Video footage of Warren Buffett talking about the economy with FOX Business anchor Liz Claman.
Wednesday, October 31, 2007
"Fast Money" for Thursday
Thursday's Picks
Jeff Macke is a buyer of Microsoft (MSFT). Open $36.81
Guy Adami is liked Intel (INTC). Open $26.90
Pete Najarian liked Apple (AAPL)Open $189.95
Wednesday's Results
Jeff Macke recommended buying Yahoo! (YHOO). Open $30.83 Close $31.10 GAIN
Guy Adami liked Dell (DELL). Open $29.80 Close $30.60 GAIN
Karen Finerman liked Cadbury Schweppes (CSG). Open $52.55 Close $53.24 GAIN
Pete Najarian preferred Dick’s Sporting Goods (DKS). Open $32.80 Close $33.37 GAIN
Since my tracking began on 6/21 (1-1 means one up pick and one down pick and no results from my vacation weeks). The percentage is the percentage of successful picks
Guy Adami= 39-24 = 62%
John Najarian= 13-4 = 76%
Jeff Macke= 44-32 = 56%
Pete Najarian= 30-26 = 53%
Tim Seymore= 4-3 = 57%
Karen Finerman= 23-13 = 62%
Stacey Briere-Gilbert= 3-0 = 100
Ned Riley= 1-0 = 100%
Carter Worth= 0-1 = 0%
Wednesday's 52 Week Low's
TWC Time Warner Cable Inc 28.13
TSCO Tractor Supply Co 41.20
RMIX U S Concrete Inc 4.98
PGC Peapack-Gladstone Fin ... 24.72
PFED Park Bancorp Inc 28.00
PACR Pacer Intl Inc Tenn 14.80
PABK PAB Bankshares, Inc 14.91
OLCB Ohio Legacy Corp 7.70
FTD Ftd Group Inc 14.40
FKFS First Keystone Financ ... 11.42
FFEX Frozen Food Express I ... 5.82
CPSI Computer Programs & S ... 24.53
CAPB Capitalsouth Bancorp 11.75
BXC Bluelinx Hldgs Inc 5.18
BTFG Banctrust Financial Gp 13.45
More Toys Recalled due To Lead Paint
This is getting out of hand.
1- Galaxy Warriors
2- Halloween Plastic Teeth
3- Elite Operations at Toys R' Us
4- Ribbit Board Games
All told, almost another 1/2 million pieces recalled today. The really scary one is the teeth because people will have them in their mouths.
Do plaintiffs currently suing Sherwin Williams (SHW), NL Industries (NL) and DuPont (DD) wonder why these suits are going nowhere? Every day current and potential jurors read the news and see these recalls and have to wonder why we are going after companies that have not made the stuff in over 1/2 a century. They want to know why these folks (mostly States like Rhode Island and Ohio) are not suing the manufacturers of toys that are today filled with lead paint. Maybe someone from the AG office of either State can get in touch with me and answer this? A lot of people want to know.
1- Galaxy Warriors
2- Halloween Plastic Teeth
3- Elite Operations at Toys R' Us
4- Ribbit Board Games
All told, almost another 1/2 million pieces recalled today. The really scary one is the teeth because people will have them in their mouths.
Do plaintiffs currently suing Sherwin Williams (SHW), NL Industries (NL) and DuPont (DD) wonder why these suits are going nowhere? Every day current and potential jurors read the news and see these recalls and have to wonder why we are going after companies that have not made the stuff in over 1/2 a century. They want to know why these folks (mostly States like Rhode Island and Ohio) are not suing the manufacturers of toys that are today filled with lead paint. Maybe someone from the AG office of either State can get in touch with me and answer this? A lot of people want to know.
Bernanke & Co Cut 25 Basis Point
The DOW and the S&P reacted enthusiastically to today's rate cut and statement by Bernake & Co.
The reason? The statement put inflation back on the table and even mentioned energy as an inflationary force. Inflation, not growth was the predominant focus of the statement. Now one has to wonder if at the Dec. 11th meeting there is even a chance of another cut. It is a definite "hawkish" view. The good news? If inflation is under control and the risk to growth vs. inflation is equal, then you have to assume there is very little risk to growth.
The statement is as follows:
"The Federal Open Market Committee decided today to lower its target for the federal funds rate 25 basis points to 4-1/2 percent.
Economic growth was solid in the third quarter, and strains in financial markets have eased somewhat on balance. However, the pace of economic expansion will likely slow in the near term, partly reflecting the intensification of the housing correction. Today’s action, combined with the policy action taken in September, should help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and promote moderate growth over time.
Readings on core inflation have improved modestly this year, but recent increases in energy and commodity prices, among other factors, may put renewed upward pressure on inflation. In this context, the Committee judges that some inflation risks remain, and it will continue to monitor inflation developments carefully.
The Committee judges that, after this action, the upside risks to inflation roughly balance the downside risks to growth. The Committee will continue to assess the effects of financial and other developments on economic prospects and will act as needed to foster price stability and sustainable economic growth.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Charles L. Evans; Donald L. Kohn; Randall S. Kroszner;
Frederic S. Mishkin; William Poole; Eric S. Rosengren; and Kevin M. Warsh. Voting against was Thomas M. Hoenig, who preferred no change in the federal funds rate at this meeting."
The fact is was not even unanimous is ominous for those wanting another cut. One has to think now that with the economy growing at almost 4%, it would take a significant event to get another rate reduction. Going even further, growth seems to be increasing, not decreasing so the need for additional cuts is further diminished. It now seems that the previous cut was simply to provide assistance with the credit issue at the time and now that it seems to have passed, the Fed will sit on the sidelines.
Another thing, why are we even talking about recession possibilities when GDP is growing at 4%?
The reason? The statement put inflation back on the table and even mentioned energy as an inflationary force. Inflation, not growth was the predominant focus of the statement. Now one has to wonder if at the Dec. 11th meeting there is even a chance of another cut. It is a definite "hawkish" view. The good news? If inflation is under control and the risk to growth vs. inflation is equal, then you have to assume there is very little risk to growth.
The statement is as follows:
"The Federal Open Market Committee decided today to lower its target for the federal funds rate 25 basis points to 4-1/2 percent.
Economic growth was solid in the third quarter, and strains in financial markets have eased somewhat on balance. However, the pace of economic expansion will likely slow in the near term, partly reflecting the intensification of the housing correction. Today’s action, combined with the policy action taken in September, should help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and promote moderate growth over time.
Readings on core inflation have improved modestly this year, but recent increases in energy and commodity prices, among other factors, may put renewed upward pressure on inflation. In this context, the Committee judges that some inflation risks remain, and it will continue to monitor inflation developments carefully.
The Committee judges that, after this action, the upside risks to inflation roughly balance the downside risks to growth. The Committee will continue to assess the effects of financial and other developments on economic prospects and will act as needed to foster price stability and sustainable economic growth.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Charles L. Evans; Donald L. Kohn; Randall S. Kroszner;
Frederic S. Mishkin; William Poole; Eric S. Rosengren; and Kevin M. Warsh. Voting against was Thomas M. Hoenig, who preferred no change in the federal funds rate at this meeting."
The fact is was not even unanimous is ominous for those wanting another cut. One has to think now that with the economy growing at almost 4%, it would take a significant event to get another rate reduction. Going even further, growth seems to be increasing, not decreasing so the need for additional cuts is further diminished. It now seems that the previous cut was simply to provide assistance with the credit issue at the time and now that it seems to have passed, the Fed will sit on the sidelines.
Another thing, why are we even talking about recession possibilities when GDP is growing at 4%?
Wednesday's Links
Apple, Lead in Gas, Bloggystyle,
- A very interesting take on Apple as an investment.
- More harmful than lead in paint ever was....sue EXXON!!
- Adam's weekly contribution.
-
- A very interesting take on Apple as an investment.
- More harmful than lead in paint ever was....sue EXXON!!
- Adam's weekly contribution.
-
The Consumer Paradox
The consumer is telling us two very different things
Results for credit card companies like Mastercard (MA) and American Express (AXP), both of whom saw significant increases in card transaction would lead you to believe the consumer is healthy and strong. \A historically low unemployment rate and a strong job market would push one to be in the "thing are good" camp, correct? The recently released Q3 GDP that saw the US economy grow at the fastest rate in nearly two year would most likely lead you to believe things are just going to get better down the road.
So, if all that is true, then why is consumer confidence falling? Is it that the consumer thinks the good life just cannot continue or that they just do not realize how good thing actually are now? Could it be uncertainty over the elections next year? Is the fact that whenever congress talk about taxes the consumer get nervous? Is everyone worried about the value of their home, even if they are not selling?
I do not know the answer but this is clear, what the consumer says and what the consumer is doing are two very different things. Maybe it is a "never believe polls" thing?
Results for credit card companies like Mastercard (MA) and American Express (AXP), both of whom saw significant increases in card transaction would lead you to believe the consumer is healthy and strong. \A historically low unemployment rate and a strong job market would push one to be in the "thing are good" camp, correct? The recently released Q3 GDP that saw the US economy grow at the fastest rate in nearly two year would most likely lead you to believe things are just going to get better down the road.
So, if all that is true, then why is consumer confidence falling? Is it that the consumer thinks the good life just cannot continue or that they just do not realize how good thing actually are now? Could it be uncertainty over the elections next year? Is the fact that whenever congress talk about taxes the consumer get nervous? Is everyone worried about the value of their home, even if they are not selling?
I do not know the answer but this is clear, what the consumer says and what the consumer is doing are two very different things. Maybe it is a "never believe polls" thing?
Is Goldman Sach's Still Profiting from CDO Debacle?
If you read the Goldman Sachs (GS) filing last month there was an interesting line.
If we put aside the stunning 72% increase in earnings that just blew the door off all the estimates, we need to look at those earning. What did it for Goldman, unlike Citigroup (C), Merrill Lynch (MER), Lehman (LEH), Morgan Stanley (MS), and other was that in June of last year they began shorting these CDO markets that have decimated earnings at the other institutions.
Here is where it gets very interesting. Goldman in their recent filing that "increases were due to unrealized gains in certain positions". Hmmm. My take is that Goldman is still short the CDO markets and if they are, that means they are still profiting handsomely from it. Consider Merrill just wrote down $8 billion of CDO's and it looks like another $4 billion is coming next quarter. Fears are now being stoked that other institutions will follow to some extent also. That may be a blessing at other places. If Chuck Prince at Citigroup forces shareholders to swallow another bitter pill after promising "Q4 will be much better" , it will be his last
Goldman also wrote down their portfolio of CDO's last quarter but the short positions negated any negative effect to earnings. It increasingly is looking like this short position may actually produce a positive in Q4 and with all Goldman's other business performing well, the recent all-time high the stock hit on Monday may be a distant memory soon enough..
