Posts tagged case-shiller
Tim-fucking-berrrrrrrrrrrrrrrrrrrrrrrrrrr. Holy shit is it on like Qadaffi’s dong as protesters in Libya whip themselves up in to a frenzy over the lack of Joanna Krupa’s latest Maxim spread being available to them (or over their oppressive treatment at the hands of Qadaffi, their lack of say in the government, their non-existent job opportunities, and their years of being treated worse than a patron at the Platinum Premier Club). The protests caused oil prices to surge to 2.5 year highs as Libya produces ~1.6MM barrels of oil a day and has the largest reserves in Africa at 44B barrels which is a fuckton of heat for the winter, airplane flights for Al Gore to promote global warming (or rather the solution to global warming or something), and Monster Truck rallies.
The unrest in the Middle East coupled with Qaddafi’s threat to crush it like Michael Gilliland’s career (and Money McBags loves the irony of the former CEO of Wild Oats getting arrested for figuratively sewing his wild oats) and the jump in oil prices spooked investors and the market today even as Saudi Arabia stepped the fuck up and said they will not allow any oil supply disruptions as OPEC has enough spare capacity to avoid a global shortage (though if they have so much oil they are not using, then why the fuck is the price so high? Oh right, cartel pricing. Money McBags knew something in his economic books would come in useful one day, just kidding, he never thought anything would).
And it’s not just oil as Italy shut down a pipeline from Libya that supplies them with ~10% of their natural gas which means demand for Will the Farter abroad is now skyrocketing. But fear not because some guy named Michael Hewson at some place called CMC Markets likened the Middle East protests to an Australian bushfire (as opposed to an Australian fire bush) by saying “..once it takes hold, its very difficult to put out” and “until the situation in the Middle East settles down, you are going to have very wild price swings.” No shit Captain Obvious, what’s next, telling us that Alan Greenspan may have left rates a bit too low for a bit too long or telling us that JWOWW may be covered in awesomeness (and perhaps herpes).
The big question is why the fuck someone wants to not just make a Great Gatsby movie, but make it in 3D, while the bigger question is whether investors will buy this dip and not just ignore high unemployment, falling home prices, and spiking commodities, but also ignore a little something called instability in the most unstable place in the world other than Pam Anderson’s liver or Andy Dick’s rectum.
In macro news today, consumer confidence hit a three year high just as the market sells the fucking rip (though the only thing this consumer is confident in is that Breanne Ashley is hot). The index of consumer attitudes rose to 70.4 from a revised 64.8 which was the highest level since February 2008, back when there were even more Dicks on Wall Street and Steven Tyler was still a man. Also, the expectations index rose to 95.1 from 87.3 as apparently consumers are expecting fundamentals to continue to matter less than Clarence Thomas during oral arguments (though hopefully no one was orally arguing too hard).
Home prices fell again in December in news more backward looking than Alexis Texas‘ boyfriend, because um, it’s almost fucking March. That said, the Case-Shiller index fell by 1%, or .4% when adjusted seasonally (and as always Money McBags’ favorite seasonal adjustments are paprika, cayenne pepper, and Brooklyn Decker‘s saliva). It was the fifth month in a row that the Case-Shiller index fell as 11 cities reached all-time lows and only Washington DC didn’t see prices fall (because you can’t really get lower than a price of $0). For the year 2010, prices fell 2.4%, slightly more than the 2.3% decline analysts had guessed and a fuckload more than needed for a healthy ponzeconomy™.
In the market, HD had better profit and earnings than guessed and raised its fiscal-year outlook as shoppers took up long-delayed maintenance and repair projects for their homes like buying extra masking tape to reinforce their cardboard boxes and shovels to dig proper latrines. Sales at Home Depot stores open at least a year rose 3.9% globally, with U.S. same store sales rising 4.8% thanks to a shift to cheaper products like faucets, paints, and Borders franchises.
In other earnings news, WMT had its 7th consecutive quarterly sales drop at existing US stores so perhaps they shouldn’t have pared entire SKUs like the dairy aisle. WMT has also lost customers to dollar stores though as inflation rises, dollar stores will become more a thing of the past than 8-tracks, beehive hairdos, and civility. The company did beat analyst eps guesses of $1.31 by $.03 on sales growth of 2.5% which was below analyst guesses but apparently even world domination takes a few quarters off.
Finally, Macy’s reported a higher profit as same store sales rose ~4.5% thanks to a strong holiday season and appealing to local tastes such as offering Boston beltbuckles, Seattle pantyhose, and the rare Baltimore nose rings. BKS declined more than 5 percent after announcing it would suspend its dividend, not providing a final quarter outlook because of the bankruptcy filing of Borders, and being in a business that is becoming more obsolete than TV antenna repairman or financial planners for the middle class. And AMZN joined NFLX and Sears (yep, Sears) in the video streaming business by offering unlimited streaming to it’s premium customers for ~$70 a year only a couple of weeks too late for Whitney Tilson’s short to work but Money McBags is sure Mr. Tilson will cover that in between sips of RC Cola and Warren Buffett’s tears at the next Value Investor’s Conference.
As for small caps, well, everything went down because the small illiquid names that Money McBags covers just trade with more volatility than the market so this can open up cockriffic buying opportunities (except for in DTLK because as Money McBags pointed out this weekend, their guidance was craptacular enough to sell out of your position, unless your position was reverse cowgirl and DTLK was Kate Bosworth). That said, one of Money McBags’ favorite little stocks, KITD, is getting back to the point where it is just way too fucking cheap (trading at ~6x potential 2011 EBITDA) so as it drops in to the $12s, it is time to start adding to positions.
Tomorrow Money McBags hopes to break down CTGX’s Q, perhaps take a look at GA, and continue to point out investing opportunities such as short WGO and long Chrishell Stause. Yeah, Money McBags has been short WGO all the way up but it is trading at a cockposterous 30x a lucky to get their earnings guess, sells expensive discretionary products that rely on oil more than Paris Hilton relies on Valtrex, and finally saw dealers restock so it will start having flat growth at best (after one more Q). If the market is going to sell off, you might as well be short a high beta name that also doubles as a shitty company (ok, maybe that’s not fair, WGO isn’t a shitty company, but they are in a business shittier than a coprophilia party host). So be smart about trades, make sure you are properly hedged, and get ready to buy should some of these quality names gap down with the market.
12/28/10 Midnight Report: Consumer Confidence Falls Yet Retail Sales Rise as Christmas Miracles Continue
The market continues to putter along in the last trading week of a year that has thoroughly confused Money McBags like the subprime meltdown confused Ben Stein, the cosmological constant confused Einstein, or a grocery store freezer confused Carrie Harkness. Money McBags remains cockposterously perplexed and today was a microcosm of his befuddlement as consumer spend continues to refudiate, repudiate, and refuckingdoodyiate negative macro trends such as high unemployment, falling housing prices, and increasing memberships to the lemon party (and kind readers, if Money McBags were you, he would not go to the url in the sign that guy is holding up in the picture. Money McBags simply reports the news, so don’t say he didn’t warn you).
Anyway, the point is that Money McBags is struggling to interpret the data in any meaningful way (his past attempts to interpret it using modern dance and the Rosetta Stone have failed miserably) other than that we now live in a completely bifurcated society (more bifurcated than Kenny Easterday) where income inequality is growing and the rich continue to spend on shit they don’t need with only desperation and despair trickling down the other 95% of the country. How else does one explain whole towns going into bankruptcy while sales of jewelry, pocketbooks, and roses remain at absurd levels?
