Posts tagged RIMM
The market rallied a bit in the afternoon as rising new claims for unemployment missed analyst guesses by somewhere near a fuckton (give or take an asshair or ten), Portugal and Greece saw bond yields rocket up more than applications to LaSalle’s MBA program and even more than Kate Upton on the awesomeness scale, and the US government got even closer to banging up against their fictitious debt ceiling (and it is more fictitious than the Easter Bunny, Hanukkah Harry, and Goldman Sachs’ congressional testimony) that in the past 25 years has been lifted more times than Joan Rivers’ face or Lisa Sparxxx‘s gunt. So as always, rally on Money McBags’ friends because the solution to a weak (or non-existent) real recovery, to global turmoil so uncertain that it has even caused Heisenberg to roll over in his grave, and to long-term unemployment more structurally fucked than a Sarah Palin sentence, is to simply buy the dip and thank the great Bernanke in the sky for making QE a permanent part of the lexicon (and for making the US government closer to insolvency than Lenny Dykstra is, though unfortunately with fewer hookers and tobacco stains).
In macro news, new claims for unemployment rose by 27k to 412k which was just a rounding error away from analyst guesses of 380k (and a rounding error in the same way that Kathy Bates is a rounding error away from Kathy Gardiner) and signals the economic recovery may be losing steam faster than John Tyler’s 1844 re-election campaign (because pissing off both parties is a worse election strategy than telling the truth, or at least more of the truth than others) or Hosni Mubarak’s heart (though who knew he had one). And what Money McBags loves most about the number isn’t just that it was likely the result of someone at the B(L)S forgetting to hit the goal seek function, but that the (No) Labor Department chalked it up to unusually large layoffs that happen at the end of quarters, but umm, while Money McBags is no econometrician (heck he couldn’t even tell Daniel McFadden from Darren McFadden if he were given a discrete choice, and yes that was the first econometrics joke in the history of the award winning When Genius Prevailed) he is pretty sure analyst regression models should fucking account for seasonality since that is kind of the entire fucking point of a regression model. So either all of the analyst regression models suffer from some kind of spurious correlation (and correlation more spurious than thinking people buy Playboy for the articles) or the data is more made up than the Fed’s mandate, so it is hard to have any real confidence in the numbers.
And it’s not just that the data is likely completely bogus, but in the continual “hold the shock and hope for no awe” government strategy, last week’s numbers were revised up for the infinityillionth time from 382k to 385k which made last week’s beat, now a miss. But of course the market cares about details about as much as the Brits now care about the Royal Bride’s virginity (and Money McBags will take the over on that), so it is what it is.
In other macro news PPI was up .7%, though mostly because R Kelly was seen chugging bottles of Gatorade while telling his lady friends not to blink. Excluding food and energy, the core index rose only 0.3% which is great news for rocks who as far as Money McBags can tell are the only things that don’t use food or energy to survive. Also, foreclosures dropped 27% from a year ago to their lowest level in 3 years mainly due to lenders’ inability to keep foreclosing on the same homes. Actually, the drop was mostly caused by the the mortgage documentation scandal delaying many foreclosures as borrowers chant “if the documents are bogus, you can’t foreclose us.”
And finally, the budget remained in the news as on Wednesday night President Obama released his deficit reduction plan which was so well received by critics that it has already been nominated for a Pen/Faulkner award. Obama’s plan aims to cut the deficit by $4T in 12 years through overhauling the tax code, cutting defense spending, and collecting underpants. Of course Republicans hate Obama’s plan with the main differences being a lack of an overhaul of medicare and the fact that they didn’t write it.
Look, Money McBags hates getting political (unless it is to support the Femen Movement, the Slut Walk, or the right to bare arms and barer breasts) but why do people give a fuck about this theater of the absurd which is more farcical than a Marx Brothers movie (where time flies like and arrow and fruit flies like a banana) or the notion of efficient markets? Seriously, it is a 12 year plan. Do you know who will be president in 12 years? Exactly. Shit, do you know who will be President in 2 years?
So this plan is completely irrelevant because it will change next year or the year after as whoever is in charge will continue to make short-term trade-offs for long-term pain because that is how you win fucking elections. Sure eventually someone will get caught holding the bag, but delaying the inevitable is more American than apple pie, pick-up trucks, and Carrie Prejean so why get so worked up about which plan is less full of shit when they both will accomplish less than Heather Mills in an ass kicking contest. And just to prove that point, the spending bill that was so fucking important last week that it threatened to shut down the government was finally passed by the House and the $38B in cuts were really only $350MM (or a year’s supply of botox for Nancy Pelosi), so wake Money McBags up when either party gets serious about anything (though if you are going to wake him up, please make sure you are appropriately dressed).
Internationally, Greece’s borrowing costs soared almost as high as Icarus as they rose to 18.3% which to put in perspective is the same as the rate on Stephen Baldwin‘s credit cards (though without the opportunity for cash back). The reason for the jump was that Germany said for the first time that Greece may need to restructure its debt and after last year’s $140B bail out, any shenanigans with Greece’s balance sheet could be more catastrophic to Europe than the bubonic plague or a black jean shortage. So keep an eye on Europe here, and also keep an eye on this.
The only other global news was that computer shipments fell 3.2% worldwide as earthquakes in Japan, uprisings in the Middle East, and no one having any fucking money, hindered sales. Computer shipments in Japan fell 15.9% as something called “not going outside to avoid radiation” took precedence over buying discretionary products while shipments in the US fell 10% as consumers either switched to tablets or decided not to upgrade due to the hassle of having to transfer all of their porn to a new machine.
In the market, RIMM was down after its tablet received worse reviews than “Our American Cousin” did from Mary Todd Lincoln (apparently she liked it as much as a hole in the head). Money McBags has been crapping all over RIMM for months now as like YHOO, EK, and Kourtney Kardashian, you never invest in the the second tier player when there is a clear market leader.
Also, GS was down today as Senator Carl Levin released the findings of a 2 year investigation that showed GS acted like a bunch of assshats by misleading clients and lying to congress. While Lloyd Blankfein tried to slip Levin some iocane powder and some more BS before the report came out, it doesn’t really matter because the government has no interest in actually trying their own. The fact that no one at GS has been jailed for being complicit in the biggest financial meltdown of our time is more cockposterous than Taco Bell testing a taco shell made of Doritos or the Waterfall TALF Opportunity, but it’s good to be King.
In small cap news Money McBags spent all day on KITD answering emails, tweeting away, and trying to figure out WTF sent the stock down 12% in the morning as Money McBags actually really liked their large acquisition from the other day. Money McBags talked to a shitload of people on the Street and just couldn’t find anything that made sense so he reiterated his buy recommendation when the stock was getting absolutely clobbered and it wound up going from down ~12% to closing down only ~1%, so hopefully you all bought in today because it is at times of fake uncertainty like this that real money can be made.
