent product recalls and a Food and Drug Administration probe of Guidant’s actions.
    “We believe these are serious matters, and we’re continuing to closely monitor the situation at Guidant,” said J&J Chief Financial Officer Bob Darretta, during the call. “In light of these matters, we’re continuing to consider alternatives under our merger agreement.”

    Consider alternatives? That doesn’t sound good. Guidant’s stock is getting pummeled today on very heavy volume. This deal was announced last December, and Guidant, which makes pacemakers, has done just about everything it could to screw it up. For example, their patients keep dying on them. That’s not good. Guidant has had five recalls this year alone.
    Until today, J&J had been silent. There were rumors that J&J might want to lower the $76 price. The worst fear was that J&J would simply walk away. It still might happen. I’m not sure what “consider alternatives” entails but if I owned shares of Guidant I wouldn’t be happy.
    This was a lousy move by J&J. As you can tell from the Buy List, I love medical device stocks, but I’ve stayed away from Guidant. Johnson & Johnson rarely makes missteps, but this is clearly one. The odd thing is that J&J had basically shut Guidant out of the lucrative coated stent market. Guidant had been desperately trying to get in for years. What was J&J looking for? For Guidant, the news just goes from bad to worse. There’s also a criminal investigation going on. Ironically, J&J’s medical devices unit showed the strongest growth last quarter.
    The medical devices stocks on our Buy List are largely unaffected today. St. Jude Medical (STJ) is up. Zimmer (ZMH) and Medtronic (MDT) are down. Stryker (SYK) will report after the close.

  • Wholesale Inflation Has Biggest Jump in 15 Years
    Posted by on October 18th, 2005 at 10:54 am

    Today the government reported that wholesale inflation had its biggest jump in 15 years last month. The Producer Price Index rose by 1.9% in September. However, just like the CPI report, the “core rate” was much less, increasing by 0.3%. Economists were expecting a 0.2% increase. The long-end of the bond market is rallying today, however the 90-day T-bill is finally moving higher. Today’s theme: The yield curve is getting narrower.
    The best news today is that it looks like Tropical Storm Wilma may miss the Gulf Coast. Oil is trading lower.

    Dealers had worried that Wilma, the 21st named storm of the 2005 Atlantic season, could delay a recovery in U.S. output ahead of peak winter heating fuel demand in the northern hemisphere.
    As much as 66.4 percent of the Gulf of Mexico region’s normal 1.5 million barrels per day (bpd) production remains shut after Hurricanes Katrina and Rita. Five refineries amounting to 1.3 million bpd, or 7.7 percent of U.S. capacity, remain shut.

  • Tradesports Baseball
    Posted by on October 18th, 2005 at 6:06 am

    I’m a big fan of Tradesports. This is a Web site where you can buy futures on real world events. They currently have contracts on everything from the World Series and Super Bowl to the presidential election and capture of Osama Bin Laden.
    Here’s a chart of the futures contract for the Cardinals to win last night’s game. You can tell when Berkman hit his home run in the seventh and when Pujols crushed Lidge’s pitch over the railroad tracks in the ninth.
    Now if I had only loaded up on Cardinal contracts in the ninth….

  • WSJ: Medtronic Says Stent Trial Meets Secondary Goals
    Posted by on October 17th, 2005 at 10:51 pm

    CHICAGO — Medtronic Inc. (MDT) said its Endeavor III drug-eluting stent trial barely missed its main goal in a patient trial, and that secondary goals were met.
    On the whole, the company said, data from the trial put Medtronic’s Endeavor stent in the same safety and efficacy category with competitors Johnson & Johnson and Boston Scientific Corp., and will allow Medtronic to file next year for U.S. approval of its product, with final Food and Drug Administration approval coming sometime in 2007.
    Stents are tiny metal tubes designed to keep arteries propped open after angioplasty. Drugs added to the stents can help prevent renarrowing of the vessels.
    The main goal of the 436-patient trial was to compare Endeavor with J&J’s Cypher stent in the category of in-segment late loss. This refers to the difference in the width of a vessel just after stenting versus several months later. A small narrowing is almost always the case, and is considered relatively benign. But more advanced narrowing can eventually lead to blockage that must be retreated. “We narrowly missed,” said Scott Ward, president of Medtronic Vascular, referring to narrowing of the vessel width.
    Patients in the trial received either a Cypher or an Endeavor stent, with 323 of the 436 receiving Endeavor. The goal was to prove Medtronic’s stent to be non-inferior to Cypher.
    In other categories, however, Medtronic said its stent was clinically equivalent to J&J’s. For instance, in measuring the need for physicians to go back in and retreat the same lesion weeks or months after the original procedure due to complications, Medtronic’s stent had a 6.3% rate after nine months, compared with 3.5% for Cypher.
    In the category of major adverse coronary events, which can include everything from need for repeat procedures to heart attack to death, Endeavor’s rate was 7.6%, compared with 7.1% for Cypher. The rate of target vessel failure was 12% for Endeavor and 11.5% for Cypher.
    Cordis, J&J’s coronary company, issued a statement that said, “As with other drug-eluting stents, the real test will be how the Endeavor stent performs over time and whether it can perform well in complex lesions.” Boston Scientific didn’t have an immediate comment.