In macro news today, holiday retail sales were said to be up ~5.5% according to MasterCard’s SpendingPulse and were led by apparel (up 11.2%), jewelry (up 8.4%), and Michelle Ryan’s newest video (up podophilia %). Guesses are that the sales increase was the biggest in five years with spending reaching around $584.3B (and if spending were Elisabetta Canalis, Money McBags wishes it would reach around him), compared with $566.3B in the same period of 2007. Money McBags can only conclude that a rising stock market sinks all grips (on reality).
In stark opposition to the retail sales numbers, consumer confidence declined in December (now that’s a mouthful or what is more commonly known as, a “Joe Dimaggio”). The Conference Board’s index of consumer confidence slipped to 52.5 from an upwardly revised 54.3 in November as apparently consumers just got their credit card bills from their holiday spending sprees. That said, the index was below even the most pessimistic witch doctor surveyed by Bloomberg as economic models continue to use data more outdated than the theory of luminiferous aether or one-pieces. Most interestingly, the “jobs hard to get” index (with jobs hard to get including the President of the US, Small Forward for the Miami Heat, and Bar Refaeli‘s brazillian waxer) rose to 46.8% in December from 46.3% last month, while the “jobs plentiful” index dropped to 3.9% from “Suckers!”
And consumer un-confidence numbers weren’t the only shitty macro news out today as according to Case-Shiller (the Bartles and Jaymes of macro data if you will, since they thank you for supporting their 3 month old numbers), home prices continue to fall (or at least they fell in October which the data measures). The index showed that single-family home prices fell for the for the fourth consecutive month thanks to a supply greater than hypocritical politicians as a result of home foreclosures, high unemployment, and people needing to use their money for health insurance instead of on houses in case they are called on to perform in that new Spiderman play which is now on their 104th round of understudies. The index of 20 metropolitan areas declined 1% in October from September on a seasonally adjusted basis which is a much steeper drop than the 0.6% fall expected by economists but consistent with the “economy sucks” theory.
Internationally, France’s GDP was revised down “un peu” to un poo poo (and yes that could be the worst line Money McBags has written in the history of the award winning When Genius Prevailed, and if asked, he will tell you that he is not bilingual, though he is a big supporter of their community). Anyway, France’s GDP was lowered as a result of weaker investments in public works, slower consumer service activity, and wasted time by workers trying to catch a glimpse of Carla Bruni.
As for the markets, they were pretty much deader than Dick Cheney’s chance of becoming the next King of Nigeria, or human. The only interesting news is that Wall Street likes GM again as the Street suffers from worse memory loss than a concussed amnesiac after downing a fifth of Mad Dog and a bottle of roofies. Apparently analysts are all jazzed up about GM’s new and refreshed models (while Money McBags is all jizzed up about Hawaiian Tropic’s new and refreshed models) as 2012 will be different from all other years because 2012 will finally be the year that consumers start demanding shitty cars. Money McBags now anxiously awaits tomorrow’s analyst upgrades of Enron, Lehman, and Bo Derek‘s career.
As for small cap stocks, EPAY (which Money McBags has mentioned frequently, just throw it in to the search box) was up ~6% on big volume and has been spiking more than Andrew Jackson’s popularity after the Battle of New Orleans. Money McBags didn’t see any news but perhaps someone is speculating on an upcoming transaction since the company says they will be acquirers with their extra large shitload of cash. Otherwise, there isn’t much going on right now and Money McBags needs to rerun his screens to find some new ideas. He thinks RICK has a good 6 months in front of them, continues to like CTGX and wishes he could get a better update on the profitability of their EMR installations as well as capacity, and thinks SAAS has some real upside. Otherwise, shorting WGO is a good idea here, though not as good as shorting Teena Marie’s career. Money McBags’ research may be a bit sparse this week with the holidays, New Years, and release of the NSFW Natalie Portman-Mila Kunis lesbo scene from The Black Swan, but you can always ask him questions at firstname.lastname@example.org or in the comments section. He has also been fucking around a bit more with the twitter, so feel free to join him there.
First of all, apologies for the fuckawful headline pun, but some days you simply have to play the cards you are dealt. That said, the market was quiet today as it digested marginal macro news and even more marginal earnings news while it continues to wait for next week’s QE2 which promises to be a worse proposed sequel than Amistad II: The Return Trip Home.
On the QE2 front, New York Fed President and voting member of the FOMC William “Dollar Bill” Dudley got his college on today at Cornell University (known as the Harvard of Ithaca, NY) where in a speech he said “The Fed cannot wave a magic wand and make the problems remaining from the preceding period of excess vanish immediately.” He then explained “For the millionth time, we’re not magicians, we’re fucking witch doctors so we don’t waive magic wands, we dance around fires and chant incantations to the great Jobu. Come on people, that’s Wiccan 101 shit for you.”
Dudley went on to say that QE2 would be unwarranted unless “the economic outlook were to evolve in a way that made me more confident we would see better outcomes for both employment and inflation before too long.“ And with that, Money McBags can see why some teabaggers want the Fed to be shut down since evolution is a myth and thus the economy can’t evolve, it can only intelligently design itself to something better and do you trust these people to design anything intelligently?
As far as tangible macro news, consumer confidence rose slightly last month off of an unsurprisingly downwardly revised number and still remains near record lows as most consumers are only confident that the economy is getting worse than Bob Guccione‘s lungs (and Money McBags tips his jimmy hat to the great media mogul). Digging in to the number shows that the “jobs hard to get” index rose to 46.1% from 45.8%, the “jobs plentiful” index slipped to 3.5% from 3.8%, and the “jobs you’re never going to get again” index rose to “oh fuck I’m screwed.”
In other macro news, the Case Schiller index weakened, in what Money McBags calls the “no shit Sherlock” fact of the day. While the index rose 1.7% y/y which was below analyst guesses of 2.1%, it fell .2% sequentially or .3% on a seasonally adjusted basis. But here is what Money McBags loves most about the data, per the NY Times “S.& P. announced earlier this year that the unadjusted numbers were a more reliable indicator.” So riddle Money McBags this Mr. Case, Mr. Schiller, and Standard and fucking Poor’s, if the seasonally adjusted numbers are a worse indicator than the non-seasonally adjusted numbers, WHY THE FUCK DO YOU BOTHER ADJUSTING THEM? That is more mind boggling than the fact that they just now stopped making the Sony Walkman.
Seriously, why take shitty, dated, questionable data in the first place, and manipulate that data to make it even more worthless? It’s like whatever the opposite of putting lipstick on a pig is (perhaps putting Rosie O’Donnell in a bikini or Alan Greenspan on CNBC?). So while the adjustment didn’t matter this month, making data worse and then presenting that data as relevant can be more misleading than something called naked table building (which apparently involves no nudity, but plenty of wood), so why it is done is more perplexing to Money McBags than anything involving Randy Quaid.
One other piece of interesting news is that Warren Buffett, the original inspiration for the hit show Sister Wives, picked a successor to run the investment side of Berkshire Hathaway, a company that never saw a bail out it couldn’t manipulate. The successor is a 39 year old named Todd Combs (and we’re told he’s no relation to Sean “Puffy” Combs) who won the competition to be the next curmudgeon after blowing Buffett away with his financial stock selections, his refusal to tip more than 13% for subpar service, and his stunning closing statement in the debate part of the competition where he vociferously argued the affirmative side of “Dodd was Graham’s bitch.”
