Posts tagged New Home Sales
9/22/10 Midevening Report: Market down as Bernanke’s mixed signals cause it to question whether he “likes” or “like likes” it
The market was up briefly in the morning before investors could pull themselves away from watching NSFW art films (and Money McBags does not know the plot of that film but believes it is about the unbelievably wonderful place people in heaven go to after they die in heaven) and realize that the emperor has no clothes (and unfortunately this is not the emperor). With the Fed announcement from yesterday beginning to sink in that QE2 is most likely on the way (and it is not the kind of QE2 that comes with a full wet bar and toga night on the poop deck), investors once again must face the realization that growth is more likely to be L-shaped (or backslash-shaped) than the U-shape those on CNBC constantly shout about through their foaming mandibles. So be careful out there as the market whipsaws around as it tries to comprehend where the economy goes from here.
In macro news, home prices fell by .5% from June and by 3.3% from last year and in the least surprising move since Kirsten Gillibrand was voted hottest Senator (though that’s really only because since he turned 65, Joe Lieberman totally lost his bikini body), last month’s numbers were revised down from a .3% decline to a 1.2% decline as the “hold the shock and hope for no awe” strategy once again rears its ugly head. The new home price numbers were worse than analyst guesses and there is now 12.5 months of housing inventory on the market (which is a 10 year high) not including all of the shadow inventory, upside down mortgages, and places the Quaids are squatting.
And even with record low mortgage rates, home loan demand continues to fall as applications for purchase mortgages were down 3.3% last week and refis were down .9% as the housing market witnesses the demand curve shift left while the supply curve shifts right in the housing market’s attempt to recreate the graph of Betamax purchases in the early 1990s or sales of Heidi Montag‘s debut album. The housing market remains unhealthier than Ted Kennedy’s liver (and not because he was a drunk, but because he’s dead) and with people no longer able to lever up with HELOCs or even be in possession of the H to get their ELOC on, consumer spend will remain more stunted than Edward Nino Hernandez‘s growth.
Internationally, Spanish Prime Minister José Luis Rodríguez Ramirez Gonzalez Quinones Zapatero dialed up a page from the NBER and claimed that the European debt crisis is over, whew, it’s about time, Money McBags feels much better now. Of course after claiming the end of the crisis, Mr. Rodríguez Ramirez Gonzalez Quinones Zapatero went on to claim that the rain in Spain does not stay mainly in the plain and the Sagrada Familia will be finished any day now. Look, if Money McBags were the Prime Minister of Spain, the first thing he would do is hire Eva Gonzalez to take some hard dictation, the second thing he would do is order up a round of fucking seafood paella, and the third thing he would do, especially if he were sinking in the popularity polls and dealing with 20%+ unemployment rates, debt running at 12% of GDP, and more labor cuts on the way, would be to tell everyone everything is going to be ok. People like being kissed before being fucked so claiming the debt crisis is over is really just the gentlemanly thing to do.
In the market, ADBE was down ~20% on guidance more disappointing than the end to Gogol’s Dead Souls (mainly because it had no end) or that hide the button trick Bishop Eddie Long liked to show his altar boys in private and about which they couldn’t tell anyone else. The company said they were experiencing weaker sales in their Creative Solutions segment with US educators and with all products in Japan where they failed to produce bukkake friendly products. While they actually had fairly strong performance in the Q, revenue guidance for next Q of $950MM to $1B was below analyst guesses of $1.03B and eps guidance of $.48 to $.54 was also mostly lower than analyst guesses of $.53 and caused a flurry of downgrades by the sell side who hope they can make enough noise and print enough gibberish to get institutions to trade with them.
In other market news, newspaper stocks were down big stemming from NYT’s shitastic forecast where CEO Janet Robinson addressed investors and analysts at a conference by simply saying “hey dingbats, you’ve heard of the internet, right? Well they do what we do only for free and probably with less plagiariasm, so we’ve got that going for us.” Money McBags would rather go on a date with Nadja Benaissa than own a newspaper stock, so whatever.
As for things moving up, KMX rose ~7% as they crashed through estimates thanks to something called a recession making used cars the preferred choice of the downwardly mobile (or more commonly known as: “Americans”) and NFLX continues to soar after BBI claimed bankruptcy. Money McBags has said it before, but if you want beta in the consumer space in your portfolio, NFLX is the way to go. The valuation is ridiculous but they are clearly winning in a growing space by focusing on video delivery and aren’t content with a simple stagnant through the mail DVD business. These guys are fucking innovators and if Money McBags is going to expose himself to hyper growth in this current market, it is only going to be with companies on the cutting edge and selling products that people will use even as their pay checks dwindle (and yes, streaming videos should really pick up as more people stay home and take advantage of their 50 inch flat screen TVs before Rent-A-Center comes and repossess them).
