Posts tagged CTGX
Small Company Update: Taking Computer Task Group (CTGX) to Task
Feb 24th
With the market falling faster than the marginal peace in the Middle East as Qadaffi takes hold of Tripoli (and screw Tripoli, Money McBags would settle for taking hold of double E), faster than the SEC’s already piss awful reputation (as apparently their top lawyer made off with some Madoff profits), and even faster than Jessica Simpson’s fupa (and really Jess, what happened to you?), Money McBags thought he would step back from macro commentary today and look at one of his favorite little companies, CTGX, as they just announced their earnings.
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Just to refresh your memories, CTGX has two basic businesses. The first is more boring and vapid than George Will’s essays (Dear George, Please leave me the fuck alone. Love, Baseball) as it is a low margin staffing business that basically provides people to help IT departments in large organizations. This is ~64% of their revenue with ~half of that coming from farming people out to IBM in order to help install servers and do all the shit no one in IT wants to do (like shower and talk to girls) and that companies don’t want to pay a full time person to do since most companies are not in the IT business. If that is all this company did, Money McBags would waste less time on them than he does waxing his taint (because he believes in being au naturel) or trying to solve the Kryptos, sculpture because low margin uncompetitively advantaged businesses are for douchey value investors to buy when the shit becomes too cheap as there really isn’t defensible growth (even though the business is growing strong now coming out of the down cycle).
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The reason Money McBags talks about this company so much is because of their Electronic Medical Records installation business as they are one of only 6 or 7 companies that can do that, the government has mandated all hospitals to be compliant by 2014, and fewer than 20% have been penetrated (like a high school freshman cheerleading squad). So the shit is going to start to grow, CTGX has a stellar reputation in the health care field, and these EMR deals have 10%+ margins and last ~2 years so each deal brings in solid recurring revenue. Money McBags has said before that EMR installation is a fuckload Y2Kish, but in this case Y2K lasts 3 to 4 more years, is really just starting as federal funds get spent and hospitals once again can get bank loans, and there is less competition.
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Money McBags has been writing about this stock since it was <$8 and we have seen a nice run up of ~50% appreciation, so it’s not disgustingly cheap anymore, but there is still value. The company was actually down ~2% with the market today despite what Money McBags thought was a good earnings call, so he’ll break down the good and the bad before figuring out what the fuck to do.
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1. Revenue growth remained stronger than Portia Di Rossi‘s breath on a Sunday morning. Money McBags actually thought you should buy ahead of the quarter because he thought their shitty staffing business would see a spike based on IBM’s earnings call where IBM said they were getting a fuckton of demand for their service contracts and IBM is ~32% of CTGX’s business. For the Q, the staffing business grew 23%, so not stupid high growth, but more like slightly dumb growth and that is fine because the business is rebounding.
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The big revenue growth story remains their services business which grew 37% driven by an 86% jump in their EMR installations which is exactly what we want to see (though we’d like to see this this a little bit more). In total, revenue was up 30% in the Q and 20% for the year and that is growth in which we can believe.
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2. Operating margins continue to climb as the mix shifts towards their high margin EMR business. Operating margins went from 3.8% to 4.9% as CTGX gets more leverage than Gabourey Sidibe on a see saw opposite the late great He Ping Ping. And this is really the story as they continue to shift their business to higher growth and higher profit verticals.
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3. Earnings were the most in over a decade: Wow, just wow. That must have been more of a lost decade than the 1990s (or 1980s or 2000s) for Josef Fritzl’s daughter. CTGX earned $.16 per share so that puts them at a $.64 eps run rate and they are trading at ~18x that, so not all that cheap, but that assumes no growth, which is more unlikely than Qadaffi winning dictator of the year or the Fed not resorting to QE3.
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4. Guidance was solid, not great, but reasonably tempered. Management guided to $365MM to $385MM revenue which is 13% growth at the midpoint and $.63 to $.73 eps which is 31% growth at the midpoint. Not too fucking bad but given that EMR is just hitting the inflection point and staffing is expected to grow in the very low double digits, it is a bit underwhelming, like US Grant’s presidency or Cameron Diaz’s face. As you all remember, Money McBags guessed they would earn ~$.75 per share next year but he assumed the current business would remain flat and that the growth would come from closing ~5 EMR deal a Q as this is supposedly the year when those deals heat up, so the fact that guidance is below Money McBags’ guess and includes 10%ish growth in the staffing business is a bit worrisome. That said, guidance is still for ~30% eps growth, so the company is getting leverage and working.
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5. They continue to win EMR deals. They closed four since Q3 and have six open RFPs where they are just waiting to hear back from clients (and hopefully the clients will like like them). CTGX currently has 17 EMR projects underway with those four new ones so had 13 underway in Q4 and brought in ~$12MM in revenue from them so each one is ~$4MM in revenue a year. On the call, management reiterated this by claiming that EMR deals are $4MM to $6MM annually in revenue which is twice what CTGX management told Money McBags a few yeas ago when he talked with them, so that is some interesting news. Of course they were charging 40% below compeitors back then so hopefully they have raised their fucking prices, but still, $4MM to $6MM annually is twice what Money McBags had been using so shit, if they are really earning that, they should outperform Money McBags’ $.75 eps guess from before.
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6. They are still working on a bunch of other shit. Every year it is the same BS about them launching fraud prevention software, data analytics whatever, and johnson rod measuring. This all goes in one of Money McBags’ ears and out the other because they have yet to see shit from any of this. So while Money McBags applauds their efforts, so far it’s delivered less value than a Flowbee.
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7. Kate Upton’s twitter account is spanktastic. This has nothing to do with CTGX, but you can all admit it is important information.
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8. Their balance sheet remains solid with $15MM in cash (~$1 per share), $6.6MM cash flow from operations in Q4, no debt, and a 1MM share buyback program. Money McBags loves clean balance sheets like this as if they were Alice Eve.
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9. There could be another huge Y2Kish type opportunity for them. Money McBags needs an Ines Sainz assload more information about this but on the call a question was asked about ICD codes which apparently are used by doctors to classify diseases with the issue being that the US uses 9 digits and the rest of the world uses 10. So if Money McBags understands correctly, by 2013 that shit has to all be standard and going from 9 digits to 10 isn’t that easy (and going from 10 to 12 makes you Antonio Alfonseca). On the call they said it is a $12B to $30B opportunity though not clear how much of that is available to them or how the fuck they will get involved. Definitely worth learning more about, just like Diane Kruger.
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10. They lost out on EMR deals for the first time ever. This was the worst and most important part of the call and yet no one asked them questions about this. Two deals they bid on went to competition and as far as Money Mcbags knows, they have the best reputation for service and the cheapest prices, so um, losing a deal is fucking troubling. They gave no details as to what happened but this is a huge red flag.
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11. Legacy EMR projects are ending. Projects typically last 2 years so the six projects they started in 2009 will start rolling off in Q2 2011 and thus the deals they just won are really just fucking filling in for projects ending. That’s not great as they now need to accelerate growth even more to make up for projects falling off.
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Valuation:
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So what the fuck do we do? The company is trading at ~16x their high end guidance and that guidance is for 16% top line growth and 38% eps growth, so a fairly reasonable valuation for a mostly low quality business. The question is, can the pace of EMR wins accelerate and boost them above the high end of guidance, especially as this is apparently when EMR deals should be heating up. Money McBags is hella concerned that they just lost deals for the first time because it could mean competition has finally come down to their pricing level or they don’t have as much of a service advantage as Money McBags thought. So shit, there’s really not much to do here unless we can get some fucking clarity from management.