  • Today’s Market
    Posted by on October 17th, 2005 at 6:01 pm

    Varian Medical Systems (VAR) bailed us out today. The stock jumped 10%, but the rest of our Buy List was pretty soggy. The Buy List dropped -0.08% today, even though the S&P 500 added 0.30%. However, we’re still beating the market for the month.
    This was a strange day because we had such a wide divergence between the energy, utility and materials sector compared with everything else. Those three sectors each rose over 1% today, while many of the other sectors were vitually unchanged.
    Varian said that demand for its new radiation therapy products will increase net orders for the quarter by about 18% compared with the same period a year ago. The company also unveiled its new software, ARIA Oncology Information Management System, which can be used to manage cancer treatment centers, as well as radiation and oncology departments, without the use of film or paper. The company will report earnings next Wednesday, October 26.
    Commerce Bancorp (CBH) took a hit today even though I think its earnings report is just fine. Stephen D. Simpson at the Motley Fool has more.
    St. Jude Medical (STJ) rallied on its strong earnings, plus the news that it’s buying Advanced Neuromodulation Systems (ANSI). ANSI was up 30% today.
    Brown & Brown (BRO) reported earnings of 50 cents a share. That’s either inline or a penny off, depending on whom you follow. Last year, Brown & Brown earned 43 cents a share, so this is goodgrowth. Revenues were up 18.9%. The stock was weak today, but it just hit an all-time high on Friday.
    Progressive (PGR) was hit after it was downgraded by Legg Mason to a “hold.” The new price target is $117. Lincare, Frontline Airlines (FRNT) and CACI International (CAI) were also weak today.
    From our Buy List, Stryker (SYK) reports tomorrow. The current estimate is for 41 cents a share.

  • Citigroup’s Earnings
    Posted by on October 17th, 2005 at 2:40 pm

    Citigroup (C) reported third-quarter earnings today of $7.14 billion, but I’m not impressed by this earnings report. Don’t get me wrong: $7.14 billion impresses me, but not how Citi got it.
    First off, it includes $2.12 billion for the sale of Travelers Life & Annuity to MetLife (MET). When you take that out, Citigroup only made 97 cents a share. That’s just one penny a share better than last year. Also, the firm lost four cents a share due to Hurricane Katrina. I’m sorry, but that’s not a “special item.” Wall Street tends to overdue it on these “special non-recurring items.” Losses from a hurricane are simply a part of doing business. Hurricanes can recur. In fact, they will.
    The investment banking unit is strong, but we’ve already seen great results this year from other houses like Goldman (GS) and Lehman (LEH). It’s good that this part of the business is holding Citi up, but the core operations are sluggish. Charles Prince, the new CEO, is still working to de-Sandify the company. I think he’s doing a good job, but Citi has a long way to go.
    I think that the real problem is that “Citi” as it’s now constructed doesn’t work. Big doesn’t mean better. Commerce (CBH) is so much stronger than Citi right now even though it’s around 1/40th the size. With Sandy out of the way, Prince & Co. should break up the company. The Travelers Life & Annuity sale should be the first of many more sales. A breakup will be better for shareholders, customers and employees.
    Citigroup is a good example of a stock that looks cheap, but really isn’t. The firm is still on the Federal Reserve’s Double Secret Probation. Citigroup is barred from making any more acquisitions. Now that it looks like any new Fed chair will be raising rates next year, I’d stay far away from Citigroup.