And this is one of the reasons Money McBags started the award winning When Genius Prevailed, so regular investors could see how the sausage is made. See, Money McBags is still very connected to the Street and talks with many analysts and PMs so when KITD was dropping down like Tori Black on pay day, Money McBags called the fuck out of people who are just privy to information that the average investor isn’t. He talked with sell side analysts, hedge fund colleagues, and even fired up the magic eight ball. Fuck, CEO Kaleil Tuzman sent out and email to analysts defending the stock and was then on an hour invite only phone call and Money McBags not only had the email forwarded to him but listened in to the phone call. Retail investors of KITD just don’t get that kind of access which is why investing is not a fair game. And again, that is why Money McBags started the award winning When Genius Prevailed, to shed light on what really goes on in the market and how asymmetric information and access kills the retail investor.
Anyway, Money McBags thought Kaleil absolutely killed it on the phone call and email where he basically pissed all over the shorts who thought ioko was a flat growth company (which it is only because they have a dying legacy business which is not in KITD’s projections or numbers), that ioko somehow changes KITD’s mix of service vs. software business, or that ioko was KITD’s third choice. Money McBags still promises to get his full KITD analysis out sometime before Monday but it’s really pretty simple. This company is going to have ~$300MM in revenue in 2012, at least $70MM in EBIDTA, is the market leader in a market growing ~30% with huge long-term potential, and is now trading at ~6x EV/EBITDA, so um what else do you need to know? No really? Money McBags guesses he will add ~2k words of dick jokes and hot chick pics to that thesis to spruce it up a bit, but there just isn’t much more he can say.
Oh yeah, old friend RICK is finally shutting down their club in Vegas which is a great decision since that club has been an absolute money suck (and there is a terrible pun in there somewhere). While Money McBags applauds the decision (and as a shareholder, he is happy it will add a few cents to earnings), his heart does go out to all of the girls who will now have no way to afford that college education. It is a sad day for humanity, but a happy day for shareholders.
Writer’s note: Yeah, Money McBags has used the headline before, but shit, when there is no theme of the day, writing a headline at 2:30am is fucking difficult. Money McBags will gladly refund your dignity for having a bit of a redundancy tonight.
The market rose again today (which is actually the new permanent opening line for Money McBags’ daily column so if you want to save yourselves five minutes, just add references to unemployment, inflation, Fermat’s last theorem, and Malene Espensen, then rinse, spit, and consider the column finished). That said, the market didn’t just rise because it is Wednesday, it rose because the FOMC said things are picking up just enough to keep QE2 going (because apparently making sure the dip is bought is in the Fed’s charter along with keeping inflation in check and acting like a bunch of asshats), Iran is moving warships in to the Suez Canal (though they claim it is just a sight seeing mission as the crew is short one of those Jerusalem snow domes to complete their collection), and people at the playboy mansion continue to fall ill (and note to Hef, that is what happens then you invite Corey Feldman over one time too many) with the illness being blamed on a mystery bug (perhaps it was a Katy(Marie)did or a headwig).
Oh wait, those are all reasons for the market to go down, because the need for fiscal stimulus and the unrest in the Middle East are about as positive for the ponzeconomy™ as googling “Santorum” is for Rick Santorum’s election campaign (and the awesomeness of this being the top result for that search might be reason enough to give Al Gore whatever is greater than a Nobel Prize for creating the internet), but as always, just buy the fucking rip.
Anyway, the big news today was that the FOMC’s minutes were out from their last meeting and we learned that the Fed will be keeping QE2 in place because the economy remains somewhat shitty. That said, the headlines for the minutes had more spin than a drunken lepton as the media ran with things like “Recovery on Firmer Footing” (perhaps footing even firm enough for Rex Ryan) and focused on the Fed raising their GDP growth expectations to 3.4% to 3.9% growth this year, from their previous guess of 3.0% to 3.6% while ignoring the fact that <4% growth doesn’t do a shit ton for getting the ponzeconomy™ back to healthy levels and the jobless rate will remain elevated through at least 2012 (unless the Fed can continue to push that pesky labor force participation rate down).
In the minutes we also learned that there was some debate about slowing down QE2 until dissenters were reminded that doing nothing is tantamount to admitting their jobs are meaningless, the Fed is disappointed in the pace of job creation (no fucking shit, you know who else is disappointed? The ~18MM people not working and Pam Anderson‘s agent), the cockposterous rise in commodity prices will not cause inflation (mainly because the B(L)S will just keep rejiggering the weights of core CPI until the only thing it measures is the number of people who spell “Kocherlakota” correctly on their first try as that will never be an elevated number), and Janet Yellen is really pissed that Charles Evans keeps forgetting to leave the toilet seat down in the Fed’s private bathroom.
But Money McBags’ favorite part of the minutes was when the fed shrugged off rising commodity prices by saying “the factors affecting the ability of businesses to pass through higher prices to consumers were viewed as complex and hard to monitor in real time.“ First of all, cry Money McBags a fucking river that your job is “complex” and “hard,” seriously you want a real hard and complex job try being the asshole that has to write dick jokes about this shit every fucking day instead of the fuckrods who just set the policies, big difference in the degree of difficulty. But guess what, you are getting paid to do that hard and complex job so would a bonus of “shut the fuck up” help.” And secondly, um, you know this is already monitored in real time so what is so hard and complex about clicking on a link? And these people are in charge. Ugh.
In macro news, core PPI rose .5% which was highest rate in more than two years as apparently R. Kelly went on a drinking binge and aimed for the head (trust Money McBags there is a really bad pun in there). The number was above the .2% guessed at by economists and foreshadows the build up of inflationary pressures in the economy about as subtly as Michael Chabon foreshadows anything in his writing (and there is a reason Money McBags doesn’t read modern novels) or as subtly as Charlie Sheen foreshadows his intentions on a new hooker‘s first trick.
In other macro news, housing starts were up 14,6% which makes as much sense as Keith Olbermann joining something called Current TV (because Money McBags is pretty sure the award winning when Genius Prevailed gets more traffic than whatever the fuck Current TV is) or Melissa Archer not having a better career, because shouldn’t the weather have affected the numbers since it supposedly wreaked havoc on anything else having to do with going outside such as shopping, working, and dickflashing. That said, permits for future home construction dropped sharply after they were pulled forward last month to get ahead of tax code changes in three states (with the largest of those states being the state of despair).
As for the market, DELL beat guesses and jumped ~11% thanks to a surge in business hardware and something about people no longer having enough money to buy Macs. DELL earned $.53 per share which was up from $.28 per share and well ahead of guesses of $.37 per share and the company guided to 5% to 9% growth, though stripping out warranty replacements, growth will be closer to flat.