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So CTGX managemt, if you’re reading this (and Money McBags knows you are, because wtf else would you be doing? Fighting over thin mints?), Money McBags would like to know:
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1. Why did you lose your first EMR deals ever?
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2. Is it $2MM to $3MM per annum for an EMR deal or $4MM to $6MM?
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3. What is this ICD opportunity and should we care?
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4. How does Ziona Chana put up with 39 fucking wives living together? This isn’t relevant to CTGX, but really, it just seems mentally impossible.
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5. If this isn’t the inflection point for EMR when will it be and what will growth accelerate to because 13% topline growth in what should be one of your best years is less interesting than soccer.
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Anyway, Money McBags wouldn’t be selling here, but he also wouldn’t be adding unless the stock drops more or he gets some clarity on the above questions. He still likes the company and thinks there is upside, but he’s just not sure when that hits and how it will accelerate.
1/20/11 Midnight Report: When All Else Fails, Just Buy The Dip
Jan 21st
The market was down strong in the morning as both fears of rising inflation in China and common sense seemed to hurt sentiment, but then like a phoenix rising from the ashes (though luckily not River Phoenix rising from his ashes, because that would have been weird) investors stopped adjusting their bollinger bands, refused to overlay any more pivot points (and Money McBags would love to over lay any of these pivot points), threw away their Ouija boards, and remembered that the key to making money in this market is to simply buy the fucking dip. It is a more fool proof strategy than settling disputes using a two-headed coin or solving a rubik’s cube by merely peeling off the stickers and putting them back on, as the “Bernanke Put” lifts all falling markets (except for maybe Tunisia‘s).
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As for data today, new claims for unemployment dropped by 37k to 404k which was below analyst guesses of 420k (and no surprise the guess of 420 was too high, and strangely left analysts hungry). The most surprising thing of all though was that last week’s claims were revised down for the first time since full bush was still in style as they dropped from 445k to 441k, and no that is not a typo. Money McBags hasn’t been this surprised by anything since he learned that Paul Krugman won the Nobel Prize in Economics or Maria Vagina is a real person. As loyal readers know, the B(L)S has consistently employed the “hold the shock and hope for no awe” strategy of announcing better numbers and then revising them worse the next week with hopes that investors’ memories will be shorter than He Ping Ping‘s taint, and it has worked marvelously so far, so Money McBags can only scratch his head at this sudden reversal of strategy as it has made him more confused than Joe Lieberman (though without that old man smell).
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In other macro news, existing home sales were up 12.3% to “are you fucking kidding me?” Sales reached an annual run rate of 5.28MM units which destroyed analyst guesses of 4.85MM as a 1% drop in home prices, a jump in mortgage rates, and a buy one foreclosure get one free deal swept the market. That said, it is hard to, well, get hard about these numbers (unless you are reading them while Ali Sonoma gently whispers sweet nothings in to your ear) as sales are still 3% below last year’s number and 36% of sales were from distressed homes which include foreclosures, short sales, and wherever Charlie Sheen is sleeping.
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Finally, the Philly Fed index dropped to 19.3 from a downwardly revised 20.8 and those numbers mean less to Money McBags than brevity means to Tolstoy (though Money McBags does love him some War and Peace) or “no” means to Ben Roethlisberger. If anything, Money McBags is surprised the Philly Fed doesn’t always register as a negative since the only thing the city knows how to produce is crime, broken dreams, and heart attacks. Oh yeah, the Conference Board also came out with their index of leading indicators which rose 1% and brought the index to a record high thus securing its place in the annals (and anals) of economic forecasting as the least valuable index yet (just nudging out Art Laffer’s random number generator and GDP).
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Internationally, China’s economy expanded 10.3% in 2010 thanks to lending being looser than Arizona’s gun control laws or Alexander Hamilton’s interpretation of the Constitution, a shitload of state run infrastructure investments, and overwhelming demand for pee pee flavored coke (and loyal readers, Money McBags is terribly sorry for using that joke again, but you see, he has made the same reference now for the past bazillion China stories and is experiencing a bit of joke OCD). The big concern is that inflation continues to be high as the rate was 4.6% in December and many economists expect that pace to pick up again soon due to rising wages and seasonal factors like the Lunar New Year holiday in February and the release of Yoko Matsugane‘s new calendar.
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In the market, MS was up 5% as their profit jumped 60% to “lobster tails and blow jobs for all.” That said, the company either beat or missed analyst guesses of $.35 eps depending what you want to count as one-timers, gains from sales, and straight up manipulation. The driver of MS’ performance was their strong retail brokerage fees as clients came back in to the market to buy the fucking dip and that offset shitacular results from MS’ fixed-income division. And in the fourth most closely watched number (after 36, 24, and 34), MS’ compensation expense was 51% which dwarfed GS’ sub 40% ratio and ensured that no one at Morgan Stanley will ever have to lower themselves to slumming in a 5 series again.
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In other earnings news, EBAY was up after they beat earnings guesses on sales of $2.5B which is a fuckload of Johnny Dickshot autographs. To be honest, the most surprising thing to Money McBags was that EBAY is even still relevant since the last time he used them was to a buy a new stylus for his fucking Palm Pilot. That said, Paypal revenue (and yes, Paypal sounds like a NAMBLA dating site) was up 22% and is now 39% of EBAY’s revenue as mobile devices have made e-commerce more ubiquitous than bad grammar or Paris Hilton’s vagina. More importantly, EBAY gave above the Street guidance for 2011 as analysts were outbid on their guesses after EBAY waited until the last second to make guidance public.
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Elsewhere, F5 Networks was down ~20% after posting weaker than guessed results, having a book-to-bill ratio below 1, and closing fewer big deals than a member of BBW Personals Plus with a book of McDonald’s coupons and a year’s supply of Crisco. You all know Money McBags is a big proponent of cloud computing because there is no reason for any business to have an IT department, so look to buy into weakness in the sector. And finally. Arby’s is for sale with the bidding starting at “go fuck yourself” because why anyone would want to buy a shitty fast food restaurant with an outdated concept is more puzzling to Money McBags than why someone would build a cathedral from trash (or from anything) or want to watch this.
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In small cap News ISLE was down ~12% after pricing an offering of 5.3MM shares at $10.25 and as you all know Money McBags has called this company out as a short many times (though he did tell you to take some of your profits off the table after their last Q). As he said, they are simply burning too much cash and have too much debt so it was obvious that they were going to have to raise cash somehow since their run down casinos don’t bring in the poor and unfortunate like they used to.
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Also, Money McBags wanted to bring CTGX to your attention again as ~35% of their business is tied to staffing for IBM server installations and as we saw yesterday, IBM’s service contracts were up like a priapism sufferer when standing next to Bree Olson. In the past year Money McBags has broken CTGX down exhaustively on the award winning When Genius Prevailed (just throw them in to the search box, while Money McBags throws himself in to searching for Katie Savoy‘s box) and we’ve made well over 50% on the name but the stock still remains relatively cheap if they can continue adding EMR projects at the pace they have been (they had 6 new RFPs last Q) and especially if they continue to see a pick-up in their boring and shitty staffing business which Money McBags has completely discounted.