Internationally, Standard and Poor’s raised their outlook for Britain to AAA after running in to Lucy Pinder in a Heathrow bathroom. In addition to the ratings upgrade (though Money McBags cares what S&P rates Great Britain about as much as he cares what Stevie Wonder rates a fireworks show), Britain saw GDP expand by 0.8% from the previous quarter which was double analyst guesses and a result of the first dentist opening up shop in the country.
In the market, F posted their 6th consecutive profitable Q, announced they will be paying down debt, and then reiterated that GM and Chrysler are a bunch of ass hats. In WTF earnings of the day, Coach and Royal Caribbean Cruises both shot up 10%+ after putting up strong quarters in a signal that either the economy is not as weak as Money McBags thinks, or well, simply WTF? Elsewhere, steel makers were all down today as US Steel warned that demand was slowing, prices were falling, costs were rising, and no one is building shit anymore. And finally investment banking losses at UBS drove the stock down as revenue dropped in fixed income, currencies, commodities, and everything else people are no longer trading as they flock to gold while the market dances to beat of the algorithm of the night.
In small cap news, HSTM announced their Q yesterday and remember Money McBags talked about this stock a while ago as being cheap until it ran up in to the mid $6s and now is no longer such a great buy but still has some potential (kind of like Neve Campbell). As for their quarter, revenue was up ~18% to $16.6MM, operating income was up 57% to $1.7MM, and yes EPS was down by $.01 to $.04 because their tax valuation ran out so unlike last year, they had to pay Uncle Sam like the rest of us (well, that is all of us but Wesley Snipes). That said, their 53% tax rate seems exorbitant but it is what it is. The Q was essentially flat sequentially with gross profit margins down ~300bps to 62% and operating margins down to ~10% from 14% due to a pick up in Sales and Marketing costs which could be related to their SimVentures JV. With the quarter being more of he same, is there anything we should do with this company other than file it away for a rainy day selloff?
Well, updated guidance is for 12% to 14% growth for this year and with only one Q left, that means that revenue in Q4 will essentially be flat with the previous 2 Qs and up 11% y/y. Hold on, Money McBags is going to type more but he has to let out a big fucking YAWNNNNN, Ok, that’s better. Now guidance for operating income is for 30% growth and the tax rate to be ~45% which gets us to ~$.16 eps for the year and ~$.03 for next Q due to costs increasing a bit due to a SimVentures JV. So again, pretty fucking pedestrian, no matter what Craig-Hallum has to say with their bizzaro 8 year DCF model.
So look, lets say their learning segment keeps growing, they sign up some more hospitals, and maybe they get something out of SimVentures (which Money McBags understands less than Charlie Sheen understands moderation, but whatever), and they are able to push growth to 20% next year. If we use a 65% gross profit margin, juice up operating expenses to ~$9MM a Q, and tack on a 45% tax rate, we’re at ~$.30 in earnings per share, so the company is at >20x that which just seems too expensive. Yeah they have ~$1 per share of cash on the balance sheet and no debt so that is nice, but it does less for Money McBags than Minnie Driver.
So on superficial numbers, Money McBags isn’t changing his opinion that HSTM seems at best fairly valued, though most likely a bit expensive. That said, it is a nice little company that seems like it might have a competitive advantage in a growing market so if you can figure out how they can accelerate growth (maybe through SimVentures, maybe through more partnerships like they have with the American Nurses Association, or maybe by changing their whole business model to just selling taint tickles from Carmella Bing), perhaps Money McBags’ numbers are too low. If management is out there, shoot Money McBags an email at email@example.com and lets talk.
9/28/10 Midnight Report: Market stimulated by QE2 rumor. Rumor is that unlike that cocktease QE1, QE2 will provide happy ending
The market climbed today as investors all bet on the Fed continuing to manipulate its balance sheet like like RuPaul manipulates his/her junk in a gaff (and the things Money McBags had to look at while searching for that term/pic on the internet shall never be mentioned, so please laugh at that joke for the dignity Money McBags had to give up in writing it).
Equity strategists (and Money McBags uses that term loosely since it is more of an oxymoron than “sweet sorrow” or “comedian Dane Cook”) were all over the media today talking about quantitative easing and how the likely inflation associated with it will help drive the stock market higher by further devaluing the dollar like Stephen Colbert brilliantly devalued Congress. Of course, the non-hyped reality of QE 2 (which promises to be the worst sequel since Brokeback Mountain 2: Is That a Lasso in your Asso?) is that by purchasing more bonds, all the Fed is doing is turning the dollar in to a more worthless piece of paper than Barack Obama’s birth certificate (according to teabaggers that is) and that these measures are short term optical boons for the market but don’t do anything to solve the fundamental problems with the economy which are that unemployment is at unhealthy levels, the income gap keeps widening (like Kirstie Alley‘s eyes at a Krispy Kreme doughnut shop), and even with rates being held at 0% businesses simply can’t grow if people aren’t spending the devalued dollars they have. Fuck, hasn’t anyone in Bernanke’s office ever heard of Japan?
So the Fed is going to manipulate the market while the actual economy continues to struggle as noted by consumer confidence once again falling below analyst guesses of 51 to 48.5. This is the lowest confidence has been since February and is a result of unemployment remaining higher than a Jessica Simpson pant line, fewer CEOs expecting sales growth (and remember, these guys never saw a chart that couldn’t score a hat trick), and consumer’s losing their health care and thus no longer being able to afford ritalin to keep their confidence up. So the Fed can try to push companies in to hiring all they want by continuing to devalue the dollar, but unless companies bite on that stimulus soon, consumer spend is going to disappear faster than civility or Meaghan Cheung’s career and that is going to be about as good for the economy as Yoko Ono was for the Beatles or George Soros was for the Bank of England.
In the final bit of US macro news, home prices were up .6%, or down .1%, depending on if you like your numbers seasonally adjusted or not (and Money McBags likes his numbers over easy and rounded to the nearest 69). The Case Shiller index was basically inline with analyst guesses (so good on you analysts, Money McBags knew the coin flip would eventually come up sideways) and provides us with a great view of a blended 3 month number from July, which would be great if this were August and not two to five months after the data was recorded, but whatever, this data is about as relevant now as the lovely Peggy Eaton, so in one onomatopoetic word: Yawn.
Internationally, Standard and Poor’s warned that it may cut Ireland’s rating as the country continues to bail out Anglo Irish Bank after the bank had one too many pints of Guiness and started lending to any Tomas, Patrick, or Haley. Ireland’s debt is now 12% of GDP (though it could go up to as much as 25% depending on how much of a bank bail out they need) and credit default swaps on the country are spiking like sales of Ulysses on Bloomsday. Money McBags remains very wary of Europe and their banking system as like a waitress at AsiaSF, things likely aren’t as they appear to be.
In stock news, WAG jumped 10% after a good quarterly earnings report as their pharmacy business pushed a fuck load more drugs than the rest of the industry (if you remember last week RAD disappointed investors because of weakness in their pharmacy). When WAG was asked how their prescription business grew 6.5% vs the rest of the industry at .5% they credited the growth of 90 day prescription refills and their policy of not getting high off their own supply. Finally, MON shares dropped ~8% on concerns about their new premium corn seeds which if they fail, may lead a corn hole in the company’s revenues.
