Posts tagged consumer senitment
The big macro news today was that GDP slowed to 2.4% growth in Q2, that is until it’s revised down next Q to keep up with the administration’s “hold the shock and hope for no awe” strategy. This strategy was further evident in today’s release as GDP from the past 3 fucking years was revised downward because apparently the Commerce Department is still figuring out how to properly use the “solver” function in Excel. The peak to trough decline is now seen to have been a 4.1% decline instead of a 3.7% drop, which officially makes this recession the worst since the 1940s which was so long ago that Abe Vigoda had only been dead for a decade and muff guessing still referred to fashion designers trying to figure out the latest in hand warming trends.
Surprisingly though, and in direct opposition to the downward revision strategy, last quarter’s GDP was revised up to 3.7% from 2.7% which makes today’s number even worse. It also goes against every fucking rule of manipulating data since, you know, the whole point of manipulating data is to use it to your advantage but apparently the new guy at the Commerce Department must have missed the memo while he was busy figuring out how to put a cover sheet on his fucking TPS report.
So GDP was below guesses of 2.6% growth and was mostly hurt by a trade deficit growing wider than the Octomom’s cervix with imports spiking up 28% which is the largest jump in 25 years since the run on french cookies in the mid 1980s, consumer spend slowing to only 1.6% growth after growing 1.9% last Q, and a renaissance of common sense. The one bright spot Money McBags could find was Jasmine Waltz, and the one bright spot he could find in the GDP report was that the equipment and software category grew at an annual rate of 21.9% as businesses need to buy a bunch of shit to do what people used to do. The slower GDP growth comes a day after Fed Bank of St. Louis President James Bullard published an academic paper warning of the potential for the US economy to hit a period of deflation and turn in to Japan from 20 years ago which would be bad for everyone but the bukakke industry.
GDP is now slowing down, the economy has lost 8.4MM jobs, and Christina Hendricks still has not agreed to make a late night Skinamax movie, so any hopes of a speedy, stimulus driven recovery are becoming slimmer than Amy Fisher‘s parents hopes and dreams. Money McBags is sure the Fed will announce something soon to try to kickstart the economy, but based on the fact that they have been in existence for 100ish years and still haven’t figured shit out (largely because economics is a more full of shit field of study than proctology), he’s not holding his breath (though he would gladly hold anything of Hayley Atwell‘s).
In other US macro news, the University of Michigan’s consumer sentiment index fell to 67.8 which is the lowest level since November and 10% below the 76 number it registered last month (though to be fair, it registered such a high number last month because it had put the thermometer next to the heater in hopes of being able to stay home from school). As always, Money McBags has no idea what the difference between a 67.8 and a 76 is other than 8.2 so while market seems mildly happy that the 67.8 came in at .8 better than analysts’ guesses, Money McBags is pretty sure an 8 point drop is worse than a .8 outperformance, even if it were measured on some weird logarithmic scale.
Finally in macro news, the Chicago PMI defied all common sense, data, and laws of supply and demand and rose by more than guessed for the month of July. The PMI jumped from 59.1 to 62.3 while economists had guessed it would fall because, well, because we’re in a fucking recession. Interestingly enough, readings above 50 signal expansion so despite GDP slowing down and consistently high rates of foreclosures and unmeployment causing the midwest to be bleaker and more run down than Warsaw in 1945 or Barbara Walter’s vagina, Chicago area manufacturing continues to grow. It is as perplexing as the 9 dimensions needed for string theory to hold or the Lifetime channel.
Internationally, Moody’s cut Iceland’s rating outlook to negative, said they they could cut it to junk, and warned Iceland that they better “check themselves, before they Reykjavík themselves, because fucking with foreign currency loans is bad for yo’ health.” Iceland defended themselves by properly pointing out that Moody’s is a bunch of asshats and by saying they are a long way off from defaulting on any debt payments. When asked what a “long way” was, Economy Minister Gyfli Magnusson simply replied that he’d like to buy a vowel before quickly mushing off on his dogsled.
In the market, MRK’s profits fell 52% due to merger and restructuring charges associated with buying Schering-Plough and redoing the company cafeteria. Without those one time charges the company beat analyst eps guesses by $.03 and earned $.86 on the Q but the stock dropped as the company trimmed their full year guidance due to price cuts on drugs from European governments and slowing sales of vaccines and Singulair. A company spokesman said they would do their best to continue to promote bad and unhealthy behavior in order to boost sales of their products.
In other earnings news MET insured the fuck out of some shit and beat analyst guesses while Amgen also beat guesses despite lower revenue and profits as both investors and osteoporosis sufferers bend over backwards with excitement over their drug Proli. Also in the market Disney sold Miramax for $660MM to better focus on making shitty vapid films for kids to buy shittier vapider toys off of and C paid a $75MM fine for a little something called misleading investors about the amonut of subprime loans they held on their books. C claimed they only had $13B of exposure when they had $50B but Money McBags is sure the $75MM fine will make up for the billions investors lost by believing any of the publicly audited financial statements C released.
In small cap news, TSYS sold off by 17% after their net income fell by 50% in another quarter more confusing than the ending of a Kafka novel. Remember a couple of weeks ago Money McBags told you TSYS would make an interesting short term trade and on this past Tuesday he said:
“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.”
So hopefully you didn’t get too greedy and took your profits and went home because we were given more reasons for its shitacular performance this year.
