Monday, November 30, 2009

Chart of The Day

This is a pretty illuminating chart from JPMorgan. It compares public versus private sector experience of cabinet-level appointments by presidents, going as far back as Teddy Roosevelt.

It's quite relevant in an environment when we have $787billion stimulus packages that aim to "create or save" jobs, a term that literally has no meaning.

This administration's appointments have less than 10% of their prior experience in the private sector, versus a previous average over 40%. Not surprising to see that their ideas have not translated into actual jobs, seeing as their experience has been largely inside University walls.


Friday, November 27, 2009

Light Friday


Post-Thanksgiving trading was very light as expected, with the market only open for a half day.

US stocks followed the lead of international shares, with the DJIA off 155points. Markets were spooked by the continued fears over Dubai World's request to suspend interest payments on its massive debt load.

The WSJ reports that holders of this debt have a formed a group to "explore" their options:

"The bonds have plunged in value after the troubled Gulf city-state rattled investors Wednesday by delaying the state-run conglomerate's debt payments. Roughly $3.5 billion of Islamic bonds, called sukuk, dropped to around 40 cents at their lows Friday from around 110 cents before the news Wednesday. The bonds, due to mature Dec. 14, later recovered to about 57 cents Friday"

It will be interesting to see how this plays out. Many people expected Dubai's neighbor Abu Dhabi to come to the rescue, but not it's appearing more likely that they will (at the very least) allow bondholders to suffer before throwing more good money after bad.

In "graphic form," here's an example of the fear in debt markets over everything Dubai-related. The cost to insure debt of DP World, for instance, has exploded this week. (Trading at 755basis points, this means that it would cost $755k to insure $10million in debt against default.)



Wednesday, November 25, 2009

Canopy Financial, total SCAM.

TechCrunch reported earlier today that Canopy Financial is a fraud. Maybe the most pathetic aspect is that the audited financials of Canopy Financial were displayed on FAKE KPMG letterhead. Neither the i-bank nor venture investors bothered to verify the numbers beyond that. This may destroy the bank that arranged financing, as well as the venture capitalists who threw money at it so blindly

A disgusting lack of due diligence. Here's the email from the investment bank that promoted the company, politely asking TechCrunch not to use their name. Uhhhh, right:

“Hi there, I’d respectfully ask for some consideration here and would like to have our information / logos / screenshots taken off of your Canopy Financial posts. We clearly had no clue about any such wrongdoing and exposure to this is not something we are interested in. Understand you guys are all about the news, but we’re a small firm and had nothing to do with this. Please pass to Michael Arrington if you don’t mind.”

One of the investors was Spectrum Equity, which lost $62.5million. They immediately deleted Canopy from their "investments" portion of their site:




Quote of the day. WARNING, graphic/disturbing images

By graphic/disturbing, I mean Roseanne Barr.

No doubt she did some truly exhaustive research to come to the conclusion that George W Bush stole all the country's money!

Don't bother watching the whole thing....

"I know that [Barack Obama] can only do what he can do with what was left. I mean, George Bush walked out the door with all the money...Like not even half of what the lesser thieves stole. That's what he left for the American people to like make their way on, and put Obama in a tough, he dug Obama such a deep hole. It's just not, you know. Anything that Obama does is just fantastic...And he has done fantastic things, and I hope he does some more."

Oops. Time (and principal payments) catches up to the truly DUMB money

The Wall Street Journal is out with some dire news regarding Dubai World, the investment arm of the freewheeling geniuses who created the "Vegas in the Middle East."


DUBAI (Zawya Dow Jones)--Dubai's efforts to deal with its mountain of debt estimated to exceed $80 billion were dealt a hammer blow Wednesday after it asked for a standstill on the obligations of one its largest state-owned companies.
The request to extend the maturity until at least May 30 on Dubai World's debts, which include a $3.52 billion sukuk due December issued by its subsidiary Nakheel, raised wider concerns about the emirate's ability to meet its financial commitments.
Eckart Woertz, chief economist at the Dubai-based Gulf Research Center, said that a failure to repay Nakheel's sukuk due December "will destroy a lot of confidence."
These sovereign investment funds have served as the investor of last resort for multiple deals that have been truly disastrous.

MGM Mirage (MGM) is out today calming its investors regarding Dubai World's involvement with the enormous City Center project in Las Vegas, where condo prices were recently
chopped 30% in order to spur sales.



"MGM Mirage isn't expecting to make much from condo sales at CityCenter. The project's $8.5 billion budget assumes condo sales of only $250 million – a negligible amount relative to the $2.6 billion worth of condos the company hoped to sell before the recession. The company hoped to use those sales to offset CityCenter's cost, boosting profit for owners MGM Mirage and Dubai World.

MGM basically points out that while Dubai World is in dire straights, they've already taken the money needed from them for the project. Ouch...

