Posts tagged KO
Timberrrrr. The market sold off today as a result of tech companies posting earnings that failed to titillate the street, China raising their interest rates to try to stave off an asset bubble that soon may be only a prick away from popping, and the rent still being too damn high. Up until now, the market had been able to continue its rally through the beginning of earnings season as QE2 was there to pump it up like the theme music from Rocky III or a good old Doc Johnson, but with QE2 now fully on the table and the debate moving from if, to when, to how the fuck much, micro news is beginning to be much more important again.
Speaking of QE2, Atlanta Fed Bank President Dennis Lockhart seemingly reinvigorated the gold club by talking about the further devaluation of the dollar that will happen with QE2. Situated in the Fed’s underground lair in Nevada, he informed CNBC that QE2 needs to be big enough to make a difference, and by big enough, he means $100B (no really he said $100B, check the video). So once and for all Lockhart proved that size matters to the Fed and it’s not just the promotion of the notion(al). Lockhart also told viewers that QE2 will help lower interest rates (because real interest rates already below zero for the 7 year and on in just aren’t low enough) and that in turn will help consumer spending and business investment because businesses really need more cash despite the fact that they currently have hoards of it on their balance sheets. This is a more assbackwards attempt to increase consumer spend than hiring Ice-T’s wife and charging consumers for cheek shots.
As far as Money McBags is concerned, the problem isn’t that companies don’t have access to cash to hire, it’s that there is too much fucking uncertainty for them to do anything as nearly 20% of the population remains long-term or pre-long-term unemployed. If anything, government policies should be aimed at GETTING PEOPLE JOBS so they will have money once again to spend on food, shelter, and those delicious chocolate Necco wafers. That in turn will create real demand, which will allow businesses to actually use their cash to invest in their business which equals more hiring and maybe, just maybe, an economy at least a nut hair healthier than Michael Douglas’ throat. So any government intervention (and perhaps Money McBags can get A&E to tape the intervention before the government runs out of the room in denial) should be focused on building bridges, opening tunnels, and erecting shit that will be useful in order to get people working, get money in to their pockets, and test out that the Keynesian multiplier isn’t just another irrelevant concept that doesn’t work in the real world like efficient markets, Mickey Rourke, and monogamy. Either that, or the government should leave the economy the fuck alone.
In other macro news, new home construction was up .3% in September driven by a 4.4% rise in single family homes thanks to the Commerce Department adding card board boxes and new cars to their construction models. While construction was up slightly, the forward looking metric of permits issued (and it is forward looking because it is predictive and not because Nicole Trunfio is standing in front of it) dropped by 5.6% due to a 20% drop in permits for apartments and condos as that market has more capacity than Rungrado May Day Stadium or Kim Kardashian‘s vagina.
Internationally, China raised their rates for the first time since 2007 to try to lift real rates above zero, cool down asset prices, and perhaps avoid a currency war that has put the US dollar in a figurative chinese fingercuff between the Yuan and the Yen. The 25bp rise in rates could signal the start of a new monetary policy to curb China’s asset inflation and that policy will have to be tighter than Kenny Roger‘s face to be successful.
But the real story today was earnings as AAPL and IBM both mildly disappointed the Street and GS, BAC, and COF all either met, beat, or missed guesses depending on what you want to include as one-timers, earnings manipulation, and straight up fraud.
Quick aside: Back in the day, Money McBags covered the financial services sector when he worked for the man and he quickly realized that there was absolutely no way to have any confidence in any of the numbers in 10Qs or 10Ks because an extra provision here or a different nomenclature there, and earnings would be whatever the companies wanted. Given that, Money McBags came up with a simple regression model to pick financial stocks that take balance sheet risk with the independent variables being the number of Wells notices a management team has received, the length of the CEO’s admin assistant’s skirt, the number of times the CFO says the word “risk” in a company one one one, and the color of their helmets. That model reduced his work by 99%, had an r-squared of .95, and actually gave him a track record better than the best sell side analyst who was right only 38% of the time.
But back to the key point which is that AAPL drove the market down despite killing it with revenue growth up over 100% (~$20B vs. ~$10B last year) and iPhone sales up 92%, as they saw margins decline, sales of iPods drop 11% (though buying an iPod when there are iPhones and iPads is a bit like buying an abacus instead of a calculator or DVDs when there is the NSFW Spankwire), and sales of iPads come in below guesses of 5MM at only ~4.19MM. AAPL had earnings of $4.64 per share vs. guesses of $4.08 per share but margins and iPad expectations were enough to send it, and the market down on the day.
The other big tech Q was from IBM where a 7% drop in service contracts served shareholders up with a shit sandwich, despite the company beating analyst guesses on both the top and bottom lines as well as raising full year guidance to above those same analysts’ guesses. Hmmmmm. The company is now trading at ~12.5 this year’s guidance but has been on a hockey stick type run so Money McBags guesses a sell off was due on anything that was just a Khagendra Thapa Magar stiffy below absolutely positive, so it is what it is and now the sell side has a reason to print reports to get more trades. Money McBags loves that S&P Equity Research downgraded IBM to “buy” from “strong buy” because the difference between those is completely non-sensical. Either you buy something, or you don’t. Fucktards.