In small cap news, Money McBags hasn’t had a chance yet to mention KITD’s latest acquisition from Friday which on the surface sounds like another solid deal. And yes, Money McBags is going to talk about KITD again because it is one of his best ideas, potentially even better than the splashguard on the blumpkin table hat™ or ring tones (and yes, Money McBags came up for the ring tone idea in 1999 and yet never did anything with it, so good on him). Anyway, last week KITD bought another Czech company called Brickbox for ~$10MM up front of which $6.6MM was in cash, and then future earnouts of 10% of forward revenue for 4 years capped at a $20MM annual threshhold. Brickbox brought in $12MM in revenues last year, had $1MM of profits, and according to the release they:
“serve as an intermediary between content owners and distributors, offering products and services that include mezzanine file management, localization, digital cinema mastering, and authoring of media for replication. Brickbox uses order scale across regions to realize cost efficiencies for a global client base, which also requires outsourced replication, packaging, and distribution to the physical point of sale.”
What that means in English, Money McBags isn’t 100% sure but apparently they work with movie studios to transfer film in to other mediums and formats and KITD had been doing something with their back end already. So KITD paid <1x revenue or at least 10x EBITDA for this company which seems on the expensive side from an EBITDA perspective but if KITD is able to realize cost synergies then that multiple will obviously drop on a forward basis.
So after the two latest transactions, KITD should be at ~$120MM revenue for 2011 assuming no organic growth which is about as good of an assumption as assuming that intelligent design is where humans came from (because if the design were that intelligent, why would we have to poop?) or assuming that Britney Spears is wearing panties. The industry is growing 35% to 40% so say KITD grows at half that rate including current acquisitions (even though they are the market leader and in theory are growing at faster than the market, but whatever). So if one wants to low ball KITD , have them grow 20%, assume no more acquisitions (though they still have ~$46MM in cash), and throw a ~18% EBITDA margin on what would be ~$145MM. That gets you to ~$26MM EBIDTA and they have a ~$225MM EV so they are trading at ~8.6x EV/EBITDA. But if they grow at market, and increase their EBITDA margin, this stock gets closer to 5x EV/EBITDA and that is just TOO FUCKING CHEAP for a company with this kind of growth profile in the midst of a market land grab. Brickbox seems like a nice deal and Money McBags still maintains that as long as management isn’t doing anything nefarious to juice up the numbers in order to sell KITD sooner rather than later (and Money McBags would be very surprised if they were), this is going to be a big winner (of course he has been saying that for months and it has been stagnant, though volatile, but long-term this should perform).
The market bounced around today as it tried to find a direction like scientists are trying to find the elusive “God particle” (though apparently scientists have figured out where it isn’t which includes Jane Austen’s writing, Bernie Madoff’s bank account, and Jamaica. But newsflash Einsteins, you might want to check Brooklyn Decker‘s vagina because if the “god particle” isn’t there, Nietzsche may have been right.).
Anyway, the big macro news was that consumer confidence fell to a five month low with consumers still worried about jobs, the potential death of fiat currency and subsequent return to the barter system, and Eliza Dushku‘s consistent refusal to do nude scenes. The index fell to 50.4 from an upwardly revised 54.3 and economists had guessed it would come in at 51, so good on them for almost correctly predicting one number out of the thousand they guess on yearly. That said, a drop in consumer confidence could lead to further declines in spending which is as good for the economic recovery as fat tails are for trying to forecast using gaussian assumptions, tickets to the Ford theatre were for Abraham Lincoln, or The World’s Biggest Gang Bang was to Annabel Chong‘s pelvis.
In headline manipulatedly (and yes that is more of a rehetorical tautology than “free gift,” “short summary,” or “Kathy Griffin manly”) positive macro news, the Case-Shiller home price index was up 1.3% on a non-seasonally adjusted basis, .5% on a seasonally adjusted basis, 4.7% year over year, and 30% in the land of make believe where every party is as delightful as a rainbow. Of course the numbers are more worthless than a hand job from a quadriplegic with carpal tunnel disease as the Case Shiller index uses a fucking three month average so inflated home sales from April due to the now expired the government tax credit are still in the numbers. What we do know is that home prices are at least 29% below their inflated peak from four years ago, foreclosured properties are at record highs, and Sofia Vergara is hot.
The market remains at a headscratchingly confusing time (though if it were Money McBags’ head and Diora Baird doing the scratching, that would be a lot less confusing) with macro data continuing to be marginally bad at best and yet earnings coming in moderately good at worst. So which is the leading indicator and which is the lagging? It is a question that is proving to be a bigger conundrum than anything the Sphinx, Hamlet, or Andy Rooney ever asked (go to ~1:13 in the video).
In Europe, all but one of the 27 members of the EU agreed in principle to new BASEL regulations, with only Germany holding out as they wait for a bigger signing bonus, guaranteed playing time, and use of the EU locker room to entertain groupies during breaks in the negotiations. The new proposal is less onerous than earlier proposals and give banks more leeway to define what counts as Tier 1 capital potentially including stakes in other banks, future tax benefits, and monopoly money. Regulators are still debating the amount that banks will ultimately need to hold as reserves but Money McBags is pretty sure that whatever the number winds up being, it won’t be enough for the next bubble.
Also internationally, Germany’s consumer confidence from the GfK institute rose to 3.9 but as Money McBags doesn’t use the metric system, he has no idea what that means. That said, with Germany being Europe’s largest and least funny economy, rising confidence can’t be a bad thing.
In the market, DuPont (ticker DD) announced a good Q which was the second time today the market got excited about a set of double Ds with JWOWW having rung the opening bell. DD earned $1.17 per share, beating analyst guesses of $.94 eps as a result of 26% revenue growth driven by a 33% increase in emerging market sales. They also raised 2010 earnings guidance to $2.90 to $3.05 per share from $2.50 to $2.70 and told analysts to suck it.
Deutsche bank made analysts look like deutsche bags by putting up a big Q as well. DB posted a 9% rise in earnings despite weak performance from their investment banking business which had to take a quarter off from manipulating the market while new regulations were being discussed. That said, it was a good Q for the German bank who is still likely drunk and throwing out the saran wrap from their traditional German scat party as a way to celebrate having passed the europe bank stress tests last week (though the tests were about as vigorous as a Kirstie Alley workout video).
Finally, BP was down after posting a $17B second quarter loss thanks to creating the worse unnatural disaster since the Lohans failed to get an abortion 24 year ago. And Apple will now be forced to allow third party software on the iPhones which means porn lovers everywhere just lost another 30 minutes of their day. The real purpose of the ruling by the copyright office is to allow iPhone users the ability to unlock their phones without any repercussions and thus have the ablilty to change their wireless service provider from AT&T to something that works a little bit better, like smoke signals, shouting, or semaphore.
In small cap news, CTGX reports tonight and Money McBags expects an inline quarter at best with EMR still a few Qs away. TSYS was up 4% plus and remember on 7/9 Money McBags said it was too cheap and would make a nice short term trade and it’s up just under 20% since then so good for you if you picked up some shares but don’t get too greedy as news on the company remains thinner than OJ’s alibi and it has traded down for a year for a reason.