In small cap news, Money McBags ran a bunch of screens yesterday to find new ideas and one of the companies that looked promising is breaking out today for no fucking reason that Money McBags can tell other than perhaps investors caught Money McBags’ scent on the case (and that scent is a nice lilac mixed in a honey pot). That company is HSTM and they provide some kind of internet research and training to the health care sector. Money McBags was going to look in to them later this week as right now he has no fucking idea if they are a buy or a sell but they popped up so much today on heavy volume (they traded over 200k shares, something they have only done once in the last year) that he thought he’d throw this one out there to his readers as a half-baked idea to see if they know anything about this company.
In the 20 minutes of research Money McBags has done, he likes that revenues have been growing, he likes their returns (though he hasn’t yet thoroughly dug in to their financials), he likes the $18MM cash and no debt on the balance sheet, he likes that they somehow had a greater than 100% customer renewal rate (no really, it says so in their last earnings release), he conceptually likes their segment of being in the health care training space as that seems like a good opportunity given the constant training and retraining physicians need, he likes their institutional ownership (T Rowe owns ~11% and Wellington owns ~3%), and most importantly (though perhaps unrelated) he likes Malin Akerman. That said, he knows about 5% of what he would need to know to understand this company as he hasn’t even read their investor presentation because Money McBags’ computer for some reason doesn’t want to read Adobe Acrobat files today (no wonder that shitstain of a company was down today).
Here are the obvious questions that need to be answered:
1. What segments does HSTM sell to and how big is that target market?
2. What makes HSTM’s product/offering different from or better than competition? And who the fuck is competition anyway?
3. What is driving growth and is that a long-term trend or is there some short term catalyst? Revenue was up 14% last Q and it looks like that was driven by internet-based subscriptions, so is that the growth driver? (And Money McBags loves internet based subscription models with their low fixed costs and easy distribution).
4. What the fuck is this SimVentures thing that HSTM is investing in right now? Are they struggling for growth in their core business or is this a complementary opportunity?
Those are just the most basic questions. It looks like the company is on ~$14MM EBITDA run rate and has ~$95MM enterprise value so trading ~6x current year EV/EBIDTA and they are on ~$.35 eps run rate so they are trading ~15x current year earnings, but top line growth was 10%+ and operating earnings grew 25%+ so perhaps we’re on to something here. Money McBags is going to do more research over the next few days in to HSTM, and in to Emily Scott, but if you know anything about either of them, hit Money McBags up in the comments section or at firstname.lastname@example.org.
The market ran again today as Fed Ex boosted guidance due to international companies wanting shit faster and macro data headlines were manipulatedly good (like Cameron Diaz‘ face on a magazine cover). The big macro news was that new home sales jumped 24% which is the biggest jump since May of 1980 and totally sounds better than saying new home sales were the second lowest since 1963 (and you remember 1963, the year the Beatles released their first album, JFK was assassinated, Raquel Welch was breaking in to Hollywood, and full muff was the norm). Of course 1963 is also when this data started being recorded, so for all we know it could also be the second lowest month since 1863, but whatever. So before we start handing out lobster tails and buy one get one free blumpkin passes to Amber Lancaster‘s powder room (and Money McBags will take two of those please), perhaps we shoud look at the shittiness (which may be too technical of a term for most) of the absolute number and ignore the relative spin.
To start with, last month’s new home sales were revised down from 300k to 267k which is only a minor 11 fucking percent downward revision (and minor in the way that reading a Thomas Pynchon book gives someone a minor headache or bumping in to Audrina Patridge would give someone a minor stiffy). Anyway, last month’s number of 300k, which is now 267k, means that new home sales fell by 37%, 40%, or 47% last month depending on which of the manipulated numbers from two months ago you want to use as the base line (the 504k initially reported, the 446k downwardly revised number from last month, or the even more downwardly reviesed 422k reported this month, and yes, two fucking months after the data, the numbers are still being downwardly revised because apparently they have yet to hit zero).