If we put aside the stunning 72% increase in earnings that just blew the door off all the estimates, we need to look at those earning. What did it for Goldman, unlike Citigroup (C), Merrill Lynch (MER), Lehman (LEH), Morgan Stanley (MS), and other was that in June of last year they began shorting these CDO markets that have decimated earnings at the other institutions.
Here is where it gets very interesting. Goldman in their recent filing that "increases were due to unrealized gains in certain positions". Hmmm. My take is that Goldman is still short the CDO markets and if they are, that means they are still profiting handsomely from it. Consider Merrill just wrote down $8 billion of CDO's and it looks like another $4 billion is coming next quarter. Fears are now being stoked that other institutions will follow to some extent also. That may be a blessing at other places. If Chuck Prince at Citigroup forces shareholders to swallow another bitter pill after promising "Q4 will be much better" , it will be his last
Goldman also wrote down their portfolio of CDO's last quarter but the short positions negated any negative effect to earnings. It increasingly is looking like this short position may actually produce a positive in Q4 and with all Goldman's other business performing well, the recent all-time high the stock hit on Monday may be a distant memory soon enough..
Marriot's Holiday Party Rewards Promotion: Anyone In the Loop?
Just when i thought Dell (DELL) took the cake for customer service, Marriott (MAR) steps into the abyss.
You have probably all seen the advertisements for it. Book your Holiday Party at any Marriot and you receive 50,000 rewards points. Great!! Not so fast..
Being Marriot rewards members we call the Marlboro/Westborough Courtyard to inquire about the details (here is where the fun begins). We get transferred to the necessary person who is not is so we get voicemail. The system will not allow us to leave a message so we go back to the operator. "Let's try it again" she says so back in the loop we go. No luck and back to the operator. After convincing here this probably just is not going to work they connect us to another person who tells us "I can't help you, you need "x"".
we inform them that "x" is not in and that the voice mail is not working and say "can we get someone else in sales"? Sure and we go another sales person who says "what are you talking about?"
"You guys have been advertising a 50,000 rewards point program for holiday parties for several months now" we reply.
"We are not doing that" she replies
"But it is a national promo!?!" we retort..
"Well, I have not heard about it" she says incredulously.
"But, it has been on TV and in the local papers all fall" we reply..
"Don't know about it"
"Could you go possibly ask someone else" we say thinking maybe she is just new (she wasn't).
"Hold on" she says in a huff
After several minutes she returns and says "I talked to my GM who said we are actually doing it and she is going to talk to our sales manager because she/he did not inform us, but I do not have any details to give you."
"Do you really expect us to book a party with you when no ones knows about the program?" We ask
He we go.. ready????????
"No, I wouldn't book it with us either if I was you"... Goodbye..
A few hours later we called back and actually spoke to the GM who passed the buck and blamed the sales manager up and down so efficiently that we think she may have a wonderful career in politics ahead of her. This begs the question, what does the "general" in her manager title actually mean if she does not know about a national promotion? She must approve the ads they have been running for months, right? So after this we said, "so can you send us information so we can make a decision?" The reply will stun you....
"Your not still interested in booking the party with us are you?"
Uhhh.. Not anymore..
WOW.... you can't make this stuff up!! We called to give them business not once but twice and we essentially told to go away. I will look more into this over the next few days and get back next week but this one is real hard to believe.
Dell corporate in the end did the best they could to make an awful situation right. If anyone at Marriott wants to give me a buzz and explain this one, I'd love to hear it.
You have probably all seen the advertisements for it. Book your Holiday Party at any Marriot and you receive 50,000 rewards points. Great!! Not so fast..
Being Marriot rewards members we call the Marlboro/Westborough Courtyard to inquire about the details (here is where the fun begins). We get transferred to the necessary person who is not is so we get voicemail. The system will not allow us to leave a message so we go back to the operator. "Let's try it again" she says so back in the loop we go. No luck and back to the operator. After convincing here this probably just is not going to work they connect us to another person who tells us "I can't help you, you need "x"".
we inform them that "x" is not in and that the voice mail is not working and say "can we get someone else in sales"? Sure and we go another sales person who says "what are you talking about?"
"You guys have been advertising a 50,000 rewards point program for holiday parties for several months now" we reply.
"We are not doing that" she replies
"But it is a national promo!?!" we retort..
"Well, I have not heard about it" she says incredulously.
"But, it has been on TV and in the local papers all fall" we reply..
"Don't know about it"
"Could you go possibly ask someone else" we say thinking maybe she is just new (she wasn't).
"Hold on" she says in a huff
After several minutes she returns and says "I talked to my GM who said we are actually doing it and she is going to talk to our sales manager because she/he did not inform us, but I do not have any details to give you."
"Do you really expect us to book a party with you when no ones knows about the program?" We ask
He we go.. ready????????
"No, I wouldn't book it with us either if I was you"... Goodbye..
A few hours later we called back and actually spoke to the GM who passed the buck and blamed the sales manager up and down so efficiently that we think she may have a wonderful career in politics ahead of her. This begs the question, what does the "general" in her manager title actually mean if she does not know about a national promotion? She must approve the ads they have been running for months, right? So after this we said, "so can you send us information so we can make a decision?" The reply will stun you....
"Your not still interested in booking the party with us are you?"
Uhhh.. Not anymore..
WOW.... you can't make this stuff up!! We called to give them business not once but twice and we essentially told to go away. I will look more into this over the next few days and get back next week but this one is real hard to believe.
Dell corporate in the end did the best they could to make an awful situation right. If anyone at Marriott wants to give me a buzz and explain this one, I'd love to hear it.
Wednesday's Upgrades and Downgrades
UPGRADES
VASCO Data Security VDSI RBC Capital Mkts Underperform » Sector Perform
Gehl GEHL BMO Capital Markets Market Perform » Outperform
Imax IMAX Soleil Hold » Buy
Coca-Cola FEMSA KOF JP Morgan Neutral » Overweight
Teekay LNG Partners TGP Wachovia Mkt Perform » Outperform
Northgate Minerals NXG CIBC Wrld Mkts Sector Underperform » Sector Perform
Actuate ACTU JMP Securities Mkt Perform » Mkt Outperform
Schnitzer Steel SCHN DA Davidson Underperform » Neutral
Manpower MAN Citigroup Hold » Buy
Platinum Underwriters PTP Banc of America Sec Neutral » Buy
US BioEnergy USBE UBS Neutral » Buy
General Motors GM UBS Sell » Buy
FormFactor FORM Citigroup Hold » Buy
Acuity Brands AYI Robert W. Baird Neutral » Outperform
Suncor Energy SU Friedman Billings Underperform » Mkt Perform
Petro-Canada PCZ Friedman Billings Mkt Perform » Outperform
Nexen NXY Friedman Billings Mkt Perform » Outperform
DOWNGRADES
Portfolio Recovery Assoc. PRAA Kaufman Bros Buy » Hold
ICF International ICFI Stifel Nicolaus Buy » Hold
American Medical AMMD Stifel Nicolaus Buy » Hold
Volcom VLCM Caris & Company Above Average » Average
American Medical AMMD Piper Jaffray Outperform » Market Perform
Las Vegas Sands LVS BMO Capital Markets Outperform » Market Perform
Home Inns HMIN Brean Murray Buy » Hold
Covad DVW Jefferies & Co Buy » Hold
DJ Orthopedics DJO Susquehanna Financial Positive » Neutral
Tuesday, October 30, 2007
"Fast Money" for Wednesday
Wednesday's Picks
Jeff Macke recommended buying Yahoo! (YHOO). Open $30.83
Guy Adami liked Dell (DELL). Open $29.80
Karen Finerman liked Cadbury Schweppes (CSG). Open $52.55
Pete Najarian preferred Dick’s Sporting Goods (DKS). Open $32.80
Tuesday's Results
Jeff Macke recommended selling some EMC Corp. (EMC).Open $25.37 Close $25.12 LOSS
Guy Adami thought Gilead (GILD) is a buy. Open $45.96 Close $45.48 LOSS
Karen Finerman preferred Washington Group (WNG). Open $ 95.10 Close $96.49 GAIN
Pete Najarian thought Merrill Lynch (MER) is a buy. Open $67.42 Close $65.66 LOSS
Since my tracking began on 6/21 (1-1 means one up pick and one down pick and no results from my vacation weeks). The percentage is the percentage of successful picks
Guy Adami= 38-24 = 61%
John Najarian= 13-4 = 76%
Jeff Macke= 43-32 = 55%
Pete Najarian= 29-26 = 52%
Tim Seymore= 4-3 = 57%
Karen Finerman= 22-13 = 61%
Stacey Briere-Gilbert= 3-0 = 100
Ned Riley= 1-0 = 100%
Carter Worth= 0-1 = 0%
Altria Shareholders Need to Watch Exxon's Supreme Court Appeal
Chief Justice John Roberts Supreme Court has elected to increase it's review of punitive damages against corporations by hearing an appeal of a $2.5 billion award against Exxon Mobil (XOM) over the 1989 Valdez oil spill in Alaska. Altria (MO) shareholders ought to be very interested.
The award against Exxon, the largest ever by a U.S. federal court is the final major litigation left from the Valdez oil spill. To date Exxon has paid more than $3.4 billion in claims and fines tied to the spill, which dumped 258,000 barrels of oil into the Prince William Sound after the Valdez oil tanker ran aground.
The appeal, which is supported by business groups, challenges the punitive award with several legal arguments, chiefly, that a federal appeals court ignored both recent punitive damages precedent and improperly allowed the damages award under maritime law.
In recent years, the Supreme Court has put restrictions on the size of punitive damages awards and limited the use of awards to punish broader conduct outside the scope of a particular case. It is clear that there is a sea change underway in this area. Once used to punish and essentially destroy a business, the Roberts court has taken a microscope to the issue of what it views as "grossly excessive damages" and has said that these types of awards "violate due process".
The last appeal ruling the court made in this area was last February when they set aside a nearly $80 million judgment against Altria awarded to the widow of a smoker in Oregon.
This has already filtered down to the state level. On July 6, 2006, the Florida Supreme Court decertified the Engle class-action litigation and reversed the state court jury’s award of $145 billion in punitive damages because, as a matter of law, the award was "improper and excessive." The Florida Supreme Court also concluded that certain issues decided by the Engle trial jury may be considered as resolved for any potential future cases filed by former class members.