CityCenter has sold at least 55 percent of its roughly 2,400 condo and condo-hotel units. Buyers began signing purchase contracts for the units in January 2007. Condo units that once sold for $1,000 to $2,000 per square foot are now selling for well under $1,000 per square foot, though MGM Mirage has touted CityCenter as a unique brand that will command a premium price in Las Vegas."

"MGM Mirage, which jointly owns the development on the Las Vegas Strip with Dubai World, said Dubai World had already fulfilled all of its commitments to funding City Center. Those investments have totaled about $5 billion dollars, according to MGM Mirage spokesman Alan Feldman."

The cost to insure against Dubai's debt defaulting has soared today. From
CMA Datavision:

Broadpoint Amtech's top ten reasons to own Precision Castparts (PCP)

A refreshingly straight-forward analysis, how nice.  Broadpoint Amtech lays out their reasons for owning Precision Castparts(PCP), a diversified metal fabrication company.


Broadpoint spends much of their time focusing on the aircraft-relates business, which is about 53% of revenues and sure to climb as Boeing's 787 program kicks off in earnest in the next 12months.



The top ten....


10) IGT demand and Seamless Pipe for India and China remain healthy, 
9) High 787 content will offset any OEM softness as it ramps 
8) Drop in narrow-body airplane production rate will have limited impact
7) Robust Free Cash Flow coupled with stellar balance sheet
6) Continuous improvement philosophy of PCP still driving margins
5) Prime opportunity to further acquire and vertically integrate 
4) Incremental growth from fastener market share gains
3) Dominant market share in core Castings, Forgings and Seamless Pipe 
2) Caledonian acquisition gives PCP advantage competition cannot match
1) Mark Donegan and executive team.


Regarding that "robust" free cash flow - yes, 'tis robust, but the shares have caught up with it.  The company currently sports a Free Cash Flow Yield of about 6.4%, based on an average of 2007-2010 Free Cash Flow.  Not enough juice in that yield for me to chase.



Copyright 2009 AlphaNinja


PCP

Tuesday, November 24, 2009

FOMC minutes

Minutes from the November 3-4th FOMC meeting were released earlier today.


Notable from the release:


-Manufacturers increased production in September for the third consecutive month. 
-The gradual recovery in construction of single-family homes from its extremely low level earlier in the year continued, and home sales increased in the third quarter. 
-Although consumer spending on motor vehicles declined in September after the expiration of government rebates, other household spending rose. 
-Outlays for equipment and software (E&S) appeared to be stabilizing. 
-the labor market weakened further, and business spending on nonresidential structures continued to decline. Meanwhile, consumer price inflation remained subdued in recent months.


The last meeting was in June.  Since the last meeting, another 1.3million jobs have been lost.  I don't bring that up to be melancholy - rather I note it as it relates to the changes in long-term projections for GDP growth.  


Amazingly, despite an additional loss of 1.3million jobs since the last update to long term projections, the FOMC has RAISED estimates for long term GDP growth (just slightly, but still...).  This is key because congress uses this data to project tax revenues in the future, and any boost to GDP in this report will show smaller projected deficits than could reasonably be expected.  If the FOMC were to get more cynical realistic with its outlook, that would show higher deficits in the future.  To their credit, they did increase the outlook for the long-term unemployment rate.  Although how that can be increased at the same time as GDP growth escapes me....



Intraday action

Stocks are all over the place today.  Currently the DJIA is down 44points, with losses heaviest in Boeing (BA), Hewlett Packard (HPQ) and JP Morgan(JPM).

Among gainers, Iowa Telecom is +24% on a $1.1billion buyout offer from Windstream (WIN).

Among losers, Barnes & Noble (BKS) offered VERY weak guidance for fiscal 2010 earnings ended April 2010.  An "all-in" bet on its digital strategy is driving up costs, thus the lowered guidance:

"Owing to the overwhelming customer demand for nookTM, the world’s most advanced eBook reader, the company is ramping up its production schedule, incurring higher production costs than originally anticipated and increasing future investments related to its digital strategy, including additional people, technology and in-store marketing support. In addition, the company expects that general retail traffic will remain challenged during the holiday selling season. As a result of the above factors, the company is lowering its full year earnings per share forecast to be in a range of $0.33 to $0.63, from its previous forecast of $0.59 to $0.89. Third quarter earnings per share are expected to be in a range of $1.30 to $1.50."



Copyright 2009 AlphaNinja

Comic of the day

It's been a while.....from the sick minds at Cyanide & Happiness:


Stimulus fun, from California

Lordy.

The SF Chronicle is reporting that the state's department of corrections overstated "jobs saved" by 13,000.  And that is just the fake jobs from ONE DEPARTMENT.


In a letter sent to leaders at the Capitol on Monday, State Auditor Elaine Howle said that the Department of Corrections and Rehabilitation has overstated by as many as 13,000 the number of jobs saved by federal stimulus dollars. That represents more than 10 percent of the jobs California reported saving with the federal funds.
Howle said the department appears to have counted employees who were not at risk of losing their jobs.