Also, as mentioned earlier GS announced their Q and beat analyst guesses (wink, wink) on stronger than guessed trading results (unless you were guessing at them last year when they were ~60% higher than they were in this Q). As a result of their spanktastic relative Q (but their shitastic absolute Q), employees on average are now only going to earn ~$370k for the year which means instead of being the super rich assholes in the room, they are now going to be the whiny super rich assholes in the room.
Finally, BAC beat guesses of $.16 per share by earning $.27 per share, that is if one ignores their $10B goodwill impairment charge, and really what’s another $10B among shareholders, especially as it is non-cash? And KO put up a nice quarter and beat guesses all around with a surprising 2% jump in North American sales with continued strong international growth. Money McBags has said it here before, but he owns KO and this is the kind of company you can almost feel ok gambling on because when everything goes down the drain like Money McBags’ hopes and dreams, people are still going to drink the fuck out of some Coke, On top of that, strong aspirational brands that sell a cheap product should continue to do well in emerging markets because those populations strive to adopt American culture and dream of the day when they too can sit on their fat asses all day and spend money they don’t have on things they don’t need while blaming the government for their problems.
In small cap news, for some reason Money McBags dropped ~2k words on JOEZ last night which not only makes him the Charles Dickens of jeggings, but was also the biggest waste of his time since he tried to fucking find barley in a grocery store (and here’s a hint, just ask). One stock to keep an eye on (and just one eye, because you’ll need the other one to watch this) is SPU because it is doing what Money McBags believes technicians would call “going up.”
Look, Money McBags dove in to this company briefly a few months ago as it tripped his screens as being cheap, growing strongly, and having a good balance sheet and on paper it looked almost as good as Kelly Brook. That said, he never wrote it up on the award winning When Genius Prevailed because it had one huge problem, and that was that their business involves selling fruit juice and concentrate in China which is further outside of Money McBags circle of confidence than nuclear physics (because he does understand some fission and fusion and heavy elements). So this is one of those times where Money McBags is just going to tip you off about a stock that looked hella interesting, seems fundamentally sound, and is moving, but that he just can’t confirm anything about, so do with it as you please.
Money McBags will hopefully have more detailed stock analysis tomorrow as on his to do list is WGO’s Q, analysis of OPEN (which if the market turns should drop faster than Andrew Johnson’s support in the Republican party after 1865), and Leticia Cline.
The market was chugging right along today like a Kennedy at a sorority mixer after Apple titillated the market with sales stronger than the breath of either of the world’s foremost cunning linguists, the great Vladmir Nabokov and the greater Janine Lindemulder, until Ben Bernanke got up and threw his figurative Baby Ruth into the market’s pool causing investors to run for safety. Bennie B. got his best gangsta lean on and told the Senate Banking Committee, who never met a bubble they couldn’t regulate after it had already deflated itself, that the recovery remains “unusually uncertain and shit” before repeatedly rhetorically axing “you know what I mean?” His befuddling remarks caused the market to fall faster than Andrew Johnson’s reputation in the Republican party after suceeding (or more appropriately, failing) Lincoln and thus negated a rare day where earnings were mostly positive.
While it’s not entirely clear what “unusually uncertain” means, especially since Money McBags finds all uncertainties a bit unusual, he believes the term is Fed-bonics for “We have less of a fucking clue about what is happening than we usually do.” Bernanke did say the Fed is ready to step in as needed and while he didn’t say what those steps may be, one can assume they include keeping rates low (for an extended period like a metrorrhagia sufferer), manipulating the Fed’s balance sheet, and the Charleston.
Prior to Bennie B. unleashing his pimp hand and treating the market like his bottom bitch, President Obama signed the financial legislation bill which after two years of debate has been watered down more than a virgin bloody mary without the tomato juice or tobasco (though he signed it “Alan Smithee”, so it’s not clear if the bill will hold). The most worrisome part of the bill is that many of the details are more open ended than Alexis Texas right before filming Buttwoman which leaves regulators plenty of wiggle room to fuck more shit up. As far as Money McBags is concerned the bill didn’t go far enough in regulating the use of derivatives, in limiting the size of banks, or in raising reserve requirements and making banks responsible for their greed which led to credit scoring models to be less frequently used than MySpace (does anyone remember that piece of crap?).
In macro news, mortgage applications jumped last week for the first time in five weeks in what surely is a fictitious number, or a typo. What is more believable is that refi applications were at 14 month highs as record low mortgage rates of 4.59% have led homeowners to lower their interest payments faster than the Stoughton, MA police department lowered the boom on one of their officers who was just doing a little (and Money McBags stresses “little”) due diligence.