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Guidance is for ~$.50 in eps this year and with new EMR additions, Money McBags thinks $.75 eps is possible for next year if everything else stays as flat as Jennifer Connelly‘s acting. That said, their staffing business has had a huge bounce back growing ~27% and if the pick-up IBM saw this Q can trickle down to the shit CTGX does for them, then the company could easily beat the $.75 eps guess. CTGX is currently trading ~15x that but IBM’s Q is intriguing enough that they could put up a surprising quarter and Money McBags thinks you can buy in ahead of that Q.
11/23/10 Midnight Report: Fed Minutes Show Only Hours Until Dollars’ Demise as the Economy Will Be The Real Turkey This Thanksgiving
Nov 24th
The market is limping in to Thanksgiving like Kenny Easterday with a broken wrist thanks to the European Union being on shakier ground than Gabourey Sidibe on a tight rope, North Korea dropping bombs on South Korea after South Korea’s TSA apparently tried to touch Kim Jong-ils junk, and the Fed releasing the minutes from their last meeting which showed less consensus than how to spell “Bernanke” at a Tea Party convention.
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Loyal readers of the award winning When Genius Prevailed know that Odette Yustman is hot, but they also know that Money McBags has been baffled, bufuddled, and downright befuckingperplexed at the market’s continued strong rally given that data remains tepid at best and Europe continues try to sweep their problems under a rug more tattered than Elton John’s. So continue to make sure you are careful in your investments because the fan is on and the global economy just downed a bag of Nacho Cheese Gorditas and a six-pack of Metamucil.
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As for macro news today, the Fed released their minutes from their last meeting and in them we learned that they downgraded their assessment of the economy from “meh” to “oops” with GDP targets for next year lowered from a range of 3.5% to 4.2% to a range of 3.0% to 3.6% while also raising the completely fictitious upper range of the long run rate of unemployment from 5.3% to 6%. So suck on that NAIRU. The minutes also showed that the Fed discussed that QE2 would sink the value of the dollar (despite their repeated denials of such an effect) and ways to improve their communication with the public such as not lying, using smaller words, and employing cartoon characters.
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One other interesting detail released was that the Fed had a special video conference two weeks before they officially met (though the video conference got off to a rocky start when Janet Yellen and Sandra Pianalto were subjected to a flurry of cock shots as Bernanke, Hoenig, and William Dudley thought they were merely on chatroulette). The conference was to discuss hot button issues such as setting explicit targets for inflation and long-term interest rates (targets as explicit as “Fucking higher” and “Cockposterously higher”) and which Fed member had the awesomer name between Christine “Honey I’m” Cumming and Brian P. Sack (and when Money McBags becomes the next dictator, he is going to require everyone with the last name Sack to have the middle initial P.).
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In other macro news, GDP was revised up to 2.5% from 2% thanks to stronger exports, better consumer and government spending, and a fuckload more inventories as businesses stock up on broken dreams and malt liquor to make their own Four Loco. Inventory increases accounted for about half of the 2.5% growth so as inventory trickles down in the next Q as re-stocking goes the way of full bush and those fucking annoying Wassup Budweiser guys (thanks to the holiday season ending and federal unemployment benefits drying up), GDP will struggle to stay positive in the upcoming Qs.
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Elsewhere, existing home sales fell 2.2% sequentially or 26% y/y depending on whether you are bearish or fucking bearish (actually the sharp year over year decline was driven by last year’s home buying tax incentive, but whatever). Sales were effected by some states postponing foreclosures due to something about robosignatures and straight up fraud, as well as people not having any money. The annual rate of sales is now 4.43MM, which was below the 4.49MM guessed at by analysts, and means there is now 10.5 months of inventory on the market not counting shadow inventory and Ice-T’s wife’s ass.
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As mentioned earlier though, it was international news that figuratively pissed in the market’s cheerios today as North Korea and South Korea are nearing war and threatening to use biological weapons such as unrefrigerated kimchi on each other. In Europe, Ireland bent over and took their $100B+ bailout from the EU who once again showed their love for Doin’ Da Butt. This massive bail out has effectively caused the Irish government to collapse as PM Brian Cowen’s Fianna Fail party has officially Fianna-failed. While Cowen won’t step down immediately, he agreed to hold new elections after the budget passes in order to “let some other schmuck deal with this mess.”
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Three funds will be created for Ireland in the bail out, one will back up the country’s failing banks, one will allow Ireland to continue government operations without turning to the bond markets for help, and the final one will get Ireland one night with homegrown Claire Tully. This package should allow Ireland to operate without funds from the markets for up to three years, unless they follow Greece’s lead and fabricate their books worse than Stephen Ambrose on a bender. Making matters worse was that Ireland’s central bank Governor Patrick Honohan said, “Irish banks are up for sale” and Money McBags is willing to bid anything between “not a fucking chance” and “eat a bag of dick” because he hasn’t seen assets that toxic since Paris Hilton got her last pap smear.
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Luckily, Greece is getting their aid (as they must have received the placebo in the Truvada trials) of $12B in January from the IMF but German Chancellor Angela Merkel pointed out there is now serious bailout risk sweeping the continent as moral hazard from stepping in for Greece and Ireland has created a slope slipperier than OJ’s alibi (he did have an alibi, right?).
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In the market, the FBI raided 3 hedge funds after they likely tracked messages posted to Dickflash emanating from those offices. As for stocks, J Crew was up 16% after agreeing to a $3B buyout from two private equity funds who have until the month to return the deal for store credit if they are not happy. HPQ was up 2% after a decent Q in which the company beat analyst guesses on both top and bottom lines and gave above the street guidance. The quarter was highlighted by new CEO Leo Apotheker playing Santa Claus to former CEO Mark Hurd’s Scrooge by reversing pay cuts, reinstating a 401k matching plan, and bringing Skinemax back to break room TVs. Also, NYT strangely shot up again today on unusual volume as algorithms apparently don’t know that the newspaper industry is shrinking faster than gonorhhea cases in the US.
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In other earnings news, Hormel put up a good Q with profit up 17% thanks to the strong performance of Jennie-O Turkey and the fact that with real unemployment running at ~17%ish, SPAM is now considered a luxury good, Finally Campbell’s soup was down after missing analyst guesses as their promotional spend didn’t pay off because apparently hiring Mel Gibson as a spokesperson was a case of bad timing.
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In small cap news today CTGX continues their ride up (and remember Money McBags told you all about them at the beginning of the year), while KITD continued to bounce after their $96MM equity raise the other day.
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That said, KITD had their quarterly call yesterday and Money McBags wanted to briefly go over the highlights as he went over their preannouncement in exhaustive detail the other week. Unfortunately he didn’t get to watch the call as the streaming on their site was somehow fucked up (and Money McBags won’t blame this on their VX Platform, but rather will assume it had to do with trying to watch Carmella Bing‘s latest spankwire.com video at the same time). Anyway, this is what we learned:
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1. EBITDA margins were much lower than they have been coming in ~16% but that was due to a bigger sales pipeline than expected leading to more implementations. It was also the result of investing in future growth by doing some hiring. Money McBags is fine with this, especially as EBITDA guidance for 2011 stayed at a spanktastic 24% with 30% EBITDA margins being the long-term target.
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2. While DSOs spiked to 116 days, they were down to 78 days at the end of November with 94 days being a more normalized number. So good on them for getting this shit down after late quarter acquisitions caused them to rise.
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3. They added 45+ new clients including something called the International House of Prayer, where salvation is served all night.