Recovery.gov says that California has seen 110,000 jobs saved by the stimulus.  We'll take that down to 97,000, a quick drop of 14%.  I wonder if the president still feels that the inability to measure job creation from the stimulus is a "side issue."


Zale BEATS earnings estimates....by only losing $1.80 per share :( (ZLC)

What's that line from Major League?  "Well let's give him credit - at least he didn't spike himself!"

Jewelry concern Zale Corporation (ZLC) announced a loss of $1.80 per share for the quarter ended October 31st.  Shares are up over 2% today, as the street had expected a loss of over $2dollars per share.

The company claims to be pulling fixed costs out of its operating structure, but it's coming at a snail's pace.  Inventory looks a bit high to me given the pressures facing customers this holiday season, buyt management is undaunted:

We are encouraged that both sales and margin strengthened as the quarter progressed,” commented Neal Goldberg, Chief Executive Officer. “Importantly, we are well positioned to improve our Holiday execution and financial performance. Our merchandising initiatives have been tested, our stores are fully set and we have the inventory to deliver on our Holiday plans. We will not offer the same level of broad discounting this Holiday season as we did in 2008, which will help us expand our gross margin,” added Mr. Goldberg.


Hmm.  They won't budge on discounting, will they?  We'll see if that's preferable to forgoing desperately needed revenue and cash flow.




Hacked emails exposing man-made global warming junk science

The ball is rolling, and this fraud is falling apart in rapid fashion.  What I wonder is, will these people's inexcusable scientific crimes be justified by the global warming religion, due to the "Noble Lie" effect, which pardons lies if they're in the name of a popular, well-intentioned cause?

This is SO important because all the global warming legislation and action from the UN and our own congress is based on "Peer-Reviewed" science -->> but if these "peers" are hiding data and using "tricks" (their words not mine) to come up with desired results, then this process is a fraud.

By now, hopefully most people have heard about the hacked emails from the Climate Research Unit of the Universoty of East Anglia.  Thousands of email exchanges between the world's foremost promoters of manmade global warming and its disastrous consequences have been made public.

Before reading some of the highlighted emails, read this quote from Princeton's William Happer, who supervised all non-weapons research at the Department of Energy years ago.  It sheds some light on the difference between regular scientists who're happy to defend and explain their research, and the global warming folks.


“I would have [researchers] come in, and they would brief me on their topics,” Happer explained. “They would show up. Shiny faces, presentation ready to go. I would ask them questions, and they would be just delighted when you asked. That was true of almost every group that came in.”
The exceptions were climate change scientists, he said.
“They would give me a briefing. It was a completely different experience. I remember one speaker who asked why I wanted to know, why I asked that question. So I said, you know I always ask questions at these briefings … I often get a much better view of [things] in the interchange with the speaker,” Happer said. “This guy looked at me and said, ‘What answer would you like?’ I knew I was in trouble then. This was a community even in the early 1990s that was being turned political. [The attitude was] ‘Give me all this money, and I’ll get the answer you like.’ ”


The completely unprofessional and un-scientific practices of the global warming scientists continues. Some of the hacked emails highlighted by the Washington Times below.

-->>In another e-mail, Mr. Jones told Mr. Mann, professor Malcolm K. Hughes of the University of Arizona and professor Raymond S. Bradley of the University of Massachusetts at Amherst: "I'm getting hassled by a couple of people to release the CRU station temperature data. Don't any of you three tell anybody that the UK has a Freedom of Information Act!"
-->> Mr. Mann sent Mr. Osborn an e-mail saying that the results he was sending shouldn't be shown to others because the data support critics of global warming.

Today the Wall Street Journal also reviews some of the emails:

-->>Mr. Jones writes: "[T]ry and change the Received date! Don't give those skeptics something to amuse themselves with."

-->>It also seems Mr. Mann and his friends weren't averse to blacklisting scientists who disputed some of their contentions, or journals that published their work. "I think we have to stop considering 'Climate Research' as a legitimate peer-reviewed journal," goes one email, apparently written by Mr. Mann to several recipients in March 2003. "Perhaps we should encourage our colleagues in the climate research community to no longer submit to, or cite papers in, this journal." Mr. Mann's main beef was that the journal had published several articles challenging aspects of the anthropogenic theory of global warming.

-->>For the record, when we've asked Mr. Mann in the past about the charge that he and his colleagues suppress opposing views, he has said he "won't dignify that question with a response." Regarding our most recent queries about the hacked emails, he says he "did not manipulate any data in any conceivable way," but he otherwise refuses to answer specific questions. For the record, too, our purpose isn't to gainsay the probity of Mr. Mann's work, much less his right to remain silent. However, we do now have hundreds of emails that give every appearance of testifying to concerted and coordinated efforts by leading climatologists to fit the data to their conclusions while attempting to silence and discredit their critics. In the department of inconvenient truths, this one surely deserves a closer look by the media, the U.S. Congress and other investigative bodies.