In other earnings news, Deere’s profit doubled thanks to sales of large high-margin machines and price increases (inflation inshmation) and the company raised their full year guidance. Deere said rising prices of food commodities like corn, wheat, soybeans, and Trustex flavored condoms (and Money McBags hears the Strawberry is mouth tingling good) have boosted farmers’ investments in new equipment and are helping Deere’s topline. Also, Officemax was down 10% after returning to profitability but announcing that increased promotions, the fuck awful economy, and the fact that their stores look like homeless shelters, will continue to pressure results.
In retail stocks, Family Dollar was up ~21% after it was announced to be going private in a $7.6B transaction (which is just $1B below the price of going for Brooklyn Decker‘s privates) and Abercrombie and Fitch was up after a strong Q thanks to sales in Europe where the douchebag look is just coming in to style.
And finally RIMM was up ~5% after C upgraded it to a buy from a sell and boosted its price target to $80 a share from $56. When asked for the reason behind the upgrade, the analyst cited RIMM potentially benefitting from the Nokia-Microsoft smartphone partnership and cited the fact that he hadn’t printed research in a while and needed to get something out so funds would trade with C and thus boost C’s commission revenue.
In small cap stocks just about everything was up today so good on you if you owned anything (though better on you if you owned this). Money McBags mentioned GLNK briefly yesterday and they were able to hold their 28% gain from Tuesday which is a good sign that there may be real investors getting in to the name. It is on Money McBags’ to do list (just after TNAV and Izabel Goulart) as the growth seems real and it has been pretty consistent, but the company just hasn’t been able to get scale until perhaps now. Speaking of TNAV, they continue to break out and on the surface it looks hella fucking cheap with strong growth trends. The problem is that Money McBags hates their business as they are basically the SIRI of the GPS world because they are selling a service people can essentially get free from a little something called Google maps. That said, the company does have strong recurring revenue (which Money McBags loves), nice growth trends, and a very reasonable multiple so Money McBags hopes to spend some more time on them in the next few days if he gets a chance.
Money McBags is a bit worn out right now so no detailed small cap analysis today, but hopefully tomorrow he’ll dig in to some more ideas (especially this idea). And if today’s headline didn’t make sense to you, it is a pun on the NBA’s “Where Amazing Happens” marketing campaign, trust Money McBags that it is both clever and funny.
With market news quieter than a prisoner’s dilemma that actually reaches a Pareto efficient Nash equilibrium, and even quieter than the “Free Bernie Madoff” campaign, Money McBags had time to ponder some of biggest questions of the day.
He wondered why there wasn’t more flashing in the flash crash? Why they give out degrees for a “science” that doesn’t work in the real world (or why they don’t just change the name to “Theoretical Economics,” redundancies be damned)? How new claims for unemployment can be trending at ~1.6MM a month and yet the B(L)S data from the (No) Labor Department shows private sector jobs flattish? And why life expectancy in the US has slipped (though this one is easy to answer as it is mostly the result of people having watched one of those Real Housewives of whereever shows and developed brain aneurysms from something called “punching oneself in the face”)? There is just little going on until the new year so feel free to ignore Money McBags’ daily commentary and instead guess NSFW muffs to your heart’s content.
That said, there was a bit of macro news out yesterday as The Conference Board’s leading economic indicators jumped 1.1% in November as those leading indicators apparently include “buying shit you can’t afford,” “odds of more stimulus,” and “Jennifer Lawrence‘s movie career.” The jump did represent the biggest rise since March, was the fifth straight monthly gain, and means absolutely nothing to Money McBags since he doesn’t trust anything that comes from a source focused on something called “business intelligence.”
The only other bit of US news was that the compromise tax cut bill, or as its better known as, “business as usual” (because the only thing compromised was integrity and the fate of the middle class) went to Obama so he could put his George W. Bush on it (who knew that “change we could believe in” consisted solely of organic vegetables at the dinner table?). The bill includes $801B of tax breaks for the rich so they can not spend even more money that they have sitting in money market funds and $57B in extended unemployment so 45 year old people who got laid off can afford Spaghetti-Os instead of just cock flavored soup. The bill received bipartisan support (apparently it liked other bills of the same gender) and showed that whether Democrat or Republican, rich people hate taxes and prefer short-term gratification to foreplay.
Internationally, Moody’s cut Ireland’s credit rating by five notches from something called Aa2 to Baa1 and warned it could further downgrade it to Baadfuckingidea. Money McBags doesn’t know what is more absurd, Moody’s rating system or that anyone would give a fuck about it. But hey, blinding insight like “the Irish government’s financial strength could decline further if economic growth were to be weaker than currently projected or the cost of stabilizing the banking system turn out to be higher than currently forecast,” provides a valuable tool for the market (the tool of course being the analyst who wrote that). But it wasn’t just Moody’s who changed their farcical, nonsensical, and cockposterous ratings of Ireland as the IMF cut their forecast for Ireland saying the Irish economy could sag worse than Zara Phillips’ boobs and could lead to a more significant threat of contagion than sharing a toilet seat with Paris Hilton. The IMF now expects Ireland’s economy to grow only 0.9% in 2011, which is down from their previous 2.3% estimate and any downward deviation could lead to a default more epic than than Winter Pierzina’s cleavage.
The big news in the market was earnings, earnings, and more fucking earnings. Honestly, Money McBags is starting to question his bearish stance as companies plow through lowered expectations thanks to emerging markets and, well, see that is the part that confuses Money McBags, With greater than 15% real unemployment, is it possible that the other 85% of the people can spend enough to make up for that gap thanks to more stimulus and an outright denial of the harm of a spiraling deficit? Money McBags is more confused by this than he was to learn that frogs can pee out foreign objects (though the real question is what were the frogs doing to get those objects in there?). He is starting to wonder what if the shit never hits the proverbial fan? He is actively rethinking this, though more actively rethinking this.
Anyway, in terms of earnings Oracle was up 5% after sales of new software foretold a good Q. The company earned $.51 per share which beat analyst guesses of $.46 per share as sales of new software climbed 21% to $2B (thanks to likely using the brilliant new non-profit sales model) which beat their guidance of 6% to 16% growth. Elsewhere, RIMM had stronger sales and profit than analysts guessed and grew top line 40% which is amazing seeing as how they are now 4th in the mobile device market after the iPhone, Goog’s Android, and the pocket rocket. RIMM also raised revenue guidance for next Q from a consensus $5.46B to the higher $5.5B to $5.7B as they expect a strong holiday season once iPhones sell out.