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4. They clearly stated that they have raised enough cash for their transformative acquisition which will be a company with $50-$60MM in revenue and which they will spend ~$100MM (and remember, Money McBags estimated they’d buy ~$40MM-$50MM of revenue for $100MM, so good for his fucking guess). They also said they would only do an accretive deal and they threw in $20MM+ of their own money in this last equity raise. So while Money McBags has given management a ton of shit for their constant equity raises, he has always appreciated that they are risking their money with shareholders. Sometimes it is good to get high off your own supply.
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5. They are trying to book as much restructuring and integration charges as they can in Q4 so they can start 2011 with a relatively clean income statement. They’ve also been trying to buy back 450k warrants for quite some time from some cock knocker hedge fund who simply won’t sell. Money McBags thinks this is huge because they could easily put up ~$.75 of eps next year which will trip the shit out of algorithms and screening models that aren’t picking up this GAAP eps negative company.
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6. Olivia Munn is hot. Money McBags didn’t learn this on their call per se, but it is a very important thing to remember.
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7. They sold the ~$14MM in non-SAAS business they intended to ditch which was EBITDA neutral for them so next year’s guidance is $137.5MM in revenue and 24% EBITDA margins. Well, until the acquisition and then guidance will probably jump to ~$195MM and who the fuck knows about EBIDTA. They also said that due to the long-term nature of their contracts, ~60% to 66% of their 2011 revenue is already in pocket (and those must be some hella large pockets because even if they are carrying a $50MM bill and two $20MM bills, that would still leave ~$1.67MM in ones which is at least two hours for Money McBags sitting stage level at his local Rick’s Cabaret).
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KITD remains one of Money McBags favorite names and there will probably be some nice entry points (though not as nice as these entry points) as they get closer to making their transformative deal.
7/28/10 Midevening Report: Rally comes to an end and unfortunately it’s not Jessica Biel’s
Jul 28th
The market sold off today as it couldn’t keep ignoring the data and finally had to come to grips with where the bad macro news had touched it. The biggest negative was the Fed’s Beige Book report which failed to titillate the market like either Money McBags’ book report on the Kama Sutra (which he described as both thought provoking and delicious) or Fonzie’s little black book.
In Bernanke’s beige book we found out that economic activity has slowed in some areas and that Federal Reserve Bank President of Cleveland Sandra Painalto doesn’t let you get to second base on the first date (Newsflash Sandy: If you ever want to get out of Cleveland, you’re going to need to loosen up a bit, lower your reserve standards, and give Bennie B. some of that gold you’ve been hoarding). Eight of the twelve regions tracked by the Fed saw growth including New York, Richmond, and Andy Roddick’s pants (he is married to her, you know that right?), while Atlanta and Chicago saw a slowdown, and Cleveland and Kansas City held steady. The Fed cited high unemployment, an ailing housing market, and consumers being more fucked than Lisa Ann in I’m a MILFaholic as reasons for the slower than hoped for recovery.
In other macro news, durable goods orders fell by 1% in June while analysts had guessed they would rise by 1% which makes guesses just an absolute value sign away from being correct which is a fuckload better than usual. Orders for long lasting goods like machinery, metals, and herpes were down the most they have been in almost a year and a half. Even worse, non-defense aircraft orders tumbled 25.6% after falling 30.2% last month as airlines brace for the continuing growth of staycations and poverty.
Finally, mortgage applications fell 4.4% last week but were led by a 5.9% drop in refinancings as rates ticked up 10bps and anyone who still owns a non-foreclosed upon home has pretty much already refinanced it. Surprisingly new home purchase mortgage applications were up 2% but since the majority of those will likely be rejected, that 2% number is more fictitious than the easter bunny, santa claus, or male affectionate lesbians.
In stock news, RIMM jobbed it’s way up today despite the bad taste it has left in investors’ mouths as of late. Rumors are that the company will be launching a new operating system and potentially a new keypad before officially giving up to AAPL and thus becoming the second biggest thing to ever be defeated at Waterloo (fyi, RIMM’s headquarters are in Waterloo, Ontario).
Also, BA nosedived a bit after reporting a strong bottom line but a weak topline which was down 10% from last year. The company did reaffirm guidance which was slightly below analyst guesses but BA promised their new 787 would be more spacious and thus allow more opportunities for flyers to join the mile high club. And finally, Moody’s lowered their ratings on banks BAC, C, and WFC from stable to negative citing lessened government support for banks under new regulations and something about shitty track records which means those banks are going to eventually need that lessened government support. And if any company knows what a poorly run company who sucks at their jobs looks like, it is certainly Moody’s who never saw a huge market collapse it couldn’t misinterpret.
In small cap news, beta sold off as these stocks had run strongly over the past week or so as if they were trying to catch a glimpse of the delightful Melissa Archer and thus it’s not surprising that investors would want to take profits. CTGX reported last night and results were pretty much inline with Money McBags’ expectations. The company grew revenue 21% thanks to both strong staffing and health care services businesses. Health care services is now 27% of revenues and should start driving this business like Nipsey Russell drove all of the housevies crazy on the Hollywood game show circuit in the 1970s. In addition to a solid topline, SG&A was down 120bps, operating margins were up from 3.6% to 4.3%, and EPS went from $.09 to $.12.
The stock sold off on the day though due to the general market taking it in the yingus and lowered full year EPS guidance by CTGX due to a reduction in demand for solutions work from one of their large customers in their energy practice. Excuse me while Money McBags yawns on this one. Full year revenue guidance was increased to $320MM to $328MM from $314MM to $322MM (which is 18% growth) while eps guidance was reduced to $0.45 to $0.51 from $0.47 to $0.55 and although it is down, it is still a 26% increase from 2009. But the point is, Money McBags gives less of a shit about 2010 guidance than he does about Alan Greenspan’s thoughts on the housing, Nassim Taleb’s thoughts on lyrical prose, or Audrina Patridge‘s thoughts on anything other than which hole to enter.
As said frequently in this space, the coming electronic medical records implementations (and they are coming because the government has mandated them, not just because they ran in to Sonya Kraus in the hallway) are going to be huge for CTGX. As the CEO said in the press release: “We believe we are still in the early stages of the significant increases in demand expected for EMR assessments, systems implementation, and development work.”
This Q, EMR was 1/2 of their health care business which was ~$10MM in revenue and means they were working on 13-20 installations at ~$2MM-$3MM a project annually. But the thing is, only ~10% of hosptials have EMR and they are MANDATED by the fucking government to have them at least underway by 2014 so this business should scale faster than a business selling bronzer, or Valtrex, on the Jersey Shore.
Money McBags has gone through his valuation on CTGX here on When Genius Prevailed many times, so feel free to throw it in the search box, but this company is set for strong growth over the next few years so use this sell off as a potential buying opportunity. Obviously the lack of trading volume and the fact that CTGX’s boring staffing business is still ~70% of their revenues is a concern, but as long as EMR is on the way and this company isn’t full of shit about their ability to service that sector as aplombly as Bunny De La Cruz services the ding dong sector, the company should see solid growth.
And remember, When Genius Prevailed is on Facebook and Twitter.
7/14/10 Midafternoon Report: Retail stales
Jul 14th
Ho fucking hum. Retail sales fell again in June as stores keep trying to charge money for products and people keep not having any. Sales dropped .5% in June, though if you exclude automobiles, sales only dropped .1%, and if you go one step further and exclude anything bought in a store other than ramen noodles and despair, sales would have doubled. It wasn’t just auto sales that drove the numbers down though as furniture, building-materials, sporting goods, groceries, and especially Mel Gibson’s career, saw weakness. This is in contrast to the ICSC’s report last week where they broke out their crayolas and limited knowledge of cropping photos or using excel to put out an eyesore-ingly bad table showing that chain store sales were up 3% for the month. To Money McBags, that means people are skimping on more discretionary items and shifting their spend to staples and to stores with lower overheads that can offer deep discounts, of course, all of the data is made up anyway like leprechauns, unicorns, and Larry Craig’s wife, so who really fucking knows.