That said, on the surface, the quarter wasn’t horrible, as revenue was an alltime high $92MM, though pretty much flat with the first two quarters of the year and gross profit of $33MM was also up a bit sequentially. EBITDA of $15MM was down a bit sequentially and barely up from last year when revenue was $25MM less so they are clearly having margin/expense issues with gross margin dropping from ~45% to ~36% from last year’s Q. Not really what you’d like to see out of a supposedly growing business. Money McBags is a firm believer in not owning businesses with negative operating leverage unless they are in the start-up stage, so that is a huge red flag, especially for a company that has relied on acquisitions for much of their growth.
That said, the biggest problem seems to be that they saw their text message licensing business slow down and lead to fewer sales of pepetual licenses which was what Money McBags thought was a big growth area for this company. People like the fuck out of texting so it was always a bit confusing why this company’s revenue didn’t scale faster with that and why that is now slowing down for them.
Money McBags hasn’t had time to listen to their call yet as he has been busy trying to solve the Riemann hyopthesis (he thinks the answer is zero) and looking for more pictures of Sofia Vergara, but he’s sure the call would have been as confusing and unilluminating as ever as this management team has overpromised and underdelivered more than an M. Night Shyamalan film. That said, he’s not sure if they are still guiding to $80MM-$85MM in EBITDA as they are only at ~$30MM half way through the year with one of their growth segments slowing and margins getting squeezed like Ines Sainz‘ ass in an airplane seat.
The company currently has an EV ~$280MM so it’s pretty cheap if you think that they can double their EBITDA in the second half of the year but as Money McBags needs a fucking forensic accountant, a strategy consultant, the Amazing Kreskin, and a fuckload of luck to understand their press release and the different parts of their business, he’s going to stay the fuck away.
Hopefully you all made a nice short term profit and perhaps their call explained a lot, as this company seems way too fucking cheap for what they claim to do. That said, the market isn’t usually this wrong when selling something off over this long of a period of time, so Money McBags will remain happily uninvested. That said, if anyone can clearly and concisely explain their business in two sentences or fewer, Money McBags would be interested to understand.
The market tumbled today like a broke Boy George on a floor covered with dong as consumer confidence continues to fade like LeBron James’ Q score or Haiti. Consumer sentiment fell to 66.5 which is the lowest since August and below the most pessimistic guesses of those not paying attention (also known as economists). The drop in sentiment from June’s made up reading of 76 was the biggest drop in two years and was well below the 75 guessed at by economists who eventually will understand that the old data they used to calibrate their regression models no longer holds in our fat tailed society. Newsflash economists: The world has fucking changed, people are all connected, and whatever correlations you saw in the past are now likely more spurious and outdated than civility, manners, and landing strips. Basically everything in the consumer sentiment survey got worse and that is as bad of a sign for future consumer spend as a “You must be 18 to enter” sign is at a NAMBLA convention.
According to a Bloomberg poll, seven out of ten Americans believe we are in a recession, but then again, four in ten believe in alien abductions and six in ten believe that Kathy Griffin is a woman, so whatever. The economic data has gone from marginal to whatever is worse than marginal and it’s not clear what is going to stimulate the economy out of this except for maybe a Bobbi Eden promise to take care of businesses if they hire. In other macro news, inflation continues to be modest as consumer prices were down .1% spurring louder whispers about deflation where cash will be king, and not some lame ass king like George III, but a cool one like Henry VIII or Kong.
In other US news, the SEC pulled themselves away from their tranny porn just long enough to settle with Goldman for $550MM as related to GS’s shady dealings with their Abacus mortgage CDO. The settlement will be among the largest in the history of the SEC with $15MM a result of the money GS made on the deal and $535MM as a punishment for GS being a bunch of asshats for the past 140 years. Of the fine, $300MM will go directly to the US Treasury where they can either buy 3 new planes for congress, help Timothey Geithner pay his back taxes, or hire Cintia Dicker to massage their data before they stick it in to a GDP model.
Along with a consumer nudging closer to life support (and unfortunately with a pre-existing spending condition, the consumer is no longer eligible for insurance to help them survive), earnings reports were marginally bad at best. BAC plummeted 9% and C dropped 6% after they released decent earnings but showed revenues to be more lacking than rhythm at a Republican convention or diction in an NBA lockerroom. BAC’s revenues were down 11% and C’s were flat but most worrisome was that the earnings beats were a result of reserving less for credit issues with BAC reserving $5B fewer than last year because apparently they developed retrograde amnesia sometime in June. Ugh. This is going to get uglier than an Amy Winehouse-Michael Berryman love child.
In other stock news, GOOG revenue beat guesses but EPS fell short by $.06 as they earned $6.45 per share vs. analyst guesses of $6.51. That <1% miss of made up numbers was enough to drop the stock 7% and the company has said the are going back in to investment mode which spooked investors as if investment mode were a book and investors were Dexter Manley. Even though the 24% rate of growth was a bit lower than last Q’s, this company is still the dominant player in one of the biggest and growing industries on the planet (right after hand set makers, gold mines, and porn) so while Money McBags is scratching his head a bit at GOOG’s continued fourth mover push in to things like handsets and social media, he is still a long term owner because if the consumer dies, they are still going to spend time online guessing muffs as a way for cheap entertainment, so online advertising is only going to get stronger.
In small cap news, everything was down today. JOEZ was out with their quarter and it was mostly inline with analyst guesses of $.01 eps but 50% below Money McBags guess of $.02 eps (and see how Money McBags used 50%, instead of $.01 to make it sound much worse than it was?). Anyway, JOEZ put up a nice topline number, growing revenue by 51% to $26MM but once again had earnings leverage more negative than the reviews for an M. Night Shyamalan movie. That’s right, despite growing revenue 51%, net income dropped by greater than 50% from $1.3MM to $500k defying the laws of common sense and business savvy. With that kind of inverse operating performance, it’s a good thing JOEZ didn’t grow their business 75% because then they might have lost money.
