• General Motors Posts Loss of $1.92 a Share
    Posted by on October 17th, 2005 at 8:52 am

    General Motors (GM) reported a third-quarter loss of $1.6 billion, or $1.92 a share. That’s simply staggering. The company doesn’t provide any guidance, but Wall Street expected a loss of 81 cents a share. GM still has over $20 billion in cash left, but it’s burning through it pretty quickly.
    The company also announced a major deal with the UAW to cut health care costs by 25%. The details haven’t been reported yet. This will help, but GM still has a long way to go. The company pays a dividend of $2.00 a share. If they ditch the dividend, GM will save about that same amount as this plan to cut health care costs. The company is also looking to sell a controlling interest in GMAC.

  • St. Jude’s Earnings
    Posted by on October 17th, 2005 at 8:29 am

    St. Jude Medical (STJ) reported that its earnings rose 28% for the third quarter. After charges, the company earned 40 cents a share, one cent more than Wall Street was expecting.

    Sales of implantable defibrillators—surgically implanted devices that correct an abnormal heartbeat with a jolt of electricity—rose 68 percent to $277 million from a year ago. Rival Guidant Corp. spent the third quarter dealing with a recall affecting thousands of similar devices. St. Jude pacemaker sales increased 6 percent, to $231 million from the year-ago quarter.

    The stock is trading higher in the pre-market.

  • St. Jude Medical to Acquire Competitor
    Posted by on October 16th, 2005 at 9:29 pm

    St. Jude Medical (STJ), one of our Buy List stocks, is buying Advanced Neuromodulation Systems or ANS (ANSI) for $1.3 billion in cash. I think this is a great move; ANS is an outstanding company. I’d put it on the Buy List if we didn’t already have St. Jude. Also, I love the “all cash” part. Stock-for-stock deals make me a little nervous. St. Jude is paying a 30% premium. This is their counter move to J&J (JNJ) gobbling up Guidant (GDT). St. Jude said it expects revenue growth of more than 20% next year as a result of the deal.

  • Apple Trademarks “Vingle”
    Posted by on October 16th, 2005 at 9:50 am

    Apple Computer (AAPL) has filed to trademark “Vingle.” What the hell is Vingle? AppleInsider is on the case:

    The first filing describes Vingle as: “Telecommunication services, namely, electronic transmission of streamed and downloadable audio and video files via computer and other communications networks; providing on-line chat rooms, bulletin boards and community forums for the transmission of messages among computer users concerning entertainment, music, concerts, videos, radio, television, film, news, sports, games and cultural events; web casting services; delivery of messages by electronic transmission; provision of connectivity services and access to electronic communications networks, for transmission or reception of audio, video or multimedia content;”
    A second filing describes Vingle as an audio entertainment service that may be available in its retail stores: “Retail store services in the field of entertainment, namely, musical, audio and audiovisual works and related merchandise, provided via the internet and other computer and electronic communication networks; data storage and retrieval services; computerized data storage services; electronic storage and retrieval of documents, data, images, audio, video and audiovisual works; information, advisory and consultancy services relating to all the aforesaid”
    A final filing is more vague, describing Vingle as “Computers; computer hardware; computer peripherals; hand held computers; computer terminals; personal digital assistants; electronic organizers; electronic notepads; apparatus for recording, transmission and reproduction of sounds, images, or other data; portable and handheld digital electronic devices for recording, organizing, transmitting, manipulating, and reviewing audio, video and still images files; magnetic data carriers; mobile digital electronic devices; telephones; computer gaming machines; monitors, displays, keyboards, cables, modems, printers, videophones, disk drives; cameras; computer software; computer software for use in authoring, downloading, transmitting, receiving, editing, extracting, encoding, decoding, playing, storing and organizing audio, video and still images; computer software for DVD authoring; prerecorded computer programs for personal information management; database management software; computer programs for accessing, browsing and searching online databases; blank computer and consumer electronic storage media; computer and electronic games; user manuals sold as a unit with the aforementioned goods”
    All three filings were made on October 7th.

    Sounds ambitious. I’ve read it several times now and I still don’t understand it. Anyway, sounds ambitious.

  • General Motors: The End Is Near
    Posted by on October 15th, 2005 at 8:34 pm

    Is this weekend’s Barron’s, Jay Palmer looks at General Motors (GM). It ain’t pretty.

    GM’s legacy obligations include over $60 billion for the company’s biggest millstone: health care. But “even if the unions and the retirees agreed to a 100% elimination of all pension and medical benefits,” says Ron Tadross, a Banc of America auto analyst, “GM would still not be especially competitive.” Ranked against rivals like Toyota (TM), GM operates at a $2,500 disadvantage per vehicle, losing money, on average, on every vehicle it sells, versus Toyota’s $1,700 profit. Legacy costs account for just $500 of this.
    Tadross has said that the chance of GM filing for bankruptcy now stands at 30%. And two other well-known auto analysts, who asked not to be identified, tell Barron’s that the odds are 50-50.