The real story of the day (other than Bennie B.’s uncertain uncertainty) was Apple’s Q in which they sold what is known in the retail space as “a fuckload of shit” and put up a huge earnings number. Apple’s net income rose by 78% by selling 3.3MM iPads, 8.4MM iPhones despite people waiting until the end of the Q for the iPhone 4 launch in order to be able to make use of the front facing camera while masturbating for strangers on chatroulette from work bathroom stalls everywhere, and a whopping and quarterly high 3.5MM Macintosh computers making everyone loudly say “Apple sells computers?” Revenue was up 60% to $15.7B, beating analyst guesses by $1B, and putting the company only $4B away from world domination. Steve Jobs also defended the iPhone antenna problem by simply saying “deal with it. And if you don’t like it, go by one of those Blackberries and make sure it matches your 8-track player and Jams.” That said, Lenovo is set to launch a challenger to the iPad using GOOG’s Android system and they are referring to it as “LePad” because apparently “LeThingThatIsn’tGoingToSell” was already taken.
In other strong earnings news, MS put up a ginormous Q, harkening back to the pre-2006 days when investment banks ruled the markets like Jessica Simpson ruled the short bus in her elementary school days. Revenue grew 53% to $7.95B and beat analyst guesses of $7.93B driven by MS’ trading business which earned $4.1B in operating profits after trading their souls for three more months of manipulating the markets and a good night kiss from Rose Huntington Whiteley. Also, KO put up a good quarter on the heels of PEP’s outperformance yesteray once again reinforcing the demand inelasticity of sugar and water. KO earned $1.06 per share, beating analyst guesses of $1.03 per share, and saw 5% growth worldwide led by international growth ex. Europe of 6%. Money McBags is a longterm owner of KO because it is a cheap aspirational brand that appeals to emerging markets that will continue to grow as the US slogs its way towards mediocrity (though mediocrity would be a good thing). Finally, YHOO dropped 8% on a disappointing earnings report as revenue growth remains more challenging than Sudoku for a dyslexia sufferer.
In small cap news, Money McBags mentioned CRUS yesterday but he was in such a time rush that he missed their quarterly earnings release from earlier in the day which turned out to be more positive than Robin Williams’ herpes test. The company earned $.29 per share in the quarter on 118% y/y revenue growth and margins going to 57% from 52% last year and 56% last Q. Most surprisingly, their energy business jumped up to $28MM from $22MM as a result of the both the power meter business and their energy exploration business. On the call, they talked about this business but gave fewer useful details as to what is driving it than a republican strategist gives details about their plan to fix the economy.
That said, it’s really CRUS’ consumer audio business that has investors drooling over this company as if it were Hayley Atwell as they provide an audio chip for the iPhone and that segment absolutely killed it. Revenue was up 32% sequentially in that segment with Apple moving to 35% of their overall revenues. Company guidance was also stellar with next Q predicted to have at the midpoints $102MM in revenues, 57% gross margins, and $27MM non-Gaap op ex. and while Money McBags is no maffematecian (he only counts to two when told to turn his head and cough), those number should get them to ~$.44 eps as they still have more NOLs than Money McBags has broken dreams.
The hard part is forecasting this company since they are obviously a play on the iPhone and AAPL could find a new suplier or put more pricing pressure on them at any time. Now look, Money McBags doesn’t think that will happen anytime soon as their chip is supposed to provide the best audio quality and they are continually investing in R&D, but it is something of which investors should be aware. Money McBags’ previous estimate for fiscal year EPS was $1.20 but with CRUS earning $.29 per share in Q1 and guiding for $.44 per share in Q2, $1.20 seems like it is lower than Andy Rooney’s balls. So Money McBags is going to get a bit conservative here and estimate that the energy business falls to ~$24MM quarterly run rate, the non-AAPL consumer business stays flat, and the AAPL business only grows 10% sequentially.
Doing that (and using 55% margins which may be on the low end and $110MM op ex), Money McBags gets an estimate of $1.47 which is about double what they should earn in the first half of the fiscal year. Of course, those are very low end estimates as the AAPL business has been growing 30%+ sequentially and gross margins have been above 55%, so at the hgh end we could be looking at closer to $1.70 EPS for the fiscal year.
Either way, the stock is now trading at ~$19 which is ~13x Money McBags’ low end estimate and the company has ~$2.50 in cash on the balance sheet and 13x for a company growing this fast is just way too fucking cheap. If you want, throw a 20x on $1.47 and get to ~$30 for a target price. As long as Apple doesn’t pull the rug out from under these guys, there is plenty of room to move up even though it has already had a better run than a roidal Ben Johnson.