In other earnings news, Assenter (known more formally as Accenture) shot up after a 20% rise in earnings and after they raised their full year revenue guidance to 8% to 11% growth thanks to surging demand for Power Point slides by companies who need materials to make sure their shredders are working properly. BMO bought MI for a 34% premium because apparently they don’t teach US geography in Canada and the Bank of Montreal thought Wisconsin was New York’s 6th borough. Finally, AZN was down ~6% as the approval of their blood thinner drug Brilinta, was delayed again as the drug was deemed not to be brilliant (see how easy it is to write a stupid Jay Leno monologue joke. How late night talk shows don’t hire Money McBags is more of a mystery than why you would want to flash the amish).
In small cap news, not much happened today as Money McBags spent hours scratching his head over how WGO can trade at 40x earnings (though the head scratching could have just been crabs). Money McBags broke WGO down yesterday and showed they are at a ~$.40 EPS run rate and to make sure he isn’t crazy (well, technically Money McBags may be a bit out there, but he is talking specifically about WGO), he skimmed some sell side reports today on WGO just for shit and giggles (and it was mostly giggles from reading that shit) to see if the Street has any fucking explanation for WGO’s valuation.
The analyst from C has WGO’s top line growing 17% in 2011 and 6% in 2012 with earnings per share of $.50 and $.58 respectively. So those don’t seem too far out of the ballpark, but this is the part that makes Money McBags’ taint hair stand on end. Guess what multiple this highly paid C analyst named Gregory Badishkanian puts on a company not even guessed to grow 20%? 16x EV/EBITDA. Wow. Money McBags wouldn’t pay 16x EV/EBITDA for anything unless it was growing a fuckload faster than 17% for 1 year and could lick his balls from across the room (shout out to Dice). So using that 16x EV/EBITDA multiple on 2012 EBITDA, Mr. Badisnotgonnaworkherenaymore gets to a $17 price. Unfucking real. Oh yeah, and he arrives at that multiple by saying WGO has traded in a range of 5.5x to 99.9x (though not 100x, because it is important to not round that last .1). Wow. You know when it likely traded at 99.9x? When it was going to zero in the recession as they didn’t have any fucking EBITDA, in fact it was trading at cockfinity times back then so why not use that as a range? Is this what they teach at CFA school these days (and yes Money McBags is a CFA charterholder, but don’t hold that against him)?
Now the Robert Baird analyst, and he’s likely at Robert Baird because C wasn’t hiring (which is a bit like having to be driven to school because the short bus was too full, but whatever), has 2011 EPS at $.54 and 2012 at $.68, so slightly more positive than our delusional friend at C and has revenue growing at 19% a year despite backlog being down 50%, dealers being back to fully stocked (he even assumes that from now on dealer orders will be only for replenishment), and people not needing to drop an assload of money on a fucking motor home.
That said, his valuation is based on Money McBags’ favorite piece of mental masturbation (other than anything in the MILF section of the NSFW Spankwire.com), a DCF model. Unfortunately the model was not attached to the note, but Money McBags is sure the perpetual growth estimates were perfectly reasonable (and yes that is sarcasm) since the terminal valuation only determines like 80% of the DCF’s value. Anyway, the Baird guy’s DCF tells him WGO is worth $16 or 24x his 2012 EPS and if he thinks WGO can grow 19% a year, that is at least only ~25% too high.
So the C analyst uses a ridonkulous multiple on low growth, and the Baird analyst uses witchcraft on high growth which translates to a slightly more reasonable multiple. Even if you wanted to use fiscal 2012 as your baseline and even if you thought WGO would grow 19% a year, at most you’d put an 18x on that so even using the most optimistic numbers, the stock is ~20% overvalued. Either way, it all makes less sense to Money McBags than celibacy or tramp stamps and he is happy to short here and wait this one out because time and logic are on his side (though he’d prefer if Carla Ossa were on his front).
Anyway, enjoy your weekend.
Volume was low today and the market was flat on a mundane “quadruple witching” Friday (and it is called that because all kinds of futures contracts and stock options expired today and not because Alan Greenspan’s guest appearance on Charmed was being rerun). The big macro news of the day was that consumer confidence fell from luke warm to colder than Bernie Madoff’s heart while analysts had guessed it would rise in their continued attempt to miss the forest through the trees or the adam’s apple on the reality TV show.
Consumer confidence registered a devilish 66.6, a drop from last month’s 68.9 (which was so close to 69 that it could taste the cunt hair), and below analyst guesses of 70 which brought the index to its lowest level in over a year. Interesting tidbits from the survey include consumer expectations falling to 59 (lower than the 63 from last month) and the biggest decline in confidence coming from families with >$75k in income as they begin to realize that the glass ceiling is made out of cement and falling faster than Ines Sainz‘s popularity in the Jets lockerroom. The real fear here is that a less confident consumer will spend fewer of their borrowed dollars and thus turn any potential recovery in to the longest bottomed U-shaped recovery in history or what might also be known as an “L.”
In other macro news, consumer prices were held in check rising only .3% though as always, excluding the things people actually need to buy (like food, gas, and Shake Weights), prices were flat. One question that keeps springing up is “are those real?” while another one is “is the US Economy going to see deflation?” and unfortunately the CPI results don’t give enough information to answer either of those questions definitively (though off the record, the CPI says yes and yes). With debt burdens higher and more dangerous than Manuel Uribe‘s cholesterol, a deflationary environment that lowers wages could crush the working class and send the recession in to a double dip (or a continued dip if you take out the stimulus effects) so it is critical to watch this measure (though more critical to watch this measure).
Internationally there were rumors of Irish bank Anglo Irish going in to default or needing to have to renegotiate their bonds and that sent spreads on Irish government debt to the highest they have been since the Norman Invasion in 1169 (which Money McBags hears was simply the result of Dermont MacMurrough overhearing a conversation in the kitchen and misinterpreting it). While European markets have had a sharp rebound over the past couple of months, their banking system still remains more fragile than Sarah Palin‘s ego or Betty White’s hip so pay very close attention to the fundamentals of anything European before getting too long that continent.
The big news of the day though was the technology sector where Oracle proved to be wiser than the market by putting up a huge quarter and RIMM defied all forecasts and proved once you go blackberry, you almost never go back(berry). Oracle’s profit was up 20% thanks to the addition of Sun Microsystem’s hardware sales, the demand for business software, and increased offerings made to Pythia. CEO Larry Ellison talked up the success of bundling Oracle’s software with Sun’s hardware and compared it to other great pairings like peanut butter and chocolate, Astaire and Rogers, and Faye Reagan and anything. With their software license revenue up 25% and ahead of targets, ORCL stock was up ~8% on the day and the company appears to be in nice shape with the addition of Mark Hurd, who coincidentally, has quite an eye for nice (though MILF-y) shapes.