    I have no idea what Kirkorian was thinking. One of my rules is that eccentric billionaires are allowed to make one investment that defies all logic (Buffett and U.S. Air, Howard Hughes and RKO, Gordon Gecko and Bluestar), but I don’t think GM can be saved. Palmer disagrees:

    The basic problem, as Barron’s has noted on several occasions, is that the company hasn’t come up with enough vehicles that it can sell without giveaway incentives and hasn’t shrunk its capacity to match its reduced U.S. market share. The blow that high oil prices have dealt to sales of SUVs, on which GM depends heavily, is exacerbating the problems.
    To survive, let alone prosper, General Motors must close plants, lay off workers, deeply cut or temporarily eliminate its $2-a-share dividend, cut executive pay and bonuses, and redirect resources from its marginal brands. With revitalized Cadillac on a roll and Chevrolet more than holding its own, the Saab and Hummer operations are good candidates for a sale or closing. Saturn also might be a candidate for elimination, although GM executives insist all three brands are essential to bringing non-GM owners into showrooms. Some feel the company should also shutter Pontiac or Buick. It has to take at least some of these actions soon.

  • Today’s Market
    Posted by on October 14th, 2005 at 5:14 pm

    Finally some good news! The market started off shaky today, but rallied as the day wore on. The S&P 500 gained 0.83%, but the really big winners were the small fries. The Russell 2000 Index of small-cap stocks jumped 1.58%. And our Buy List had a very nice day. Our 25 stocks gained 1.21%.
    Woo Hoo!
    **Happy Dance**
    Only four of our stocks went down and 21 closed higher. The big winner was Progressive (PGR), which added 4.23% to close at another new high. Golden West (GDW), Respironics (RESP) and Frontier Airlines (FRNT) also brought home the Benjamins.
    Brown & Brown (BRO) reached a new high today. The little insurer will report earnings on Monday. The current estimate is for 51 cents a share. Also from our Buy List, Commerce Bancorp (CBH) will report on Monday.
    Some of the major stocks not on our Buy List that will report on Monday include IBM (IBM), Citigroup (C), Wachovia (WAC) and General Motors (GM). I’ll make a bold prediction: GM will lose One Gazillion Dollars. You heard it here first.
    And finally, Macatawa Bank Corporation (MCBC) will report on Monday. I’ve never even heard of them, but I kinda like the name. The Street’s estimate is for 50 cents a share, so there you go.
    One more thing. What do you get when you add a 24-year-old managing a 20-member trading staff, a phony offshore company and falsified records? Answer: A 42-month prison sentence!
    g275.gif

  • Quotes from Chairman Steve
    Posted by on October 14th, 2005 at 4:24 pm

    Investment U has a good interview with Steve Forbes. The magazine publisher/presidential candidate has a new book out, The Flat Tax Revolution, which advocates leaving the IRS to the dustbin of history.
    Forbes wants to scrap the tax code and replace it with one 17% across-the-board tax rate. It’s really not so outlandish; a flat tax is already the law of the land in several Eastern European countries. Here are some highlights from Part I of the interview.

    Mark Skousen: I carefully read your book, The Flat Tax Revolution. Regarding privatized social security, a flat tax and a balanced budget amendment, why does it take so long for government to solve these types of problems?
    Steve Forbes: In the public square, the way you make things happen is by having a vested interest, organizing to push your interest, and then politicians respond to those interests. So petitioners have a bigger voice than the general public. The way you try to change something with the public is to put an idea out, advocate it, and start organizing around it, and eventually you will triumph if people feel it has legitimacy.
    I just think that you have to marinate your ideas. For example, on the flat tax, one of the things we’re doing is in New Hampshire. Every candidate that comes into that state is going to get questioned, Democrat and Republican alike: “What are you going to do about this horrific tax code? If you’ve been in Congress, why haven’t you done anything about it? Why wouldn’t you go with a flat tax? Why wouldn’t you go with lower rates?” You put pressure on that way. I hope that in the 2008 Presidential primaries, at least one candidate will be entrepreneurial enough to stand out and take an unusual stand on an issue where there seems to be some real public resentment, where the public is ready to explode.
    Mark Skousen: Would that candidate be you in 2008?
    Steve Forbes: Not me in ’08. I’m an agitator now, but it could be a Democrat or Republican, or a couple of both. A Democrat could easily pick up on the flat tax idea and run with it. They may not endorse my version of a flat tax, but they might support a low rate like 15% that would apply to the big capital gains, dividends, death duties, income, etc. It would be a vast improvement over what we have now. It certainly could appeal to a piece of their constituency because of the high exemptions. If the Republicans don’t get serious about this, a Democrat is going to run with it.
    The other thing is, in the real world, events can push policy. Everyone now knows we face more tax competition. Everyone now knows more of the world is getting its economic act together. In the Cold War, you had a big portion of the world under a horrific ideology that was anti-growth. You had mild variations of socialism, which is anti-growth… Now, the world is catching up. You know about China and India, Central and Eastern Europe – they are determined to replicate what Ireland did…

    Read the whole thing.