It would be easy to blame the drop in net income on the tax rate which grew to 48% over last year’s 14% thanks to a shareholder unfriendly earnout struck by management when they acquired Joes, so thanks for that guys, really (oh wait, Money McBags isn’t a shareholder, so he doesn’t really give a fuck that JOEZ management treated their stock owners like second class citizens in a third world country when structuring the acquisition), but operating income BEFORE TAXES was down 25% from $1.6MM to $1.2MM. So on the extra $8.7MM of revenue JOEZ brought in this Q compared to Q2 2009, they lost $400K before taxes. Wow. Now look, Money McBags is no Jack Welch (though he did manipulate his earnings this morning to Brooklyn Decker), but losing money on incremental revenue is so obviously bad that even business school professors know it is a failing strategy. It’s ok to have a loss leader, but when your whole business is a loss leader, you may have a problem.
Anyway, the reason for the operating earnings decline was threefold: 1. Gross margins declined worse than Louis XVI’s power in 1792 France or Yasmine Bleeth’s career after Baywatch. 2. Operating costs jumped up as if they had seen a mouse, or Kevin Federline, scurry across their kitchen floor. 3. Their core denim business is witnessing a second derivative decline in growth.
As for gross margins, which continued their descent, this time from 51% to 44%, the company said that the drop resulted from the addition of new lower margin product categories such as the T, the Pant, and the Top. CEO Marc Crossman did say that as volume grows for these products, margins should go back up as they can take better advantage of the factories and thus he expects meaningful margin expansion.
As for the increase in operating costs, that is a bit more troubling as costs jumped up to ~$10MM from ~$7MM which they said was the result of new worker salaries, rent costs, and a big night out at their local Rick’s Cabaret (ok, maybe not the third one, but whatever). The confusing thing though is that costs were up $400k sequentially when last Q JOEZ said operating costs were artificially higher due to $850k of one-time advertising expenses and the moving of their headquarters. If we strip out those numbers, operating costs were up by ~$1.2MM from Q1 or ~15% while sequential revenue was up only ~12%. So basically this company manages their cost structure about as well as Alan Greenspan managed interest rates, Bernie Madoff managed money, or Magic Johnson managed a condom. The company said with their new lines built out they don’t expect operating costs to rise, but again, last Q they pretty much said the same thing and blamed the higher costs on one-time charges which either became two-time charges or were filled in by new costs.
And finally, they said their denim is now a single digit grower (though Money McBags wasn’t sure if they just meant in department stores, or overall) so they are going to increasingly need to rely on new products to spur growth and to date, the new products have killed their margins. In a trendy business, continuing to hit on new products is more difficult than solving the Poincare Conjecture or listening to a Ray Romano stand-up routine and not wanting to cut out your ear drums, so this is getting to be a tricky proposition.
In terms of their balance sheet, cash is now down from $13MM at the beginning of the year to $8.5MM, driven by a $3.5MM burn from operations due to rising inventories and helped out by growing accounts payable (which sounds about as healthy as a cock sandwich with extra VD). While they aren’t in imminent danger (though at the rate of their cash burn from operations they only have 12 months of leeway), Money McBags would not be shocked by some kind of secondary offering because unless they can get their operations in order and start GENERATING cash, their growth plans are going to have to be put on hold.
So how the fuck does one forecast a company whose growth rate over the past 4 years was 30%, 35%, 10%, and 16%, who sells an expensive discretionary good in the midst of GLOBAL RECESSION, whose management team has grown revenue 46% this year and yet had earnings decline because they understand costs like Donald Rumsfeld understands war strategy or Sheyla Hershey understands when enough is enough, who burned cash in both quarters this year and is getting to the point where the may need to reload faster than Peter North on a day he is filming a double feature, who is in a market that is all about fads and their biggest product is starting to have its growth slow, and who has been so shareholder unfriendly that they stuck shareholders with a 48% tax rate so the management could get a better earnout and thus order a second helping of caviar when they were done screwing equity owners?
One could annualize the $.02 they have made in the first half of the year and call their earnings run rate $.04 and slap some growth on that, but that would be the easy way out. Money McBags is in a good mood today (mostly because he recently discovered Sofia Vergara) so he’ll assume JOEZ can kind of keep this up and grow revenue 35% for the rest of the year and 30% next year (assuming they don’t run out of cash or can raise cash to continue to expand). He’ll call gross margin 51%, operating margin 38%, and the tax rate 45% (though they say it will wind up closer to 40% sometime around the year infinity). Doing that, Money McBags gets to $.16 eps for next year at the high end because every single one of those estimates is giving them a fuckload more credit than they have earned. So next year the company should earn somewhere between their current $.04 run rate and $.16 assuming they don’t have to issue more shares to help quell their cash burn. JOEZ is now trading at between 13x and a bazillion x those numbers.
So in short, Money McBags is glad not to be involved in this company as they have been able to deliver profits about as well as George Will delivers a punchline but if one believes what management says and not what they have actually done (like you know, lose money, mismanage costs, fuck over shareholders, and burn in cash), one could make an argument that 13x for a 40% grower is cheap, of course one could also make an argument that Tori Spelling is hot, so be careful to whom you listen. Money McBags remains fascinated by this little stock though as it’s not often you find 40%+ topline growers who manage to consistetly shrink their profits.