Tuesday Morning

US stocks opened slightly negative, down about a fifth of a percent or 17DJIA points. Third quarter GDP was revised down to 2.8% growth from 3.5%, on lower consumer spending. Dow component Hewlett Packard reported an in-line quarter last night, with in-line forward guidance. The share are off a little less than a percent in early trading.


Wow compared to the USA, their rates are brutal. Russia's central bank cut interest rates...to 9%!
Russia’s central bank cut its key interest rates to a record low in the ninth reduction since April as it seeks to deter speculative bets on the ruble and ease credit flows to households and businesses. Bank Rossii cut the refinancing rate to 9 percent from 9.5 percent and reduced the repurchase rate charged on central bank loans to 8 percent from 8.5 percent, effective from Nov. 25. It last lowered them by half a percentage point on Oct. 30.

Not uncommon these days, Wells Fargo took back the deed to the 3,000 acre Frederica community in Georgia.
Frederica was intended to be a “Pebble Beach of the East,” said Peter Capone, an architect who was Sea Island’s chief designer. Lot sales at Frederica, which reached more than $2 million a parcel in 2005 and 2006, were supposed to help finance the rest of Sea Island’s expansion, Capone said in an interview in October.

The drama continues for NYC's Stuyvesant Towers. An example of what NOT to expect to pull off in real estate - massive rent increases in a populist city.
The owners of Manhattan's Stuyvesant Town-Peter Cooper Village apartment complex are running out of money so fast they may default on their mortgage within the next few weeks. Tishman Speyer Properties, the real estate developer that owns the historic 80-acre property with asset manager BlackRock, has just $6.75 million left in reserves for StuyTown, according to credit rating agency RealPoint. That isn't enough even to cover December's costs, which include more than 6 percent interest on a $3 billion loan.

In all this drama, the only guaranteed winners are the fee-hungry investment banks. Cadbury, in a defensive move, could turn the tables on potential acquirer Kraft by offering to buy Kraft's confectionery business.
In merger parlance, it is called the Pac-Man defense, as the prey suddenly becomes the predator.
Cadbury has a secret defense against Kraft if no white knight comes along to save it from a too-low takeover bid by the food giant. The British chocolate maker is considering turning around and making a bid for Kraft's smaller confectionery business. Cadbury could afford the acquisition, and it makes strategic sense, said a source with knowledge of Cadbury's thinking. "If I were advising Cadbury, I'd say let's bid for Kraft's confectionery business," said a consumer banker.


With a rather highly-publicised 2009 Hoilday price war, the battle between Wal-Mart and Amazon.com is a fight for the future of retailing.
“It’s not about the prices of books and movies anymore. There is a bigger battle being fought,” said Fiona Dias, executive vice president at GSI Commerce, which manages the Web sites of large retailers. “The price-sniping by Wal-Mart is part of a greater strategic plan. They are just not going to cede their business to Amazon.”

(Wal-Mart, Amazon, Stuyvesant, Tishman-Speyer, retail, Wells Fargo, Frederica, interest rates, Russia, GDP, Hewlett Packard)

Monday, November 23, 2009

Dell's weak quarter (DELL)

Getting to this a bit late. 

Dell (DELL) stock tanked Friday after a Thursday afternoon earnings release demonstrated a VERY weak quarter.  Revenues were off more than expected, and earnings came in well below anticipated levels, as margins were quite weak and market share slipped.  People were especially caught off guard, as other tech names had reported significant earnings "beats."















Dell claims to have earned $3.4billion in "operating cash flow," a number that I don't take to be very sustainable.  I'll continue to use conservative numbers in my estimates for Free Cash Flow.

Speaking of Free Cash Flow, estimates have not changed much for this and next year.  What HAS changed is the stock price.  Thanks to the selloff, the Free Cash Flow Yield (FCFY%) has gone from 11.5% to 13% in just a couple days, making the shares more attractive.



Copyright 2009 AlphaNinja

People's United "buys some balance sheet" (FIF, PBCT)

No sooner did Financial Federal (FIF) agree to be acquired by People's United (PBCT), than the "securities version" of ambulance chasers showed up.:

NEW YORK--(BUSINESS WIRE)--Levi & Korsinsky is investigating the Board of Directors of Financial Federal Corp. (“Financial Federal” or the “Company”) (NYSE: FIF - News) for possible breaches of fiduciary duty and other violations of state law in connection with their attempt to sell the Company to People's United Financial, Inc. ("People's United") (NasdaqGS: PBCT - News). Under the terms of the transaction, Financial Federal shareholders will receive $11.27 in cash and one share of People's United common stock. Based on the closing price of People's United on November 20, 2009, the transaction values Financial Federal shares at $27.74, for a total transaction value of approximately $738 million.