But it wasn’t just ORCL who outperformed as RIMM put up a huge quarter, growing EPS from $1.03 in last year’s Q to $1.46 in this Q which easily beat analyst guesses of $1.35 and they also guided well above the Street. The company shipped 12.1MM devices which was well above guesses (though more curious to Money McBags than IHOP suing IHOP) but they had only 4.5MM net new subscribers which was below their target. Look, on any type of valuation RIMM looks hella fucking cheap (like Lindsay Lohan after a night of blow) but Money McBags just sees serious threats to their business model as the blackberry is quickly becoming more outdated than dial-up internet service or Cloris Leachman‘s vulva. While RIMM is still the market share leader in the business handset market, they are forecast to lose share for the first time this year as Apple, Google, and MSFT continue to win customers so sure they are cheap, but Money McBags prefers to own industry leaders over industry laggards and with continued international issues surrounding RIMM’s data and privacy, Money McBags would rather be short RIMM than long RIMM. If the company can’t rally after a quarter like that (and it finished down for the day), their future seems bleaker than Jordan van der Sloot’s (though with potentially less assraping).
In small cap news today, Money McBags favorite TMRK continues their month long rally that has seen them run up ~40%. Money McBags has written about TMRK exhaustively here on the award winning When Genius Prevailed (just throw it in to the search box up top) and it remains one of this favorite long-term names even with the run up as cloud computing is a trend Money McBags believes in more than he believes in sex before marriage and sex after marriage. The stock is no longer ridonkulously cheap and trading near where other companies have been taken out so you might actually want to trim a bit here since the whole market feels like it is ready to go down as if it were auditioning for the lead role in Saturday Night Beaver, but the catalysts remain the same:
1. Increased outsourcing of IT departments/servers/software/anything unrelated to normal business operations. Companies just don’t need to be in the IT business anymore and one of the easiest ways to cut costs in this slumping economy is simply to outsource all of the non-core business functions like maintaining servers, updating software, and designing TPS cover report sheets.
2. They already have built out data centers and have a good deal of capacity which makes them attractive to a buyer who might not want to build all of the shit out themselves. The colocation market is one area where buying is definitely better than building.
3. They have a strong relationship with the government and that revenue is not only stickier than Ashley Dupre‘s hands after a day of work, but should also continue to grow as the government cuts costs.
This is basically a 5 to 10 year play so you can be cute (perhaps you were expecting this?) and trim a bit here after the run up or just hold on and check back in 5 years when TMRK is appreciably more than it is today and has outperformed the market (that is if it doesn’t get taken out first and if there still is a market).
Have a good weekend.
The market ran faster today than Roman Polanski going to get his keys to pick the baby sitter up because the manufacturing sector grew at its slowest pace since December, private construction spend dipped for the second month in a row, and Ben Bernanke said shit still sucks out there. So rally fucking on like Donkey Kong having his way with the princess, only if the princess had tainted his banana wth AIDS.
With the market rallying on macro news that was about as positive as a RuPaul pregnancy test, Money McBags is left to wonder what he is missing, how much the market would rally if there were actually something positive going on in the economy (like maybe either the second derivative of released data positively increasing or the unemployment rate decreasing and not just from a declining labor force participation rate), and how he overlooked this delightful NSFW Alice Eve scene which has caused his Oscar to stand and applaud. Money McBags is not quite sure how to interpret the market moving in opposition to macro data, as the language of giberrish wasn’t on the rosetta stone the last time he checked, but he hopes those of you buying in to this capitualting market are careful.
As for macro news, Benny B warned us that “we have a considerable way to go to achieve full recovery in our economy, and many Americans are still grappling with unemployment, foreclosure, and lost savings, in addition to the angst and nausea they feel every time they look at the deficit and realize their kids may be more fucked than Stephen Hawking in a duel.” Ok, perhaps that last bit was made up but, whatever. Bennie B did get slightly positive by saying he fully expects consumer spend to pick up in the next few quarters as wages rise, business demand picks up, and the US finally figures out what to do with all of the underwear they stole.
Money McBags is a bit skeptical of Bennie B’s claims since unemployment remains more stagnant than the Terri Moulton Horman for “Stepmother of the Year” campaign or jokes here on the great When Genius Prevailed so it’s not clear where these rising wages are going to come from unless it’s from laying more people off and then giving those still employed a bit of the saved salary, which of course would do nothing for overall consumer demand. But hey, when Bennie B gets his Fed on, the market listens (to the parts it wants to hear).
In other macro news, the ISM came out with their numbers for July and the manufacturing sector grew at its slowest pace this year, but luckily, the 55.5 number was better than the 54.2 analyst had guessed so rally on my friends. It was the third straight month (and the month was so straight it even got it up for a Kathy Najimy-Rachel Ray threesome) of slower growth but remember, readings above 50 still signal expansion, so apparently there is nothing to see here (except for new orders dropping to their lowest level in over a year, production slowing down, and Kagney Linn Karter).
In the final bit of macro news, construction spending rose .1% as increased investment in public projects (perhaps maybe a bridge to somewhere) offset the 15th straight monthly decline in private nonresidential construction and the .8% decline in private homebuilding (which included growth from the Greenspanville‘s being erected across the country, and yes, Money McBags said erected). Yowsa. As usual, last month’s new construction was revised downward from a .2% drop to a 1% drop as part of the government’s “hold the shock and hope for no awe” strategy, so this month’s .1% decline should be labeled as “wishful thinking.”
Internationally, China’s manufacturing sector cooled further as the government tries to reign in reckless speculation on real estate and ben wa balls. The official purchasing managers’ index fell to a 17 month low of 51.2 from 52.1, a separate PMI released today by HSBC and Markit Economics showed a drop to 49.4 from 50.4, and a third reading of PMI from the desk of Sum Dum Gai simply took the average of the two. China’s ec0nomy slowing down is actually favorable as it has been growing at a rate less sustainable than a conversation involving only eye contact with Christina Hendricks so having it moderate a bit and perhaps not inflate to a bubble like every other emerged economy would be beneficial for all involved.
Driving the market today was the European banking sector thanks to HSBC putting down its fag, rolling up its sleves, and earning the fuck out of some profits. The bank doubled its profits to $7B despite revenue growth declining by 7%, operating expenses increasing by 9%, and no one having any fucking money. Profits rose as losses on bad loans tumbled to $7.5B, just over half of last year’s losses, and were the result of bad loans rolling off the books and the bank not lending anyone any money. BNP Paribas also put up a good Q, with the French bank’s profits rising due to credit getting better and having Laetita Casta on call to help coax out customer deposits. Just like in the US, bank profitablity seems to be rising across the globe despite declining revenues as credit is improving. That said, credit can only drive earnings for so long until the banks are going to have to start lending to people again to drive revenue and thus the vicious cycle will begin anew.
