Earnings from Fiserv and Gilead Sciences
Posted by Eddy Elfenbein on July 27th, 2011 at 8:47 am

After the closing bell yesterday, Fiserv ($FISV) reported second-quarter earnings of $1.13 per share which was five cents more than expectations. For the same quarter one year ago, the company earned $1.00 per share.

I really like this stock. Fiserv also reiterated its full-year forecast of $4.42 to $4.54 per share. The stock is up about $1 today and is close to the all-time high price reached earlier this month.

I was nervous about Gilead Sciences ($GILD) because it had a very bad earnings report last time. This time around, wasn’t so bad. Gilead netted $1.00 per share which was one penny better than expectations.

Sales of Atripla, which combines Gilead’s Truvada with Bristol-Myers Squibb Co’s Sustiva into a single pill, rose 15 percent to $822 million, topping analysts’ forecasts of between $810 million and $812 million.

Sales of Truvada rose 11 percent to $711.3 million, also exceeding Wall Street estimates of about $708 million.

First-quarter sales of the two drugs had missed analysts’ estimates as they were hit by temporary cutbacks in state-funded AIDS drug assistance programs in Florida and Texas.

Gilead is expected to unveil key data on its Quad HIV pill later this quarter and said it plans to file its application seeking U.S. approval in the first quarter of 2012.

Quad, which will combine four medicines, is considered to be Gilead’s most important future growth driver by many analysts.

The company said it is also planning to seek U.S. Food and Drug Administration approval to amend the Truvada label to include data from recent studies showing the drug can help prevent new HIV infections.

Morning News: July 27, 2011
Posted by Eddy Elfenbein on July 27th, 2011 at 7:55 am

Boehner Fights Internal Party Strife on Debt Plan

On All Levels of the Economy, Concern About the Impasse

Home Sales, Prices Reflect Malaise

As US Debt Impasse Continues, Risks Loom In Repo Market

Treasuries Gain as Debt-Accord Speculation Boosts Demand at Two-Year Sale

WellPoint Tops Estimates as Expenses Fall

Nissan 1Q Net Profit Drops 20% As Yen, Quake Offset Sales Growth

Moody’s Downgrades Nokia Citing Weaker Market Position

Santander Profit Tumbles On UK Charge; Delays IPOs

Dow Profit Tops Estimates on Plastics, Chemicals

Nasdaq OMX Profit Dips in Q2, Beats Estimates

Dunkin’ Brands Raises $422.8 Million in IPO

Soros to End Four-Decade Hedge-Fund Career

Howard Lindzon: Should You Paper Trade?

Paul Kedrosky: Hey, It’s Like Selling Stocks to Koreans

Be sure to follow me on Twitter.

Cyclicals Continue to Lag
Posted by Eddy Elfenbein on July 26th, 2011 at 10:24 pm

I’ve warned investors that cyclical stocks are poised for a period of under-performing the market. These are stocks whose business fortune is more closely tied to the ups and downs of the economy.

The shorthand I like to use in following the cyclical sector is the ratio of the Morgan Stanley Cyclical Index (^CYC) to the S&P 500. That ratio reached an all-time high on February 11th and has gradually dropped ever since. Since the beginning of July, the ratio has really started to head south. From July 1st to July 26th, the S&P 500 is down just 0.58% while the cyclicals are off by 4.73%.

On Friday we’re going to get our first peek at how well the economy did during the second three months of the year. The report will most likely be depressing. While the economy is indeed growing, it’s not growing at the speed needed to put people back to work. As long as the economy remains sluggish, cyclical stocks will continue to do poorly. Outside of a few exceptions, I urge investors to steer clear of cyclicals.

Netflix Poised to Plunge
Posted by Eddy Elfenbein on July 26th, 2011 at 9:28 am

One of the of the things about having a blog is that I can’t hide my awful market calls. A little over a year ago, I called Netflix ($NFLX) “the absolute worst stock to buy right now.” I even got a snarky email from the CEO. The stock has jumped about $200 since then.

Sure, it’s embarrassing. But I’ve consistently believed that Netflix was absurdly overpriced. As it climbed higher, I thought it was just becoming even more and more overpriced.

Netflix just reported second-quarter earnings of $1.26 per share which was 14 cents more than expectations. Yet NFLX said to expect Q3 sales of $780 million to $805 million where Wall Street was expecting $845.3 million. The early indications are that the stock will open down about $25 per share.

I think Netflix’s decision to raise its prices has struck a nerve among its customers and some investors. Just as the stock’s price rise was in no way close to the earnings increase, so too is today’s sell-out matched by the poor sales forecast. When a stock plunges 10% on news that really isn’t that bad, you know something was wrong to begin with.

Ford Earns 65 Cents Per Share
Posted by Eddy Elfenbein on July 26th, 2011 at 8:47 am

Today is a huge day for earnings for our Buy List. Ford ($F) kicked things off by reporting adjusted earnings of 65 cents per share. Wall Street was expecting 60 cents per share although I thought it could have been as high as 70 cents per share.

Ford also said it is spending more to increase production because of rising post-recession demand. U.S. consumers are expected to buy nearly 2 million more cars this year than they did last year. Dealers say they are selling some Ford Focus sedans hours after they hit the lot. Earlier this month, Ford held a lottery to fill 1,800 jobs at its Louisville Assembly Plant after nearly 17,000 people applied.