That said, with the consumer remaining hesitant to spend on anything but lottery tickets and something called jeggings (which Money McBags thinks are a mixture of jeans, leggings, and awesomeness), the stimulus having worked most of its way through the system, and extended unemployment benefits on the same life support as George Steinbrenner, there is little about which to be excited (unless you live next door to Sofia Vergara, and if you do, Money McBags would be happy to quickly come over).
In other macro news, mortgage applications sunk to a 13 year low despite record low mortgage rates, declining house prices, and buy one get free specials at foreclosure auctions. Loan requests dropped by 3% with the federal tax break now over and frictional unemployment becoming less voluntary and more permanent thus causing the supply of people moving for work to shrink more than the attendance will for Yale’s women’s basketball games once Yoyo Greenfield graduates. Finally, the minutes from the last Fed meeting were released today with the Fed lowering their growth forecast for the first time in a year citing lackluster job growth and the creeping in of common sense. The continued struggles of the economy have them contemplating ways to stimulate the market again if data continues to worsen such as buying more assets, keeping rates low until the next bubble, or having Sara Jean Underwood man the Fed’s discount window.
Internationally, word is leaking out that 11 banks may fail the european bank stress test including Germany’s Commerzbank, Italy’s Banco Popolare, and France’s Banque de la Pret Merde. But Macquarie Securities director Alessandro Roccati tells us not to despair because “only 11″ of the 46 banks will likely fail and 25% of handpicked banks failing a contrived test set up so that none of the banks would fail is only a minor problem, like the hole in the ozone layer, the oil spill in the Gulf, or John Edwards’ Q score. In other international news, Singapore raised their growth guidance from 7% to 9% for 2010 to a whopping 15% citing their burgeoning biomedical production capabilities, strong growth in their electronics cluster, and a rise in demand for helicopters. Also helping the Singaporean economy was the opening of two casinos and influx of tourism for “cane your kid at work” day.
In stock news, INTC beat analyst guesses by reporting record revenue and giving guidance way above the street’s guess for next Q. Revenue was up 43% and eps of $.51 easily beat analyst guesses of $.43 as the corporate PC upgrade cycle has finally begun since with fewer workers, companies actually need shit to work. INTC’s Q has led a rally in large tech stocks such as CSCO, VMW, and MSFT as the upgrade cycle should benefit PC makers.
In small cap news, Money McBags wants to highlight CTGX once again. Now this is one of the stocks he puked out during the “flash crash” becuase it is less liquid than a corn shit and it only takes one fund with a margin call to sink the name, but long term the company should be fine. Money McBags broke the company down for all of you way back in February, but the quick summary is that they have two businesses, one is a boring crappy staffing and solutions business whereby they supply IBM with people to help map out and install servers (which sounds about as fun as dry humping Bea Arthur while being serenaded by the Charlie Daniels Band) and a health care services business which is growing and set to capture share in the electronic medical records market.
The reason Money McBags brings this company up today is that the federal government issued new rules yesterday that will reward doctors and hospitals for the “meaningful use” of electronic health records. The previous rules were a bit too onerous, like Ted Kennedy’s designated driver or Susan Boyle‘s bikini waxer, but the new ones will allow for more hospitals and doctors to get started on EMR. The main point though is that the Department of Health and Human Services said that doctors and hospitals may receive up to $27B in funds to help install electronic medical records over the next 10 years and while Money McBags is not an accountant (though he plays one on April 15th), $27B is a lot of fucking money. Also, starting in 2015, hospitals and doctors will start facing fines and penalties under Medicare if they are not compliant and while doctors hate taking medicare patients because they can’t set exorbitant prices for their inelastic demand service (you want your arm reattached? That will be $1MM and a five minute taint tickle, but with your good arm of course), those patients are becoming an increasingly large part of the health care business. Not only will hospitals be getting money to help install EMR and facing penalties if they don’t, but as said prevously here, only 20% of doctors and 10% of hospitals already have EMR and there are only ~6 companies who can install them. So this is a big market that is being funded by the government and CTGX is one of only an Antonio Alfonseca handful of companies doing this.
CTGX has said their operating margins are 10%+ on an EMR project and that they last 2-3 years and bring in $2MM to $3MM per project annually so if they can do an incremental 20 projects a year (Money McBags thinks they are starting or working on ~11 right now) and get 10% margin (which may be low), that would translate to an incremental ~$.24 per share. Their guidance is for this year is ~$.50 eps so say their core business just maintains in 2011, that means they could earn ~$.75 on 50% eanrings growth, >20% top line growth, and they are currently trading at ~10x that number. There is a lot of Y2K about this business but installations should ramp up in 2011 and last for a good five to seven years so once this story hits, the stock should have some nice room to grow. Plus, their competence in installing EMR and the dearth of companies who do it combined with the oncoming demand which should be stronger than Andrew Jackson’s hatred of Henry Clay or Faye Reagan‘s breath after a full day on the set of Cock Pigs, should make CTGX an acquisition target for a bigger company like IBM who wants to increase their presence in EMR.
The things to worry about with this company are the liquidity and their core IBM business going to shit since they have less control over that than Whoopi Goldberg does over her bladder or her face. That said, the company has an ok balance sheet and when EMR hits, there is no reason they shouldn’t trade at 15x given the likely growth and that would make them an $11-$12 stock (and to be clear, management has not given any guidance on how many EMR projects they can do or what the margins will be other than at least 10%, so Money McBags is making his own estimates which could be too low or too high). You still have time on this name and as long as the core business is going to spit out ~$.50 eps annually, you have a cushion too, so take a look again and buy the dips.
And don’t forget WGP is on Facebook and Twitter and if any of you know a good cheap web designer, shoot Money McBags an email at MoneyMcBags@gmail.com because its time to make WGP look better than something the ICSC or Ray Charles would produce (and that’s not because Ray Charles was blind, but because he’s dead).
6/4/10 Midafternoon Report: Jobs report challenges Marmaduke movie for biggest bomb released on Friday
Jun 4th
The (No) Labor Department’s jobs report came out today and was well below analyst guesses which sent the market tumbling like Tony Hayward’s Q score at a Greenpeace convention. The US added 431k jobs in May which was the biggest increase in a single month in over a decade since the internet was founded and needed people to set up all of the tubes. While on the surface that number seems spanktastic (though not nearly as spanktastic as Rosie Huntington-Whiteley who Money McBags would let hunt his whitey anytime), the market was surprisingly not fooled by it. First of all, analysts had guessed 500k jobs would be created so the actual number came up shorter than a Kristen Bell skirt or Bernie Madoff’s alibi. But what makes matter worse is if one digs in to the numbers it is doubtful any real jobs were created despite the government claiming that a whopping 41k private sector jobs were created, and honestly, bragging about 41k private sector jobs being created is like bragging that you won the spelling bee on the short bus. But let’s look at the numbers more closely.