The investigation concerns whether the Financial Federal Board of Directors breached their fiduciary duties to Financial Federal stockholders by failing to adequately shop the Company before entering into this transaction and whether People's United is underpaying for Financial Federal shares, thus unlawfully harming Financial Federal stockholders.

In fairness to the ambulance chasers, they might have a point. People's United looks to have acquired a commercial lender at very attractive prices, about 1.1times book value. As they themselves say in the release, the terms are very attractive. And the excess capital cited below is why by title said they're "buying" some balance sheet.

People's United expects the transaction to be significantly accretive to operating earnings in 2010 and to have an IRR greater than 20%. Given Financial Federal's significant excess capital, the transaction is expected to have a slight positive impact on People's United's industry leading capital levels on a pro forma basis.

It should be very difficult for Financial Federal to look its investors in the eyes and explain why the seller can achieve a return of 20% on this investment. As in, "why did we take the other side of this trade?"

A perusal of Financial Federal's recent 10-q offers insight into how they have remained both sturdy and profitable despite this difficult environment. They completely shy away from assets with questionable useful lives:

-->>Our primary focus is the credit quality of our receivables. ...
-->>We focus on financing equipment with a remaining useful life longer than the term financed, historically low levels of technological obsolescence, use in more than one type of business, ease of access and transporting, and broad, established resale markets.  
-->>We do not finance or lease aircraft or rail cars, computer related equipment, telecommunications equipment or equipment located outside the United States, and we do not lend to consumers.

Coffee Wars! (GMCR, DDRX, PEET)

Diedrich Coffee (DDRX) shares are up 27% today, as a bidding war has erupted for the company.

Earnings for this company are expected to nearly double in the year ended June 2011, jumping from an estimated $1.00 per share in June 2010 to $1.75.

Diedrich's rapid growth owes largely to the explosive popularity of k-cups, the single-brew coffee option. Diedrich is one of 4 licensed suppliers for Green Mountain's Keurig coffee maker, which is a huge hit in company kitchens in small and large businesses alike, not to mention in more and more individuals' homes.

Peet's coffee (PEET) saw a big lift in its shares following a great Q3, with shares up $4 on Ocotber 28th. They got another boost when Peet's boldly announced plans to purchase Diedrich for $213million or about $26 per share in early November.

In a release this morning, Diedrich included details about a competing offer from Green Mountain Coffee Roasters(GMCR), for $30 a share -->> an obviously richer price that the board was duty-bound to consider. Now Peet's had to decide how to respond, and they upped their offer to about $32 per share. I say "about," because it's a stock and cash deal that depends on the price of PEET shares.

PEET shares are trading down 10% today, as investors are clearly unnerved about not only the sheer size of this deal (Diedrich's market value is now 43% of Peet's own), but the quick 23% boost to the deal price.

Per the release, the PEET's offer comes via $19.80 in cash and .321 shares of PEET stock for each DDRX share -->> which equals $30.81 as of a couple minutes ago. The Green Mountain offer was for $30.00 per share in cash.

"After reviewing the offer from GMCR, the Board of Directors of Diedrich Coffee had determined that it constituted a "Superior Proposal" to the terms of the existing merger agreement between Peet's and Diedrich Coffee. As required under the terms of the existing merger agreement with Peet's, on November 20, 2009, Diedrich Coffee transmitted to Peet's notice of the Board's determination. Under the terms of the Peet's merger agreement, Peet's has until 5:00 p.m. Pacific Time on Friday, November 27, 2009 to negotiate with Diedrich Coffee to amend the current merger agreement in a manner that the Diedrich Coffee Board determines is at least as favorable to Diedrich Coffee's stockholders as the proposal made by GMCR. As part of those negotiations, Peet's has submitted the revised offer described above to Diedrich Coffee. In light of the different forms of consideration in the Peet's proposal and the GMCR proposal, Diedrich Coffee's Board is analyzing the two proposals to determine whether the GMCR proposal continues to be a Superior Proposal to the terms of the Peet's merger agreement and the exchange offer contemplated thereby as amended by the proposal received from Peet's. Diedrich Coffee intends to make an announcement promptly after a determination is reached by the Board of Directors."

The fit probably make more sense for Green Mountain, as they're the purveyors of the Keurig brewer, the hit product at the center of this debate anyway. A peek below shows that Diedrich might still be the bargain of the bunch, with the lowest PE and highest Free Cash Flow Yield, despite having the highest growth ahead of it. DDRX shares are trading at the $33 level, as the market expects this drama to continue to unfold.



Copyright 2009 AlphaNinja

DDRX
PEET
GMCR

Intraday action


Stocks are still up handily on the day, with the DJIA +140.

Among gainers is Federal Financial Corp (FIF), on a buyout bid from People's United Financial (PBCT). The shares are +30% today. This deal gives a shot in the arm to the financial sector, showing that value does remain, if one is careful enough to sort through the wreckage.