Last week EPAX, a small, overlooked, and horribly performing name which Money McBags thinks is an interesting company put up a Q as crappy as expected. Money McBags broke down this company in quite a bit of detail a few months ago but they basically arrange for international student travel so little Jimmy can lose his virginity to an Amsterdamian hooker all under the guise of educational experiences. The point is, the business sucks right now as if it were Jesse Jane on the set of Island Fever 4. The company sells expensive, completely discretionary trips to Europe in the biggest recession in 70 years when in the internet age all one has to do to spend a night in Paris is steal their neighbor’s wifi signal. This last Q, gross margin was down ~15% and with operating costs flat at $12MM, eps was down ~20% to $.79 per share in what is traditionally the strongest Q for the company as it is right before the summer travel season.
Money McBags’ estimate remains at $.49 eps for this year and the company released guidance for $.48 eps to $.52 eps (and yes, Money McBags’ $.49 eps estimate was from way back in April when the street was still at ~$.60, look it up, so his 15 minute earnings model proved to be more precise than sell side analyst models which is less surprising than finding out that Gary Colemn didn’t live to age 50). The point is, the company is still struggling with enrollments down 17% and their recently launched Discover Adventure travel progam having underwhelmed like a bachelor party in which Mayim Bialik jumps out of the cake (or more precisely, eats her way out).
So why the fuck would Money McBags be interested in a company whose EPS is going to decline by 50% and is trading at >20x current year guidance? Simple, volume. Well, actually volume has little to do with it but cash does. The company has $53MM in deployable cash and a market value of $210MM so ~25% of their value is in cash or roughly $2.50 per share. Not only that but this company can scale quickly as they are already running a lean operation and until this year were able to maintain $1 in earnings power.
So the upside is that people become a little less freaked out about the economy in a year, EPAX buys back shares with some of their cash, and Hanna Hilton comes out of retirement and offers her fans free ice cream sundaes for continuing to have supported her in her down time (and yes that has very little to do with EPAX, but whatever).
This company is an interesting way to play a recovering economy and while Money McBags doesn’t think that is going to happen anytime soon, it is a cheap way to hedge one’s negative bets. Money McBags doubts the stock does anything for at least another 3Qs and he doesn’t own it nor is he going to buy it, but it pays ~2% yield and is one way to play a market recovery with some downside protection.
It was ugly out there today, real ugly, like a Lady Gaga- Alan Greenspan love child with a bad case of facial neurofibromatosis. Investors are worried that China is slowing down (they are), that Europe won’t be able to roll their debt (eventually they won’t), and that US consumer spend will shrivel up like Khagendra Thapa Magar‘s muchkin in a cold shower (it will). Leading the the market down was a sell off in China after the dynamically named research group The Conference Board (which apparently researches everything but how to market a business) said they had recalculated the leading economic index for China to show a 0.3% gain in April which is much lower than the 1.7% gain they reported two weeks ago and they blamed it on a calculation error (no really they did, but Money McBags doesn’t believe that for a second because aren’t asians supposed to be the good ones at math? Oh right, The Conference Board isn’t asian). Anyway, with the people calculating the economic data unable to actually calculate it properly, we are once again left guessing at what is really going on and all we have to go by is what we see and that is a lot of closed retail stores, packed job fairs, and blurry objects as our health care ran out and we can’t afford new glasses. As China is the engine that is fueling the global recovery (the lobster in the bisque, the plutonium in the flux capacitor, or the extra F in the MFF, if you will) any slow down in their economy will certainly put a damper on economic growth and thus reduce all of us to subsisting off of Ramen Noodles and our tears of despair. Also, with Spain having to roll over debt on Thursday, the same day the whole European banking sector will have their one year 442B Euro line of credit from the ECB expire, Europe is jitterier than Michael J. Fox going through the DTs. Thursday could be a momentous day in the market as Spanish banks are hinting that the ECB’s line of credit is crucial to their viability so we may see a financial crash so bad one would think Ted Kennedy were driving it over a bridge.
Unfortunately, US macro news wasn’t any better with consumers only confident that the economy sucks. The Conference Board (the research group who miscalculated China’s leading indicators, so take the following with a grain of salt, though if you’re feeling really adventurous, take it with several grains of salt firmly planted around the rim of a shot glass containing tequila) reported the US consumer confidence index fell to 52.9 from 62.7, a number which was also downwardly revised (likely due to a goal seek input error in Excel). Basically every metric measured by The Conference Board fell except for belief that things will get worse, belief that there will be fewer jobs, and belief that Keynesian economics is a farce. Not helping matters was that the Case-Shiller index posted only a .8% gain despite government tax credits still juicing the system like a Lance Armstrong steroid cocktail. Sure a gain is better than a loss, but the gain should have been higher even with 18 out of 20 cities showing increases. Of course with that tax credit now expiring, there is certain to be a pull back next month so large that it will make even Kenny Rogers shudder. If there were ever going to be a double dip recession, now is the time, so sit back and cross your fingers that the government will re-stimulate the economy and push the second dip off for another few years when you’ll be too old to care.
In stock news, shares of C were halted at one point today because the market couldn’t believe the company hasn’t hit zero yet. The stock traded down 17% thanks to what is being reported as a fat finger trading error (and again, we call that the Portia Di Rossi because someone who looks like this must have some hella fat fingers to keep the lovely Ms. Di Rossi satisfied) though it was likely just the run of the mill high frequency trading stock manipulation. New circuit breakers were put to work for the second day in a row and trading in C stock was shut down for five minutes until it had time to cool down and think about what it had done before re-opening down only 5%. In other news Barnes and Noble dropped 20% as with the advent of TV, the internet, and the NSFW spankwire.com people no longer read books. The CEO announced the company will be investing $140MM in to their digital book business and their digital book reader, the absurdly named NOOKie (and if Money McBags were running BKS the first thing he would do would be to change the name of the NOOK to something more catchy like “iPhone” or more honest like the “not going to be around for long” since the market is going to be dominated by the Kindle and iPad). Anyway, 2011 guidance was for break even to a $.40 loss per share due to falling margins and investment, and as analysts had guessed the company would be profitable, shares sank faster than General McChrystal’s chance at winning a Medal of Honor this year. Finally Verizon was break even in a down market as they are rumored to be signing a deal with Apple and Tesla Motors (TSLA) shot up 40% on its first day of trading despite never earnings a profit, having $300MM of lifetime losses, not forecasting a profit until 2012, and having their business revolve around selling an electric car when we all know eletric cars only exist in the land of make believe where it rains gumdrops and every Friday is free blumpkin day at the local Rick’s Cabaret.
In small cap news everything was down except for ZAGG which Money McBags exhaustively broke down for all of you earlier today (so check it out, really). A name Money McBags told you about last week, KIRK, continues to get hammered but it is getting to the point where one may have to actually step in, put some gloves on, and catch the falling knife as it’s now at 8x Money McBags’ high end earnings estimates with ~20% of its market cap in cash. Also ISLE was down 6% after Money McBags said yesterday it would make a good short trade. Of course Money McBags isn’t bragging about that call because everything went down faster than a call girl working for tips only, so any short call from yesterday looks prescient. There may be a short term rally tomorrow but Money McBags is warier of this market than Thomas Hoenig is wary of keeping rates too low for too long, so he is staying on the sidelines for now.
And don’t forget WGP is on Facebook, even though it goes against everything in which Money McBags believes.