On March 22, 2002, an Oregon jury awarded a Mr. Schwarz $168,500 in compensatory damages, and $150,000,000 in punitive damages, which the court reduced to $100,000,000. On May 17, 2006, the Oregon Court of Appeals found no error in the award of compensatory damages, but vacated the punitive damages award and ordered a new trial to determine the amount of punitive damages.
The Exxon case will further define the scope of punitive damages available to plaintiffs in cases and based on history, that will be very good for Altria and its shareholders. The litigation environment has not been this good for Altria in over a decade now and the valuation cap that has been on shares for that time period is beginning to dissipate. Once the litigation risk to shares is clearly defined, and the Roberts court is slowly doing that, one can expect PE expansion in shares, lifting them higher.
The award against Exxon, the largest ever by a U.S. federal court is the final major litigation left from the Valdez oil spill. To date Exxon has paid more than $3.4 billion in claims and fines tied to the spill, which dumped 258,000 barrels of oil into the Prince William Sound after the Valdez oil tanker ran aground.
The appeal, which is supported by business groups, challenges the punitive award with several legal arguments, chiefly, that a federal appeals court ignored both recent punitive damages precedent and improperly allowed the damages award under maritime law.
In recent years, the Supreme Court has put restrictions on the size of punitive damages awards and limited the use of awards to punish broader conduct outside the scope of a particular case. It is clear that there is a sea change underway in this area. Once used to punish and essentially destroy a business, the Roberts court has taken a microscope to the issue of what it views as "grossly excessive damages" and has said that these types of awards "violate due process".
The last appeal ruling the court made in this area was last February when they set aside a nearly $80 million judgment against Altria awarded to the widow of a smoker in Oregon.
This has already filtered down to the state level. On July 6, 2006, the Florida Supreme Court decertified the Engle class-action litigation and reversed the state court jury’s award of $145 billion in punitive damages because, as a matter of law, the award was "improper and excessive." The Florida Supreme Court also concluded that certain issues decided by the Engle trial jury may be considered as resolved for any potential future cases filed by former class members.
On March 22, 2002, an Oregon jury awarded a Mr. Schwarz $168,500 in compensatory damages, and $150,000,000 in punitive damages, which the court reduced to $100,000,000. On May 17, 2006, the Oregon Court of Appeals found no error in the award of compensatory damages, but vacated the punitive damages award and ordered a new trial to determine the amount of punitive damages.
The Exxon case will further define the scope of punitive damages available to plaintiffs in cases and based on history, that will be very good for Altria and its shareholders. The litigation environment has not been this good for Altria in over a decade now and the valuation cap that has been on shares for that time period is beginning to dissipate. Once the litigation risk to shares is clearly defined, and the Roberts court is slowly doing that, one can expect PE expansion in shares, lifting them higher.
Tuesday's 52 Week Low's
RAD Rite Aid Corporation 3.86
Q Qwest Communications ... 7.16
PTSI P A M Transportation ... 16.26
PBI Pitney Bowes Inc 40.21
OPWV Openwave Sys Inc 3.90
HIAU Highlands Acquisition ... 10.00
HDL Handleman Company 2.35
GW Grey Wolf Inc 5.45
GSBC Great Southern Bancor ... 23.24
GRVY Gravity Co Ltd 3.51
DBD Diebold, Incorporated 40.25
BHS Brookfield Homes Corp 14.94
BXC Bluelinx Hldgs Inc 5.47
BRNC Bronco Drilling Co Inc 13.20
Tuesday's Links
Red Sox, Fed Cut, Festival, Google Phone
- Yes, they are
- I just find this one hard to believe.
- Here is the information for the next Festival of Stocks.
- A "Google Wireless" would be very good for all..
- Yes, they are
- I just find this one hard to believe.
- Here is the information for the next Festival of Stocks.
- A "Google Wireless" would be very good for all..
Warren Buffett's Tax Math Fuzzy at Best
Time to take "The Oracle" to task.
CNBC has an interview today in which Buffett describes the taxes on his office. He pays 17.5% tax "on average" on his income and that the rest of his office pays 32%. This is the "unfairness" in the tax system he alludes to.
Here is the flaw, the higher taxes those people pay? It is social security taxes, a "tax" for a program those people will need far more than Buffett ever will. After $85,000 in income you no longer need to pay the 7% tax on your income. Buffett takes a $100,000 income from Berkshire plus the thousands he makes from board seats and dividends in stocks he owns privately. It also does not take into account any tax free income Buffett may receive from Federal or Municipal bonds he owns which would dramatically lower his "percentage".
Now, Buffett has said 90% of his net worth is in Berkshire stock which means he has some $5 billion in other investments which could generate $10 million in income taxable at 15% if invested in dividend paying stocks that have an average 2% yield.
I do not know what the secretary in the office makes but lets say she is paid a fortune in Omaha, $85,000. Her "average" tax will average the 32%. Now Warren, will pay the same percentage of his first $85,000 and then pay only 25% on the next $15,000 since no SS tax is paid. Now, if we add the dividend stocks scenario, we lower his "average" tax rate to 15.5%.
I have no idea what Warren has the $5 billion invested in but the exercise is meant to show not that the "income" tax rates are "unfair" or tilted to the rich (although they all should be lowered) but that Warren's wealth allows him to invest vast sums in investments that lower his "average" rate easily. It is important to note that these investments are perfectly legal and available to all people and everyone can lower their average rate by using them.
The bottom line is that the only way for Warren's argument to have any real legitimacy is for him to detail his income sources. Without the details, the whole argument has no merit.
Another note: The last time congress tried to "sock it to" the fat cats, we got the AMT which is systematically now killing the middle class.. be careful what you wish for...
Just lower all the rates and we all win...
CNBC has an interview today in which Buffett describes the taxes on his office. He pays 17.5% tax "on average" on his income and that the rest of his office pays 32%. This is the "unfairness" in the tax system he alludes to.
Here is the flaw, the higher taxes those people pay? It is social security taxes, a "tax" for a program those people will need far more than Buffett ever will. After $85,000 in income you no longer need to pay the 7% tax on your income. Buffett takes a $100,000 income from Berkshire plus the thousands he makes from board seats and dividends in stocks he owns privately. It also does not take into account any tax free income Buffett may receive from Federal or Municipal bonds he owns which would dramatically lower his "percentage".
Now, Buffett has said 90% of his net worth is in Berkshire stock which means he has some $5 billion in other investments which could generate $10 million in income taxable at 15% if invested in dividend paying stocks that have an average 2% yield.
I do not know what the secretary in the office makes but lets say she is paid a fortune in Omaha, $85,000. Her "average" tax will average the 32%. Now Warren, will pay the same percentage of his first $85,000 and then pay only 25% on the next $15,000 since no SS tax is paid. Now, if we add the dividend stocks scenario, we lower his "average" tax rate to 15.5%.
I have no idea what Warren has the $5 billion invested in but the exercise is meant to show not that the "income" tax rates are "unfair" or tilted to the rich (although they all should be lowered) but that Warren's wealth allows him to invest vast sums in investments that lower his "average" rate easily. It is important to note that these investments are perfectly legal and available to all people and everyone can lower their average rate by using them.
The bottom line is that the only way for Warren's argument to have any real legitimacy is for him to detail his income sources. Without the details, the whole argument has no merit.
Another note: The last time congress tried to "sock it to" the fat cats, we got the AMT which is systematically now killing the middle class.. be careful what you wish for...
Just lower all the rates and we all win...
Big Oil Dipping Toes Into Renewables
In case you have missed it, the oil majors are quietly investing in the renewable fuel sector.
ConocoPhillips (COP) has made the largest foray with it partnership with Tyson Foods(TSN) to produce biodiesel from chicken fat and a recently announced deal with Archer Daniels Midland (ADM) to produce fuel from biomass (farm waste)
Exxon (XOM), while publicly downplaying and almost mocking the role of biofuels for years is currently funding research at Stanford University
Marathon Oil (MRO) has actually partnered with ethanol maker The Andersons (ANDE) and the two are producing ethanol from corn at a plant they plan to retrofit when additional feedstock are viable.
BP (BP) has pledged $500 million to research at the University of California at Berkeley and its partners, the University of Illinois at Urbana-Champaign and the Lawrence Berkeley National Laboratory and is attempting to make bio-butanol commercially viable.
Royal Dutch Shell PLC has two separate joint ventures, one in Germany and one in Canada, aimed at producing ethanol from noncorn sources.
Now, are the investments huge? No. Did they exist three years ago? No. Biofuels are both politically popular and extremely popular with the consumer. They big takeaway here is that the alternative energy companies are not alone in this effort today. It all but assure a permanent place for biofuels the only question that remains to be asked it what the market looks like. Currently it is extremely fragmented and consolidation is inevitable and necessary. It is becoming a global market like oil and the players who are first to begin the global consolidation will prosper. Bunge (BG) is in South America and ADM has made no secret of its desire to acquire large scale Brazilian production and has even made public pronouncements about acquiring additional US facilities.
One thing for sure, it will be exciting to watch..
ConocoPhillips (COP) has made the largest foray with it partnership with Tyson Foods(TSN) to produce biodiesel from chicken fat and a recently announced deal with Archer Daniels Midland (ADM) to produce fuel from biomass (farm waste)
Exxon (XOM), while publicly downplaying and almost mocking the role of biofuels for years is currently funding research at Stanford University
Marathon Oil (MRO) has actually partnered with ethanol maker The Andersons (ANDE) and the two are producing ethanol from corn at a plant they plan to retrofit when additional feedstock are viable.
BP (BP) has pledged $500 million to research at the University of California at Berkeley and its partners, the University of Illinois at Urbana-Champaign and the Lawrence Berkeley National Laboratory and is attempting to make bio-butanol commercially viable.
Royal Dutch Shell PLC has two separate joint ventures, one in Germany and one in Canada, aimed at producing ethanol from noncorn sources.
Now, are the investments huge? No. Did they exist three years ago? No. Biofuels are both politically popular and extremely popular with the consumer. They big takeaway here is that the alternative energy companies are not alone in this effort today. It all but assure a permanent place for biofuels the only question that remains to be asked it what the market looks like. Currently it is extremely fragmented and consolidation is inevitable and necessary. It is becoming a global market like oil and the players who are first to begin the global consolidation will prosper. Bunge (BG) is in South America and ADM has made no secret of its desire to acquire large scale Brazilian production and has even made public pronouncements about acquiring additional US facilities.