Among losers is Peet's Coffee (PEET), down 10% to 34.50 from last week's high near $42 per share. Investors think they might be biting off more than they can chew by getting into a bidding war over Dietrich Coffee(DDRX), which also is being targeted by Green Mountain Coffee(GMCR). More on this coffee war to follow...




In a bad PR move, Isis Pharmaceuticals CEO chides investors (ISIS)

Isis Pharmaceuticals (ISIS) has been collaborating with Genzyme (GENZ) on their phase 3 study of mipomersen, a drug that (in layman's terms) helps people metabolize cholesterol, thus reducing risk of cardiovascular troubles.

Last week, the two companies announced results from a phase 3 study of the drug, and ISIS shares promptly dropped 15%. Part of the disappointment came from partner Genzyme's delay in filing for the drug, certainly a valid reason for investors to be spooked.

Multiple sell-side Wall Street firms defended ISIS shares, even suggesting people scoop them up on the selloff. They think the next phase of study will show even better progress, and shares will rebound. This could very well be the case, but someone has been telling the CEO to "get the story out there." Unhappy with the investment community's reaction to the data, the CEO released a STUPID letter, in essence telling people they didn't react properly. If that's the case, the company ought to simply go about its business and the results will speak for themselves. "Trigger-happy" companies, in terms of unnecessary press releases and letters like this, throw up a red sign.


Monday morning


Thanksgiving week -->> US markets will be closed Friday and open just a few hours Friday.

October home sales were up 10%, ahead of expectations. Stocks are up well this morning, with the DJIA +163 points. The "top 5" in index weight, accounting for 30% - IBM, Exxon, Chevron, 3M and Johnson & Johnson - are up about 1.5% each.

Macy's will promote "blenders and sweaters" this year over more luxurious items, as consumer tastes have changed.
“We’re going to see a gift-giving frame of mind that is more utility focused,” said Stephen Cardino, vice president and fashion director of Macy’s home division, in a telephone interview. “The kitchen’s the heart of the home now.

Will a new logo help Amrica Online re-vamp its image?
A new brand identity to be adopted by AOL next month, when it is spun off from Time Warner, ditches the odd-looking triangle that has long served as the brand symbol and replaces the letters AOL with “Aol.” — complete with a period.

With Treasury Secretary Geithner under fire, some see Jamie Dimon as a likely successor.
As support for Treasury Secretary Timothy Geithner wanes on Capitol Hill amid frustration with the Obama administration's handling of the economy, JPMorgan Chase CEO Jamie Dimon is emerging as a potential replacement. Sources tell The Post that a number of policy makers have begun mentioning Dimon as a successor to Geithner, whose standing in Washington has suffered because of the country's high unemployment rate, the weakness of the dollar, the slow pace of the recovery and the government's mounting deficit.

In the Galleon insider trading case, Danielle Chiesi was the "Darien from Wall Street" if you will:
As an analyst at New Castle Funds LLC, a New York hedge fund firm that manages about $1 billion, she was a regular at conferences on technology stocks, where she could get face time with executives and press them on how many microprocessors and how much software they were shipping that quarter. Chiesi wore short skirts and low-cut tops, according to people who saw her over the years. One ploy was to go barhopping with a group, and then peel someone off to talk to on the dance floor, says a person who attended conferences with her.




Based on sales of similar companies, Zygna - maker of Mafia Wars and Farmville - may be worth $1billion.
Valuations for Zynga and its peers were established this month when Electronic Arts Inc. bought Playfish Inc. for three to four times its revenue, said Jesse Divnich, an analyst with researcher Electronic Entertainment Design & Research. Zynga may generate a value of $1 billion should the company be taken public, said Terry Schallich, head of capital markets at Pacific Crest Securities, a technology-focused investment bank.

Friday, November 20, 2009

Intraday action

US stocks are down today, although above yesterday's lowest point. Dell (DELL) reported surprisingly weak results last night (as it's an AlphaNinja favorite, I'll talk more about it later), certainly not helping the broad market.

Many of today's losers are simply stocks that haven't "grown into" their valuations. And on the other side of the equation, a stock like Zumiez (ZUMZ) is trading up on the day despite a weak outlook, because it's shares may have dropped too far before earnings. Ah, the fickle stock markets.
Leap Wireless (LEAP) and MetroPCS (PCS) are both up about 8% today, as a Pali Research analyst "plays investment banker." As in, suggests the terms for a potential merger. MetroPCS has said they are not interested in a merger, but that could change.


LogMeIn raises money...for it's bankers (LOGM)

I wrote rather positively about the LogMeIn(LOGM) IPO back in July:




Well, now they're back tapping the public markets for more money ------- but not for the company. Look at the offering documents. In truly offensive fashion, they're raising more money for the participating investment banks than they are for themselves. Meaning that existing insiders make up the bulk of the offering, so the cash will not go onto LogMeIn's balance sheet.