The point is, the awfulness of last month’s number keeps getting worse but investors are overlooking that because the headline growth for this month is 24% and 24% growth is a big fucking number (even though in absolute terms it is still the second worst number ever and will more than likely be revised down next month to 305k). So while economists and the Commerce Department can point to growth rates as a sign of accomplishment, it’s as disingenuous as landing on an aircraft carrier and claiming Mission Accomplished in Iraq or telling Rosie O’Donnell she doesn’t look fat in those jeans. In short, last month’s historically bad number gets revised down more and thus this month’s second worst historically bad number gets to look slightly better because of the BS growth rate off of the downward revision. Just imagine how great this month’s number would have looked if it went from one new home sold to two.
Anyway, the 330k number being reported is in fact ~24% higher then the 267k number (but only 10% higher than the 300k number that was actually reported last month) and it beat analyst guesses by 10k and since analysts have proven to be so right over the last 5 years to 3,000 years, a beat is such good fucking news that the commerce department can spend the day admiring the new portrait of Carlos Gutierez instead of trying to fix shit. But lets not let details get in the way of a good rally because that would be like letting a little hepatitis get in the way of boning Pam Anderson.
There wasn’t much international news today except that Europe is starting an anti-trust case against IBM, though if Money McBags were IBM, he wouldn’t trust the europeans in their black jeans and with their love of european fudge pops. The EU is claiming that IBM may have abused their dominant position in the mainframe computer market like the dominant Ariel X abuses her defeated foes in the NSFW Ultimate Surrender Summer Vengeance tournament. This anti-trust case stems out of complaints from a company called T3 communications which is a firm invested in by MSFT and other than Tiger Woods’ ex-wife, MSFT is the foremost authority on anti-trust.
The big stock news of the day is that Fed Ex raised their guidance for fiscal 2011 from $4.40 to $5.00 per share to $4.60 to $5.20 per share and this comes after UPS showed everyone what Brown can do for them by squeezing out a solid quarter last week. UPS’ revised guidance was driven by increased demand for international priority packages where according to a Wellls Fargo analyst: “Growth in Asia has been red hot, fueled by the tech sector and iPhones and handheld devices and discounts on Hello Kitty’s line of dildos.” Fed Ex is feeling good enough about their operational efficiences and global volume growth that they have reinstituted their 401k matching program so now employees can lose the company’s money in addition to their own.
In other stock news, BP is getting a new CEO and hopefully this one won’t won’t be a dud even with a name like Robert Dudley (and that was such a bad pun that Jay Leno should feel free to steal it). Dudley will be the first Amercian born CEO of BP as the company’s board hopes to improve on the langauge barrier between themselves and the US government (as apparently “your shit is not safe” didn’t translate correctly from US regulators to BPs former CEO). Otherwise, it was a light earnings day on the market but Roper industries put up a nice Q despite a rumored take over from Furley Industriies which turned out just to be a wrongly overheard conversation in the company kitchen.
In small cap stocks, IMAX had a strong day on Inception’s continued box office outperformance and the stock has bounced back nicely since Money McBags talked about it as something to avoid the other week. Money McBags favorites CRUS and KITD also had solid days, as did just about everything else in the small cap space, except for IBKR which deserves to go down for how they made Money McBags feel after their earnings announcement last week which he was more highly anticipating than the inevitable Christina Hendricks playboy spread (and yes, it will happen). Money McBags is short on time today so he won’t be getting to any detailed small stock analysis but it should be a busy week with QCOR, IMAX, CTGX, and NTRI reporting so he promises he will have more compny breakdowns for you as necessary. If you are craving for more dick jokes though, Money McBags was busy in the comments section from Friday’s column, so enjoy.
The market was only marginally down today despite terrible macro data and a Fed statement about as optimistic as Nouriel Roubini at a funeral (the funeral of course would be for the US economy). New home sales dropped 33% to a record low as once again, and for all of you keeping score at home, THE GOVERNMENT TAX CREDIT EXPIRED (caps and exasperation intentional). According to the New York Times, analysts guessed home sales would drop to 400k from April’s previously reported 504k, while according to CNBC, analysts guessed home sales would drop to 410k, and finally according to the WSJ analysts guessed home sales would drop to 430k, so no matter what news source you used, analyst guesses were still fuck awful and worse than Manute Bol’s skin. On average, analysts predicted a ~19% drop in new home sales but the number being reported is a drop to 300k, so analysts’ guesses of a 19% drop were off by ~25%. Wow. Money McBags wonders if their regression models suffer from colinearity, heteroskedasticty, or just stupid fucking dependent variables. To be that wrong about something and yet still be called professionals stretches the definition of the word “credibility” in ways that would make even Noah Webster’s dictionary flaccid. And as usual, making the numbers seem slightly better is that last month’s new home sales number was manipulated (Money Mcbags means readjusted) downward to 446k from 504k. So the drop being reported is 33%, or 446k to the all-time record low measurement of 300k when in actuality, the number fell 40% from 504k (which was the reported fucking number last month) to 300k. Readjusting the number downward before the awful report left 7% of “down” out of the reaction of investors who weren’t paying attention and instead were busy trying to figure out who they have to fuck to get a job at CNN (And now we finally have a delightful answer to that). Making matters worse is that the supply of homes on the market was up 47% leaving an 8.5 month inventory (though the denominator in that equation, which Money McBags believes is the current annualized sales rate, is creeping towards zero which means we are getting closer to an undefined supply of homes on the market at which point Money McBags believes they should all logically be free and thus homelessness in this country will cease to exist, so perhaps that is the admirable goal of all of this). The point is, home sales/employment/Heidi Montag were all manipulated up over the past few months by tax breaks, stimulus plans, and plastic surgeons, but now that that is over, they are starting to turn back down and that could be worse than eating a shit sandwich with extra E. coli.