In other market news, Blackberry is not just losing market share to the iPhone but now the UAE said they will cut RIMM’s data service like the dirty infidel that it is. The UAE cited security concerns over RIMM’s reliance on encrypted emails which make it easier for criminals to operate and harder for the government to watch that stupid fucking video of the double rainbow that everyone seems to be emailing around. Not since Peter Chung anointed himself King has there been an international email controversy like this and it does not augur well for RIMM’s jobs overseas going forward as other countries like Saudi Arabia are also thinking about taking steps to ban Blackberry’s mobile services.
Finally, KO got an upgrade today from JP Morgan on the strength of the company’s emerging markets and having read Money McBags’ columns about the solid brand equity overseas the company enjoys. An article in Baron’s also pimped KO today, saying it could rise by at least 10% in the next year because of North American markets and because it still tastes better than water. And last but not least, Corning was up nearly 6% on news that it’s 50 year old Gorilla glass could be the next bazillion dollar product for flat screens and touch screens as it is 2 to 3 times stronger than regular glass, half the thickness, and sells for only a few bananas. The lighter, sturdier glass should cut down on shipping costs and scratched screens while also being easier to clean after one gets done with a chat roulette session.
In small cap news, everything was up. Money McBags is short on time today but he wants to highlight KIRK which remains too fucking cheap even though it was up strong today. Money McBags broke KIRK down a little over month ago saying its low end market focus (midwestern/southeastern housewives who love tchotchkes more than Joanie loves Chachi), growth through the downturn (and now they are going to be opening stores instead of closing them), and valuation (it is now trading ~9x to 10x eps estimates not including the $3.50 per share of cash on the balance sheet) make it almost as attractive as Diora Baird, and nothing has changed since then except for John Kyl’s stand on the 14th Amendment. The other interesting small cap name is NTRI who traded down big on Friday after what Money McBags thought was an OKish quarter. He has to go through it in more detail and while he wouldn’t be a buyer of the stock until their management team actually performs (they are 0 for the last bazillion quarters, rounding up to the nearest bazillion), they pay a nice yield, have a terrific cost structure, and are in a growing (pun intended) market. It’s worth keeping on a watch list for when/if they can figure out how to start accelerating their growth rates (Money McBags votes for getting Nicole Eggert as a spokeswoman, but that’s just him).
The market sold off today as it couldn’t keep ignoring the data and finally had to come to grips with where the bad macro news had touched it. The biggest negative was the Fed’s Beige Book report which failed to titillate the market like either Money McBags’ book report on the Kama Sutra (which he described as both thought provoking and delicious) or Fonzie’s little black book.
In Bernanke’s beige book we found out that economic activity has slowed in some areas and that Federal Reserve Bank President of Cleveland Sandra Painalto doesn’t let you get to second base on the first date (Newsflash Sandy: If you ever want to get out of Cleveland, you’re going to need to loosen up a bit, lower your reserve standards, and give Bennie B. some of that gold you’ve been hoarding). Eight of the twelve regions tracked by the Fed saw growth including New York, Richmond, and Andy Roddick’s pants (he is married to her, you know that right?), while Atlanta and Chicago saw a slowdown, and Cleveland and Kansas City held steady. The Fed cited high unemployment, an ailing housing market, and consumers being more fucked than Lisa Ann in I’m a MILFaholic as reasons for the slower than hoped for recovery.
In other macro news, durable goods orders fell by 1% in June while analysts had guessed they would rise by 1% which makes guesses just an absolute value sign away from being correct which is a fuckload better than usual. Orders for long lasting goods like machinery, metals, and herpes were down the most they have been in almost a year and a half. Even worse, non-defense aircraft orders tumbled 25.6% after falling 30.2% last month as airlines brace for the continuing growth of staycations and poverty.
Finally, mortgage applications fell 4.4% last week but were led by a 5.9% drop in refinancings as rates ticked up 10bps and anyone who still owns a non-foreclosed upon home has pretty much already refinanced it. Surprisingly new home purchase mortgage applications were up 2% but since the majority of those will likely be rejected, that 2% number is more fictitious than the easter bunny, santa claus, or male affectionate lesbians.
In stock news, RIMM jobbed it’s way up today despite the bad taste it has left in investors’ mouths as of late. Rumors are that the company will be launching a new operating system and potentially a new keypad before officially giving up to AAPL and thus becoming the second biggest thing to ever be defeated at Waterloo (fyi, RIMM’s headquarters are in Waterloo, Ontario).
Also, BA nosedived a bit after reporting a strong bottom line but a weak topline which was down 10% from last year. The company did reaffirm guidance which was slightly below analyst guesses but BA promised their new 787 would be more spacious and thus allow more opportunities for flyers to join the mile high club. And finally, Moody’s lowered their ratings on banks BAC, C, and WFC from stable to negative citing lessened government support for banks under new regulations and something about shitty track records which means those banks are going to eventually need that lessened government support. And if any company knows what a poorly run company who sucks at their jobs looks like, it is certainly Moody’s who never saw a huge market collapse it couldn’t misinterpret.
In small cap news, beta sold off as these stocks had run strongly over the past week or so as if they were trying to catch a glimpse of the delightful Melissa Archer and thus it’s not surprising that investors would want to take profits. CTGX reported last night and results were pretty much inline with Money McBags’ expectations. The company grew revenue 21% thanks to both strong staffing and health care services businesses. Health care services is now 27% of revenues and should start driving this business like Nipsey Russell drove all of the housevies crazy on the Hollywood game show circuit in the 1970s. In addition to a solid topline, SG&A was down 120bps, operating margins were up from 3.6% to 4.3%, and EPS went from $.09 to $.12.
The stock sold off on the day though due to the general market taking it in the yingus and lowered full year EPS guidance by CTGX due to a reduction in demand for solutions work from one of their large customers in their energy practice. Excuse me while Money McBags yawns on this one. Full year revenue guidance was increased to $320MM to $328MM from $314MM to $322MM (which is 18% growth) while eps guidance was reduced to $0.45 to $0.51 from $0.47 to $0.55 and although it is down, it is still a 26% increase from 2009. But the point is, Money McBags gives less of a shit about 2010 guidance than he does about Alan Greenspan’s thoughts on the housing, Nassim Taleb’s thoughts on lyrical prose, or Audrina Patridge‘s thoughts on anything other than which hole to enter.
As said frequently in this space, the coming electronic medical records implementations (and they are coming because the government has mandated them, not just because they ran in to Sonya Kraus in the hallway) are going to be huge for CTGX. As the CEO said in the press release: “We believe we are still in the early stages of the significant increases in demand expected for EMR assessments, systems implementation, and development work.”
This Q, EMR was 1/2 of their health care business which was ~$10MM in revenue and means they were working on 13-20 installations at ~$2MM-$3MM a project annually. But the thing is, only ~10% of hosptials have EMR and they are MANDATED by the fucking government to have them at least underway by 2014 so this business should scale faster than a business selling bronzer, or Valtrex, on the Jersey Shore.