Copyright 2009 AlphaNinja

LOGM

A view on a second stimulus

Good interview with Texas professor James Galbraith on the idea of the scope and structure of a second stimulus.

Yes, a SECOND stimulus. The first has been maybe 30-40% enacted, and is riddled with fraud, but he thinks we need another.

What's more, he thinks the most important thing to do in a stimulus is to "shore up" state and municipal budgets with federal money. A simple way of letting fiscally responsible states bail out their neighbors next door, who've gifted away the next generation's taxes to public employees' outrageous union demands.

Oh and he admits that in return for a public sector bailout we'll see a "lower standard of living" as the huge debts wreck the dollar.

Thursday, November 19, 2009

The Gap off 1.5% in late trading on in-line Q3 results (GPS, ANF, AEO)


The Gap(GPS) reported earnings of 44cents for the fiscal third quarter, right in line with the guidance they updated back on November 5th. They also announced a $500million stock buyback.

Gross margin was up almost 4% versus a year ago thanks to better inventory management and less markdowns.




The street seems to expect fourth quarter gross margin improvement to be as impressive as this quarter's was, but management guidance in the press release suggests that they may be a bit more promotional in an attempt to grab market share. If that's the case, actual earnings may disappoint by a few pennies per share.

“We’re pleased with our third quarter results, particularly our ability to deliver earnings 25 percent above last year and our highest third-quarter operating margin in a decade,” said Glenn Murphy, chairman and chief executive officer. “Looking ahead to the holiday season, we’re focused on gaining market share as we invest in marketing and present a strong value proposition to customers across our brands.”

The "gaining market share" comment is of particular importance. As I compare expectations for this year and 2010 with peak margin results back in 2004, the expectations for sales-per-square-foot gets my attention. CEO Glenn Murphy has done a remarkable job (as I continually point out), but he can only streamline so much. At some point, they need top line growth. The problem in that area is that this sector has gotten more and more crowded over the years.

2009 and 2010 sales-per-square-foot will come in around $360 and $370 a foot, versus $445 in 2004. A return to that level would send Gap stock FLYING past $30, but as the chart below shows, it's a dog-eat-dog fight among an ever-more crowded field for those sales.


Copyright 2009 AlphaNinja


GPS

If your broker uses this line, please RUN AWAY

Lovely quote here:

"If you were Rip Van Winkle and had fallen asleep for a year, you wouldn't have known we had a crisis—and you would have saved a lot of sleepless nights," says , a Washington, D.C., financial planner.

That's from a recent WSJ piece called "Surprise! That 401(k) Account Is Looking Good."

I'll give the author the benefit of the doubt and assume she's calming investor jitters over their nest eggs. It's a great point to remind investors that their position might not be all that bad considering the market recovery and added benefit from regular contributions.

The worrisome aspect is the quote above from the financial planner. OF COURSE the portfolio is doing better thanks to contributions. Below is an example of a $100,000 portfolio over two years, in a fund that mimics the S&P500. The red line shows the account value without any monthly contributions, and the blue line includes contributions of $1,000 per month. With contributions, the account is positive over the period. Without them, it is down almost 20%, just like the index.

If the investor received a $50,000 inheritance windfall, would the adviser claim that the investor's account is performing fabulously thanks to this? "Hey Frank, wow your account's up $50,000 in a day!" It's not much different than the above points.

It's reasons like these that the NYTimes recently reported that 36 percent of wealth managers said they believed they were "not fully qualified to do their job."

Pulling the wool over investors' eyes by intentionally confusing performance with account value confirms that this industry peddles awful advice.


Intraday action



Stocks are off their lows, but still down significantly on the day. Many earnings reports are leaving investors wondering whether stocks have run too far off the March lows.

Among the losers are the shipping companies. Volatility has been running so high here that despite dropping 13% today, they're still positive on the week.




Quote of the day

Yes, it's from recovery.gov, but that's not my fault. They just keep 'em comin'.

The WSJ on a few jobs "saved." Among other things, apparently one new job was created for each pair of boots shipped by this company:

"According to the White House's recovery.gov site, an $890 shoe order for the Army Corps of Engineers, courtesy of the stimulus package, created nine new jobs at Moore's Shoes & Services in Campbellsville, Kentucky."

Or this gem:

"Head Start in Augusta, Georgia claimed 317 jobs were created by a $790,000 grant. In reality, as Mr. Karl reported this week, the money went toward a one-off pay hike for 317 employees."

From what I can gather, the formula is:

1. Berate congress into passing a job-creating stimulus.
2. Borrow $787billion on the back of taxpayers
4. Funnel that money to (almost entirely) public employee pay raises.
5. Call each pay raise for public employees a "job saved."