One thing for sure, it will be exciting to watch..
Target's Odd Campaign
This one had me shaking my head.
Target (TGT) plans to market its fall and winter designer apparel in a strange fashion show. Clothes and accessories will dance and prance their way down the runway without models and without actual clothing.
Instead of models or the clothing they are trying to sell, Target will stage the fashion show using holograms, two-dimensional moving images that give the illusion of having three dimensions. They will be projected in a section of Grand Central Terminal in New York City on Nov. 6 and 7 and will be repeated every 10 minutes from noon to midnight the first day and 6 a.m. to 7 p.m. the second day. Target plans to post a video of the show on Google's (GOOG) YouTube, Facebook and Target's own Web site to get more eyeballs on it.
Even Target acknowledges it is a risk. "I hope it won't creep people out," Said Laura Sandall, Target's director of events marketing and publicity.
It won't creep them out but it will be worse, ineffective. Clothing is a "visual and touchy feely" purchase for the vast majority of people and what Target is doing is taking that away from them. Folks need to see what it will look like on someone to be intrigued and "want to look like the model" in the cloths. Watching a virtual pair of pants dance across a screen won't do much to satiate the basic needs people have to be propelled them to buy clothing. In order to keep folks attention the clothing must end up doing something exciting which will then restrict the ability of people to actually make a judgment on the item. Who wants to buy but they can't see?
Target will save a bunch not paying models and actually using cloths but when compared to what they may actually end up selling from the promo, it may end up costing them dearly as the holiday season, make or break for most retailers is a very risky time to be trying such a daring, unproven and admittedly "odd" strategy.
Watching pants dance will not spur a buying decision for people... not in the numbers they need to prevent Q4 from being a bust..
Target (TGT) plans to market its fall and winter designer apparel in a strange fashion show. Clothes and accessories will dance and prance their way down the runway without models and without actual clothing.
Instead of models or the clothing they are trying to sell, Target will stage the fashion show using holograms, two-dimensional moving images that give the illusion of having three dimensions. They will be projected in a section of Grand Central Terminal in New York City on Nov. 6 and 7 and will be repeated every 10 minutes from noon to midnight the first day and 6 a.m. to 7 p.m. the second day. Target plans to post a video of the show on Google's (GOOG) YouTube, Facebook and Target's own Web site to get more eyeballs on it.
Even Target acknowledges it is a risk. "I hope it won't creep people out," Said Laura Sandall, Target's director of events marketing and publicity.
It won't creep them out but it will be worse, ineffective. Clothing is a "visual and touchy feely" purchase for the vast majority of people and what Target is doing is taking that away from them. Folks need to see what it will look like on someone to be intrigued and "want to look like the model" in the cloths. Watching a virtual pair of pants dance across a screen won't do much to satiate the basic needs people have to be propelled them to buy clothing. In order to keep folks attention the clothing must end up doing something exciting which will then restrict the ability of people to actually make a judgment on the item. Who wants to buy but they can't see?
Target will save a bunch not paying models and actually using cloths but when compared to what they may actually end up selling from the promo, it may end up costing them dearly as the holiday season, make or break for most retailers is a very risky time to be trying such a daring, unproven and admittedly "odd" strategy.
Watching pants dance will not spur a buying decision for people... not in the numbers they need to prevent Q4 from being a bust..
Tuesday's Downgrades and Upgrades
UPGRADES
Total System TSS First Analysis Sec Equal-Weight » Overweight
Atheros Communications ATHR Collins Stewart Market Perform » Buy
Convergys CVG Stifel Nicolaus Hold » Buy
Cardinal Health CAH Credit Suisse Neutral » Outperform
American Axle AXL KeyBanc Capital Mkts Buy » Aggressive Buy
ManTech MANT Cowen & Co Neutral » Outperform
Potash POT Banc of America Sec Neutral » Buy
NTT DoCoMo DCM Citigroup Sell » Hold
Western Refining WNR UBS Sell » Neutral
Harvest Natural HNR Jefferies & Co Hold » Buy
Washington Post WPO Deutsche Securities Hold » Buy
DOWNGRADES
Steel Dynamics STLD Longbow Buy » Neutral
Suntech Power STP Brean Murray Buy » Hold
Tesoro Corp. TSO BMO Capital Markets Outperform » Market Perform
Office Depot ODP JP Morgan Overweight » Neutral
EuroBancshares EUBK Kaufman Bros Buy » Hold
P.A.M. Transport PTSI Morgan Keegan Outperform » Mkt Perform
Somerset Hills Bancorp SOMH Stifel Nicolaus Buy » Hold
Office Depot ODP Credit Suisse Neutral » Underperform
Puget Energy PSD Soleil Hold » Sell
Sadia S.A. SDA HSBC Securities Overweight » Neutral
Penn Natl Gaming PENN Brean Murray Buy » Hold
PharmaNet Devlpmt PDGI Jefferies & Co Buy » Hold
VeraSun Energy VSE Calyon Securities Buy » Add
Clayton Holdings CLAY JMP Securities Mkt Outperform » Mkt Perform
NVIDIA NVDA Lehman Brothers Overweight » Equal-weight
Dvlps Divers Realty DDR Deutsche Securities Buy » Hold
Stanley Inc. SXE Citigroup Buy » Hold
LIFE TIME Fitness LTM Banc of America Sec Buy » Neutral
Kensey Nash KNSY Oppenheimer Buy » Neutral
Oil States OIS Oppenheimer Buy » Neutral
Baker Hughes BHI Friedman Billings Outperform » Mkt Perform
Puget Energy PSD Robert W. Baird Outperform » Neutral
Monday, October 29, 2007
"Fast Money" for Tuesday
Tuesday's Picks
Jeff Macke recommended selling some EMC Corp. (EMC).Open $25.37
Guy Adami thought Gilead (GILD) is a buy. Open $45.96
Karen Finerman preferred Washington Group (WNG). Open $ 95.10
Pete Najarian thought Merrill Lynch (MER) is a buy. Open $67.42
Monday's Results
Jeff Macke liked Intel (INTC). Open $25.94 Close $26.26 GAIN
Guy Adami preferred Dell (DELL). Open $28.98 Close $29.47 GAIN
Karen Finerman recommended shorting the United States Oil Fund (USO). Open $71.17 Close $72.50 LOSS
Pete Najarian said Baker Hughes (BHI) is a buy. Open $91.05 Close $87.99 LOSS
Since my tracking began on 6/21 (1-1 means one up pick and one down pick and no results from my vacation weeks). The percentage is the percentage of successful picks
Guy Adami= 38-23 = 63%
John Najarian= 13-4 = 76%
Jeff Macke= 43-31 = 57%
Pete Najarian= 29-25 = 52%
Tim Seymore= 4-3 = 57%
Karen Finerman= 21-13 = 60%
Stacey Briere-Gilbert= 3-0 = 100
Ned Riley= 1-0 = 100%
Carter Worth= 0-1 = 0%
Monday's 52 Week Low's
VM Virgin Mobile Usa Inc 11.10
TWC Time Warner Cable Inc 28.97
ODP Office Depot, Inc 16.54
MFBC MFB Corp 28.21
MCRL Micrel Incorporated 8.59
MAXE Max & Ermas Restauran ... 3.62
LPX Louisiana Pac Corp 15.76
GEHL Gehl Co 17.94
EAT Brinker International ... 25.27
ACAT Arctic Cat Inc 14.74
ADM Enters Chemicals
Did not see this one coming but that does not mean it is a bad thing...
Archer Daniels Midland (ADM), the world's largest biofuel producer has formed an industrial chemicals group with a focus on exponentially increasing ADM's presence in industrial markets. The new business will take advantage of ADM's processing expertise and global distribution network to expand ADM's product offerings in industrial chemicals. The goal is for ADM to commercialize additional chemicals from renewable feedstocks.
"Renewable, biobased industrial chemicals fit into two major trends that we're seeing in the marketplace: the desire to improve a product's environmental footprint and the desire to reduce the use of petroleum-based products. In the short-term, we see opportunity to commercialize direct replacements for typically petroleum-derived chemicals. And in the longer-term, we see even more opportunities to develop new chemicals which provide increased functionality and are better for the environment. As one of the world's largest processors of renewable feedstocks, ADM has a unique opportunity to succeed in this area," said John Rice, executive vice president, Commercial and Production.
Interesting Hire:
To head the new business, ADM has hired Janet Mann as general manager, Industrial Chemicals, reporting to Rice. Mann joins ADM from Chemtura (CEM) where she was vice president and general manager, Performance Specialties. Mann previously served as business director for Dow Chemical (DOW) and executive vice president of Dow's ANGUS Chemical subsidiary. She received a Master of Business Administration degree in finance from DePaul University and a Bachelor of Science degree in chemistry from Bradley University.
"The demand for biobased solutions is growing rapidly in the industrial segment. ADM has the assets and knowledge to commercialize many chemicals from renewable agricultural feedstocks, and I am very excited to join the team," said Mann.
"Janet brings a deep understanding of the chemical and plastics industry to the ADM team. She has expertise in developing and implementing successful business strategies focused on growth in the chemical industry," said Rice.
Now, two weeks ago I blogged on what Dow would find attractive in Chemtura's portfolio and this move may be a sign that Mann is getting out before Dow takes over the specialties business there. Stay tuned...
As for ADM, this is great because it is opening yet another bio-based market for its products. Currently the leader is bio-fuels and bio-plastics, ADM now will enter the bio-chemicals arena. Any "bio" is a sure winner today and ADM is the first and largest player in that market. It will muddle the field for investors though. How will we value ADM? Is is a Ag Company? Energy? Specialty Chemical? What? The answer will be determined by the composition of earnings. One thing is for sure. They cannot be just lumped in with ethanol producers or food processors anymore. That valuation inadequacy will provide great opportunities at times so be both opportunistic when it is mis-valued and do not despair when the like happens.
They are entering a category of one here and that almost always is a very good place to be.
Archer Daniels Midland (ADM), the world's largest biofuel producer has formed an industrial chemicals group with a focus on exponentially increasing ADM's presence in industrial markets. The new business will take advantage of ADM's processing expertise and global distribution network to expand ADM's product offerings in industrial chemicals. The goal is for ADM to commercialize additional chemicals from renewable feedstocks.
