2/2/10 Midday Report: Volcker to Banks: “Prop trade this!”
The market is bouncing back today even though it is a relatively quiet day news wise (though not as quiet as a Lindsay Lohan straight to video movie premier or a Trappist monk game of hide and seek). Pending home sales in the US rose 1% after falling 16% last month thanks to renewed tax credits and something called math. Sure the 1% rise is good, but it is still down 15% from October, so let’s not break open the bottles of Dom and tins of beluga just yet. The biggest problem with home sales is that frictional unemployment has dropped the frictional and is just plain old unemployment. People are no longer moving between jobs and thus moving to new houses because, to close the transitive logic, there are no jobs. Also, Paul Volcker is supposed to testify in front of the Senate Banking Committee today where the 82 year old will rant about proprietary trading at banks, how he used to walk 2 miles up hill both ways to get to school, and then wonder why none of the dames look like Clara Bow anymore. The banking industry awaits Lord Volcker’s testimony like a necrophiliac awaits the cremation of a loved one.
In global macro news, Australia held their interest rates flat which was somewhat of a surprise since their economy is healthier than a vial of Jack LaLanne‘s urine (and that is for my older readers, but I can assure you young’ens out there that there is nothing on this planet healthier than the dickwater of the workout guru Mr. LaLanne who even at the age of 96 still can still rip a man’s heart out with his pinky finger). For those sheltered Americans out there, Australia is more than just boomerangs, crocodiles, and Miranda Kerr and Patsy Kensit pillow fights (though if it were just Miranda Kerr-Patty Kensit pillow fights, that would be sufficient). For the past several years Australia has benefitted from being close enough to China to supply it with natural resources out the wazzou while serving as a middleman in the shipping/trade business. Additonally, their banks missed out on the opportunity to cut up packages of mortgages and sell them for additional yield by inflating the mortgage market through lending money to speculators who bought and then sold houses to other speculators who couldn’t afford the houses in what is known now as the subprime vicious circle (and the circle was even more vicious than a daisy chain at an overeaters anonymous meeting). The point being, Australia has had a robust economy during this downturn and thus Australia holding their rates is a bit of a good sign that inflation is not running away, but it is more likely just a pause in their monetary rate hikes
As for stocks, Lexmark put up a huge quarter tripling earnings to $.76 a share and giving guidance for next Q of $.80, thus besting the $.62 earnings per share estimates. The printer maker also beat revenue projections and attributed their success to strong customer demand and the fact that HP makes such shitty printers. UPS also saw profits triple, yet their topline was down 2.5% and their CFO said the first quarter ”will be the most challenging of the year.” He then said it will be more challenging than the time they tried to ship a plane full of angry circus bears who hadn’t eaten in a week. However, the CEO said “It looks like this recession is finally over,” so I guess there’s nothing to see here.
In small cap news, ARTG was upgraded or maintained at strong buy today by most analysts on the street even though they chose to dilute shareholders yesterday like ice cubes in a Makers Mark at an overpriced NYC bar. Money McBags addressed this in yesterday’s Midday Report and its comments section, but ARTG has plenty of cash on their balance sheet so the capital raise is likely for a big acquisition and thus investors need have confidence in ARTG’s management team’s ability to negotiate and integrate a large deal before they become shareholders. Estimates are for around $.20 earnings for 2010 but $.25 could be reasonable so the stock isn’t expensive (nor extremely cheap) at 16x to 20x earnings. COOL is up 5% today as investors perhaps forgot the assrapingly bad Q they recently put up (here were Money McBags thoughts) though this should give shorts a better entry point. And TSYS was initiated as a buy by JP Morgan and a $12 price target and this is a company Money McBags has followed off and on for a while and used to own. They basically provide licenses for text messaging to carriers, location based services (like E911), and satcom solutions for the government. You really only need to know that text messaging is still growing 100% a year (TSYS powered almost 2B messages a day last year, which is fuckload of teenagers saying “cu l8r”) and they provide gateways for carriers to be able send these volumes of text messages. These licenses are sold as a step function so the company’s revenues haven’t scaled lockstep with the exponential growth of text messaging, plus there is competition and the pricing keeps coming down. That said, they did recently get a new deal with Verizon and their government business has been a solid performer. Estimates are for TSYS to earn $80MM of EBITDA in 2010 and they are currently trading at around 6.5x EV/EBITA. That is very cheap for a company that can still grow 20%+ (though the growth rate has been declining and that is not all organic growth). Today may be a good entry point though as the stock has been trading down and earnings are in two days so the JP Morgan analyst would not want to release a glowing report of the company two days before earnings were he/she not confident in the numbers. Now look, Money McBags is prone to mocking analysts like Adam Sandler is prone to starring in bad movies and Alexis Texas is prone to having to try on many pairs of jeans until she finds a pair to properly fit her best asset, so having faith in this JP Morgan analyst is a bit hypocritcial (though not as hypocritical as Larry Craig’s gay rights (wide) voting stance), but the timing of the report should be a signal that TSYS’s Q will be good or else the JP Morgan analyst is a complete dope (and unfortunately we can’t rule that out, so let’s say a 25% chance because JP Morgan is mildly reputable). It may be worth picking up some shares for at worst a trade. Money McBags does not own TSYS right now but may buy some before earnings after he does some more digging. If any of you have done work recently on TSYS, feel free to share with the rest of us, and if any of you have Hayley Atwell‘s phone number, feel free to share that too.
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