In addition to the drop in new home sales, the Fed came out today with their statement from their June meeting which was about as uplifting as the Diary of Anne Frank or nut cancer. According to the statement:
1. Housing starts remain at a depressed level
2. Financial conditions have become less supportive of economic growth on balance, largely reflecting developments abroad
3. Bank lending has continued to contract in recent months
4. Household spending is increasing but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit
5. Investment in nonresidential structures continues to be weak
6. Employers remain reluctant to add to payrolls
7. Hanna Hilton remains retired from porn
Honestly, all of that was taken verbatim from the Fed’s statement (well, except for maybe the last one, but they were all thiking it). The Fed’s statement paints a bleaker picture of the US economy than what Picasso would have done in his blue period. The Fed then went on to say the rates would stay between 0 bps and 25 bps for an extended period and at least we’re not fucking Greece, yet. Money McBags doesn’t see how anyone can get excited about the markets after reading that, but then again, he can’t understand how anyone can get excited over soccer, so what does he know? But as an aside, congrats to the US soccer team for beating a country with 1/10th of the population of the US on a last minute goal. Truly impressive. For their next feat, Money McBags hears the US soccer team will challenge Michael J. Fox to a game of Jenga.
In Europe, data was just as bleak as in the US although it was reported with one of those foreign accents so it sounded much more charming. The Eurozone PMI is having a bit of PMS as it cramped up and fell to 55.4 from 56.2 while Germany’s Ifo was stronger than expectations but future sentiment eroded and stunk like month old sauerkraut left out in hot sun.
In stock news, JBL rocketed up after beating estimates, announcing above the street guidance, and promising to body slam the competition as if the competition were the lovely Meredith Whitney. Also CarMax’s earnings took off and beat expectations thanks to selling cheap ass cars in an recessionary environment. The company earned $.44 per share, up from $.13 and easily beating analyst guesses of $.33 while growing revenue by 23%.
In small cap news, there isn’t a lot going on but Money McBags wanted to spend some time talking about KIRK today as it has been selling off and is now getting to be cheap enough that you all should consider adding it to your portfolios. KIRK basically sells cheap shitty trinkets that midwestern housewives love to put on their mantels, on their side tables, or over their walls to cover up the beer stains. In yiddish, they’re called tchotchkes and in english they’re called garbage. That said, the company has been selling a lot of this shit as people are staying home more often and not travelling and thus they are looking for cheap ways to spruce up their houses with a nice Elephant Mother/Baby statue, a Drama Queen plaque, or (and I am not making this up) book boxes to give the illusion that they have some of that fancy learning while keeping the practicality of having somewhere to store their spare teeth and can of wintergreen Skoal. The point is, the company sells goods that are perfect for a recession as they are inexpensive and can brighten up the place where people spend most of their time.
Not only should there be demand for their products, but management has done a fantastic job of turning this company around. Basically a few years ago a PE firm had taken over and the management team was smart enough to saddle themselves with expensive mall based real estate, add too many product skus, and try to bring their products up market and sell their customers gold plated mirrors when all they really wanted were some monogrammed candles and a fucking amber wall sconce or two. The point is, the management team had misread their customers, killed their margins through higher operating expenses, and basically performed worse than a John Meriwether investment vehicle. Of course this was all happening as the recession was starting so it made everything much worse, but luckily Carl Kirkland got fed up with the dumb shit and took over his company again and brought in a management team to turn things around. Since then they have cut the skus, pared expensive real estate (they are now ~75% off mall), and focused the strategy back on selling cheap tasteless crap, and that has worked phenomenally. The company’s revenue was flat in 2008 and grew in 2009 and last Q revenue was up 12% despite having 15 fewer stores (they now have ~280 stores). The plan is to open ~20 net new stores in the second half of the year and thus grow for the first time since the recession hit.