4/20/10 Midday Report: Goldman blows quarter out, then offers to blow SEC Chief of Enforcement Robert Khuzami as part of “settlement”
The markets are modestly higher today despite a blow out quarter by Goldman as other blue chip companies mostly met expectations and meeting expectations after an 80% market rally is like trying to impress Grigori Perelman with long division or Tommy Lee with a Hawaiian Tropic girl. The big news is obviously that Goldman released their quarter today by smacking their CDOs on the table and yelling “Securities fraud this!” They demolished analyst guesses of $4.14 eps by earning $5.59 per share on $3.46B of earnings which was 91% growth. Though to be fair, it is not clear how much fraud and market manipulation analysts had in their models as Excel’s goal seek function isn’t yet equipped to handle that. What’s also amazing is how a company who produces nothing other than writing on paper can earn $3B. Anyway, the quarter was so jizztastic for GS that Lloyd Blankfein is going to spend the rest of the day at the spa getting his nails done so they will now match the drapes in his conference room. But all is not well for Goldman, they still have to deal with the SEC’s lawsuit about how they misled investors (but only on that one CDO, wink wink, and if you believe that, Money McBags not only has a bridge he’d like to sell you but he’ll give you a great deal on it) and in the quarter they lowered their compensation payout from 46% to 43% so all of the traders who have been manipulating the market are now going to have trade down from a hooker a day to one every other day and might have to pass up on the third bottle of Dom at their local Rick’s Cabaret.
There is no macro news out today and the only international news is that Greece’s latest bond offering met strong demand. Of course they had to double the previous yield on these short term bonds to 3.65% which was actually below estimates but still hella expensive for the ponzi scheme George Papandreou is running where he will gladly give you three souvlaki’s and a glass of greek wine tomorrow if you pay him for one today. The IMF is starting to get a bit frisky here and is warning about sovereign debt impeding global growth. Wow Captain Obvious, you think? Next week it is rumored that the IMF will issue warnings that staring directly in to the sun may cause blindness, eating foods high in saturated fats may cause obesity, and getting too close to Paris Hilton may cause herpes.
The real story of the day though is earnings with KO, IBM, and J&J mostly meeting expectations but trading down as the market demands quarters to be cleaner than an OCD sufferer’s closet for stocks to appreciate. KO’s profit rose by 20% to $.80 per share taking out one-time charges while their revenue grew 5% to $7.53B. The eps number beat analyst gueses by $.05 per share while the revenue number disappointed as analysts had guessed they would bring in $7.72B. Driving growth was the international business which was up 5% thanks to Brazil and India where sugary sweetnees is still seen as the cool thing to do while North American sales fell 6% thanks to people avoiding higher end products and wanting their teeth to stay cavity free. Money McBags is actually an owner of KO and bought more last week to get some market exposure from a blue chip stock that hasn’t really participated in the recent rally. Despite weak North America sales, KO isn’t going anywhere and will be a place investors go for safety if the market gets chippy again or if it finally consolidates. IBM’s earnings rose 13%, they beat revenue and EPS guidance, and they raised their forecast for the year to at least $11.20 per share and yet the stock is trading down 2% because their service booking dropped 2% in the quarter, margins were slightly below forecasts, and Chewbacca was a Wookie. Finally, JNJ had a 29% increase in earnings yet lowered their outlook due to recent health care legislation which is the same thing every drug company has done so this is more of a non-event than a Larry King divorce. The stock is flatter than Heidi Montag‘s singing voice or her original chest, so a big fucking yawn here.
In small cap news, SFSF got an upgrade today to buy from an analyst at something called Janney Capital Markets or known better as “Morgan Stanley wasn’t hiring.” The analyst raised SFSF to a buy claiming that the worst for them is likely over and that they should be able to continue to grow bookings at 20%. The company has a decent balance sheet with ~$300MM in cash and no debt though most of that is thanks to a recent follow on offering to give them some powder for future M&A and they are already using some of it to buy Inform for $40MM of cash and stock. The company is in a niche space of selling performance/compensation management software for businesses to evaluate employees, essentially outsourcing and making HR more efficient while relegating the number of smiley face cupcakes employees receive. They sell the software as a service which should yield a better multiple than the traditional software model. That said, this comany still has no earnings and guidance is for at best breakeven this year with revenue growth already in decline and estimated to be 17% for 2010. Money McBags is a bit perplexed by this stock as the valuation assumes a hefty growth rate and analysts seem to be valuing them on the fictitious EV/adjusted FCF and anytime a company is being valued on a non-traditional metric, that usually points to something being fucked up (and in this case the fucked up is the earnings which are less positive than Don Rickles at an ugly convention). The company is up 4% on today’s upgrade but Money McBags thinks the valuation is way ahead of itself especially as the company relies on big deals, hence the rebound in the last half of last year. Money McBags is staying away from this stock for now as it seems too rich despite a decent software offering and being in a market less penetrated than Ellen Degeneres, but it is that market potential that keeps SFSF on his radar.
And don’t forget Money McBags is now testing out twitter, for reals this time.