"Renewable, biobased industrial chemicals fit into two major trends that we're seeing in the marketplace: the desire to improve a product's environmental footprint and the desire to reduce the use of petroleum-based products. In the short-term, we see opportunity to commercialize direct replacements for typically petroleum-derived chemicals. And in the longer-term, we see even more opportunities to develop new chemicals which provide increased functionality and are better for the environment. As one of the world's largest processors of renewable feedstocks, ADM has a unique opportunity to succeed in this area," said John Rice, executive vice president, Commercial and Production.
Interesting Hire:
To head the new business, ADM has hired Janet Mann as general manager, Industrial Chemicals, reporting to Rice. Mann joins ADM from Chemtura (CEM) where she was vice president and general manager, Performance Specialties. Mann previously served as business director for Dow Chemical (DOW) and executive vice president of Dow's ANGUS Chemical subsidiary. She received a Master of Business Administration degree in finance from DePaul University and a Bachelor of Science degree in chemistry from Bradley University.
"The demand for biobased solutions is growing rapidly in the industrial segment. ADM has the assets and knowledge to commercialize many chemicals from renewable agricultural feedstocks, and I am very excited to join the team," said Mann.
"Janet brings a deep understanding of the chemical and plastics industry to the ADM team. She has expertise in developing and implementing successful business strategies focused on growth in the chemical industry," said Rice.
Now, two weeks ago I blogged on what Dow would find attractive in Chemtura's portfolio and this move may be a sign that Mann is getting out before Dow takes over the specialties business there. Stay tuned...
As for ADM, this is great because it is opening yet another bio-based market for its products. Currently the leader is bio-fuels and bio-plastics, ADM now will enter the bio-chemicals arena. Any "bio" is a sure winner today and ADM is the first and largest player in that market. It will muddle the field for investors though. How will we value ADM? Is is a Ag Company? Energy? Specialty Chemical? What? The answer will be determined by the composition of earnings. One thing is for sure. They cannot be just lumped in with ethanol producers or food processors anymore. That valuation inadequacy will provide great opportunities at times so be both opportunistic when it is mis-valued and do not despair when the like happens.
They are entering a category of one here and that almost always is a very good place to be.
Monday's Links: Another Thank you
Greenie's Book, Morningstar, Thank You, Sears Holdings
- It looks like Greenspan's book isn't going to be the big seller it was made out to be.
- Morningstar examine the investing styles a guess what comes out a winner?
- Thank you to NY Magazine for the mention.
- Here is another look at the potential real estate value in Sears Holdings (SHLD)
- It looks like Greenspan's book isn't going to be the big seller it was made out to be.
- Morningstar examine the investing styles a guess what comes out a winner?
- Thank you to NY Magazine for the mention.
- Here is another look at the potential real estate value in Sears Holdings (SHLD)
Reynold's Results Bode Well for Altria
A dig into the recently released results buy Reynolds American (RAI) should be very encouraging to Altria (MO)shareholders
Back in April I said that Altria would not make an attempt to purchase UST (UST) for it smokeless products and instead would capitalize on the Marlboro brand name a produce one themselves. In August, when Altria announced they would do just that (produce a Marlboro product) I said that the smokeless product would be a huge hit in the growing "chew" market and provide a key drive for Phillip Morris USA going forward.
So what about Reynolds results should Altria holders like? On the conference call discussing their Q3 results. Reynolds commented on their smokeless product "Conwood Company, the nation's second-largest maker of smokeless-tobacco products, had operating earnings of $90 million, up 18%, boosted by sales of Grizzly moist snuff. Conwood's moist-snuff volume grew more than 12% from the prior year quarter.
Driving Conwood's growth were additional gains on Grizzly, which continues to be the growth leader in the moist-snuff category. Grizzly's volume was up 18%, more than twice the growth rate of the moist-snuff category. As a result, Grizzly's share of market grew quarter-over-quarter and sequentially to 21.23%.
To further build on Grizzly's momentum, Conwood will begin testing two new styles, Grizzly Pouches and Grizzly Snuff."
Smokless is the only tobacco segment growing and it is growing at a very healthy clip. It is to the point now that companies are aggressively pursuing additional products to sell and the market is accepting them. Reynolds success will be Altria's. When you have the number one tobacco product in Marlboro with almost 50% market share, any new product bearing that name will be used by consumers.
On another note, after the PMI spin, can't we just change the name back to Phillip Morris?
Back in April I said that Altria would not make an attempt to purchase UST (UST) for it smokeless products and instead would capitalize on the Marlboro brand name a produce one themselves. In August, when Altria announced they would do just that (produce a Marlboro product) I said that the smokeless product would be a huge hit in the growing "chew" market and provide a key drive for Phillip Morris USA going forward.
So what about Reynolds results should Altria holders like? On the conference call discussing their Q3 results. Reynolds commented on their smokeless product "Conwood Company, the nation's second-largest maker of smokeless-tobacco products, had operating earnings of $90 million, up 18%, boosted by sales of Grizzly moist snuff. Conwood's moist-snuff volume grew more than 12% from the prior year quarter.
Driving Conwood's growth were additional gains on Grizzly, which continues to be the growth leader in the moist-snuff category. Grizzly's volume was up 18%, more than twice the growth rate of the moist-snuff category. As a result, Grizzly's share of market grew quarter-over-quarter and sequentially to 21.23%.
To further build on Grizzly's momentum, Conwood will begin testing two new styles, Grizzly Pouches and Grizzly Snuff."
Smokless is the only tobacco segment growing and it is growing at a very healthy clip. It is to the point now that companies are aggressively pursuing additional products to sell and the market is accepting them. Reynolds success will be Altria's. When you have the number one tobacco product in Marlboro with almost 50% market share, any new product bearing that name will be used by consumers.
On another note, after the PMI spin, can't we just change the name back to Phillip Morris?
Wal-Mart to Start Grocery Delivery
After witnessing the success Amazon (AMZN) has had to date with its grocery delivery program, Wal-Mart(WMT) is following that model and entering the space.
Amazon, which currently undercuts local supermarket prices by some 30% at their online site ships bulk order of non-perishable items. Wal-Mart, whose service will be almost identical to Amazon and offer items like Perrier water, trade free coffee, Campbell’s(CPB) V-8 juice, Kellogg’s (K) snack bars, dried fruit and popcorn, as well other non-food items such as dish and body soap, will ship the items from their Sam's Club division at prices 5% lower than those currently available at Amazon.
While amazon currently does not break out results of this division currently, the fact that they are testing expansion of the service to include a full line of grocery items in Seattle (HQ) would lead one to believe that it has been a success up to this point.
This is a good move for Wal-Mart as it is another growth avenue that will require minimal capital to enact. The items will be shipped by the post office or UPS (UPS) so no fleet of truck or delivery staff it needed until such a time they decide to do fresh foods (if ever). If nothing else, it is another reason for people to visit the Wal-Mart website and research has shown once there, people will buy something, even if it is not what they went there for in the first place.
Amazon, which currently undercuts local supermarket prices by some 30% at their online site ships bulk order of non-perishable items. Wal-Mart, whose service will be almost identical to Amazon and offer items like Perrier water, trade free coffee, Campbell’s(CPB) V-8 juice, Kellogg’s (K) snack bars, dried fruit and popcorn, as well other non-food items such as dish and body soap, will ship the items from their Sam's Club division at prices 5% lower than those currently available at Amazon.
While amazon currently does not break out results of this division currently, the fact that they are testing expansion of the service to include a full line of grocery items in Seattle (HQ) would lead one to believe that it has been a success up to this point.
This is a good move for Wal-Mart as it is another growth avenue that will require minimal capital to enact. The items will be shipped by the post office or UPS (UPS) so no fleet of truck or delivery staff it needed until such a time they decide to do fresh foods (if ever). If nothing else, it is another reason for people to visit the Wal-Mart website and research has shown once there, people will buy something, even if it is not what they went there for in the first place.
Monday's Upgrades and Downgrades
UPGRADES
Sierra Wireless SWIR RBC Capital Mkts Sector Perform » Outperform
Western Refining WNR Banc of America Sec Sell » Neutral
Ikanos Comms IKAN Needham & Co Hold » Buy
Vistaprint VPRT Needham & Co Hold » Buy
Aetna AET Citigroup Hold » Buy
Panacos Pharma PANC Caris & Company Average » Buy
Sierra Wireless SWIR Piper Jaffray Market Perform » Outperform
DeVRY DV Bear Stearns Peer Perform » Outperform
Cummins CMI Credit Suisse Neutral » Outperform
Digital River DRIV BMO Capital Markets Market Perform » Outperform
Cummins CMI Citigroup Sell » Hold
Alexion Pharm ALXN Credit Suisse Neutral » Outperform
Foundry Ntwks FDRY JMP Securities Mkt Underperform » Mkt Perform
Novatel Wireless NVTL JMP Securities Mkt Perform » Mkt Outperform
DeVRY DV Piper Jaffray Market Perform » Outperform
General Mills GIS Deutsche Securities Hold » Buy
Hess HES Banc of America Sec Neutral » Buy
Taiwan Semi TSM HSBC Securities Neutral » Overweight
Discover Financial Services DFS Calyon Securities Neutral » Buy
Methanex MEOH CIBC Wrld Mkts Sector Underperform » Sector Perform
Blue Nile NILE Citigroup Sell » Hold
Nuance Communications NUAN Broadpoint Capital Neutral » Buy
Banco Santander Central STD Citigroup Hold » Buy
Infinity Prpty & Casualty IPCC Ferris Baker Watts Neutral » Buy
Corp Exec Bd EXBD Deutsche Securities Hold » Buy
DOWNGRADES
Zimmer Hldgs ZMH FTN Midwest Buy » Neutral
Covance CVD First Analysis Sec Overweight » Equal-Weight
Activision ATVI Janco Partners Accumulate » Mkt Perform
LSI Logic LSI Lehman Brothers Overweight » Equal-weight
Trident Microsystems TRID Longbow Buy » Neutral
Providence Service Corp PRSC Jefferies & Co Buy » Hold
Trident Microsystems TRID Needham & Co Strong Buy » Buy
CSG Systems CSGS First Analysis Sec Equal-Weight » Underweight
Avid Tech AVID Kaufman Bros Buy » Hold
Comcast CMCSA CIBC Wrld Mkts Sector Outperform » Sector Perform
Eli Lilly LLY Banc of America Sec Buy » Neutral
Level 3 LVLT JP Morgan Overweight » Neutral
Online Resources ORCC CIBC Wrld Mkts Sector Outperform » Sector Perform
Power Integrations POWI Citigroup Buy » Hold
eTelecare ETEL JMP Securities Mkt Outperform » Mkt Perform
LIFE TIME Fitness LTM Piper Jaffray Outperform » Market Perform
Penn Natl Gaming PENN Jefferies & Co Buy » Hold
Oil States OIS RBC Capital Mkts Outperform » Sector Perform
Tumbleweed Comms TMWD Roth Capital Buy » Hold
Bunge BG HSBC Securities Overweight » Neutral
MoneyGram MGI Calyon Securities Neutral » Reduce
AXT Inc AXTI Roth Capital Buy » Hold
Diamond Offshore DO Calyon Securities Add » Neutral
Trident Microsystems TRID Jefferies & Co Buy » Hold
Sunday, October 28, 2007
Merrill Lynch's O'Neal "Decides" to Leave
I just the love the way these things are phrased
After writing off twice the amount pre-announced and having unauthorizes merger discussions with Wachovia (WB), Merill's (MER) CEO Stan O'Neal has "decided" to leave the firm according to sources. On Friday I speculated "O'Neal may have been trying to negotiate himself a nice buyout severance package knowing what was coming down the pike." It turns out there is quite a bit of truth to that. According to Merrill's proxy, O'Neal would be entitled to about $200 million in total severance were Merrill sold or merged but should he decide to leave or be fired, his renumeration would be a fraction of that. One can only assume the Wachovia overtures were a desperate attempt on O'Neal's part to walk away with as much in his pocket as possible.