5/25/10 Midafternoon Report: Volatility causes market to go up and down faster than a time constrained fluff girl
The markets sold off hard again today until the late afternoon with the the sell off being caused by Europe going to zero, financial reform, and now fucking North Korea dropping a turd in the proverbial kimchee bowl, and the hardness being caused by the market having grabbed a workout with Amanda Carrier. So la-di-fucking-da. With Kim Jong Il apparently getting his Napoleon complex on and dropping a South Korean warship like a diahrreatic drops logs (that is with ease and aplomb), the markets have more to worry about than a parent who sends their kids for music lessons at Gary Glitter’s house. It is ugly out there today (and not Lady GaGa ugly, but Amy Winehouse on crack sprinkled with a bit of Tina Yothers ugly) and Money McBags’ screen was redder than a baboon’s ass with a deep and gaping anal fissure for most of the day. So what is an investor to do other than hide under their desks and dream of long walks on the beach with Melissa Giraldo while hoping the bad man leaves them alone? If Money McBags had the answer, he would certainly let all of you know, but for now, he is hedging the volatility and waiting for things to settle before stepping back in to names that have good long term trends and are right now just guilty by association like the cast of a Robin Williams movie (names like KO, MCD, VMW, GOOG). The market could really go either way at this technical level and while Money McBags is a very cunning linguist, he is not clairvoyant and thus does not want to bet on what will win in the current pissing match between bad macroeconomics and reasonable company fundamentals.
In US news, consumer confidence was up today to it’s highest levels since May 2008 when it was caught doing lines in a Hollywood bathroom with Lindsay Lohan. Americans are now rosier about job prospects as longterm unemployed people can no longer pay for phone service and thus have dropped off of the radar of people running these surveys. Adding to the optimism is the complete lack of global perspective by US workers who think “european” is just something you say to your friend at the urinal next to you. Also, LIBOR in dollars is spiking like it is Karch Karily after a health dose of PEDs. The dollar Libor-OIS spread which is a gauge of banks’ reluctance to lend widened to the most since July and signals that banks are questioning the viability of their peers like a young Michael Jackson used to question the viability of Marlon. And making matters worse is that the VIX continues to shoot up and investors have to hope that it is using one of Magic Johnson’s needles and thus will soon die down. Also, housing prices fell last quarter according the Case-Shiller report and fell sequentially for the month but were up modestly year over year. So taking whatever metric and time frame you choose to use, housing prices were about as robust as Detroit’s economy or Sarah Palin‘s vocabulary.
Internationally, shit is still all fucked up with Europe’s economy sinking like Angela Merkel’s neckline before a night out with the Bundestag and all investors can do is hope to grab on to some floatation devices to avoid sinking. Spain and their banking system are sparking fears today with regional bank Cajasur having been bailed out yesterday and who knows what to be bailed out tomorrow leaving Spain’s banking system under more fire than the Spanish Armada at Gravelines in 1588. There is real fear that insolvency could spread like herpes in the Kardashian family and if that happens, not even extra strength Valtrex will be able to save the Europe’s economy. Of course today, North Korea has slapped their tiny penises (or is it peni? Can someone exhume William Safire and ask him?) on the table to take part in the global cock off to see who can fuck shit up the most. After South Korea finally picked out the right stationary and calligrapher, they formally accused North Korea of sinking one of their warships in an incident that happened back in March. South Korea also relisted North Korea as their “principal enemy” knocking forks, Don Rickles, and Yonggary down on their list. In return, North Korea has suspended any interaction with their neighbors to the South, banned South Korean ships from territorial waters and air space, and taken out an ad in the Rodong Sinmun calling South Korea a bunch of “chodes.” While this is not good news, Money McBags could give a shit if North and South Korea want to go to war, stop talking with each other, or have a fucking pillow fight. What Money McBags cares about is the markets and as long as this threat of war doesn’t stop sweat shops in Seoul from banging out willy warmers, he will blissfully ignore this hissy fit and assume everything will get better.
In stock news, GS is about the only thing up big today as investors fly to the safety of the US government. Other financials continue to trade down as new legislation may require them to raise more reserves. spin off their profitable derivatives desks, and stop being such dicks. In other stocks, DELL announced plans for an iPad rival which they are tentatively calling “failure” and Microsoft announced a management shake-up with the head of their entertainment division “retiring,” no doubt to spend more time with his Zune. With MSFT lagging Apple, Google, Nintendo, and the abacus in developing consumer products people actually want to buy, hiring someone with vision is going to be key for MSFT to grow back to a market leader. Finally Autozone is up 5% today after reporting numbers better than estimates due to new store openings and higher demand for auto parts. They expect continued strong demand for replacement parts as fewer people are buying new cars since it’s not necessary to drive to one’s living room which is where 20MM people now work.
In small cap news, KITD is getting pummeled again today. Money McBags can’t defend this stock anymore as he has said everything he can say. He is going to hold on to his shares and just not pay attention to the price in this volatility. Either their A/R are fucked or they’re not and if they’re not, this stock is easily a double from here. Also, CTGX which Money McBags has blogged about many times and which he puked out the day of the “flash crash” may have bottomed out today as it is up in this tape. The company is trading at ~10x Money McBags’ fiscal 2011 EPS which implies 50% growth. Their upside relies on government spending on electronic medical records and even if Europe falls in to the ocean and North Korea taints South Korea’s kimchee supply, the US government is still going to be doling out billions of dollars to get EMR up and running. So CTGX’s main IBM outsourcing business may come under fire in a bad economy, but EMR should help pull them through. There’s a lot of Y2K about this company, but luckily, we’re about to start the medical Y2K and they should post impressive earnings. Money McBags is likely going to buy back when shit settles down a bit. Right now low liquidity names scare him more than seemingly hot chicks with adam’s apples.
The market is down today as Standard and Poor’s downgraded Portugal to a principality and Greek to junk and not the the kind in a trunk that most investors love, but good old fashioned junk. It was the first time since the advent of the Euro that a European country has lost its investment grade status and Money McBags would be concerned if the rating cut hadn’t coming from an agency who missed something called the subprime mortgage meltdown which only caused the biggest financial collapse in 80 years. The real fear is that the EU can not handle this situation and it spreads throughout Europe like the bubonic plague in the 1600s or black jeans in the last half of the 20th century. Consider the market spooked as it was looking for a reason to consolidate down anyway and now we have it.
In the US, consumer confidence rose to its highest level since Lehman Brothers collapsed and the highest level since the pet rock fad (because seriously, if people were willing to throw money away on fucking rocks, they must have been hella confident that things were going ok). The consumer confidence index came in at 57.9 beating even the highest of forecasts after getting those forecasts in a camel clutch and having them submit. People are generally starting to feel better and the fact that most Americans don’t read the news and have no idea that Europe is teetering on the brink of bankruptcy while their own government printed more money than humanly possible to count (again, the “too big to count” strategy) can only help the blissful ignorance. In other macro news, the Case-Shiller index showed that home prices were up from a year ago but declined on adjusted basis by .1% sequentially. This still beat analyst guesses though prices are basically stagnant which is better than them dropping but is still a long way from a recovery. And grabbing most headlines today were Goldman Sachs executives and Fabulous Fab Tourre who never saw shitty CDOs they couldn’t pawn off on investors, testifying in front of congress about their alleged fraudulent behavior. After hours of questions and answers, all we learned is that Senators don’t have a fucking clue about the financial system and Senator Claire McCaskill, to quote another great Fabulous Fab, “Girl you know it’s true, ooo, ooo, ooo.” Today’s hearings accomplished nothing other than letting some rich assturds (the Senators) grandstand and belittle the richer assturds (GS executives). Excuse me while Money McBags yawns through this part of the saga. The fact is GS did some shady shit as did the whole fucking financial system so unless GS gets more than a slap on the wrist, nothing is going to change. Money McBags is close buying long dated out of the money puts on MCO because when the smoke clears from this cock off, the rating agencies are going to be the musician to the regulators’ very rusty trombone.