Ford projects that annual U.S. sales will be in the lower end of its 13 million to 13.5 million forecast.

U.S. auto sales stumbled in the quarter, losing the momentum they had before the March 11 earthquake in Japan. Some buyers turned to Ford and other brands when Japanese cars were in short supply. But others seem determined to wait until later this year, when Japanese supplies will be replenished and prices are expected to fall.

Ford was able to command higher prices for its cars and trucks in the U.S., partly because of tight supplies of vehicles after the earthquake.

For the second quarter, revenue rose 13 percent to $35.5 billion. Analysts polled by FactSet had forecast revenue of $32.15 billion.

Ford paid off $2.6 billion in debt during the quarter. The company now has $14 billion in debt, down from $16.6 billion in the same quarter a year ago, a legacy of its 2006 decision to borrow $23 billion to restructure the business. Ford hopes its steady reduction in debt will convince ratings agencies to return the company to investment-grade status, which would make it cheaper to borrow money.

Booth said ratings agencies aren’t expected to act until after the company completes contract talks with the United Auto Workers union. Ford and the UAW are expected to kick off negotiations on a new contract this Friday.

The stock looks to open higher this morning.

Morning News: July 26, 2011
Posted by Eddy Elfenbein on July 26th, 2011 at 8:05 am

Moody’s Again Reduces Greece’s Credit Rating

Greece Expects Bond Swap in August

Deutsche Bank Slashes Peripheral Europe Risk

Beef Tainted by Radiation to Be Recalled in Japan as Contamination Widens

Spanish, Italian Borrowing Costs Soar

Manufactured Goods Lead Surge in Indian Exports

Pox on Dollar, Euro Makes Swissie Good as Gold

Obama Presses for Debt Ceiling Deal

Republican Leaders Voted for Drivers of U.S. Debt They Now Blame on Obama

Treasurys Weaken on Debt Impasse

Baidu Profit Jumps on Customer Growth

Ford Second-Quarter Profit Beats Estimates

UBS Scraps Earnings Goal After Profit Falls 49%

Need a Light Bulb? Uncle Sam Gets to Choose: Virginia Postrel

Joshua Brown: The Law of Unintended Consequences, Part 657

Brian Shannon: Webinar Recording & Trade Ideas for 7/26

Be sure to follow me on Twitter.

Sector Performance Since June 20
Posted by Eddy Elfenbein on July 25th, 2011 at 6:10 pm

Here’s a look at how the different S&P 500 sectors have performed since June 20th. What’s interesting is how wide the spread is. A rising tide has not lifted all boats.

Reynolds American Now Yields 5.9%
Posted by Eddy Elfenbein on July 25th, 2011 at 1:31 pm

Thanks to the recent sell-off, Reynolds American ($RAI) now yields 5.9%.

I neglected to note that on Friday, the company increased the low-end of its full-year forecast to $2.62 per share. The previous range was $2.60 to $2.70 per share.

52,000% Profits at Seaboard
Posted by Eddy Elfenbein on July 25th, 2011 at 11:12 am

A few months ago, I highlighted Seaboard ($SEB) which has been a monster stock for the past few decades. In the mid-1970s, the stock got as low as $5-1/8. Given the current price of $2,660, that makes it close to a 52,000% winner.

Here’s a description from Hoovers:

With pork and turkey from the US, flour from Haiti, and sugar from Argentina, Seaboard has a lot on its plate. The diversified agribusiness and transportation firm has operations in some 40 countries in the Americas, the Caribbean, and Africa. Seaboard sells its pork and poultry in the US and abroad. Overseas it trades grain (wheat, soya), operates power plants and feed and flour mills, and grows and refines sugar cane. Seaboard owns a shipping service for containerized cargo between the US, the Caribbean, and South America; it has shipping terminals in Miami and Houston and a fleet of 40 vessels (12 owned, others chartered) and ships to ports worldwide. Seaboard is run by descendants of founder Otto Bresky.

Despite Seaboard’s amazing performance, the stock isn’t followed by any analysts on Wall Street.

I’ve said before that the first question most investors ask about a stock is “what do they do?” While that is obviously something you want to know, a more important question is, “how well do they do it?” Even companies working in “unfashionable” businesses can be great investments.

DC Vs. Wall Street
Posted by Eddy Elfenbein on July 25th, 2011 at 10:54 am

All weekend, there were worries that the debt ceiling standoff would lead to a major sell-off on Monday. So far, the market is down but not nearly as much as was feared.

If the markets get even more nervous, that would probably be a catalyst for the folks in Washington to reach a deal. A similar reaction happened when Congress initially shot down the first TARP proposal on September 29, 2008 (also a Monday). The Dow plunged 777 points. The bill passed a few days later. In other words, Wall Street’s reaction to Congressional action can act like a virtual veto.

I often see articles that show how the market has performed under different presidents. I think they get the relationship backward. It assumes the politicians are like players on the field on the markets are the scoreboard. It’s more interesting to see the markets as the players and what the policy makers do as reflecting the changes in the markets.

I haven’t commented much on the political standoff because I’ve assumed that some sort of deal will be reached once all the grandstanding is done. I honestly don’t know what will happen but I see that the financial sector is especially weak today. The market opened lower today, but it’s slowly been climbing higher.