For his part Wachovia CEO G. Kennedy Thompson said that "the timing was not right" as the bank is currently digesting other acquisitions.
Leading candidates for his job are Blackrock's (BLK) Larry Fink and and the NYSE exchange President and former Goldman Sachs C0-President (GS)John Thain although it is unclear if either would be interested. One would be hard pressed to think Fink would not and Thain would be as has a nice place for himself at the NYSE.
Either way, isn't nice of Fink to walk away for the mess he made without a struggle?
After writing off twice the amount pre-announced and having unauthorizes merger discussions with Wachovia (WB), Merill's (MER) CEO Stan O'Neal has "decided" to leave the firm according to sources. On Friday I speculated "O'Neal may have been trying to negotiate himself a nice buyout severance package knowing what was coming down the pike." It turns out there is quite a bit of truth to that. According to Merrill's proxy, O'Neal would be entitled to about $200 million in total severance were Merrill sold or merged but should he decide to leave or be fired, his renumeration would be a fraction of that. One can only assume the Wachovia overtures were a desperate attempt on O'Neal's part to walk away with as much in his pocket as possible.
For his part Wachovia CEO G. Kennedy Thompson said that "the timing was not right" as the bank is currently digesting other acquisitions.
Leading candidates for his job are Blackrock's (BLK) Larry Fink and and the NYSE exchange President and former Goldman Sachs C0-President (GS)John Thain although it is unclear if either would be interested. One would be hard pressed to think Fink would not and Thain would be as has a nice place for himself at the NYSE.
Either way, isn't nice of Fink to walk away for the mess he made without a struggle?
Bank of America's Over-Reaction
"While we are extremely proud of our strong track record in the wholesale business, we believe our long-term opportunity lies in maximizing our more competitive retail channels by introducing innovative products that meet the needs of Bank of America customers, " says Floyd Robinson, president of Bank of America (BAC) consumer real estate.
Last week, BAC reported third-quarter earnings of 82 cents per share, a 32% decrease from a year ago. They then announced they would cut some 3,000 jobs, representing less than 2% of the company's total employment. The majority of the layoffs will be in global corporate and investment banking. Continued disruptions in the credit market shellacked BAC's global corporate and investment banking unit, where net income fell to $100 million, a 93 percent drop from $1.43 billion a year ago.
Cutting the investment banking jobs does make sense since that sector is slowing in general and cuts are happening industry wide. But, to completely exit the wholesale business is a bit much. It can be a profitable sector is run correctly and with a certain degree of restraint. The problem is not that the business s bad, but that those running it took unnecessary risks and got nailed.
With lenders like Countrywide (CFC) and Thornburg Mortgage (TMA) predicting greener pastures in the near future (next quarter), it looks as though BAC may be exiting this business just as it begins to turn around. Contrast this to recent news out of Wachovia (WB) who witnessed similar results in these areas but vowed to stay the course and heighten risk management to improve results, not give up on the business.
Personally, I have not seen too many examples of financial institutions shrinking their way to improved growth.
Last week, BAC reported third-quarter earnings of 82 cents per share, a 32% decrease from a year ago. They then announced they would cut some 3,000 jobs, representing less than 2% of the company's total employment. The majority of the layoffs will be in global corporate and investment banking. Continued disruptions in the credit market shellacked BAC's global corporate and investment banking unit, where net income fell to $100 million, a 93 percent drop from $1.43 billion a year ago.
Cutting the investment banking jobs does make sense since that sector is slowing in general and cuts are happening industry wide. But, to completely exit the wholesale business is a bit much. It can be a profitable sector is run correctly and with a certain degree of restraint. The problem is not that the business s bad, but that those running it took unnecessary risks and got nailed.
With lenders like Countrywide (CFC) and Thornburg Mortgage (TMA) predicting greener pastures in the near future (next quarter), it looks as though BAC may be exiting this business just as it begins to turn around. Contrast this to recent news out of Wachovia (WB) who witnessed similar results in these areas but vowed to stay the course and heighten risk management to improve results, not give up on the business.
Personally, I have not seen too many examples of financial institutions shrinking their way to improved growth.
"Fast Money" for Monday
Monday's Picks
Jeff Macke liked Intel (INTC). Open $25.94
Guy Adami preferred Dell (DELL). Open $28.98
Karen Finerman recommended shorting the United States Oil Fund (USO). Open $71.17
Pete Najarian said Baker Hughes (BHI) is a buy. Open $91.05
Friday's Results
Jeff Macke recommended Activision (ATVI). Open $22.95 Close$ 23.67 GAIN
Guy Adami “still likes” Intel (INTC). Open $25.89 Close $25.94 GAIN
Karen Finerman would own Estee Lauder (EL). Open $44.72 Close $41.11 GAIN
Pete Najarian recommended Under Armour (UA). Open $56.85 Close $59.57 GAIN
Since my tracking began on 6/21 (1-1 means one up pick and one down pick and no results from my vacation weeks). The percentage is the percentage of successful picks
Guy Adami= 37-23 = 62%
John Najarian= 13-4 = 76%
Jeff Macke= 42-31 = 56%
Pete Najarian= 29-24 = 54%
Tim Seymore= 4-3 = 57%
Karen Finerman= 21-12 = 62%
Stacey Briere-Gilbert= 3-0 = 100
Ned Riley= 1-0 = 100%
Carter Worth= 0-1 = 0%
Berkshire Hathaway's Warren Buffett Warns on China
“We never buy stocks when we see prices soaring,” Berkshire Hathaway's (BRK.A) Warren Buffett told reporters while on a visit to northeastern China Wednesday. “We buy stocks because we’re confident of the company’s growth. People should be cautious when they see prices rising.”
He clarified the comments on CNBC saying "I, just said that we very seldom buy into a market that's gone up a whole lot, and I don't know anything real specific about the Chinese market or Chinese stocks. But I do know that when prices have gone up a whole lot then I'm more skeptical when they've gone down a whole lot. I really like the look of markets that have gone down rather than markets that have gone up. But I will say this, what I've seen in China just today, in terms of the industrial development in Dalian, is making a believer in me, certainly in the economy, but that doesn't mean that I think the stocks are attractive."
Buffett is always asked about his outlook for either a company, the US market, the dollar or just about anything else short of who will win the World Series (the Red Sox will). His almost pat answer is "I have no idea what will happen, I am smart enough to know what I do not know".
Why does this matter? When Buffett actually comes out and says something, we would be well advised to listen because the outcome most likely very closely related to his thought process. China stock, not necessarily the economy are approaching or are already in a "frothy" phase and that poses dramatic risk to investors. When you add the difficulty actually valuing securities from China, you now have a significant risk to investors. There will be a bunch of implosions of securities being sold today, that is inevitable in this environment. Buffett's warning is that the number may end up being much larger than people currently anticipate..
He clarified the comments on CNBC saying "I, just said that we very seldom buy into a market that's gone up a whole lot, and I don't know anything real specific about the Chinese market or Chinese stocks. But I do know that when prices have gone up a whole lot then I'm more skeptical when they've gone down a whole lot. I really like the look of markets that have gone down rather than markets that have gone up. But I will say this, what I've seen in China just today, in terms of the industrial development in Dalian, is making a believer in me, certainly in the economy, but that doesn't mean that I think the stocks are attractive."
Buffett is always asked about his outlook for either a company, the US market, the dollar or just about anything else short of who will win the World Series (the Red Sox will). His almost pat answer is "I have no idea what will happen, I am smart enough to know what I do not know".
Why does this matter? When Buffett actually comes out and says something, we would be well advised to listen because the outcome most likely very closely related to his thought process. China stock, not necessarily the economy are approaching or are already in a "frothy" phase and that poses dramatic risk to investors. When you add the difficulty actually valuing securities from China, you now have a significant risk to investors. There will be a bunch of implosions of securities being sold today, that is inevitable in this environment. Buffett's warning is that the number may end up being much larger than people currently anticipate..
Saturday, October 27, 2007
Largest Changes in Short Interst
Largest Increases: Betting stock will go down (number of shares)
Level Three Communications (LVLT)= 9,989,000
Network Appliance (NTAP)= 8,793,000
Yahoo!! (YHOO)= 6,303,000
RF Micro (RFMD)= 5,129,000
BEA (BEA)= 3,997,000
Largest Decreases: Covering positions in anticipation of a raise in shares
Sun Microsystems (JAVA)= 24,605,000
Nvidia (NVDA)= 6,484,000
Microsoft (MSFT)= 5,504,000
Comcast (CMCSA)= 4,912,000
Dell (DELL)= 4,236,000
Oracle (ORCL)= 2,870,000
The Week's Top Stories at Value Investing News
2. Fat Pitch Financial Reviews Active Value Investing
(via www.fatpitchfinancials.com)
George reviews Vitaliy's Active Value Investing.
Excerpt:"I highly recommend that you read Chapter 12: Sell Process - Make Darwin Proud, if you read anything in this book. This chapter was a wake-up call to me. I don’t have a really good sell process and the one Vitaliy presents is very logical and seems to be the key to achieving good investment performance in a range-bound market."