The market has been relatively quiet today after yesterday’s meteoric rise on news less relevant than the Pound-Dong exchange rate (and oddly enough Pound Dong was also the name of Alexis Texas‘ last movie) or the 93rd decimal of Pi (which incidentally is 2). In US macro news, consumer sentiment was better than analysts guessed, largely because the survey was taken on payday and was done while Melinda Messenger lovingly massaged consumers’ fears away. The index came in at 75.5 which was up from 73.6 last month and above the median guess of 74.5 and was driven by consumers’ stated interest in buying durable goods such as cars and storage crates to put all of their shit in when the repo man comes to take over their homes. Interestingly enough, while consumer sentiment was up, US retail sales dropped proving once again that actions speak louder than words and all of the data is made up anyway. Spending fell 1.2% last month driven by auto sales being down 1.7% even though according to the consumer sentiment numbers, peple are looking to buy autombiles. These two data points couldn’t be more diametrically opposed than John Calvin and free will, Hemmingway and adjectives, or Richard Simmons and pants. Consumers intend to buy cars, but they’re not. Hmmm, maybe because 10% of them are unemployed and another 10% are underemployed or just not looking? Hey, Money McBags intends to buy a gold plated, diamond encrusted caviar dispenser that runs on the dreams of wide-eyed children, but he is just a few million euro short, but that is just a minor detail. So University of Michigan, put that in to your ridiculously misleading consumer sentiment survey and report it. One other interesting data point from the consumer spending numbers warrants mentioning and that is that sales in hardware stores were down 9.3% which likely means that people are spending less time fixing up their houses as they anticipate foreclosure.
In market news, Mary Schapiro is going after high frequency traders as tenaciously as a squirrel (or Ricky Martin) goes after a sack of nuts. High speed transactions now account for half of the market volume which is as healthy for the markets as Miley Cyrus‘ singing is to a hemophiliac (because her singing of course makes one’s ears bleed). Money McBags applauds Ms. Schapiro for not letting this relatively arcane corruption of the markets continue without regulation especially as high frequency trading was more negligent in the “flash crash” of the other week than the E! channel has been negligent in the devolution of american culture. Circuit breakers are now being put in to the market to halt shares of actively traded stocks when they move by +/- 10% in a 5 minute period which means BP stock should be halted on an hourly basis.
Internationally, things are relatively quiet today as the market awaits Greece’s impending default which is a worse kept secret than Burt Reynolds’ toupee or Lindsay Lohan’s implants. Greece has less ability to pay back their debtors than Athens did of defeating the Spartan-Persian alliance that ended the Peloponnesian war. Europe continues to hope that the IMF bail out can push Greek’s default out far enough so that Spain, Italy, and Amy Winehouse, can get themselves in order before the figurative shwarma hits the pita. In other international news, inflation in China rose to a 19 month high with consumer prices up 3.1%. Given the increasing pricing pressure and the rapid growth, China may start to allow their currency to fluctuate in a tight band, that is until the drummer of the band OD’s on heroin and the lead singer shacks up with the 2010 version of Bebe Buell.
In stock news, BP is pondering a dividend cut, something about needing the funds to help to clean up a mess resulting from spilling a fuckload of oil all over the Gulf and ruining an entire ecosystem. BP shares are now down nearly 50% after they tried to turn the Gulf into their own personal scat film.
Finally, Money McBags promised he would get to MLNK today. Why? Because apparently he likes writing about shitty stocks that underperform on a more consistent basis than the Alabama public school system. MLNK is a global supply chain management company that basically sets up shop next to electronics makers in Asia/Europe/The US. They manage the shipping process of the electronics makers’ products, the rebates and warranties, and then either don’t charge enough for their services or haven’t figured out how to do them efficiently, hence they lose money. They also recently bought a company called Tech for Less which sells used and refurbished computers which would seem like a good business to be in given the economy, but this business is only ~4% of revenues and based on how they run the rest of their business, is likely losing money. Anyway, this quarter MLNK’s revenue was down 7% to $213MM and below expectations because their new business is taking longer to set-up and their unit volumes are shrinking as inventories are no longer being added by retailers due to the fact that people seem to have stopped buying shit. New business revenue was $16MM compared to $44MM in fiscal Q3 last year which is so bad that Bernie Madoff wouldn’t even want to fake invest in this company. With revenue down, gross margin was down as well from 14% to 11% and EPS was a loss of $.08. However, taking out discontinued operations (though perhaps the whole operation should be discontinued), the loss was only $.03 per share. Non-GAAP income which is a proxy for EBITDA was $8.3MM, down from $16.1MM and defines the term “fuckawful.” That said, the company has no debt and $161MM of cash, cash equivalents, and broken promises. Free cash flow was $500k, just below last year’s fiscal Q FCF of $16MM, and yes, that was sarcasm. They did institute a new $10MM share buyback plan which Money McBags appreciates since he will likely be selling his shares so is glad there will be a buyer. And in the most bizarre ending to an earnings call ever, there were no questions. None. Zip. Zero. Nada. Investors were more silent than an electrolarynx user with a severe case of laryngitis.