3/4/10 Midafternoon Report: Market to Greece: “Your bonds are the one that I want,” just hope they don’t leave “Tears on My Pillow”
The market is bouncing around today as initial jobless claims were out and they fell by 29k to 469k, almost exactly the 470k number that economists estimated proving the old adage that “even a broken economist is almost right once a decade.” While the drop is positive, it didn’t drop by as much as claims rose in the past two weeks which we were told was the result of “weather,” an “administrative backlog,” and “more people getting laid off than expected, stupid.” Also, pending sales of existing homes fell by 7.6% in January as an extension of the government tax credit for first time home buyers failed to spur sales (and Money McBags went through this before, but any first time buyer thinking about purchasing a house rushed to buy before the tax credit ran out last year and thus extending the tax credit now is like if California had reinstated same sex marriage a month after repealing it. Anyone who wanted to get gay married had already done so, thus the remaining opportunity set was thinner than an aneroxic with food allergies.). All of the data will continue to be lumpy as unemployment still remains higher than River Phoenix at the Viper Room and more stagnant than the writing here at When Genius Prevailed (but give Money McBags a break, 1k words of dick jokes and market analysis a day is more draining than being slowly exsanguinated by baby leeches and more draining (and infinitely less fun) than a 12 hour hummer, but Money McBags digresses). In other macro news factory orders were up 1.7% last month and were slightly below estimates but still positive and driven once again by aircraft sales as people have to fly around the globe for job interviews.
In international news, Greece offered up 5 billion of euro denominated bonds or as antiquities dealers will call them in a mere 2 years, worthless relics. Greece claimed there was actually demand for another 2B euros worth of the bonds, and seeing as how they need to raise 20B euros, their decision to not offer the extra 2B fits right in with their previous budget management. If I need $20, why would I sell you $5 worth of my shit when I could sell you $7 worth of it, I mean it doesn’t take Euclid to fucking figure out the math here (and yes Money McBags understands the interest payments, etc., but we’re talking about a country that needs money like Lindsay Lohan needs a case of Valtrex and a hot shower.)? Meanwhile traders are seeking out the next Greece in Europe claiming that it is only logical another country would be close to collapse as for every Bear Stears there is a Lehman Brothers, for every American Home Mortgage there is a New Century Mortgage, and for every Disney World there is a Kingdom of the Little People. Greek workers remain on strike as they are apparently protesting that the government overpaid them for the past several years. Really a brilliant strategy, right up there with fully clothed strip clubs (and yes I am talking about you Manhattan) and the Segway.
In stock news, retail sales climbed in February from Heidi Montag‘s singing bad to Heidi Montag‘s acting bad (and that is a slight uptick if it isn’t clear). Same store sales were up 4% beating analyst estimates by 1% or so, but that rise was off of a 4.7% drop last year we so shouldn’t lose perspective, like an MC Esher painting. Most interestingly e-commerce sales were up 16% which should bode well for companies like ARTG, AMZN, and Vivid Video. Large cap stocks moving up today include Disney, Coke, and Boeing, all receiving analyst upgrades. Disney was upgraded by Bank of America-Merrill Lynch in anticipation of a strong advertising market, a strong film docket, and unemployment coming down thus making it easier for people to throw away money on a crappy amusement parks just so their kids can get an overpriced picture with a minimum wage worker dressed as Cinderella. A UBS analyst upgraded KO based on the sell-off after they purchased their bottler and after reading When Genius Prevailed on 2/25/10 while UBS also upgraded Boeing because apparently airlines want more planes sooner than later.
In small cap news, RICK continues to drop and is making Money McBags feel emptier than he does after making it rain for an hour at his local Rick’s Cabaret. Kind readers, you all know Money McBags has been in RICK with you for this stimulating ride, and you all know of his $16 price target (which it bounced up to before collapsing like Taryn Thomas’s anus after one too many cavity searches. And yes, read the wikipedia page, it really did), but we all have to remember that when momentum stocks go bad, they really go bad. Given that, and the fact that Money McBags thought their quarter was worse than a Dan Brown novel and their acquisition of VCGH could be a bit of a clusterfuck (and not in the literal sense, which would be good, but in the “oh shit, we paid what for that?” sense), Money McBags may be bailing on this momentarily and happily taking his profits. He will likely sit it out for a day or two, but if it pops up above $15 again, that will likely be his selling floor. In other small cap news, CRTX annonuced their earnings last night and put together a decent Q while maintaining their guidance. Money McBags broke down CRTX a bit in December as a potential big upside company that needed to show some results. Well this Q could be the start of those results as numbers were generally in-line with Curosurf coming in at $8MM in revenues for the 3 months which is a good sign. While their reporting still seems to be a bit lacking (I mean for fucksake, would it kill you to put a table comparing sales of each product and maybe not lump in Spectracef sales with Factive sales since no one gives a fuck about Spectracef?) and their sales of Factive were probably a bit on the low end since they combined with Spectracef for $3.6MM in revenue and Factive should have been around $3MM by itself, this company continues to trade at around 1x estimated sales. The company maintained their guidance of $115MM but their leading drugs continue to face headwinds so they need to be able to show strong sales of Factive and Curosurf. Money McBags has not had a chance to listen to the call, but the quarter didn’t contain any obvious misses and the company is cheap. If you have some gambling money that you’re itching to put into play, this is the kind of company it may be worth doing some work on because if they can maintain a $100MM+ revenue run rate, they should easily trade at 2x-3x that. Plus they have a nice cash balance remaining to continue their acquisition strategy. Not the best company in the world, but cheap with upside.