In stock news, Ford reported their 4th consecutive profitable quarter and earned $.46 per share which easily blew by analyst guesses of $.31. In the Q, Ford outsold GM for the first time in 50 years and gained 2.7% market share thanks to the Toyota recall and vibrating seat warmers. The stock is getting clobbered though as it had a huge run up and they still sell Fords.
In small cap news CRUS put up a huge quarter and Money McBags is an owner of CRUS and has talked about it many times on When Genius Prevailed. He first alerted all of you to the company on 1/12/10, told you all he was buying on 1/28/10, and it is now up 75%+ which is enough to take Hayley Atwell out for a nice dinner of tea and my crumpets. CRUS’s Q was way better than Money McBags was expecting though and their guidance pissed all over Money McBags’ estimates as if it suffered from bladder incontinence and had just downed a two liter of Mountain Dew and a box of Franzia. For the Q, CRUS earned $.16 non-GAAP and Money McBags was expecting $.11 with their revenue coming in ~15% stronger than they had indicated. They said all segments were pretty much up, but energy rebouned to $22MM up from $14MM last year and back to where it was before the economy bent over and starting catching pitches from pitchers with low hanging FICOs. Guidance is for $78MM-$84MM in revenue for next Q (Fiscal Q1) with 55% margins and ~$26MM non-gaap operating expenses. With ~65MM shares and enough NOLs to make Wesley Snipes salivate and thus not pay taxes for real, that gets to an eps estimate of ~$.29 if Money McBags is doing the math correctly (and it has been suggested that the correct way to do math is with a reverse cowboy). CRUS didn’t give detailed full year guidance as visibility in to Qs 3 and 4 is low (though hopefully not lower than Stevie Wonder’s visibility in trying to see a shooting star without a telescope) but they gave full year revenue growth guidance of 30%. Of course, guidance for fiscal Q1 already puts them at that 30% revenue growth and it is unlikely that the next 3 quarters will be flat with last year given the audio growth and return of the energy business. Plus, they said none of their new products figured in to their backlog and thus there could be some upside if some of the new applications start taking off. So how the fuck should we value this company? As said previously, Heather Vandeven is hot, but as also said previously, Money McBags had an ~$.85 eps for CRUS for this upcoming fiscal year with ~$.19 coming next Q. So we could assume they will be inline with Money McBags estimates for the rest of the year and gross up his previous $.85 with the $.10 beat in Q1 their gudiance implies and thus get a $.95 fiscal year eps estimate. Alternatively, we can take Q1 estimates as a baseline, say they get an uptick in September’s Q like usual, and the other Qs will all come in the same as Q1 guidance. So 3 Qs at $.29 and one slightly higher gets us to $1.20. Either way, just call earnings somewhere between $1.00 and $1.20 per share and given that, the company is still fairly cheap trading at 10x to 12x fiscal 2011 with $2 of cash on the balance sheet (of course some of that cash is going out the door because on the call they said they were buying a building to relocate their headquarters and it’s not clear what real estate in Austin is going for these days). The point is, this company just grew revenue 87% and the trends are still in their favor as their 35% customer which is AAPL is still selling the fuck out of some iPhones. So hopefully you all bought with Money McBags, and if you didn’t, the stock should consolidate down a bit over the next few days and it is still relatively cheap, so you’ll get another chance. Throw a 15x multiple on $1.00 of earnings and you get a $15 stock and that seems to be a fair low end price.
3/30/10 Midafternoon Report: Market rests today after spending all night trying to find the afikomen
Before we get to the market news, today marks an important achievement for mankind (perhaps an even more important achievement than Brooklyn Decker) as the Hadron particle collider is finally working sending two protons smashing in to each other at 99% the speed of light. Results hope to answer some of the Universe’s most essential questions such as the existence of the Higgs Boson, the presence of dark matter, and who the fuck the people are who actually watch American Idol. So planet changing discoveries aside, the market is flat today as international concerns temper the moderately better than expected US macro data. Consumer confidence jumped thanks to the new health care bill, which has made it easy for people to buy deliriants. The index reached 52 today, easily besting the 46 from February, which would be all the more impressive if we actually knew what a difference of 6 points meant. Additionally, Home prices rose in the 20 city Case-Shiller index (named of course for “Hot” Karl Case and Bob Shiller) from “take this fucking thing off my hands” to “take this fucking thing off my hands but I am keeping the toaster.” The index was up .3% sequentially and down .7% from a year ago which is the smallest y/y decline in two years. However, on an adjusted basis the index was down .4% sequentially due to the initial petering out (and yes, I said peter) of the government first time home buyer’s tax credit and the realization that monopoly money is not a valid subsitute for cash or a claimable asset to mortgage guarantors. That said, there was some really interesting news that tax receipts are now expected to rise in the 15 most populous states by 2011 which would be huge for the economy (no joke, it would literally be bigger than Manuel Uribe at an all you can eat taco bar. Ok, maybe a little joke.). California has already taken in 3.9% more in taxes than forecast since December while NY is $129MM above budget. This is largely the result of higher sales tax receipts from increased consumer spend likely as a result of this rise in consumer confidence and the hiring of Jeffrey Skilling to audit all state tax records.
Internationally, S&P cut Iceland’s local currency credit rating from BBB/A-2 to BBB/A-3 (and if Money McBags were rating Iceland, they would always be rated “frosty.). And yes, those are the actual fucking ratings S&P uses which are about as helpful as chopsticks to a leper. I mean really, BBB/A-2? Even Heidi Montag‘s singing career and Poncaire’s Conjecture are less confusing (especially if you are tone deaf or Grigori Perelman). Money McBags hasn’t seen anything so contrived since Ricky Martin acted straight in one of his videos. That said, the downgrade made Magnus ver Magnussen, a man so important they named him twice, pick up a giant boulder and crush the S&P’s entire Iceland office. Anyway, Money McBags scoffs at any rating, no matter how confusing, by any rating agency due to the inherrent conflicts of interest and the piss poor track record of those ratings agencies (see US financial markets circa 2007). Of course this downgrade has caused investors throughout the world to not just try to locate Iceland on a map, but to learn for the first time that Iceland actually had credit ratings. In other international news, an auction of 1B euros of 12 year Greek bonds garnered interest in only 390MM euros worth of them which caused the offering to be more undersubscribed than Bernie Madoff’s new investing magazine (tentatively titled, MisFortune). The lack of interest in the bonds (well, technically the interest is actually quite high at 5.9%) has caused the yield spread between Greek debt and German debt to double. Investors continue to worry about Greece’s ability to fund themselves while Money mcBags bets in 1 year no one will remember any of this.