Money McBags has gone through his valuation on CTGX here on When Genius Prevailed many times, so feel free to throw it in the search box, but this company is set for strong growth over the next few years so use this sell off as a potential buying opportunity. Obviously the lack of trading volume and the fact that CTGX’s boring staffing business is still ~70% of their revenues is a concern, but as long as EMR is on the way and this company isn’t full of shit about their ability to service that sector as aplombly as Bunny De La Cruz services the ding dong sector, the company should see solid growth.
7/9/2010 Midafternoon Report: Investors get excited and take off their shorts to allow long exposure to grow
The only US macro data released today was slightly positive (unless you actually read the release and not just the headline) as wholesale inventories rose by .5%, though that will likely be revised downward like last month’s number (and every other data point released in the past two years) which was revised down from .4% to .2%. The good news is that the inventory to sales ratio is only 1.14 which is near a record low, the bad news is that people aren’t buying shit because they don’t have jobs and their money is becoming more worthless by the day. While the headlines tout the increase in wholesale inventories (which is mildly positive), they bury the part about wholesale sales decreasing by .3%, and yes Money McBags understands the difference between a leading indicator and a lagging indicator, but this is the first decline in over a year so is likely the reason why inventories to sales remain so low (ie. the people in charge of stocking up see sales slumping in the future and thus are keeping inventories thinner than OJ’s alibi or an Olsen twin) .
Internationally, other than a sumo wrestling gambling scandal throwing Japan in to a tizzy (and Money McBags would hate to be the officer in charge of the cavity searches in that case), news remains light. Jean-Claude Trichet was out talking again about the EU’s financial crisis and he said that it is too early to claim the crisis is over, that bank stress tests should help the recovery process (wink, wink), and that there needs to be stricter penalties for countries who ignore the EU’s deficit limits such as having to move to Latvia, having to hand copy the entire novel Pride and Prejudice while listening to the melodic soul singing of Celine Dion, and having all pictures of Zita Gorog taken away. Most interestingly, Monsieur Trichet maintained that austerity measures and cutting government spending will not hinder economic growth thereby figuratively pissing on John Maynard Keynes’ ashes and Paul Krugman’s soul (though Krugman clearly sold his soul to Mephistopheles years ago as it is the only way to explain his ascent to NYTimes columnist).
In the market, China renewed Google’s license to operate in the country instead of revoking it or simply giving it to Sum Dum Gai. Google could have been forced to shut down their chinese operations but instead they will continue to allow users to opt-in to receive either censored or NSFW uncensored search results. In other news, RIMM is rocketing up today as NTP has filed a lawsuit against AAPL, GOOG, and others claiming their wireless handsets infringe on NTP’s patent of awesomeness. RIMM had settled previously with NTP for $612MM so they are free from this round of lawsuits and thus, for a day at least, can enjoy their declining market share and substandard product in peace.
In small cap news, two ridiculously cheap stocks that Money McBags has written about before have started rallying proving the old value investor theory that what goes down, must go up (unless it’s ZAGG). One of those is NTZ which a month ago and 20% above its open today, Money McBags said:
“buying shares of NTZ is dumber than jumping in to a Hot Tub Time Machine set for the 1980s and then going Lucky Pierre between Magic Johnson and Rock Hudson. You might as well have bought shares of Amercian Home Mortgage right as the subprime mortgage market was melting down, invested in Daguerreotypes in the mid 19th century, or hired Bernie Madoff to manage your assets.”
As Money McBags explained before, NTZ (or more commonly known to longterm holders as NTZero) sells high end furniture, mainly in Europe, and seeing as how Europe is instituting a little something called austerity measures and high end furniture is a more expensive and discretionary purchase than caviar infused lobster tails or a night with Heather Vandeven, that doesn’t bode well for the company. That said, NTZ is trading at <3.5x EV/EBITDA and has 1/3 of their market cap in cash (even though they burned some last Q). The point remains that this company is either going to blow through their cash and go out of business (5% chance), is eventually going to come out of this and be worth a fuckload more than it is today (70% chance), or is a total fraud since Italy’s version of the SEC is likely more hands off than Richard Simmons at a Rick’s Cabaret (25% chance). Money McBags will wager a couple of Vietnamese dongs (as always, his currency of choice) that this is a real company and while he has absolutely no idea when it will turn around, has no faith in the global economy rebounding, and still thinks owning a high end furniture maker in a global recession/depression is as wise as covering yourself in chocolate and shouting “fire” while standing in the doorway of a crowded theatre filled with overweight arsonphobia sufferers, at some point this stock should trade for at least 7x EV/EBITDA which makes it a double from here (unless the EBITDA falls off a cliff, though if it does, there is more of a cusion right now than in Jessica Biel‘s pants) but that may not happen until 2025, so act accordingly.
The other name that is runnning now is TSYS and Money McBags first wrote about them in February and since then they have done nothing but go down like they were auditioning for a role in The Curious Taste of Benjamin’s Button. Their last quarter was decent enough and their guidance has been fine but margins have been compressing, there has been concern about government spending drying up, and it is harder to get one’s arms around their business than it is for a young lass to get her arms around Whitezilla’s “business” (and you can google that at your own risk). They have a number of sort of related yet disparate businesses including a mobile location based software business, a text message enabling license selling business, and a government satellite communications software business. The company announced a new deal with the Army last night that could pay them as much as $9.8MM through 8/2011. TSYS’s EV is ~$325MM and their guidance remains for $80MM-$85MM EBITDA, so it is currently trading at ~4x EV/EBIDTA and oh by the way, they just grew EBITDA by 45% last Q and revenue was up by 30% (though most of it was driven by acquisitions in the commercial segment). Again, this is a bit of a confusing company and portfolio managers just don’t want to spend the time learning the different businesses and the complicated way in which results are reported (honestly, try reading one of their quarterly earnings releases, it makes Thomas Pynchon seem like Dr. fucking Seuss). That said, it is ridiculously cheap and with the new contract, perhaps there is more faith that government spending for their technology will continue. The stock has pretty much spent all of 2010 dropping but it may finally have bottomed out (because how much lower can it really go?) so this might make a nice short term trade.
With the market rallying, if you’re itching to go long it’s best to pick up these already beaten down names than ones that can still fall when the rally ends next week. So if Money McBags were you, the first thing he would do is empty your bank account and take one hella long trip to Vegas, but the second thing he would do is spend some time this weekend trying to get a better handle on TSYS because there is a very good chance of a solid return at these levels.