2/25/10 Midfternoon Report: Goldman Sachs seeks nobel prize for literature after (under)writing biggest Greek tragedy since Euripides
Greece’s debt issues are once again scaring the market like the snake ridden visage of the famous gorgon from ancient Greek mythology known more familiarly as Lady GaGa. Rising debt, a spiraling deficit, and a massive bidding up of CDS by traders betting against Greece has created somewhat of a Foucault current around the Greek islands which is now threatening to pull the entire EU and global economy in with it. Greece hasn’t been in such imminent trouble since the Battle of Thermopylae and they can only hope that the bankers whom they used for currency swaps did not run to the other side and push up the price of CDS with their inside knowledge of the obfuscated rising Greek debt and hence betray them like Ephialtes did in that same battle. Moodys is now threatening to downgrade Greece (perhaps to Jamaica, or maybe even Puerto Rico), so the global markets are very skittish today, since we all know how great Moodys is at predicting debt defaults (except when they happened to miss something called the entire global financial system meltdown). As if the Greek issue weren’t bad enough, the EU came out today (luckily their parents already knew) and forecast 2010 to be a year of fragile growth, even more fragile than the tears of a newborn unicorn upon learning it is just the figment of someone’s imagination.
In US macro news, orders for durable goods excluding transportation fell .6% which was below estimates of a 1% gain though they rose 3% when including the jump in aircraft orders. While durable good orders may have been down, non-durable goods orders or as their better known as, “shit made in China,” appear to still be doing very well. The new claims for unemployment number was also out today and it was much worse than expectations as it was up by 22k to 496k people filing first time claims. Luckily the labor department shrugged it off as being partially inflated by poor weather in the Northeast causing construction jobs to be cancelled over the past few weeks and also partially being inflated due to something else called employers laying a lot of fucking people off. They said without the weather, new claims would have been down by a “healthy” 10k to 440k jobs lost and if 440k job losses is considered healthy, then the labor department must think Michael Jackson has “just a little breathing problem.”
In stock news, CCE is up 33% on a takeout offer from KO, while KO is down 4% on that same news. KO’s CEO and Chairman said the move was a way to convert “passive capital into active capital” and when asked to clarify what exactly he meant by that, he simply said “Chewbacca was a wookie.” While Money McBags is an owner of KO, and thus 4% less happy today than he was yesterday, the global sales growth trends and brand equity have not changed at all by the deal and thus he is content to hold and potentially add a bit as soon as he can get a hold of some numbers on the deal. In other stocks reporting, SIRI somehow turned a profit this last quarter even if it was still less than $.01 per share. Subscriber growth in satellite radio has largely been stagnant due to the recession and the hundreds of other ways to get music for cheaper prices. With Howard Stern’s contract ending at the end of the year, Sirius may be more fucked than Houston during her 500 man gang bang. This company sells a product that is becoming outdated faster than the eight track or Jennifer Aniston (and take a few seconds on that pun, it will hit you in a bit, but e-mail me if you need help) as the prevelance of iPods, smart phones, and internet radio make paying a monthly fee for that same content as bad of a financial decision as the Olympics were for NBC or plastic surgery was for Greta Van Susteren. Money McBags would stay further away from SIRI stock than he would a hemophiliac AIDS patient in the throes of leprosy.
In small cap news PALM annouced their smartphones aren’t selling as well as they hoped as they have seemingly failed to put a dent in the duopoly that is the iPhone and the Blackberry (and honestly, taking on those two behemoths was about as smart of a move as introducing a soft drink to compete with Coke and Pepsi, a search engine to compete with Google and Yahoo!, or a cure for herpes to compete with Valtrex and staying 100 feet away from Paris Hilton). Palm also said their sales will be “well below” their forecasts like Vern Troyer is “well below” the clown’s hand to ride the roller coaster as apparently even a color blind lepidopterist is better at his/her job than Palm’s head of strategy is at his. Also Money McBags favorite WILC is up 10% today after a ridiculous and unwarranted sell-off over the past week. WILC remains the most ridiculous, cheapest name Money McBags has ever run across which is a bit worrisome because the last thing he thought was too good to be true was marriage, so buyer beware. And finally SMSI put up a decent Q and is up 14%. SMSI is a pretty interesting name in that they sell software that allows netbooks internet connectivity and net books continue to grow faster than a steroid user also suffering from pituitary gigantism. While the Board of Directors looks like they are waiting for the comet Hale-Bopp to hit the Earth, the company has done a decent job over the years of buying technologies in growing markets. SMSI is pretty much a one-trick pony right now with that one trick being connectivity and the pony having been purchased, but they are relatively cheap. Their wireless business grew 22% this year, though the pace slowed as the year wore on while overall topline growth was 9%. They guided to around 20% top line growth for 2009 and estimates are for them to earn in low $.70s per share which is about what they earned this year but their tax rate will be going up. The company has a nice balance sheet with $45MM of cash and no debt and is only trading at 12x estimates despite growing the topline 20%ish (again, profit growth may be negligible due to the tax rate increase). The issue with this company is that they have missed guidance before, have really only one product/area of focus, and rely on acquisitions to find the next new technology. While they have already wrapped up most of the big netbook producers as clients, competition is getting fiercer. So it’s not the best business model but it is moderately cheap with good prospects. The jump today is likely short covering but it is worth reading the transcript of the call and figuring out if a good entry point will exist once the short covering is over.