So basically the only one who marginally gives a shit about this company is Money McBags since despite their consistently awful performance, MLNK is cheaper than a tattered Rusty Kuntz rookie card (and quick bit of trivia: “Rusty Kuntz” was actually the pre-production working title for the sitcom The Golden Girls). The company has a $288MM market cap and $161MM in cash so an enterprise value of $127MM. Their EBITDA had been as high as $18MM per Q, but this quarter shrunk again to $8MM. If we annualize the $8MM, they are trading at 4x EV/EBITDA and they previously said they expect business at the end of the year to be better. Of course last year they said they expected business at the beginning of this year to be better and it has fallen off faster than Yasmine Bleeth’s looks, so what they say needs to be taken with a grain of salt, or several grains of salt around a shot glass filled with tequila which is what the management team seems to be drinking before they give guidance. Money McBags has no idea how to evaluate this company any more as consumer spend is once again going in to the toilet and MLNK has shown less ability to execute than the state of Ohio. There is basically no good news for this stock on the horizon, they have significantly underperformed for several quarters in a row, and no one is interested in the company. So basically this is a value investor’s wet dream (well, that is if MLNK were going Lucky Pierre between Benjamin Graham and David Dodd, then it would be a value investor’s wet dream), or it’s a straight up value trap. Money Mcbags is likely going to dump his shares but it’s such a small position (and growing smaller by the day), that he may hold it for the improbable chance that they get better at their jobs.
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.
Oh shit, the market sunk today like Bernie Madoff’s grandchildren’s hopes and dreams or like a booze cruise captained by Joseph Hazelwood. Just when you thought investors had forgotten about Greece like John Edwards forgot about dignity (though perhaps he never had any) or Britney Spears forgot about underwear, it is back in the news bringing down the Euro. Fears remain that Greece won’t be able to service its debt (and it won’t, unless perhaps Julia Alexandratou does the servicing), that the Euro may be doomed (is everyone else riding out EUO with Money McBags?), and that Nia Vardalos will finally make a sequel to My Big Fat Greek Wedding. Making matters worse are that Sony warned that they may suffer a “significant impact” if Europe’s deficit spreads, Chinese Premier Wen Jiabao said the foundations for a worldwide recovery aren’t “solid” thanks to the continuing debt crisis and the foundations being made out of tofu (and not extra firm tofu, but the regular mushy shit) and paper (the paper of course being the dying Euro), and Hannah Hilton still remains “retired.” Things are looking so bleak today that even the cheering of Alison Preston likely won’t cure the markets (though Money McBags would still like to put his rah in her sis-boom-bah). One way to stop the debt contagion from spreading is to go all Weimar Republic and inflate the shit out of the Euro, another is to break up the EU and stop rewarding moral hazard which seems to be at what Gremany is now hinting. Breaking up the EU would not only allow Germany and its strong economy to avoid taxing its workers in order to save its freespending neighbors, but it would also allow Germans to practice their favorite past time of schadenfreude. It is scary out there today so take a deep breath and start booking your vacation to Paris because the Louvre is getting cheaper by the day.
In the US, the banking sector is taken a beating like it’s 1986 and it just walked up to Mike Tyson and told him he talks like girl. Politicians finally seem to want to try to regulate the industry that gave poor people loans in order to sell those loans off to greedy rich people not paying attention and thus destroy the global economy. First off, credit card companies are taking it in the first bucket today (that was for all you credit card analysts out there) as the Senate voted on legislation to limit interchange fees. AXP, COF, MA, and V are all down 5% to 10% as a key source of their revenue appears to be drying up like Soul Glo-less jheri curls. Not only are politicians going after card issuers, but they are trying to fix the rating agencies by creating a middleman (or lucky pierre if you will) to determine who will rate bonds. This is a bassackward solution, but still better than having rating agencies bid for business and thus completely take objectivity out of just a little something called objectively rating fucking bonds. First of all, Money McBags doesn’t know why any bonds need third party ratings. Investors should just do their fucking work themselves or rely on the sellside or fucking Yelp.com for all Money McBags cares. Most importantly though, the current system is more screwed up than Oedipus’ sex life or Tori Spellings‘ face, so Money McBags applauds the baby fucking steps politicians are taking but it’s a bit like showering before you bone a hooker because at the end of the day you’re still going to get herpes. Finally, the SEC and NYAG are still going after banks who may have lied to ratings agencies about what they were actually putting in CDOs. Look, Money McBags has said this before, but they were all fucking complicit. Honestly, it would take about 3 minutes going through e-mails to convict every bank and every ratings agency of screwing the consumer like the consumer was walking home and hitched a ride on the the Bang Bus. It was a big shell game only the shell was the global economy and the game was gay chicken and no one flinched so we’re all left with flacid cock in our hands. Be very wary of the financials space right now because if the government wants to be serious and prosecute, there will be no winners, like a Wilford Brimley-Kathy Bates sex tape.
As for macro news, US consumer sentiment was up in May and inline with analyst guesses as the average US consumer can’t find Canada on a map, much less Greece, so it just proves that ignorance, and Madelyn Marie, are truly bliss. Also retail sales rose by .4% which beat analyst guesses of .2%. However, if autos, gas, and building materials are excluded, retail sales dropped .2%. Up .4%, down .2%, whatever, it’s all rounding to Money McBags, but the point is, and Money McBags has to put this extrememly elegantly because he expects his readers all to be very cunning linguists, shit is still fucked up.
In stock news, it was what Money McBags calls an AC Green or a celibate day as shorts were up and longs were down. In addition to credit card issuers having their balances transfered, chipmaker Nvidia put up a big quarter but was down on a forecast more lacking than diction on an NBA studio show. The stock was down 10%+ as they guided to a 3% to 5% revenue decline for the upcoming quarter and analysts were guessing flat to moderately up revenue growth. Videogame makers are also all getting hit as an industry tracker showed the worst year over year sales decline since the Mario Brothers were implicated in the steroid ring and thus became a bit less “super.” Software sales were down 23% and analysts were expected sales to rise, especially off of a week April number last year while hardware sales were down and amazing 37% as teenagers spent more time playing Scrabble on Facebook and learning to YoYo from the way ahead of his time K-Strass.