The actual quote, in reaction to a question about fraudulent reporting of jobs data:

Asked by the New Orleans Times-Picayune why so many recipients would misstate their districts, Ed Pound, the director of communications for the Obama Administration's recovery.gov, said, "Who knows, man, who really knows."

What's RadioShack worth? (RSH)

Barrons Online is out this morning suggesting that investors take some gains in Radioshack(RSH) after recent outperformance.

While they note the company's decent performance, they see the shares fairly valued at current levels.

At 11.9 times consensus earnings estimates for 2010, RadioShack trades at a below-market multiple. Unfortunately, that could still be full value for a company that is not growing its store base and will continue to face competition from larger rivals. "What kind of multiple do you put on a retailer in a very competitive market with no organic growth prospects," wonders Anthony Chukumba, senior research analyst at FTN Equity Capital Markets. "Eleven or 12 times sounds about right to me."... Given the lack of new stores, those same-store sales will have to grow if the company wants to boost earnings, according to Standard & Poor's Equity Research analyst Michael Souers.

I would tend to agree, but a Price-to-Earnings ratio neglects the company's $6.70 per share in balance sheet cash. If you "net out" that cash, then the stock appears much cheaper. Many would say "wait, they have as much debt as they do cash, so why net it out?" Because in a given quarter, RadioShack is covering their interest expense 7-10 times -->> an extremely comfortable cushion.

The company's massive cash balance, combined with free cash flow, pushed the "net" Free Cash Flow Yield to 126% earlier this year -->> a screaming buy amid the market panic in March. Current FCFY is 10%, and "Net of cash" it's 14%. Tempting, but this is a dangerous industry, so I'm not sure that yield is enough compensation for the risks involved.


Copyright 2009 AlphaNinja

RSH

Thursday Morning

Stocks are sharply lower this morning. The DJIA off 140points, will all 30 index members down on the day. Nothing particularly terrible on the economic "data" front, but a few retailers reported weaker than expected results last night.

Hot Topic (HOTT) is down 13%. Earnings were in line with expectations, but forward-looking guidance for Q4 of 24cents per share was below consensus at 30cents.


Privately held Facebook's valuation has risen 42% in the past few months, based on trading of the company's common stock in private market transactions.
Facebook shares are currently selling for about $21 each at SecondMarket, said Adam Oliveri, managing director at the New York-based company. That’s up from $14.77 in July.

Massive budget deficits and crumbling tax revenues? California's answer is to screw with the TV market by forcing people to buy LCD TV's out of state. Amazing.
The rule does not cover televisions currently in use or for sale. But it would require that most television sets sold in California consume 33 percent less electricity by 2011 and 49 percent less by 2013. The standards would apply to televisions with a screen size of up to 58 inches.

Streamlining itself to be more profitable on its own, AOL may let go a third of its workforce if it is spun off from Time Warner.
According to a filing and a memo AOL CEO Tim Armstrong sent out to employees, AOL is looking for up to 2,500 employees to voluntarily accept buyouts starting Dec. 4 -- about five days before the company is expected to separate itself from Time Warner

Innovate or die. "Old Guard" auto companies are racing to develop engines for electric vehicles.
While internal-combustion engines currently power more than 99 percent of cars built globally, their share can only fall as electric cars enter the market, Miyao said. That will intensify price competition and lower profits for manufacturers. “If you’re a parts maker that can’t expand market share, then you can’t grow without entering new businesses,” he said.

Wednesday, November 18, 2009

Stonemor Partners dsiplays ugly cost of capital (STON)


Ugh. Here's some "price discovery" that you'd rather not see.

Cemetery and Funeral home operator Stonemor Partners (STON) released details about the recent $150million debt offering they completed.

LEVITTOWN, Pa., Nov. 18, 2009 (GLOBE NEWSWIRE) -- StoneMor Partners L.P. (Nasdaq:STON - News) ("StoneMor") announced today that its wholly owned subsidiaries, StoneMor Operating LLC, Cornerstone Family Services of West Virginia Subsidiary, Inc. and Osiris Holding of Maryland Subsidiary, Inc. (together, the "Issuers") priced a private offering to eligible purchasers of $150 million aggregate principal amount of Senior Notes due 2017 (the "Notes"). The notes mature on December 1, 2017 and will bear interest at a rate of 10.25% per year, payable semi-annually on June 1 and December 1 of each year, beginning on June 1, 2010. The Notes are offered at an initial offering price of 97.352 percent of par, which equates to an effective yield to maturity of approximately 10.75%.

10.75% would be an attractive return ON CAPITAL, but in this case it's what StoneMor must pay to get ACCESS to capital. As for why their borrowing costs are so high, take a look below. 2008 pretax earnings are 30% below 2005 despite revenue increasing by 80%.



With "run-rate" Free Cash Flow around $13million, one can make money purchasing these shares. But it needs to be done when the Free Cash Flow Yield exceeds the cost of capital, which is currently does not...




Copyright 2009 AlphaNinja