The market is up strongly this morning after EU Bank president Jean-Claude Trichet decided to leave Australia where he was attending the Reserve Bank of Australia’s 50th Anniversary Symposium which was a party likely as raucous as a staring contest between Bea Arthur and JD Salinger (mainly because they’re both dead). Even so, we are told things got a little out of control when the bankers let their toupees down and played a little game of “name your favorite currency” with Vietnam’s Dong easily winning out even if it is not as big as the other currencies. Trichet flew back to Europe where he was invited to a summit of European leaders called by the deligthfully named Herman Van Rompuy (and Money McBags is calling bullshit on this whole thing because no one is named Herman Van Rompuy). This is leading to speculation that the EU has a plan to bail out Greece, and Portugal, and Spain, and maybe Italy, and then maybe even Freedonia (where time flies like an arrow and fruit flies like a banana). As one analyst said: “The markets are smelling a deal for Greece, and for that reason, we’re seeing some stabilization.” Of course, that smell could actually be Greece and not a deal for Greece but Money McBags remains optimistic because as he has been saying all along, the Euro is not going away, it’s just not. Now it’s unclear how the EU plans to deal with the struggling countries, whether it’s a good old fasion bail out, some kind of debt guarantee, or a lifetime ban on Nia Vardalos movies, but help is on the way.
In US macro news, there’s not a whole lot of new information. Wholesale inventories unexpectedly dropped by .8% in December while sales rose .8%. Both numbers were marginally below estimates yet close enough that the market let out a collective yawn. Inventories bear watching though as we’ve made it through the obvious restocking and now we’re at the point where they need to at least maintain their new level in order to signal new steady state or some real growth.
In stock news, KO had a blow out quarter as earnings rose 55% thanks to India and China who love them some sugary water. Overall revenues were up by 5.4% even though they were down 4.5% in the US thanks to some people apparently giving a shit about not being fat. Luckily, developing countries haven’t yet reached the point where they have large middle classes whose teenage girls read People magaine and stress about weight from the caloric intake of soft drinks and thus KO benefitted from 19% growth in Latin America, 29% in China, and 20% in India. Coke also annonuced they bought back $1.5B (known colloquially as a “shitload”) of their own stock last year which was $500MM more than they committed. Money McBags is an owner of KO for the simple reason that it has ginormous brand equity in developing countries and is a relatively cheap product that people can buy to feel like they are part of American/pop culture (kind of like Paris Hilton’s vagina). MCD, another longtime holding of Money McBags came out with their monthly sales numbers which featured a 2.9% rise in same store sales driven by a 4.3% increase overseas. Sure, people were disappointed that US same store sales were down .7% but people were also disappointed that the Kim Kardashian sex tape was a bit grainy. So as always, you can’t please everyone (unless you are Blake Lively and are manning the free blumpkin and waffles booth at the local greeting center), but you can be happy with MCD’s numbers and Money McBags owns them for the exact reason he owns KO. They sell cheap shit with huge brand equity that developing countries love the fuck out of (and this will be the first sentence in When Genius Prevails’ short and illustrious history that will end in a preposition). Also, ERTS put up a terrible quarter as their attempt to take on the Grand Theft Auto franchise with Moral Theft: Vatican City failed to generate sales while damning them all to hell (or as it is more commonly known, the guest audience of The View).