In small cap news, everything tumbled except sleepy Money McBags holding DFZ and IBKR. IBKR is a bit of an interesting play here as the CEO (who also owns 80% of the company) thinks there is $2 of eanrings power in his business but they face lumpy Qs as their market making business is always long volatility to hedge. Well guess what, unless you have been on the planet Melmac for the past week eating pussy, you are probably aware that volatility is spiking up and thus IBKR’s long vol play should bring earnings back to their market making business. The company takes little balance sheet risk as they are making markets in listed options and hedging their exposures and they have a nice other business which is an online trading platform that is growing 20%+. This business has been more of a value trap than going to the backroom in a Vegas strip club (and as a word of advice, save the $150 and just get 7 lap dances), but this is the kind of environment where they should excel. So if you are itching for risk, this is one way to play the financials space relatively safely and with the trends going in your favor and it’s still pretty cheap trading at only ~8.5x their earnings potential.
4/30/10 Midday Report: Biggest swinging dick on the Street may land in aptly named penal colony as criminal investigation launches on Goldman
The markets are down today due to mostly inline GDP, more shenanigans in Greece, further investigation in to Goldman Sachs, and gravity. GDP for Q1 was released and the economy expanded by 3.2% thanks to consumer spending which was up 3.6% and interestingly enough coincided with the release of KFC’s Double Down thereby spiking sales of Pepto Bismal and artificial hearts. Guesses were for 3.3% GDP expansion so the economy pretty much performed inline but following a 5.6% expansion in Q4, the economy has now had it’s best two quarters since the end of 2003 when the great mortgage fraud frenzy was peaking and anyone who currrently or previously had a heartbeat could get approved for a loan (Money McBags isn’t saying it was easy to get a mortgage, but Abe Vigoda owned 6 mansions and one apartment complex during that time and he died in the 1980s. What? he’s still alive? Nevermind). Also, the Fed’s inflation target was only up .6% which is the lowest level since records started being kept in 1959 but that target ignores food and fuel prices since why measure the things people actually need to spend their money on when measuring the value of money? It’s a bit like judging a movie based on the font of the opening credits (and Money McBags loves him some Garamond) or a wet t-shirt contest based on the flip-flops the contestants are wearing, but whatever. Business spend also keeps inproving as it was up 13% thanks to the fact that it is bouncing back from historical lows and an increase in the sale of cardboard boxes to help pack up laid off employees. While the consumer appears strong in GDP numbers, consumer sentiment dropped in April, though it still beat analyst guesses and was essentially the same as last month. Consumers are at least flat lining as the average US citizen gives a fuck about whatever is happening in Europe and as job losses have begun to stagnate, they are happily oblivious to any potential impending financial doom. Money McBags is pretty sure Europe will get their shit together so perhaps ignorance is bliss (though probably not as blissful as Elisabetta Canalis).
There is more he said/she said/finger pointing/tail wagging/pillow biting in Greece today. Moody’s downgraded 9 Greek banks which is a bit like downgrading hydrogen as a fuel for zeppelins after the Hindenburg crash or Heidi Montag‘s singing career after her second album was released. Greek prime minister George Papandreou is back crying for help saying “what is at stake is the survival of the nation.” But if he were really concerned about the survival of the nation, perhaps he wouldn’t have let the debt grow out of control or claimed the comedian Ant as one of Greece’s own. Tomorrow’s Labor Day festivities in Greece will likely be subdued as greater austerity measures threaten the ability of Greek workers to continue to produce no valuable output. Seriously, what does Greece produce besides baklava for tourists and Julia Alexandratou sex tapes? Perhaps union leaders should focus on that by figuratively solving the problem of what to do with all of the underwear they stole.
In the market, Goldman is getting sacked as US federal prosecutors may open a criminal case against them for crimes against humanity, or securities fraud, potato-puhtaato. It’s not clear what exactly the charges would be since every single investment bank does something criminal every day, but that is how the markets stay efficient. Money McBags does wonder what will happen to CEO Lloyd Blankfein if GS is found guilty and whether his cellmate will try to put his underlying assets into Blankfein’s special purpose entity.
Finally in small cap stocks, Money McBags favorite QCOR put up an ok quarter and yet are off to the races again. After last Q, Money McBags highlighted this company and mentioned one should buy on any pull back, unfortunately that pull back never occured as QCOR is now up 50%+ since then. This quarter revenue was up ~13% to $26.2MM and eps came in at $.11. Both of these numbers were short of Money McBags’ estimates (he had $27.5MM in revenue and $.15 eps) and yet the stock is absolutely ripping up like it is on a Red Bull and meth binge. There are five reasons for this as far as Money McBags can tell.
1. Operating expenses were higher than normal as they try to build out their sales and marketing efforts. Money McBags is 100% behind this as he’d like to be 100% behind Jessica Biel. Anyway, with costs up to help grow future revenue, a bit of a hit to the bottom line is unconcerning.
2. They announced that a panel of experts is going to rule on their FDA submission to get Acthar on label for IS on May 6th and QCOR will host a conference call about it on May 10th. This isn’t the final hurdle as the panel merely gives a recommendation to the FDA who then has the final ruling on June 11th, but a positive opinion will be a better sign for QCOR than marrying in to the Kennedy family was a positive sign for Arnold Schwarzenegger‘s political career. Getting IS on label would finally allow QCOR to market to doctors in their historically biggest segment.
3. Kelly Brook is hot. Ok, this might have nothing to do with QCOR being up, but Money McBags had to investigate to make sure. It is likely just spurious correlation but it was necessary for Money McBags to test his lurking variable to make sure.