Of the 431k jobs created, 411k were temporary census workers and 31k were temporary service workers. So already were at a net -11k permanent job creation number unless the government decides to turn the US into Oceania and thus take a new census every month thereby making those temporary jobs permanent. Now the Labor Department said the government cut 20k permanent jobs so the 411k census jobs added led to a net 391k new government jobs. So since the top line number was 431K, they solve for x in 431k – x = 391k and get “you’re fucked,” I mean ~40k for private sector job growth. But here’s the thing, as we said above, 31k of those ~40k were temporary fucking jobs so even using the government’s hunky dory jobs created numbers, there were only ~10k PERMANENT private jobs added to the economy or 10k total permanent jobs lost including the government figures. That number is more piss awful than having to listen to Lynyrd Skynyrd put to music any of George Will’s essays about baseball. But wait, it gets even fucking worse, like being married for 21 years, or being for 21 years and then finding out your spouse was gay the whole time, and yes I mean you Fran Drescher (though to be fair, having to hear Fran Drescher every morning might turn Money McBags gay as well). You see the BLS uses something they call a birth death-model to estimate the lag between the creation of new businesses and the close of businesses that their survey misses in the short term. They don’t release the methodology so it is the biggest black box Money McBags has seen since Vanessa Del Rio graced the screen in the 1980s. For May, the BLS’ birth death model showed an increase of 215k jobs, which again is an estimate likely based on population levels, claims for unemployment, and shoving one’s thumb far up one’s own ass. So based on our previous numbers where we showed 10k permanent private sector jobs were created and 10k overall permanent jobs were lost, we can now deduct a number somewhere between 0 and 215k from that (and Money McBags believes the number is closer to 215k since the birth-death model is likely more fictitious than strippers who dance just to put themselves through college) to get the real job DESTRUCTION number which was likely more negative than a disgruntled anion. So we’ve got that going for us.
Other tidbits from the jobs report show that 6.8MM people have been out of work for more than 6 months, the average length of unemployment is now 34 weeks which is the longest period since the government started keeping track in 1948, and Chewbacca was a wookie. Some may spin the drop in the unemployment rate from 9.9% to 9.7% as positive but that was more likely caused by people leaving the workforce as the Labor Force Participation Rate, which oddly enough measures the labor force participation of working age adults, decreased to 65.0% from 65.2%. So no matter how the government spins the jobs number, it sucked harder than a young lady trying to fellate Whitezilla all by herself.
In international news, everything was down as the Euro broke through the critical $1.20 mark on its way to extinction. Traders now see $1.18 as the next short term technical downside target for the Euro until it falls below that. The latest fears coming out of Europe revolve around Hungary which is apparently starving for funding. The newly elected vice president of Hungary, Lajos Kosa, channeled his inner Joe Biden late yesterday by saying that Hungary is in a Greece-like sovereign credit crisis. In response Prime Minister Viktor Orban didn’t deny the issues but did call Kosa a dicknut for speaking out of turn and promised to punish him by uninviting him to the new administration’s meet and greet with Zita Gorog. The new government is now in the process of determining the real state of the budget, and will report this weekend on whether they are fucked or just lovingly violated. The fear of Hungary defaulting is causing a spike in european CDS and has caused the price of European default insurance to rise to it’s highest price since Jean-Paul Marat forgot to lock his bathroom door.
In stock news, everything is down as the government can’t even properly manipulate the economy anymore. MCD is showing weakness because they annonced they will have to recall 12MM Shrek drinking glasses that contain the toxic metal cadmium. The irony in this is that the cadmium glasses are still less toxic and better for you than the nine piece Chicken McNuggets. And WMT had their annual shareholders meeting today where they announced a five year plan to add 500k jobs, insitute a $15B stock buyback plan, and continue to make the world a worse place.
In small cap news, WGO took it in the winnebago again today since the stock remains more overvalued than multi-family dwellings in Detroit before the subprime crash. Money McBags has been through this before but the company is not going to make money this year and is trading at a valuation that makes less sense than the rules of cricket. This is a best a $7.50 stock and on high volatility days it will get pitched around like the SS Minnow because valuation is based solely on hope and hope doesn’t put food on the table (though Hope Dworaczyk could put her melons on Money McBags’ table any day). The fact is, every small cap closed down except for somehow CTGX, JOEZ, TZA, and TWM (and that last two are funny because they are leveraged small cap short ETFs) because no one wants to hold illiquid little shit when the economy is still struggling, Europe is going to 0, and we now have to give a fuck about some do-shit country called Hungary who dropped a steaming pile of ghoulash on the markets today.
Oh well, at least try to have a good weekend.
6/2/10 Midafternoon Report: Market runs in the late afternoon as it attempts to get home in time for Oprah
Jun 2nd
It was a relatively quiet day in the market today which is more of a rarity than a downward sloping supply curve, a funny Adam Sandler movie, or a bad picture of Olivia Munn. The market was up though as pending home sales shot through the roof, of course now someone will have to go back and fix the fucking roof so the buyers won’t back out, but those are just details. Home sales rocketed up 6% but the government first time home buyers tax credit ended in April so sales were likely more pulled forward than a lottery winner’s payout or the keg tap at David Hasselhoff’s house at breakfast. So while it is exciting that pending home sales went up, it’s way too early to suck each other’s dicks about it (though if you’re Alice Eve and it’s Money McBags dick, then it is never too early, or too often) as next month’s sales should be down appreciably, like Steven Rattner’s reputation or the mood at a suicide prevention hotline going away party. In other real estate news, mortgage applications fell for the 4th consecutive week and if you read the fucking analysis in the sentence directly before this, you will know why. And in the latest job report by some outplacement firm called Challenger, job cuts were just as bad as last month though 65% better than last year, so welcome to your new normal.
Also, Mr. Buffett went to Washington to meet with all of his GS cronies, I mean the federal government. Money McBags needs to stop getting those two confused. Buffett spoke to the Financial Crisis Inquiry Commission, or as it’s more commonly known as “Huh?” after being subpoenaed to testify about the ratings agencies and their utter failure to do anythng but suck at their jobs like a one legged long jumper. While Buffett has been selling his shares of MCO, he is still their largest shareholder so his testimony was about as unbiased as Joe Francis testifying about age of consent laws. Honestly, Money McBags finds it strange that the FCIC would give a shit what Buffett has to say about the ratings agencies since he’s not going to talk down his own book. It makes less sense than the Laffer Curve or Jennifer Connelly‘s acting career. And guess what? Buffett defended these assclowns who failed miserably at their jobs and served as bottom bitches for investment banks to manipulate the markets. To quote a CNBC article, Buffett said ratings agencies “”were wrong like everyone else” due to a widespread “bubble mentality” that believed housing prices couldn’t crash”. Wow. So let me get this straight, the ratings agencies who are paid NOT TO BE WRONG like everyone else because they are the SUPPOSED EXPERTS, fucked up just like everyone else. So riddle me this Mr. Oracle of Omaha, why the fuck would anyone pay these “experts” if they are providing the same information or reaching the same conclusions as everyone fucking else? WHAT THE FUCK ARE THEY EXPERTS IN? This is more perplexing than the fact that neither of the participants of Stocking-Huang wedding was stocking a “huang.” Money McBags knows Buffett needs to keep MCO stock propped up so he can sell it, but there is absolutely zero reason for these ratings agencies to exist, at least under the current incentive system which is more screwed up than Tiger Woods’ kids are going to be.