In small cap news, two companies Money McBags follows reported today with TMRK putting up a marginal quarter with lackadaisical guidance and DFZ slipping it’s quarter some ruphies and having their way with it like a young Charlie Sheen at the Viper Room. DFZ has been a small holding of Money McBags for a few quarters because it has been cheaper than Valtrex at Lindsay Lohan’s house in addition to being a well run company with growth prospects completely under the radar of investors because their business is more boring than a Jane Austen novel or watching two pieces of lint hump (and now that I think about it, watching lint hump may not be so boring afterall, so scratch that). They are the market leader in slippers, yeah, you know, the things your significant other bought you that you never wear. The point is that even though the market is small (about $300MM), they dominate it like Nipsey Russell dominated the 1970s Hollywood game show circuit. They have 35% of the market and are the sole owner (pun intended) of the slipper business for a little company called Walmart. DFZ continues to win business from smaller players as their supply chain and logistics management give them an advantage in winning business by giving buyers confidence in their ability to easily handle a relatively unimportant vertical. Since turning the business around, they have had yearly EBITDA no worse than $12MM and had been trading at 6x that trough EBITDA even though prior to their announcement last night, they guided for slight growth. In the quarter released last night, they earned $.74 per share, which was around 30% growth on sales growth of nearly 15% ($56MM compared to $49MM) thanks to margins moving from 39% to 43%. Cash on hand was up to $37.5MM and they have no debt so they are now trading at around 4x to 5x EV/EBITDA depending on how much credit you want to give them for growth in the second half of the year (Money McBags has not had a chance to listen to their conference call yet). Before this huge Q, Money McBags was pegging them to earn $.80 per share this fiscal year by maintaining a 41% margin but they almost beat that $.80 number just this quarter. Now it’s likely they’ll earn closer to $1 (again, Money McBags has not listened to their call yet to know if there was any guidance) so they are trading at less than 10x fiscal year 2010 earnings and they have a June Q so they are probaly closer to 8x full year 2010 earnings. The company is so cheap it makes my balls hurt, or in the case of DFZ, it makes the balls of my feet hurt which can be soothed by slipping on my DFZ made Dearfoams. Not only are they cheap, but they have been rumored to be in talks with WMT’s international business to expand there and were actively looking to get into Payless/DSW/other shoe stores and to be honest, Money McBags is shocked they are not already in those stores. The other rumor is that they are looking at acquisitions, potentially of a sandal or flip flop company to help smooth out the seasonality of the slipper business. They also recently launched a Levis brand and earlier last year turned down a take out offer of $7.50 per share for the company, so we have some good downside protection in cash and in potential buyers if this company were to shit the bed. There is no reason this company shouldn’t trade for at least 12x earnings which would yield at a minimum a $12 stock price and it is currently trading for $9.50 (and this is not even to mention the now stupid multiple of EBITDA for which it currently trades). The downside is that it is a tiny company with little institutional ownership and almost no coverage, but that is more of an opportunity than a concern. Money McBags is happy with his current position and may buy more should it dip down tomorrow or after he goes through their call.
As for TMRK, they gave guidance for $95MM to $100MM 2011 EBITDA so despite a decent quarter, they are already trading at around 8x 2011 EBITDA. While that is cheaper than competitors, and while TMRK is in a terrific growth market as Money McBags believes more in the growth of cloud computing and colocation than he does in the existence of Hanna Hilton (and as he watched about 22 hours of her terrific performances yesterday, he is 99.87% sure she is real), they do carry around a large amount of debt and have significant cap ex. This was Money McBags analysis of TMRK from last month and he stands by it (especially as TMRK was trading at around where it fell back to today). The growth targets announced this Q are a bit below expectations but if the stock continues to drop, Money McBags will likely start a position. No need to get involved today as the momentum buyers fly out, but worth watching.
The big news of the day is that the Labor Department, led by Hilda Solis whose name is an anagram for the upcoming Snoop Dogg swine flu dis track titled “Hos said ill,” came out with their jobs report for December which showed a loss of 85k jobs. This was worse than expectations and held the unemployment rate at 10% while moving the underemployment rate up from 17.2% to 17.3% (you know, the rate that actually counts all of the people unemployed, like the ones who have given up on trying to find a job because they’re 50 years old and companies can just hire someone half their age, if they’re going to hire anyone, at half the price to sit at a desk all day and watch Youtube videos, look at the hot chicks they can date, and wonder why Leon gets to take a break at 2pm while they have to fake work until 3pm). So look at the person to your left and then look at the person to your right, and then look at the person one over from that person to your right and the person one over from the one to your left, and odds are one of you will be underemployed. Leading the way down were builders who cut 53k jobs last month as the construction industry halted to stare at the Burj Dubai Tower and all it’s infinite awesomeness which now claims the title of the world’s tallest building, though still measures a few centimeter less than Peter North’s most famous appendage.
Further causing concern is that unemployment in the euro zone rose to 10%, it’s highest rate since 1998. This was led by Latvia who now sports a 22% unemployment rate to go with it’s 22% literacy rate and Spain where 43.8% of the population under the age of 25 is now on siesta according to the NY Times, which we know is chock full of typos today. If true, that is a truly amazing statistic. You would think with all of that unemployed labor they could finally finish the Sagrada Familia, I mean it’s only been under construction for 128 years and to put that in context, 128 years ago there was no Panama Canal, TV hadn’t yet been invented, and Barbara Walters was still in High School.
In stock news today KO slid 2% as JP Morgan downgarded them to neutral based on KO’s 18% premium to the group. The analyst obviously is unaware of KO being a great dollar hedge due to their booming worldwide business spurred on by great brand equity and a fuck load of sugar. The financial sector is also giving back some gains today with the Citi analyst cutting estmates for investment banks and people getting temporary amnesia and forgetting the one fact Money McBags keeps harping on, banks are getting money for free and lending it for more than free and at a spread at historic highs. Sure risk mitigation is the most important metric, and banks have failed at that worse than Artie Lange failed at accuracy, but the next few Qs should show record profits.
Anyway, that’s all until monday, until then, enjoy the weekend.