4. NS is coming. Holy fucking shit could it be on. The QCOR cake just got a little more icing on it as NS could be bigger than both their IS and MS segments combined according to management. They filled 11 NS prescriptions this last Q which is still smaller than one of the late great He Ping Ping‘s turds but it is encouraging enough that management is going to launch a pilot sales program in April to try to reach nephrology doctors. Patients with NS need to use Acthar for 3 to 6 months to be cured so the recurring revenue potential is huge for QCOR.
5. MS continues to grow, ticking up 187% and overtaking IS as their biggest segment. Remember, just two years ago this segment was about the same size as NS currently is but management dedicated resources to blowing it out, so it does bode well for their ability to execute a NS strategy.
So while all of that was good, numbers were still below what Money McBags thought and he is taking his full year estimate down to ~$.60 from ~$.70. The big question for Money McBags has to do with why their reimbursement rate as a % of gross sales which had been running at 30%+ was down to ~22% this quarter? The reimbursement rate takes gross sales to net sales by removing medicare/medicade/etc. expenses. So with only a 22% remibursment rate, it means gross sales were way below Money McBags estimates and the question is why and what is the rate going to be going forward? Sure they seemingly cleaned up a bunch of the tricare reimbursment issues, but is this 22% rate the rate to use going forward? If so, that would be huge for eps and if not, investors may be in for a negative surprise next Q. That said, with his current $.60 eps estimate (based on a 25% reimbursement rate, 20% sequential quarterly MS growth, no growth in IS, and no growth in NS) the stock is trading at 16x that, even after this run up so it’s still not hella expensive especially with the NS potential. Remember, they said NS could be bigger than their current business so in the ultimate best case scenario (and Money McBags is not saying this will happen, just their big upside possibility), they could more than double their earnings in 2012 (say it takes them 2 years to get NS up and running like it did for MS and they get operating leverage and continued growth in MS) which makes this a ridonkulous buy. However, Money McBags would like to get a better understanding of reimbursement, a better understanding of what they are going to do with their cash (last Q they said they were going to look to buy another drug but there was no mention of it this Q), and a better understanding of Kate Bosworth.
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.
The market is up again today and as far as Money McBags can tell the main reason is that it is open. There was a flurry of economic data released today, all of it inline, further signalling the stagnation of the recovery from a potential V-shape to a Bea Arthur-esque flatline (which is of course because she’s dead). Consumer sentiment remained unchanged from the previous month at 73.6 which was slightly higher than economist guesses of 73 (we are told the Albanian judge scored it a 75 due to difficulty, imagination, and grace under pressure which helped drive up the score). Fourth quarter GDP was revised downward for the third time proving that three times isn’t always a charm (unless of course you’re the Dahm triplets). GDP for Q4 is now said to have grown at 5.6%, down from the last guess of 5.9%, and the initial guess of 5.7% growth. Economists had expected it to be unchanged but they also expected markets to be efficient and the overvaluation of the financial sector in the 2000s and undervaluation of Hayley Atwell easily disprove that theory. GDP was driven by business spend and exports with US consumers largely remaining keeled over in the fetal position hoping the mortgage man won’t come touch them in their foreclosure. Money McBags anxiously awaits GDP to be further revised next month, pehaps becoming just DP by dropping the barely politically correct and bad for its self-esteem, “Gross” moniker. And Alan Greenspan is at it again. The 84 year old pontificated on the threat of rising long-term interest rates on the housing market right after wife Andrea Mitchell changed his depends and cut his food into little pieces to make it easier for him to chew. Greenspan said he is “very much concerned about the fiscal situation,” because the “last boob in charge really fucked things up.” When he was reminded that he was that boob, he simply replied that he has always been a breast man. His concerns about longterm rates rising are that they “will make the housing recovery very difficult to implement and put a dampening on capital investment as well” whereas holding them low indefinitely will only create a bubble and lead to one of the worst global recessions in history, so I guess you’re damned if you don’t and you’re damned if you do, which describes the philosophy of Roman Polanski in a nut shell (though it’s unclear how or why he would be in a nut shell). But all is not despair as unemployment rates fell in 7 US states including Michigan where now only 14.1% instead of 14.4% of people are out of work. Of course unemployment rose in 27 states, but that is just a minor detail, like remembering to pull the rip cord on your parachute or always remembering to check for an adam’s apple. Overall, unemployment held flat at 9.7% furthering driving home the sluggishness of the recovery.
Internationally, Greece is still fucked, though maybe a bit less fucked as the EU and IMF finally have come to some sort of nebulous agreement on a bail out plan until next week when they will likely start all over again. The IMF and EU are respecting Greece’s personal choices and allowing them to take their funds anyway they want by making the funds bi-lateral.
In US stock news, Radio Shack, or as it has been rebranded “The Shack” after it’s first rebrand of “Irrelevant” didn’t work is rumored to be in the process of selling themselves and is up 8%+ on that news. The company is armed with $900MM of cash and thinks they are worth $3B which is about where they are currently trading. Potential buyers include PE firms, Best Buy, and anyone else looking for outdated business models. Seriously, Money McBags doesn’t get Radio Shack. They sell batteries and cable cords and wires when we are like 18 months away from everything being wireless. If you want to buy a tv/stereo/computer, you go to the internet or Best Buy or Circuit City (and see that’s funny, because Circuit City is no longer in existence, so you get my point), not to a RadioShack. Money McBags is a bit flummoxed by this one, perhaps there is some real estate value but otherwise he can’t think of one reason for a company like this to exist.