3. Buffett's Best Investment
(via foxnews1.a.mms.mavenapps.net)
Buffett talks about how GEICO was his best investment.
4. The Hidden Value In Sears Holdings
(via valueplays.blogspot.com)
Commentary on Sears Holdings and why Eddie Lampert can't buy back shares fast enough.
5. Mosaic Chapter 18: Risk vs. Uncertainty
(via www.siliconindia.com)
Chapter 18: Mosaic Perspectives on Investing by Mohnish Pabrai
7. Mosaic Chapter 19: Is it time to Buy Infosys?
(via www.siliconindia.com)
Chapter 19: Mosaic Perspectives on Investing by Mohnish Pabrai
8. MartketWatch Interview: Active Value Investing in Range-Bound Markets
(via www.marketwatch.com)
An interview with Vitaliy Katsenelson about his new book Active Value Investing.
9. Buffett on Bear Stearns
(via foxnews1.a.mms.mavenapps.net)
Warren Buffett tells FOX Business anchor Liz Claman the rumors he was interested in Bear Stearns were false.
10. Buffett on Succession
(via foxnews1.a.mms.mavenapps.net)
Warren Buffett tells FOX Business anchor Liz Claman a succession plan is in place. Apparently, Buffett has selected four candidates for the board to consider. All four manage large sums of money. I thought is was disappointing to hear that none of them will be starting before Buffett leaves his position.
Friday, October 26, 2007
Friday's 52 Week Lows
USAK USA Truck Inc 13.17
TSCO Tractor Supply Co 41.53
TRID Trident Microsystems Inc 7.27
TPTX Torreypines Therapeut ... 4.32
SMTK Simtek Corp 3.35
RUTH Ruths Chris Steak Hse Inc 12.75
RMIX U S Concrete Inc 5.23
RES RPC, Inc 11.02
PTEN Patterson Uti Energy Inc 19.73
MGI Moneygram Intl Inc 15.69
MFBC MFB Corp 28.25
MDS Midas Group Inc 16.43
MCRL Micrel Incorporated 8.74
MBWM Mercantile Bank Corp 18.99
MAXE Max & Ermas Restauran ... 3.75
KRO Kronos Worldwide Inc 15.25
FFSX First Fed Bankshares ... 16.07
FFEX Frozen Food Express I ... 6.27
FFBH First Federal Bancsha ... 16.60
FBIZ First Bus Finl Svcs I ... 17.66
FAV First Tr Active Divid ... 20.00
DLIA Delia S Inc New 3.48
DFT Dupont Fabros Technol ... 21.01
Friday's Links: Two More Thank You's
Krugman's "Math", Another Thank You, And another one, Music
- I love this. Paul Krugman is at best a hack and at worst an ethically depraved jerk.
- A Thank You to Hoovers Biz for the mention.
- Thank you to CNN Money for this mention.
- A very interesting point on the music industry
- I love this. Paul Krugman is at best a hack and at worst an ethically depraved jerk.
- A Thank You to Hoovers Biz for the mention.
- Thank you to CNN Money for this mention.
- A very interesting point on the music industry
Wachovia and Merrill
In a move that will most likely end up costing him his job, Merrill Lynch (MER) CEO Stan O'Neal apparently approached Wachovia (WB) with the prospect of a merger.
Wachovia, which became the second-largest retail brokerage firm after acquiring A. G. Edwards would have been catapulted into a major player as the firm melded their 25,000 prospective brokers. Wachovia would have been the perfect partner for Merrill because of their proven ability to smoothly execute mergers. If you just look at it, O'Neal was doing what would be best for Merrill shareholders, it is just the way he went about it that will cost him.
O’Neal is in hot water because he floated the possibility of a merger with Wachovia, without first getting the approval of Merrill’s board, and that is something that CEO's just do not do. This comes days after Merrill's shocking $8 billion write-down and news yesterday that another $4 billion may be chopped in Q4. It looks like O'Neal may have been trying to negotiate himself a nice buyout severance package knowing what was coming down the pike.
We just bought Wachovia shares after the last quarters results were released and would have been a fan of the merger. Merrill, while in a world of hurt now is currently a very cheap asset to acquire. The problems there are O'Neal's creation since it is his strategy in place that lead to them and ridding the bank of his "leadership" would allow for the reversing of those issues. While Wachovia had write down last quarter, they were dwarfed by those at Merrill.
Who knows, this may still happen and if nothing else, it does show that with financials being so battered and bruised, valuations are such that deal-making may be in the cards for a few firms.
Wachovia, which became the second-largest retail brokerage firm after acquiring A. G. Edwards would have been catapulted into a major player as the firm melded their 25,000 prospective brokers. Wachovia would have been the perfect partner for Merrill because of their proven ability to smoothly execute mergers. If you just look at it, O'Neal was doing what would be best for Merrill shareholders, it is just the way he went about it that will cost him.
O’Neal is in hot water because he floated the possibility of a merger with Wachovia, without first getting the approval of Merrill’s board, and that is something that CEO's just do not do. This comes days after Merrill's shocking $8 billion write-down and news yesterday that another $4 billion may be chopped in Q4. It looks like O'Neal may have been trying to negotiate himself a nice buyout severance package knowing what was coming down the pike.
We just bought Wachovia shares after the last quarters results were released and would have been a fan of the merger. Merrill, while in a world of hurt now is currently a very cheap asset to acquire. The problems there are O'Neal's creation since it is his strategy in place that lead to them and ridding the bank of his "leadership" would allow for the reversing of those issues. While Wachovia had write down last quarter, they were dwarfed by those at Merrill.
Who knows, this may still happen and if nothing else, it does show that with financials being so battered and bruised, valuations are such that deal-making may be in the cards for a few firms.
The Fed Will Cut, But How Much
I think the whether or not they will cut case is closed for next week's meeting and all that is now left to discuss is how much.
Vincent Reinhart, who was director of monetary affairs and secretary to the Federal Open Market Committee for six years before stepping down this summer to join the American Enterprise Institute, said: "I would expect them to ease another quarter point at the coming meeting," in an interview with the Financial Times.
Inflation is clearly under control at this point and recent earnings news and forward expectations have fallen indicating weakness in the overall economy. A recession is a very unlikely event but the Fed's mission is not to just avoid recession but to ensure growth. So, where do we go?
A 50 point cut I think would panic the markets in a "things must be worse than we thought" scenario. 25 points gives the markets the easing they want, takes more pressure off the financials and does not induce fear. It also leave plenty of room for further easing down the road should it warrant. The DOW and S&P will jump on the news but the main beneficiaries will be the financials.
What remains just as important as the action (or inaction) is the statement given by Bernake & Co. give. This one is simple. Now that inflation remain constrained, the Fed has the ability to go to a totally neutral stance. "The Fed remains neutral as to the risks of inflation vs growth".
That is a good place to be...
Vincent Reinhart, who was director of monetary affairs and secretary to the Federal Open Market Committee for six years before stepping down this summer to join the American Enterprise Institute, said: "I would expect them to ease another quarter point at the coming meeting," in an interview with the Financial Times.
Inflation is clearly under control at this point and recent earnings news and forward expectations have fallen indicating weakness in the overall economy. A recession is a very unlikely event but the Fed's mission is not to just avoid recession but to ensure growth. So, where do we go?
A 50 point cut I think would panic the markets in a "things must be worse than we thought" scenario. 25 points gives the markets the easing they want, takes more pressure off the financials and does not induce fear. It also leave plenty of room for further easing down the road should it warrant. The DOW and S&P will jump on the news but the main beneficiaries will be the financials.
What remains just as important as the action (or inaction) is the statement given by Bernake & Co. give. This one is simple. Now that inflation remain constrained, the Fed has the ability to go to a totally neutral stance. "The Fed remains neutral as to the risks of inflation vs growth".
That is a good place to be...
Dow Chemical's Earnings Call Notes: Eye Opening
Some very interesting things were discussed on the earnings call Thursday that, if you were disappointed over the earnings release earlier in the day, would have fixed that.
Dow Chemical (DOW) still is tied to its cyclical commodities business to a point and its transformation has been centered on getting away from that. Estimates for the next "trough" in the commodity business put EPS between $2 and $3 a share. CEO Liveris said on the call that "our confidence is increasing" that Dow would be at the top of that range and when pressed about beating the $3 ($3.50 was the number thrown out), they were of course non-committal but at the same time did nothing to dispel that thought. As many investors know, it is not what is said but what is not said at times that is more meaningful. This is important because it now means that when Dow's earnings are at their lowest shares will then trade for about 14 times earnings at today's prices vs the nearly 28 times that was estimated earlier in the year. The importance of this cannot be emphasized enough as it then means the "peak" will then be that much better.
To date Dow has repurchased 25 million shares or 2.6% of outstanding shares. Not insignificant but also not an impressive amount. The dividend was increased 12% in June and sits at 3.8% which is very nice and very safe.
Cash flow remains strong and this is a function of the JV strategy that is a self funding one, meaning the revenues from various ventures fund that costs of current and additional ones.
JV's while off for the quarter have produced earnings to date of about $825 million vs $700 million at this time last year.
The constant "transformational event" chatter was addressed. Regarding the postponed meeting in November Liveris said, "when we do decide to have a meeting, you'll hear alot from us". There was a very interesting back and forth with an analyst that went like this:
Frank Mitsch - BB&T
Now Andrew, a couple of weeks ago we saw major volatility in the share price surrounding the decision to postpone your analyst meeting. Could you expand upon the reasons why you decided to do that?
Andrew Liveris
Well, just like the Red Sox are in the World Series again Frank -- I assume that’s why you’re congratulating Kathy -- we’re playing our own World Series here and lots of people are wondering what inning we’re in. I would tell you that the Dow Chemical Company has got lots of opportunities out there.
To Dave’s question, we just don’t want to have a premature event. We don’t want to have a meeting for the sake of having a meeting. When we have a meeting, we want to be able to tell you a lot about where we are on certain of our transactions. That doesn’t mean it’s an imminent one, it just means that with a lot of things going on, it just says that we didn’t think the timing was right.
We gave some notice when we first put the data out there, we said tentative. Then we were pretty much toying with the idea of December and we said, well, let’s just wait a little bit. I would tell you that we are very active and will stay very active. But when we have a meeting, you’ll hear a lot from us.
Frank Mitsch - BB&T
It almost begs the question on how imminent the transactions will be because it does appear that you are targeting early next year. So I think some of the speculation is probably not all that off base in terms of an imminent transaction. With that said, assuming that you’re the buyer, how much dilution and for how long would you tolerate any significant transformational transaction?