But here’s the best reason to like this company, it is fucking cheap. They earned $1.71 last year and estimates for this year are ~$1.60 due to an increasing tax rate. That said, top line guidance is for 5% to 8% growth with 3% increase in operating margins so if you take the best case scenario, the company could actually earn ~$1.85 to $1.90 for the year. The stock has sold off recently and is now ~$18 which is <10x best case scenario and ~11x analyst guesses but they have ~$3.50 cash per share on the balance sheet and no debt which makes this almost as attractive as Nicole Trunfio. At a minimum this company should have a 14x market type multiple and throwing that on analyst guesses (which could be low) yields a $22.50 price and if you add the $3.50 in cash to that and you get to ~$26 target price which is ~40% upside to today. Also, they had ~$52MM of EBITDA last year ($47MM op. income + $~$15MM depreciation) and have a current EV of ~$300MM so are trading at <6x forward EBITDA since EBITDA should grow with growing top line and slightly improving margins. The negatives are that margins have pretty much topped out, they now have to show they can profitably grow new stores, and like all retailers they need to keep their merchandise relevant. That said, the stock has traded off for no reason so it’s a good time to start a position (and if the position is a reverse eiffel tower, even better) because it’s cheap and they seem to have a solid grasp of their target market.
The market tried to rally today like a drunken hobo lying in a pool of his own vomit reaching for the discarded fifth of whiskey by his side to try to taste one last drop. Unfortunately the last drop turned out to be another hobo’s urine as Money McBags hasn’t seen a rally less believable since John Edwards’ ended his presidential campaign. Yesterday’s reversal had given investors confidence that perhaps the market had reached a technical support level (until that technical support level fails again), while common sense should have told them that shit is still worse than Stephen Hawking’s time in the 40 yard dash. Helping the market today, other than cognitive dissonance, was the report on new home sales which showed sales climbed 15% in April, triple analyst guesses which makes it one of their most accurate guesses of the year. Of course sales were once again helped by government tax incentives and bedrooms being wallpapered with posters of Olivia Munn. Also helping sales was the median home price dropping 10% to $198k which is the lowest it has been since December 2003 and means people are not just losing money in the market but also in real estate. Finally orders for durable goods jumped 2.9% to their highest level since September 2008 but they fell by 1% excluding transportation and the 228% rise in bookings for aircraft. The number was less impressive than a George Will stand-up routine and does note bode well for continued economic recovery.
Internationally, European markets rose a bit even with the EU talking about taxing banks to pay for their future fuck ups. Money McBags applauds the move but wonders why the EU doesn’t just better regulate them or find a more efficient financial system. They are basically saying, “you can’t be trusted not to fuck shit up again, and even though we already require you to hold reserves because there is systematic risk in what you do, you do it so poorly that unsystematic risk is less diversifiable than the crowd at a Charlie Daniels Band concert, so we’re going to proactively make you pay for the shit you are inevitably going to fuck up.” So good for the EU. Also, noted economists are out saying Greece is going to either need a debt restructuring, is going to default, or is going to have to start charging for sodas. Economist Steve Hanke and Nobel Prize winning economist (which is a bit like being the world’s tallest midget or the Kardashian with the fewest STDs) Robert Mundell were both on record talking about Greece’s problems. Mundell, who was one of the leaders in the development of supply side economics and the creation of the Euro which gives him all of the credibility to speak about Europe’s debt situation as Mr. T, Professor John Frink, and my left nut said a Greek default may be “inevitable.” Now look, Money McBags hates to nitpick (unless the nit resides on Imogen Thomas‘ and he is doing the picking) especially as Money McBags treats the english language like Joan Crawford treated her kids as he splits his infinitives more frequently than a diarrhetic splits their butt cheeks, but how is it possible that something “may be inevitable?” By definition, the word inevitable mean “unable to be avoided.” So how the fuck can something maybe be avoided if one is unable to avoid it? Chicken meet egg, egg meet chicken, now go screw. It’s just not logically possible, like a funny Dane Cook stand up routine or an MC Esher designed house. Instead of saying it “may be inevitable” the great supply sider should have just said the debt restructuring is evitable which is the correct fucking word for what he was describing. Ugh. And yet someone listened to this dickbag enough to give him a prize other than a booby prize (though to be fair, Money McBags hopes to one day win a booby prize)? Anyway, Mundell thinks the Euro needs to be strengthened rather than put out to pasture like Nell Carter after Gimme a Break, while Mr. Hanke thinks that Greece is likely going to default and thus all of the Euro bailouts will have been for naught. Money McBags isn’t sure what to think other than that everything is currently more fucked than a rent boy in George Rekers’ european vacation suite.