In small cap news, KITD is set to have their earnings call next week and Money McBags is expecting big things or at least updated guidance to reflect their Multicast deal. If guidance is only 10% as positively surprising as logging on to the not safe for work and perhaps not even safe for home spankwire.com and seeing a video starring, Hannah Hilton and Faye Reagan (and yes, that happened today), then KITD should rally. It’s been a pretty quiet week in small cap world and Money McBags has been very busy so he apologizes for the lack of analysis. He will be back next week breaking down more companies for you and trying to continue to find good values.
Until then, enjoy the weekend.
3/12/10 Midday Report: Macro data sending more mixed signals than a drunk married co-worker at a holiday party
The market was down in the morning with conflicting economic data having been released. Retail sales increased in February by .3% which easily beat estimates of a .2% decline (though the difference is so insignificant it could be contributed to a rounding error or some d-bag buying that one extra pair of Joes Jeans). Excluding auto sales, retail sales were up .8% which should give investors confidence that people will still buy shit even though they can’t get jobs (and snowstorms in the Northeast didn’t stop people from continuing to run down their savings either). Alternatively, making matters worse was the University of Michigan’s consumer sentiment index coming in below expectations. The index came in at 72.5 (not 72.4 or 72.6 for those of you scoring at home) and was below last month’s 73.6 and expectations of 74. Look, Money McBags continues to be befuddled by what any of those numbers mean. How much worse is 72.5 than 74? Really? If the number had been up just an additional 1.5 points then the market would have been fine. The consumer sentiment number seems more fictitious than Larry Craig’s wife and more preposterous than someone with a constipation fetish (and I’m pretty sure that guy is not a mathematician even though he apparently likes to work things out with a pencil). So retail sales were good, but consumers apparently feel bad about spending on shit they can’t afford. Welcome to America, no go buy a flat screen (that you can’t afford).
In other news, apparently Janet Yellen, the current president of the Federal Reserve Bank of San Francisco (where everyday is funday) is set to take over for Donald Kohn as Ben Bernanke’s #2 in charge after a strong showing in the swim suit competition. It was neck and neck between Yellen and Federal Reserve Bank of Boston president Eric Rosengren until Rosengren went for the hail mary by breaking out a thong and prancing down the runway to the Go-Gos “We’ve Got the Beat.” In the end (both literally and figuratively), the thong worked against him. Yellen is said to be in favor of low rates, economic stimulus, and long walks on the beach. In her free time she studies the labor markets, authors economic texts, and makes a mean peach cobbler. She is also married to a Nobel Prize winning economist who won the award for his work on assymetric information, though he clearly understood the work better than the Nobel judges (and for you non-economics geeks out there, trust me, that was hella funny). So welcome to the job Janet, working directly under Benny B should be quite an experience, just ask Mrs. Bernanke (Oh! drumshot please).
In stock news Schwab warned that Q1 will fall short of Q4 as trading volume in February was down 14% and the company now expects to earn around $.10 per share which is below estimates of $.15. Most troubling is that trading volume was down despite February being the first month of lowered prices for small investors. This either says that trading is inelastic (which it is) and thus they should raise their prices (oligarchy be damned) or they should just keep prices where they are and start a monthly contest to stimulate trading. Money McBags would propose a contest where each time a trade is made, that person should get an entry in to an end of month drawing with the prize being a momentum day trading session with CNBC’s Amanda Drury where she’ll interpret your bollinger bands and show you how your wiener process can cause her some brownian motion (and yes Money McBags used that joke the other day, but it needed to be said twice). Look Money McBags knows Schwab has to lower prices in order to be competitive with other online brokers to bring customers in, not to actually stimulate trading, but still, the whole industry needs to either just make trading free, or stop lowering prices in their poorly played game of chicken. Online brokers are so bad at game theory they must think the Prisoner’s Dilemma is whether the prisoner should pick up the soap or not once he has dropped it in the shower. In other news, POT raised their Q1 earnings guidance from $.70-$1.00 per share to $1.30-$1.50, well ahead of analysts $.94 estimates. The increased guidance was caused by a rebound in potash demand and higher-than-expected margins in nitrogen and phosphate, or to put it more simply, more people were buying the shit out of POT’s nutrients at much higher prices. Money McBags has owned POT for quite some time as a way to diversify his portfolio (he found that simply reading The Biography of Frederick Douglass to his portfolio was not an effect diversyfing tool, though it did increase his portfolio’s empathy) so he’ll take the increased guidance.
In small cap news WILC finally placed their 3MM shares to raise $20MM of cash to go with the $26MM of cash they already have while diluting shareholders by 15% (or about what the stock is down today). The offering price was $6.05 so Money McBags is a fucking idiot for not selling yesterday when he told all of you readers he was a “Vern Troyer taint hair” away from selling. This company is Biz-fucking-zarre. We might as well hold on now until the phone call so Zwi can share his wisdom with us as to why a $70MM market cap company needs almost $50MM in cash and perhaps he’ll also let us know why he includes discontinued operations in his quarterly earnings summaries. Money McBags is less happy about this share offering price than when he found out that that no talent assclown Mario Lopez was boning this chick (and Money McBags would love to be saved by her bells). IMAX is also trading down today after their big Q yesterday which may have triggered a momentary short squeeze while also likely triggering a few cases of epilepsy in those who actually sat through Avatar in 3D.
Money McBags is short on time today and will likely be short on time next week but will still try to pump out a daily market update. Stock analysis may just be lagging. Either way, join Money McBags on twitter and enjoy the weekend.