  • Q&A: Aladdin Knowledge Systems Ltd. (ALDN)
    Posted by on October 14th, 2005 at 3:18 pm

    Hi Eddy,
    For starters I’d like to mention that it is a pleasure to be able to follow your blog and market commentary. My question is to get your opinion on Aladdin Knowledge Systems Ltd. (ALDN).
    I have been following this one for quite sometime. The recent market sell off comes on a downwards revenue guidance for the reporting quarter. I could see the market softening in general, but maybe it was an unwarranted extreme sell off. Maybe you can give it to me from your angle just to get a different perception.
    Also where do you see the market in general for the remainder of the year? Any idea where capital will flow into?

    Thanks for the kind words.
    Aladdin is an intriguing little company. It was started by Jacob Margalit about 20 years ago. As someone who recently had their computer hijacked by a hideous swarm of evil viruses, I appreciate the efforts of anyone in computer security. The industry is dominated by a few major players like Check Point (CHKP) and McAfee (MFE). Aladdin does what’s called digital rights management, which basically deals with controlling the access and distribution of digital information.
    As you said, Aladdin got body slammed earlier this week due to a revenue shortfall. Volume was huge which leads me to think that a lot of people were looking for a reason—any reason—to head for the exits. I have to say that the magnitude of the sell-off is far out of proportion to the news (three million shares and less than 400 employees!). After all, they didn’t alter their earnings forecast, and they clearly said that the adjustment is due to the timing of their new business.
    Ironically, it’s not the revenue side of Aladdin that concerns me. The company’s sales have grown nearly every year for the past ten years. That’s terrific for a small player in this space. Only recently have their operating margins started to climb, which is a very good sign. Keeping that trend alive in the most important aspect of Aladdin’s future.
    The earnings are due out on October 27. The consensus is for 23 cents a share. Oftentimes, I would caution against owning a stock that just had a big downgrade before earnings, but I think it’s pretty safe this time. The estimate range is very narrow (just two cents a share), which leads me to think that the Street has already made up its mind.
    All in all, I like Aladdin, but I would add a few words of caution. It’s a very small company and highly volatile. The shares have already plunged from $40 to $1. I’m not saying it will happen again, but it has done it before. Also, Aladdin is based in Israel which means that it carries some political risks. If international investors don’t feel safe, there’s not much a little company can do about it. Bottom line: the most important thing is to watch those operating margins.
    As far as my overall market outlook, I really don’t have one. I try not to forecast where the market is going, but instead focus on what stocks and industries are doing well. I’m inclined to think that stocks that are more defensive in nature (consumer staples and health care) will show some strength later this year.

  • General Electric’s Earnings
    Posted by on October 14th, 2005 at 1:36 pm

    General Electric (GE) reported third-quarter earnings today of $4.68 billion, or 44 cents a share. That was inline with analysts’ expectations. Last year, GE earned $4.07 billion, or 38 cents a share. Sales rose 9% to $41.93 billion.
    It’s almost hard to explain how big GE is. There’s no conglomerate quite like it. The company is almost its own country. For the third quarter, the GDP of the U.S. economy will probably be around $3.2 trillion. That means that GE makes up roughly 1/700th of our total economy. For every $700 you earn a year, GE makes, on average, a $1 profit off you. The route may be long and winding, but your money reaches GE eventually.
    Despite its size and wealth, GE’s stock has not been a winner this decade. The shares got as high as $32 during the summer of 1998, only $2 below where they are now. In the last days of the 1990s, GE was trading over 50 times earnings. Today, the stock is going for about 19 times earnings, and the dividend currently yields about 2.6%.
    I’d still shy away from GE, but it may soon be a good buy.

  • The Battle for the Soul of Capitalism
    Posted by on October 14th, 2005 at 9:46 am

    Jack Bogle thinks that capitalism is doomed:

    SmartMoney.com: How has capitalism veered in the wrong direction?
    John Bogle: What I tried to do in the book I don’t think has been done before. All these systems are interlinked: the systems of corporate America, investment America and mutual fund America. They intersect to put the shareholder in the back seat. He ought to be up front, in the driver’s seat….
    Capitalism has changed into a new system, which is not a good system. It’s a managers’ system. The rewards have to go to the people who assume the risk; that’s conventional capitalism. It’s been taken over, most notably in mutual fund America. By far too large a share of rewards has gone to the managers. There are lots of reasons for that, but the main reason is that we don’t really have an ownership society. It’s gone, and it’s not coming back. Fifty years ago individual investors directly owned 91% of all stock. In 1985 the balance changed and institutions owned more than 50% of all stock. Now 68% of all stock is held by institutions, and only 32% is held by individuals.

    The growth in that number is due to more people entering the stock market. At the time of the market crash in 1929, only 2% of Americans owned stock. Today, over 50% own stock.
    Later, Bogle complains about the “rent-a-stock” mindset, but that just means that the institutions have to play harder to keep investor’s money. The only people telling investors that they have no control are in the index fund industry, which Mr. Bogle has helped bring to the world.