In stock news, who cares, it’s all going down.
The market is up today as sales of new homes were up 27% blowing past analyst guesses and rising by the most in five decades which is so long ago that baby boomers were still in grade school, man had yet to reach the moon, and full muff was still in style (like the very very NSFW 1561). Sales were spurred by the government tax credit which runs out next week, milder weather, and improved construction techniques. Additionally, orders for US manufactured durable goods were strong excluding the drop in commercial aircraft (no pun intended). Taking out transportation (and if you are going to take out transportation, be sure to grease it up with plenty of oil at dinner if you want to make sure you get a proper ride later on), orders rose by the most since December 2007 when the sale of wrecking balls spiked during the “Make Detroit Beautiful” phase of the recession. Driving up orders for durable goods was business spend on computers and electronics as companies are either gearing up for the recovery or trying to get enough computing memory to store all of the videos they have been downloading from spankwire. And the SEC is back in the news today as Goldman is choosing to press their luck (no whammies, no whammies, and stop) rather than settle with them over fraud allegations and a report is out showing SEC regulators spent more time downloading porn than they did trying to actually, you know, regulate the fucking markets (though if they were doing it as a way to research whether Heather Vandeven was causing investors to drop their shorts and get longer, Money McBags totally understands).
Internationally, Greece is activating their bailout plan while Prime Minister George Papandreou called the economy a “sinking ship” and with the bailout he hopes to avoid the fate of the Dokos. The bailout will give Greece 30B euros from Eurozone countries, another 15B from the IMF, and free two for one coupons at their local Red Lobster. The Greek requested bailout is the biggest test for the Euro since it had to guess French Economic Minister Christine LaGarde‘s gender. With the premium on Greek 2 year bonds approaching the premiums on both Pakistani bonds and Lindsay Lohan‘s life insurance, Greece needed to finally cry “theios” and get the aid promised them. Of course getting the aid may be a lot harder than asking for it as German politicians are wavering on their desire to bailout Greece citing Greece’s manipulation of economic statistics, the language in the EU treaty which forbids bailouts, and the potential for any funds to help energize Nia Vardalos’s movie career (though we hear she is working on a new movie titled: My Big Fat Greek Debt Spreading).
In stock news AMZN beat forecasts but like other tech companies, guidance was a bit lacking. Revenue guidance for next Q was $6.1B to $6.7B and analysts guesses were more in the middle than lucky Pierre at $6.4B so the Street is worried they could miss. That said, AMZN earned $.66 per share which beat analyst guesses by $.05 thanks to a 46% increase in revenue as people still hate going outside to buy shit. It will be interesting to see how long it takes for the iPad to make the Kindle obsolete and thus put further strain on AMZN stock. Also, MSFT put up a nice Q as sales rose 6% and net income was up 35% thanks to Windows 7 and businesses starting to spend again. That said, the Street was hoping for better growth, especially after INTC’s numbers, and as a result MSFT is trading down off of a pretty stellar quarter for them. Money McBags hates everything about Microsoft from their clunky operating system which allows in more Trojan Horses than Troy and more viruses than Paris Hilton‘s vagina to that stupid fucking paper clip that pops up in word everytime one mis-hits one of those F keys, but the cycle should be good for them and they are relatively cheap at around 12x 2011 estimates. So Money McBags bought a little in this dip and is going to try to get a quick 10% before puking it out like a KFC Double Down.
In small cap news, RICK had a big day yesterday on no news. Two weeks ago they announced that March sales were up 11% with 3.5% same club sales growth and revenue for the Q up 21%. Of course it’s not RICK’s top line that we’re worried about as they have proven to be literally and figuratively extremely top heavy, it is their bottom line that needs work.
The market is down a bit today on news that some country in Europe named Portugal has had their debt rating lowered by a whole minus sign (yikes, imagine if it had been a minus sign and a frowny face) and slightly negative US macro news. New home sales came out today and boy were existing home sales surprised by that, though it does explain why their come-ons were never returned and why new homes have so many closets. Sales in february fell to a record low partially due to blizzards and partially due to people not having any fucking jobs. Puchases were down 2.2% and were projected to moderately increase, so once again, nice job economists, don’t let the assumed door hit you on the way out. In other macro news, US durable good orders rose by .5%, but less than expected by economists. However, exlcuding aircraft, military orders, and wrecking balls to demolish foreclosed upon houses, durable goods were down .6%. Once again the economy is putting out marginally good data followed by marginally bad data and thus remaining at more of a stand still than a value destruction debate between John Meriwether and Bernie Madoff. It’s good that we appear to be at a new equilibrium, though it’s bad that that equilibrium appears to be stagnant growth and no dessert after dinner.