In international news, Japan’s Prime Minister Yukio Hatoyama resigned to spend more time cultivating his Pokemon collection. His term was the shortest by a Japanese Prime Minister since1994 when Mothra swooped down and carried then Prime Minister Tsutomu Hata back to Infant Island. With asian markets already more jittery than a nanny at Roman Polanski’s house, a change in Japanese leadership brings more uncertainty than Jamie Lee Curtis’ true gender. Japan has been mired in a decades long economic crisis stemming from a real estate bubble, low rates, and sites like the NSFW spankwire.com distributing their main export of bukakke films for free. Investors now must worry about how the new regime will handle the world’s largest public debt while securing investor confidence in Japanese issued bonds. Finally, european banks are moving money overnight to Europe’s Central Bank at a record pace as they grow more fearful of write-downs and bad loans. Euro-zone banks are doing this as they apparently view counter party risk to be more dangerous than political support from John Edwards. Now look, Money McBags is no genius (though he is likely whatever is just one notch below genius), but if banks would rather earn fewer bps on overnight funds because they are worried about lending to other banks who may have lending problems, what does that say about their own fucking balance sheets? When Money McBags sees a CEO selling company stock, he stays away from that company and when he sees banks scared shitless of lending to other banks, he stays the fuck away from that financial system. It’s like a canary in a coal mine or a turd in a punchbowl of turds.
In stock news, energy companies are rallying after being down 18% due to the Gulf oil spill and due to people realizing that their cars don’t run on wind, the sun, or Heidi Montag’s implants. Ford is moving up as well, as both GM and Ford reported stronger sales than analysts guessed. Ford’s sales rose 22%, besting analyst guesses of 16% and GM sales rose 17%, besting analyst guesses of 6%. Driving the sales increases was the fact that people no longer care about driving shitty cars. With gas prices having hovered around $3 for a year and a half, SUVs are once again becoming popular buys with sales of Chevy’s Equinox tripling and GM’s Edge moving up 43%. This just proves that people are shorter sighted than Mr. Magoo without his glasses and are only setting themselves up for more pain when the gas market is remanipulated upwards. Finally, a UBS analyst who had a neutral on JPM for 5 years finally upgraded them to a buy. Money McBags would like to applaud this analyst who stuck to his guns despite JPM being the best run large cap consumer bank in the industry. For his next trick, the UBS analyst is going to pick up technology companies and slap a hold on AAPL until they can finally show the Street that the iPod is more than a trend.
In small cap news, CTGX is flying today despite no news and average volume. Money McBags has talked about CTGX many times on When Genius Prevailed and still believes they can earn ~$.75 in 2011 when electronic medical records take off. That would be 50% growth and the company is now trading at 11x that so it is still very cheap if you don’t mind owning an illiquid company that is short term highly levered to IBM. Meanwhile, crappy casino operator ISLE announced earnings today and beat analyst guesses despite profit falling to $.15 per share from $.45 per share in last years’ fiscal quarter as Red came up on the roulette wheel more times than they expected. Revenue was down 6% to $287MM but still beat analyst guesses of $260MM and those same analysts expected a $.08 loss per share for the simple reason that ISLE’s casino’s are more run down than Madonna’s vagina and also smell a heck of a lot worse. The company managed to trim out $12MM of operating expenses for fiscal 2010 and for the fiscal year, they earned $175MM of EBITDA but they have only $90MM of cash and $1,200MM of debt which means they are trading at ~9x EV/EBITDA which is not that cheap for a debt ridden company relying on consumer spend (though to be fair, gambling consumer spend is inelastic to some degree, like Joan River’s nose). The company isn’t currently burning through cash and has a $300MM line, but they have casinos in every city to which you would never want to travel (Biloxi, Davenport, Natchez, etc.) and their properties tend to be the most run down casinos in those run down towns. Today is basically a classic short squeeze and Money McBags would avoid this stock like he avoids hitting on 16 when the dealer is showing a 4 and avoids betting on “don’t come” in a craps game or a movie involving Hannah Hilton‘s face.
5/25/10 Midafternoon Report: Volatility causes market to go up and down faster than a time constrained fluff girl
May 25th
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.
5/7/10 Midday Report: The market has no clothes (and sadly, it resembles Abe Vigoda)
May 7th
Holy fucking shit. You’ll have to excuse Money McBags today because he is still trying to put his limbs back on after jumping from his penthouse apartment during yesterday’s volatility which saw the market drop by 9% in 20 minutes. Whether it was spurred by riots in Greece, a fat finger (or as Portia Di Rossi would call it, “heaven”), or a broken flux capacitor, it is clear that high frequency trading exacerbated the problem and Money McBags is freaked the fuck out. As a dedicated reader of zerohedge, Money McBags applauds their foresight into, and explanation of, this problem and it is enough to make anyone want to pack it up and join the circus (though if Money McBags were to join the circus, he hopes it would be the Circus of the Stars so he could have the lovely Brooke Shields tame his lion). Anyway, all of you should read this explanation or simply watch this as Money McBags can offer no better insight in to what happened yesterday and frankly, is liquidating a lot of his shit right now because playing a game where the rules change at any time and you have no control over them is not something Money McBags wants to be a part of unless the game involves Heather Vandeven and the rule changes all involve tickling. What happened yesterday has made Money McBags feel sicker and more disgusted than he imagines Rosie O’Donnell’s kids will feel when they find out where their other mother puts her mouth at night. If you want more proof of what a sham the current market is, NASDAQ is cancelling the trades of 296 stocks from yesterday. So if you bought at the drop and made a fuckload of money, you are now left holding a dick sandwich without the bread. But hey, Money McBags has lost money on trades before so why won’t NASDAQ go back and retroactively cancel those? Who the fuck does Money McBags have to market manipulate or high frequency trade with to get someone to throw him a fucking trade break? Something about this whole thing smells fishier than Oprah Winfrey’s tampon after a 5k. The market as we know it might be dead, so be smart, and be ready.
In macro news, who gives a shit, but if you do, the US added 290k jobs and yet unemployment rose to 9.9%, as apparently they hired one person to do all 290k jobs. Economists guessed that 190k jobs would be added so the report was slightly better than expectations but 66k of the jobs added were temporary government jobs to deal with the census so before we reach for any bottles of Dom over a growth in jobs, lets be realistic about what is actually happening. And to try to keep people’s minds off of what happened to the market yesterday, the government revised the jobs numbers from each of the last 2 months upwards. That’s right, March’s job adds were revised upward from 162k to 230k and February was revised up from a loss of 14k to a gain of 39k. Hey, why not just revise each month to a gain of fucking 1MM as long as we are making shit up. Money McBags believes any of those numbers like he believes in the Lochness monster, dividing by zero, or the existence money shots in lesbian porn.
In stock news today, it doesn’t matter. Everything is being manipulated. Money McBags hedged his portfolio earlier this week with EPV and has been adding FAZ and GLD. He has also sold his favorite little companies for fear of liquidity issues. So bye bye CRUS, KITD, and CTGX. It is a sad sad day but one must not fight the market. Money McBags still believes in their stories and will buy them back once (and if) the market settles. If it settles up from here, he’s ok with that. Money McBags made good money on all of those so lets take some profits off the table while the market drops like John Edwards’ popularity or Hillary Duff on her engagement night. Money McBags needs some time off rigt now because what he thought was real may be faker than Tom Cruise’s marriage. So try to enjoy the weekend. Money Mcbags will likely be back Monday and will try to analyze companies and perhaps the market will have rallied all the way back by then and all of you who are buying right now will be enjoying bottles of Cristal and blumpkins in your seaside cabana, but be careful out there, because the retail investor is the sucker in this game and it is always better to be the suckee, than it is to be the sucker (unless you are from Transylvania).
And remember to speak well of Money McBags.