In stock news Apple is up on reports that they are designing an iPhone to be CDMA compatible thus potentially giving iPhone users a choice of carriers and not restricting them to AT&T. AAPL allowing competition is a bit like North Korea alowing photographers or Ellen Degeneres allowing penetration, but it should be positive for consumers and thus positive for the stock. In related news, RIMM announces earnings after the bell tomorrow and is limping in to that announcement. While Money McBags likes owning the number two competitor in a market about as much as he likes country music, RIMM is cheap for its growth trading at less than 20x earnings estimates. Money McBags is an owner of RIMM and will be holding it through the quarter because this should really be at least a $95 stock. That said, if they miss, look out below because RIMM will go down faster than Hillary Duff after getting an engagement ring.
In small cap news, CRUS seems to be riding the news of the potential newly designed iPhone and is up 6%+. Money McBags is an owner of CRUS (he mentioned he was buying in his 1/29 Midday Report where he said he “did dip his toe into the CRUS waters yesterday (and it was delightfully stripper piss warm)).” The original analysis of CRUS was done on 1/12/09 but the company basically produces ICs for two sectors, audio and energy. In the audio market they won a chip in the iPhone a few quarters ago as their IC delivers better sound quality and as a result, that segment grew 83% last quarter and was 72% of sales. In the energy market, their business was hit harder than a bottle of Mad Dog by Betty Ford in the 1970s as sales dropped ~40% in the downturn. Their main energy segment involves selling chips that go into power meters and their biggest customer is Itron and Itron sales were up 10% last Q, so that could be a good indicator of this business coming back. Of course a better indicator is that they have had two sequential up quarters in the energy segment after bottoming out and that segment is what delivered their positive earnings surprise last Q. Money McBags thinks the company can earn ~$.65 in the fiscal year ending 3/2011 and that assumes just 10% growth in the audio segment (and remember they just grew 80% and could be getting more business if the Apple news from today is true) and 20% growth in the energy business. The 20% energy business growth is a bit aggressive because it has been down so much, but that growth assumes $18MM in revenue per quarter and before the downturn they were regularly doing $20MM-$24MM. The company has $2 in cash on it’s balance sheet and is trading at ~13x Money McBags estimate (which may now be too low) including that cash. They could also earn ~$50MM in EBITDA in this next fiscal year and thus are trading at only ~8x EV/EBITDA. This stock is cheap and has a nice cash cushion (while Jessica Biel has a nice ass cushion). Money McBags doesn’t like to own cyclical companies, but CRUS is in the spanktasitc part of the cycle so it is worth owning at these levels. In other small cap news, RICK continues to tumble (and remember, Money McBags sold last week, so phew) while KITD had their quarterly call and didn’t disappoint. Money McBags previewed KITD’s Q yesterday but will break it down for you tomorrow. Let’s just say he found it titillating and is looking to add to his holdings.
1/26/10 Midday Report: An Apple a day will keep the recession away (especially if it’s one of those new tablets)
The market is bouncing around after Apple put up a ginormous quarter and is likely to announce their tablet on Wednesday while the global economy still sputters. In macro news, US consumer confidence rose to 55.9 from 53.6 and we all know how important it was to break that 55 barrier (actually, I’m just kidding, I don’t have a fucking clue as to the difference between 53.6 and 55.9, and I am guessing no one else does either, but bigger is better, just ask Keeley Hazell). Also in the US, the Case-Shiller home price index was either up or down, again depending on which news source you use. According to Bloomberg, home prices rose sequentially in November by .2% while according to the Wall Street Journal, home prices declined .2% sequentially in November. As always, our tie breaker is the NY Times because the irony of having a newspaper noted for their lapses of fact act as our determining factor makes me giddier than Charlie Sheen at a hoedown. According to the NY Times, home prices rose by .2%, so woofuckinghoo, home prices were slightly up, or not. I think the moral of this story is that home prices remain stagnant and you can’t believe everything you read, unless it is about Money McBags’ way with the ladies, and then all reports are 100% accurate, and delicious.
In international macro news, Standard and Poor’s lowered Japan’s outlook to negative and warned that they might cut Japan’s debt rating if Japan can not trim their mounting public debt and reliance on Pokemon cards to spur their economy. Seeing as how the S&P credit ratings analysts did such a good job assessing US financial institutions before the biggest failure of the US banking system since the Great Depression (and yes, that is sarcasm), Japan yawned at the reports and went back to their game of Dance Dance Revolution. In Europe, the UK announced that they have momentarily come out of their longest recession since the 1930s as GDP rose .1%, or by its more familiar name “a rounding error.” The growth disappointed most Brits, though not as much as their disappointment in General Cornwallis or dental floss. Weighing most on the global economy though continues to be China where some banks are said to have been ordered to stop lending for the month. With China threatening to make their monetary policy tighter and already less rigid than Joan Rivers’ face, the global economy may be in for a bigger slow down than the current market implies. Be wary of what is going on in China as they are currently driving the global economic rebound so if they put on the brakes, we all may get Chris Henry-ed.
In terms of stocks, the big news is that Apple demolished numbers like they were auditioning for the lead role in a Monsters of Cock video. They earned $3.67 a share, up from $2.50 and had $15.68B in revenue, which was 32% topline growth. This was led by Mac sales which were up 33% and grew at twice the rate of the computer market thanks to a 70% increase in iMacs. Sure Apple did an accounting switcheroo from non-GAAP to GAAP which essentially pulled iPhone revenue forward by about $2B or so, but it’s not like Apple has ever had other accounting issues so there’s probably nothing to see here (though there is something to see here). Some analysts were disappointed that the 100% growth of the iPhone was a bit below expectations, but being disappointed in 100% growth is a bit like faulting Brooklyn Decker for having bad breath for like one second every few years (though even her bad breath must smell of gold).
In small cap news, ZAGG continues to get pulverized, though it is unclear that there is any news, except for perhaps people realizing that this one trick pony’s trick may not be that hard to repeat, like walking or dividing by 1. As the market for smart phone covers has fewer barriers to entry than Paris Hilton’s pants, ZAGG’s business model should remain challenged. EBIX also continues to trade down making Money McBags glad he sold his EBIX holdings to avoid the attack of the shorts there who may or may not have something on EBIX’s accounting. Also RICK has been selling off with the market but Money McBags missed a key announcement from them last week (unfortunately the announcement did not involve the words “free,” “champagne,” and “room”). Last week RICK said their high end spender is coming back. CEO Eric Langan said: “What we are seeing is customers are spending more money on higher-ticket items. For example, last year, guys who were (used to) drinking $1,000 bottle champagne were ordering the $300 bottle. Now, we are back to selling… those premium bottles of wine and champagne again.” In that same interview, RICK forecast fiscal 2011 to have 20% growth to $100MM of revenue. They also expect operating margins to start expanding in Q2 and op margins were at 17.8% last year after being at a 26% the year before. So let’s say RICK can earn $100MM in fiscal 2011 and their operating margins go back to only 20%. That is $20MM of operating earnings and then subtract out $3MM of scheduled interest payments and tax them at 34% and you get around $1.20 per share for their year ending September 2011. They are currently trading less than 10x that number and margins could be a lot stronger than 20%. As always, Money McBags is aware that there is a taint on this stock (pun intended) as they are just one rusty trombone away from being in serious trouble, but as long as they can keep the ladies walking that fine line of legality and awesomeness, this company should have improving financials and strong growth. Money McBags is an owner of RICK and this is one time where he tries to do as much primary research as possible.