In international news, Japan passed a $1T budget to stimulate growth while hoping to avoid fiscal hari kari as their debt is twice the size of their economy. As part of the legislation, the government is trying to create more jobs by building more pachinko centers (they are now required to have three on every block instead of just two), hiring Mr. Miyagi to help train youngsters on how to paint fences, and by requiring 10 “shooters” in all future bukakke films as opposed to the usual 5. In Europe, Portugal was downgraded by Fitch ratings from a country to I guess a principality. Their debt moved from AA to AA- and we all know how drastic that – is from Fitch ratings, in fact Money McBags has nightmares about getting a – from Fitch like he has nightmares about losing his Michelin Star or about waking up next to Lady Gaga with the Ellen Degeneres show blasting on his TV. So now we’re going from Greece to Portugal, with their tasty sweet bread, their delicious salt cod, and their lovely export Vanessa Marcil. Look, what Money McBags knows about Portugal can fit into an empty bottle of Taylor Fladgate or a small Portuguese hot plate, in fact, though he is a world traveler, Money McBags has never actually been to Portugal or it’s capital Lisbon (though he hopes to find it’s mythical sister city of Lesbian one day), but he does know that Fitch ratings are about as relevant as the Know-Nothing party, the steady state theory of the universe, or Robert Guillaume, so who cares.
Starbucks announced a $.10 cent dividend which will allow shareholders to finally have something to drop in to the tip jars when ordering their grande mocachino lattofcrape. Dick Bove is out today saying bank stocks may quadruple by 2012 due to reduced loan losses and new math (where quadruple means something at least four times less than it does now). Of course this is the same Dick who raised Lehman Brothers to a buy 3 weeks before their bankruptcy so either that was a glaring typo or nobody should give a fuck what Mr. Bove guesses. Also, MF Global is rallying on news that John Corzine, the former head of Goldman Sachs and New Jersey governor will be taking over as CEO. MF board members are hoping Corzine can bring the kind of profitability to MF Global that he brought to Trenton, Newark, and every other near bankrupt place in New Jersey. More importantly, his Goldman background will now assure MF of a government bail out should they ever experience another rogue trader.
In small cap news RICK continues to get hammered after hitting Money McBags’ $16 sell point several weeks ago. Unfortunately Money McBags did not not sell and for the first time in his life he is regretting a decision involving Rick’s Cabaret that didn’t center around leaving or not getting another dance. There was a lot of momentum in the stock and their quarter was pretty awful on top of a questionable acquisition, so the sell off is not unwarranted. Money McBags will likely lock in his gains and buy back later when the stock settles back down. Also, long time value trap IBKR was downgraded to underperform by Zack’s, though luckily for IBKR Slater and Screech still have them at Market Perform (while Money McBags has Kelly Kapowski at a Strong Buy). Their downgrade was based on lower options trading volumes in the next few quarters and the recent piss poor performance. IBKR’s CEO still maintains that the company has $2 of annual earnings power if you smooth out their performance over the long run (though that long run is looking like Eons as opposed to years) and the company is trading at 8x that. They get hit when volatility works against them as their hedges become more expensive when implied volatility is much different from actual volatility. Money McBags mentioned this name the other week and it is worth keeping an eye on, though it is worth keeping two eyes on Olivia Munn, so not sure where you’ll get the extra eye to follow IBKR.
And readers, if there are small names you would like Money McBags to look in to, let him know. He’s here for you, well for you and Riley Steele.
2/24/10 Midafternoon Report: Bernanke channels his inner Greenspan and promises to keep rates low until the next bubble
Dizzam, Benny B went in front of the House Financial Services Commitee today and let everyone know that rates will be kept low for a more “extended period” than a menometrorrhagia sufferer. Despite last week’s back and forth between Bernanke and his henchman Thomas “T-Ho” Hoenig about the language used by the Fed in their minutes (and Money McBags would vote for Esperanto just to switch things up), Benny B held to his guns and let congress know he isn’t going to raise rates until he sees the whites of the recovery’s eyes (or the P in their GDP). Bernanke also said he believes the recent uptick in business growth was just an inventory restocking which is exactly what Money McBags has been yelling through the gold-plated window of his ivory tower for the past several months.