4/29/10 Midday Report: HP thinks it bought a rosy PALM, no word on whether they will also buy her five sisters
Apr 29th
The rally is back on thanks to solid earnings, Greece likely getting bailed out again (for now), and the FED reaffirming their promise to keep rates low until the next bubble. Not only that, but new claims for unemployment were down by 11k which was just shy of analyst guesses and just shy of asking Kristen Bell out on a date. In financial news, Republicans voted to finally allow debate on financial reform because somehow the good of the country became more important than the search for birth certificates, reigning in wide stances, and understanding what about tea bagging is so appealing to Sarah Palin. Money McBags hopes there will be real reform like you know, requiring reserves to be held on insurance contracts more commonly known as CDS, limiting the size of financial institutions, and closing down the ratings agencies whose business models incent them to do the opposite of give unbiased ratings and who sucked at their jobs like a blind skeet shooter or a fluff girl on the set of a Sabrina Johnson record breaking film. While there is no doubt Wall Street will eventually find the loopholes in any regulation because greed is a dish best served with caviar, Dom Perignon, and peach cobbler (the first definition of course) and that shit ain’t cheap, at least the government can make it a bit harder. Money McBags is all for the Volcker rule, for hedge fund regulation, and for derivatives regulation even if the last one may cause Warren Buffett like a millisecond of a sleepless night on his mattress made of gold and the tears of baby bald eagles. The SEC’s new found ballsac is refreshing and Money McBags hopes they are serious about regulating the markets and watching porn instead of just watching porn (unless it is first time lesbian porn, and then Money McBags understands).
Internationally, Greek is getting some drachma again as the IMF promised to raise their bailout funds from 45B euros to 120B over 3 years. However, as part of the stipulation for getting funding, Greece is going to have to put in place stricter austerity plans and better track and report their finances by allowing the IMF to inspect their “cash boxes” once a year on the island of Lesbos. Greek Prime Minister George Papandreou was said to have started negotiating with labor unions to cut two of their fourteen monthly salaries, to institute higher value added taxes, and to require they work longer than three hour work weeks. The real question is whether German Chancellor Angela Merkel stops being a sour kraut and agrees to help with the bailout or if she continues to waffle in hopes of maintaining support in Germany to propel her party to victory in the upcoming North Rhine-Westphalia election. That’s right, Merkel is letting Greece, Europe, and the global markets dangle in the wind because of some do shit election in a country that isn’t going to even exist should Europe go bankrupt. Angela, be a good girl and come listen to Money McBags. I know it is fiscally irresponsible to continue with the steroidal Wimpy strategy of getting a hamburger today and paying for ten of them on Tuesday, I know you want to stay in power (though Germans fighting for power scares the gifelte fish out of Money McBags), but sometimes you have to do stupid stuff for the greater fucking good. Yeah, Greece acted less fiscally responsible than Stephen Baldwin or a homeless crack addict on pay day, but as the great Zeno Cosini once said “complete freedom consists of being able to do what you like, provided you also do something you like less.” So fucking lend Greece the damn money already and enjoy the freedom to have a European economy. Now go get me a Kreppel but go light on the powdered sugar because Money McBags hates getting that shit on his fingers.
In stock news earnings were so jizztastic that the market is now expecting octuplets. But before we even get to earnings, HP is buying PALM for $1.2B in a move that had been rumored for weeks. Money McBags gets why HP did it as PALM has a good ass operating system and HPQ has the means to try to make it work with better hardware and distribution, but going after AAPL and Blackberry and GOOG is kind of like buying Dr. Pepper and trying to take on KO and PEP or thinking you can beat Lisa Ann and Alexis Texas in a nice ass contest relying on only the Butt Blaster and not implants. The handset market is more fully penetrated than Bridget the Midget in a tryst with Lexington Steele so sure you might get a little market share with HP behind a Pre-type phone/operating system, but $1.2B seems like a lot to pay for a company that was dying. Anyway, in other stock news MOT put up a quarter that beat on the bottom line thanks to aggressive cost cutting which did away with lobster thermidor Thursdays in the executive cafe. Mobile phone shipments fell 43% despite the rise in smartphone sales but the company’s guidance of $.07 to $.09 eps next Q was well ahead of analyst guesses of $.03 eps. BIDU also put up a ridonkulous quarter as chinese people apparently searched for more than just their freedom. Their profit was up 165% and BIDU’s market share in China rose by 600bps to 64% thanks to GOOG’s exit from the chinese market and thanks to Olivia Munn’s new billboard which was posted online. Other companies that beat earnings include V, HOT, FSLR, and anyone who sold anything anywhere over the last three months.
In small cap news CRUS continues to run while Money McBags’ largest small cap holding KITD is breaking out like Cameron Diaz’s face after a pepperoni pizza. Money McBags has blogged about this so many times that he is risking being more repetitive than a stutterer reading a tongue twister, so he will spare you the details (just use the search function on When Genius Prevails), but this stock is easily worth $20. They had a call the other day about the $50MM capital raise they just did and basically said it is a war chest to help them fend off Brightcove for acquisitions as Brightcove is going public, any deal they make will be immediately accretive and between 5% and 15% of revenue, they are still targeting 60% organic growth, and world domination is only months aways. Ok, that last one was made up but the point is the video asset management space is more fragmented than J Howard Marshall’s beneficiaries and KITD is in a strong position to help roll it up while putting on it’s nicest Sunday dress to appeal to buyers (and yes, KITD will be acquired in the next 1-3 years, that is the play). And it’s still not too late to get in. Money McBags has purchased three times and if you look at the archives, the first time was at ~$10 so hopefully you’re all doing well on this too. In other small cap news, another Money McBags holding, CTGX, put up a decent Q the other day. Money McBags broke down CTGX on 2/22/10 so read the full analysis there but the story is they are basically a shitty IT services/staffing outsourcing business with a growing health care IT focus and a specialty in installing electronic medical records. It’s a bit like Y2K IT firms in 2000 in that there is a specific event (hospitals moving to EMR) that will last a finite time (though probably 3 to 7 years starting in 2011), but there are only a few firms who can do this and CTGX is the lowest priced one with the best service. In this last quarter they finally saw revenue growth after a number of down quarters due to business spend going away in the recession like an 18 year old wanna be actress’ dignity on her first casting couch. Revenue was up 5%, operating income was up 28%, operating margin increased to 3.9%, and eps was $.11. No real surprises but a nice sold quarter and that is all we’re playing for right now. Just keep ticking along until hospitals spend their stimulus money and seek out IT professionals to give them the MANDATED EMR systems (and yes, caps were intentional because hospitals are required to have EMR systems up by 2015). The best news is that they said they closed a significant multi-year deal with a large physician practice for EMR, EMR proposal activity is accelerating, and “the first portion of the $19 billion in federal stimulus funds allocated to EMRs has been released to help states advance EMR projects.” Guidance was raised a bit for 2010 to 15% topline growth and EPS between $.47 and $.55, but if you go back and read Money McBags’ archives, you’ll know that 2010 is irrelevant. It is not until 2011 that EMR will hit for them and as those projects have greater than 10% margins and bring in $2MM to $3MM of revenue per year, it is not inconceivable that CTGX can earn an incremental ~$.25 per share in 2011 from EMR and thus if they just hold their main business steady (though it should increase if businesses start spending again), they could earn $.75 and thus are only trading at ~11.5x that despite the possibility for >50% growth. It’s still early for this stock but now is the time to get in before it takes off.