Andrew Liveris
I guess I’ll give you two quick answers. One, no comment on accretion or dilution other than our whole M&A discipline is around accretion and doing the right deals for the right reasons, and we’ve been very consistent on that. Maybe the other answer, if I can be so bold, talk to me when the Red Sox win the World Series.
Frank Mitsch - BB&T
So we’re going to have to wait another 84 years?
Geoffery Merszei
Frank, let me just add on to what Andrew just said. We have been having regular dialogue with the sell side, as well as with the buy side analysts, and we’ve been listening to all of you. The bottom line is that everyone basically agrees that when we have a meeting like this, we shouldn’t have a meeting just because it’s on the calendar every three years, but we should have it at a time when it makes a lot of sense in terms of having a fruitful dialogue and to make sure that it’s an efficient use of everyone’s time. So we have been listening, and that is really truly the driver for having it at the right time.
Frank Mitsch - BB&T
Are we looking at some time in the latter part of the first quarter?
Andrew Liveris
In terms of the meeting? Is that the question?
Frank Mitsch - BB&T
Yes.
Andrew Liveris
Probably. I would say it that way, but we will not give you a firm date. But trust us, we’re listening, as Geoffery said. Our buy side, our sell side, all of you matter to us and we’re going to really time it so it’s the right time. I don’t want to be waiting a year for it, how’s that? I’ll give you an out of bound.
Could he say more without saying anything?
Liveris did say of a potential "partner", "Whatever a new entity looks like, let's call it a joint venture, will have to be a growth company...not just a consolidation play, not just an exit strategy, not a leverage play but a growth company. Secondly, it has to preserve Dow Chemical's integration, particularly in its performance plastics and chemicals businesses, and provide a petrochemical "cracker" that can support the company's broad portfolio."
He finished by saying, "A strategic partner...is almost certainly going to have access to feedstocks somewhere in the world, notably the Middle East, but not just there," Liveris said. "They are going to be able to provide us those feedstocks on an ongoing basis, not just on one project."
One can almost only determine that something is in the works and it will be quit big. It is not a question of me reading what I want to here into the comments either because if you have read my commentary of Dow, a huge event is not something I have been stumping for.
Liveris did say to the analyst in the "transformational event discussion: "talk to me when the Red Sox win the World Series". Okay Andrew, I will be in touch next week.
Bottom line is Dow is a long term ValuePlay, that means that there will be quarters like this but as long as the long term focus and fundamentals remain intact, we look past it, pick up more shares if they drop and hold on.
Dow Chemical (DOW) still is tied to its cyclical commodities business to a point and its transformation has been centered on getting away from that. Estimates for the next "trough" in the commodity business put EPS between $2 and $3 a share. CEO Liveris said on the call that "our confidence is increasing" that Dow would be at the top of that range and when pressed about beating the $3 ($3.50 was the number thrown out), they were of course non-committal but at the same time did nothing to dispel that thought. As many investors know, it is not what is said but what is not said at times that is more meaningful. This is important because it now means that when Dow's earnings are at their lowest shares will then trade for about 14 times earnings at today's prices vs the nearly 28 times that was estimated earlier in the year. The importance of this cannot be emphasized enough as it then means the "peak" will then be that much better.
To date Dow has repurchased 25 million shares or 2.6% of outstanding shares. Not insignificant but also not an impressive amount. The dividend was increased 12% in June and sits at 3.8% which is very nice and very safe.
Cash flow remains strong and this is a function of the JV strategy that is a self funding one, meaning the revenues from various ventures fund that costs of current and additional ones.
JV's while off for the quarter have produced earnings to date of about $825 million vs $700 million at this time last year.
The constant "transformational event" chatter was addressed. Regarding the postponed meeting in November Liveris said, "when we do decide to have a meeting, you'll hear alot from us". There was a very interesting back and forth with an analyst that went like this:
Frank Mitsch - BB&T
Now Andrew, a couple of weeks ago we saw major volatility in the share price surrounding the decision to postpone your analyst meeting. Could you expand upon the reasons why you decided to do that?
Andrew Liveris
Well, just like the Red Sox are in the World Series again Frank -- I assume that’s why you’re congratulating Kathy -- we’re playing our own World Series here and lots of people are wondering what inning we’re in. I would tell you that the Dow Chemical Company has got lots of opportunities out there.
To Dave’s question, we just don’t want to have a premature event. We don’t want to have a meeting for the sake of having a meeting. When we have a meeting, we want to be able to tell you a lot about where we are on certain of our transactions. That doesn’t mean it’s an imminent one, it just means that with a lot of things going on, it just says that we didn’t think the timing was right.
We gave some notice when we first put the data out there, we said tentative. Then we were pretty much toying with the idea of December and we said, well, let’s just wait a little bit. I would tell you that we are very active and will stay very active. But when we have a meeting, you’ll hear a lot from us.
Frank Mitsch - BB&T
It almost begs the question on how imminent the transactions will be because it does appear that you are targeting early next year. So I think some of the speculation is probably not all that off base in terms of an imminent transaction. With that said, assuming that you’re the buyer, how much dilution and for how long would you tolerate any significant transformational transaction?
Andrew Liveris
I guess I’ll give you two quick answers. One, no comment on accretion or dilution other than our whole M&A discipline is around accretion and doing the right deals for the right reasons, and we’ve been very consistent on that. Maybe the other answer, if I can be so bold, talk to me when the Red Sox win the World Series.
Frank Mitsch - BB&T
So we’re going to have to wait another 84 years?
Geoffery Merszei
Frank, let me just add on to what Andrew just said. We have been having regular dialogue with the sell side, as well as with the buy side analysts, and we’ve been listening to all of you. The bottom line is that everyone basically agrees that when we have a meeting like this, we shouldn’t have a meeting just because it’s on the calendar every three years, but we should have it at a time when it makes a lot of sense in terms of having a fruitful dialogue and to make sure that it’s an efficient use of everyone’s time. So we have been listening, and that is really truly the driver for having it at the right time.
Frank Mitsch - BB&T
Are we looking at some time in the latter part of the first quarter?
Andrew Liveris
In terms of the meeting? Is that the question?
Frank Mitsch - BB&T
Yes.
Andrew Liveris
Probably. I would say it that way, but we will not give you a firm date. But trust us, we’re listening, as Geoffery said. Our buy side, our sell side, all of you matter to us and we’re going to really time it so it’s the right time. I don’t want to be waiting a year for it, how’s that? I’ll give you an out of bound.
Could he say more without saying anything?
Liveris did say of a potential "partner", "Whatever a new entity looks like, let's call it a joint venture, will have to be a growth company...not just a consolidation play, not just an exit strategy, not a leverage play but a growth company. Secondly, it has to preserve Dow Chemical's integration, particularly in its performance plastics and chemicals businesses, and provide a petrochemical "cracker" that can support the company's broad portfolio."
He finished by saying, "A strategic partner...is almost certainly going to have access to feedstocks somewhere in the world, notably the Middle East, but not just there," Liveris said. "They are going to be able to provide us those feedstocks on an ongoing basis, not just on one project."
One can almost only determine that something is in the works and it will be quit big. It is not a question of me reading what I want to here into the comments either because if you have read my commentary of Dow, a huge event is not something I have been stumping for.
Liveris did say to the analyst in the "transformational event discussion: "talk to me when the Red Sox win the World Series". Okay Andrew, I will be in touch next week.
Bottom line is Dow is a long term ValuePlay, that means that there will be quarters like this but as long as the long term focus and fundamentals remain intact, we look past it, pick up more shares if they drop and hold on.
Friday's Upgrades and Downgrades
UPGRADES
Riverbed Technology RVBD Janco Partners Mkt Perform » Buy
CEC Entertainment CEC Morgan Keegan Mkt Perform » Outperform
THQ Inc THQI Janco Partners Mkt Perform » Accumulate
Mattson MTSN Needham & Co Hold
Motorola MOT Oppenheimer Neutral » Buy
Arthur J. Gallagher AJG Bear Stearns Underperform » Peer Perform
Rightnow Tech RNOW Roth Capital Hold » Buy
Skechers USA SKX Brean Murray Hold » Buy
Harley-Davidson HOG Lehman Brothers Underweight » Equal-weight
Talbots TLB Citigroup Sell » Hold
Pacific Sunwear PSUN Citigroup Hold » Buy
Ormat Tech ORA HSBC Securities Neutral » Overweight
Willis Group WSH Citigroup Hold » Buy
Computer Task CTGX Boenning & Scattergood Market Perform » Market Outperform
Northrim Bank NRIM Friedman Billings Mkt Perform » Outperform
DOWNGRADES
OmniVision OVTI AmTech Research Buy » Sell
NVIDIA NVDA AmTech Research Neutral » Sell
Natl Oilwell Varco NOV Credit Suisse Outperform » Neutral
American Commercial Lines ACLI Morgan Keegan Outperform » Mkt Perform
Cadence Design CDNS Cowen & Co Outperform » Neutral
Eli Lilly LLY Oppenheimer Buy » Neutral
Triad Guaranty TGIC Bear Stearns Peer Perform » Underperform
Palm PALM Bear Stearns Peer Perform » Underperform
Euronet EEFT Citigroup Hold » Sell
Barrett Business BBSI JMP Securities Strong Buy » Mkt Outperform
Talbots TLB Piper Jaffray Outperform » Market Perform
PF Chang's PFCB Piper Jaffray Outperform » Market Perform
Sirenza Micro SMDI Piper Jaffray Outperform » Market Perform
Applied Materials AMAT RBC Capital Mkts Outperform » Sector Perform
NOVA Chemicals NCX RBC Capital Mkts Top Pick » Outperform
Sirenza Micro SMDI Jefferies & Co Buy » Hold
Kendle KNDL UBS Buy » Neutral
Cincinnati Fincl CINF KeyBanc Capital Mkts Buy » Hold
Vitran VTNC Stifel Nicolaus Buy » Hold
F5 Networks FFIV Stifel Nicolaus Buy » Hold
Celadon Group CLDN Stifel Nicolaus Buy » Hold
TranSwitch TXCC Dawson James Speculative Buy » Buy
Harman HAR Banc of America Sec Buy » Neutral
Symantec SYMC Robert W. Baird Outperform » Neutral
Merrill Lynch MER Wachovia Outperform » Mkt Perform
UAL Corp. UAUA JP Morgan Overweight » Neutral
Moody's MCO JP Morgan Neutral » Underweight
Merrill Lynch MER UBS Buy » Neutral
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