Bernanke stated: “As the impetus provided by the inventory cycle is temporary, and as the fiscal support for economic growth likely will diminish later this year, a sustained recovery will depend on continued growth in private-sector final demand for goods and services.” (Bolding is from Money McBags, multisyllabic, excessive, and painfully boring verbiage is from Bernanke as apparently he gets paid by the snore).
Bernanke cited the diminishing skills of workers who have been forced into long term unemployment, the current deficit, and Hannah Hilton‘s apparent cinematic retirement as concerns potentially inhibiting a full recovery. He did say he expected the unemployment rate to drop to 7% by 2012, but he didn’t say that it was likely going to be as a result of a massive numerator shift caused by those currently longterm unemployed workers starving to death in the new Dust Bowl, or aptly named for our times, The Capital One Mortgage Bowl: What Used to Be in Your Wallet? Bernanke also said that inflation would be “subdued” for some time as the US printed so much money that investors are still trying to count it to figure out exactly how much there is, so until that time, the market will remain blissfully ignorant. Call it the “Too Big To Count” theory.
In other macro news, prices of new homes fell surprising everyone except for the 15MM to 20MM unemployed Americans. Despite the government extending the tax credit for first time home buyers, purchases still declined by 11% and fell to their all-time low as any first time home buyers had likely already taken advantage of the tax credit last year by rushing in to buy before the previous deadline. Therefore extending the tax credit was like offering lunch to the Nathan’s Hot Dog Eating Contest contestants immediately after the final gag sounded. There is currently a 9 month inventory of houses on the market and 3MM more houses are forecast to be foreclosed upon this year which is great for vermin, but not so great for the economy.
In stock news, Dollar Tree destroyed their analyst estimates as if those estimates were Joanie‘s rectum and they were Chachi after a blue-balled night of doing body shots off of Pinky Tuscadero. DLTR beat estimates of $1.44 eps by $.08 thanks to better gross margins and gave guidance well above analyst estimates for Q1 and the full year with EPS slated to be $3.96 to $4.23 for 2010. They also generate a ton of cash and for those who have been on the planet Melmac for the past few years living off of toasted feline (and to be honest, if it were Jayde Nicole‘s “cat” being served on Melmac, Money McBags would immediately build a spaceship) and aren’t familiar with the company, they sell incredibly cheap shit in a recessionary environment. They are now trading at around 14x 2010 guidance but this environment for them should be as profitable as the guy operating the lifeboat booth on the Titanic or whoever was selling bullets at the Alamo. Money McBags has not followed DLTR as closely as he should have, but the story makes sense and the valuation isn’t horrible. They’ll probably trade down tomorrow after today’s jump, but this stock is worth investigating further.
As for small caps, CTGX reported their quarter last night and it was inline but their guidance was better than Money McBags was expecting. Money McBags previewed ther quarter the other day and was perfectly content with their release last night as he was just expecting more of the same for now in their core business and that is what he got. Their revenue for the Q was down 19% with equal declines in their solutions and staffing business. Honestly, Money McBags can’t do anything but yawn about this as it is completly irrelevant to the story as he previously outlined. As long as the core business doesn’t blow up (and there is really no reason it should), the EMR business CTGX is in should provide the real growth for this company over the next 3 to 5 years. This was Money McBags favorite quote from their press release (he’d quote their call, but it was fantastically bland, like a primetime sitcom or anything written by that Michael Crichton guy):
“Looking further out, with the billions of dollars in federal stimulus money for EMRs from ARRA, Medicare, and Medicaid still unspent, we expect demand for EMR implementation support will steadily accelerate as these funds become available and access to the credit markets opens up for providers. Based on our deep EMR experience for large providers and communitywide health information exchanges, we are confident in our ability to secure significant new EMR work over the next three years, particularly as the 2014 deadline for having systems meeting meaningful use criteria in place draws closer.” (Bolding again from Money McBags).
That is pretty much all you need to know. Now guidance for 2010 is for eps of $.46-$.56 on 11% revenue growth. So they are trading at around 15.5x the midpoint of guidance and they actually see their staffing business picking up into the year and have begun hiring. Also, their balance sheet is cleaner than the grout on germaphobe’s tiled bathroom floor and they are buying back shares. There is not much reason for the company to take off right now, but EMR is coming so this stock is the definition of buy and hold, especially as it isn’t horribly priced (it isn’t all that cheap though).