Before we get to the markets, Money McBags found a picture of the hottest female in the history of history and wanted to share it with his readers as a sign of his gratitude. This is the hottest female ever*, so you’re welcome. Anyway, stocks are up today as macro data was more encouraging than a Stephen Hawking pinky raise or Anne Sullivan Macy. The ISM reported that manufacturing expanded at its fastest pace in 5 years to a whopping 59.6 (and if it had been 59.9 the market may have shot more loads than a Japanese bukakke film). Prices paid (cough, inflation, cough) drove the index higher while the unemployment gauge slipped once again. More importantly, first time jobless claims fell to 439k, while even more importantly, Audrina Patridge is hot. The Street is hoping that the 6k drop in first time unemployment claims will bode well for the Labor Department’s unemployment report to be released tommorow on paper made from the tears of the homeless. However, providing the proverbial turd in the punchbowl, or the penis in the MFF scene, was a report released today by some firm called Challenger, Gray, and Christmas who bah humbugged on the labor market by reporting that job cuts accelerated in March. The outplacment firm announced that the pace of job cuts had increased 61% sequentially from February but optimists will point out that the job cuts were down 55% from March of last year. So hoo-fucking-ray. The economy is either better or worse depending on your comparison. It’s like the old saying, in the land of the blind, the one-eyed man is king (though in the land of the blind, the one-eyed man better not develop macular degeneration because there sure as fuck won’t be any ophthalmologists).
International markets are all a buzz today as Asia and Europe saw strong manufacturing reports which signal the recovery is coming. China’s manufacturing expanded for a 13th consecutive month, Europe’s manufacturing industry expanded at its fastest pace in three years, and somethng in Japan called the Tankan index of sentiment jumped from minus 25 to minus 14. April fucking fools!!!!!!! Oh wait, that data is actually real. Wow. The international markets may have found their Viagra or Peter Gowland’s private photo collection.
In stock news, RIMM missed their earnings estimates by $.01 eps and their revenue estimates by 6%. So despite earning $1.27, showing better margins, and growing 18%, the stock is down 5%+. Money McBags is actually surprised it isn’t down more because when a growth stock in a competitive market needs to make their numbers and whiffs, nothing good can happen. Goldman Sachs cut their rating on RIMM to sell and basically called them a has been in the handset market. Their products are less differentiated than a Dahm triplet and a whole lot less delicious. Money McBags puked out his RIMM shares because fool me once, shame on me, fool me twice and you can go fuck yourself.
In small cap news everything is up except for Chinese power generation company APWR who handed out fortune cookies with their earnings release yesterday that all read “suckers.” Their guidance was 30% below analyst guesses who apparently were just chasing windmills when covering the stock (and that is funny because APWR produces windmills, but you all knew that anyway, right?). Also, there was a comment in yesterday’s blog comment section asking about MLNK and Money McBags will address it here. The reader wanted to know what was going on with MLNK and if it is still a hold. Money McBags broke down their fuck awful quarter a few weeks ago and nothing has changed since then of which he is aware. They earned $13MM of EBITDA and said this upcoming Q was going to be worse while they would see some sequential improvement after that. Of course they also said that last quarter would be flat and it was down worse than a than a clinically depressed person who just lost their dog and had a virus wipe out their computer’s porn collection, so who the fuck knows if management can be trusted. Their excuse for missing the quarter is still a little squirrely as they blamed their clients for delaying decision making but Money McBags doesn’t quite get that. HP’s revenues were up ~10% and HP is like 25% of MLNK’s business, so why the fuck didn’t that help drive revenues more? And if MLNK is earlier in the cycle, why did they not see revenues jump by more in the previous Qs or why is their revenue being impacted by clients delaying their decision making now (since decisions should have already been made for this upcoming cycle). The simple fact is the company is underperforming, but even so, they still earned $13MM of EBITDA in the Q. They have a $163MM in cash and a $375MM market cap so an enterprise value of $210MM. If you think their business bounces back after likely sucking this Q coming up (Money Mcbags’ words, their guidance), then a $52MM EBITDA run rate is possible and thus they are trading at 4x that. The stock is cheap on that basis, but on an EPS basis, they’ll probably be lucky to earn $.45 this year so are trading at almost 20x that for no growth. The EV/EBITDA and cash give us some downside protection so Money McBags sees no reason to sell, but he also thinks this is dead fucking money for a while. Their business should ramp with electronics sales (though it didn’t despite HP being up 10% as Money McBags said earlier, so if someone can explain that, Money McBags is all ears), so if the economy can really come back, they should be able to grow the business. Look, it ain’t fucking AAPL, but it is sort of cheap with a cash cushion that has some nice operating leverage. So in short, the downside seems a bit limited but the upside may be further away than Paris Hilton’s Academy Award (One Night in Paris excluded).
*April fucking fools’.
3/30/10 Midafternoon Report: Market rests today after spending all night trying to find the afikomen
Before we get to the market news, today marks an important achievement for mankind (perhaps an even more important achievement than Brooklyn Decker) as the Hadron particle collider is finally working sending two protons smashing in to each other at 99% the speed of light. Results hope to answer some of the Universe’s most essential questions such as the existence of the Higgs Boson, the presence of dark matter, and who the fuck the people are who actually watch American Idol. So planet changing discoveries aside, the market is flat today as international concerns temper the moderately better than expected US macro data. Consumer confidence jumped thanks to the new health care bill, which has made it easy for people to buy deliriants. The index reached 52 today, easily besting the 46 from February, which would be all the more impressive if we actually knew what a difference of 6 points meant. Additionally, Home prices rose in the 20 city Case-Shiller index (named of course for “Hot” Karl Case and Bob Shiller) from “take this fucking thing off my hands” to “take this fucking thing off my hands but I am keeping the toaster.” The index was up .3% sequentially and down .7% from a year ago which is the smallest y/y decline in two years. However, on an adjusted basis the index was down .4% sequentially due to the initial petering out (and yes, I said peter) of the government first time home buyer’s tax credit and the realization that monopoly money is not a valid subsitute for cash or a claimable asset to mortgage guarantors. That said, there was some really interesting news that tax receipts are now expected to rise in the 15 most populous states by 2011 which would be huge for the economy (no joke, it would literally be bigger than Manuel Uribe at an all you can eat taco bar. Ok, maybe a little joke.). California has already taken in 3.9% more in taxes than forecast since December while NY is $129MM above budget. This is largely the result of higher sales tax receipts from increased consumer spend likely as a result of this rise in consumer confidence and the hiring of Jeffrey Skilling to audit all state tax records.
Internationally, S&P cut Iceland’s local currency credit rating from BBB/A-2 to BBB/A-3 (and if Money McBags were rating Iceland, they would always be rated “frosty.). And yes, those are the actual fucking ratings S&P uses which are about as helpful as chopsticks to a leper. I mean really, BBB/A-2? Even Heidi Montag‘s singing career and Poncaire’s Conjecture are less confusing (especially if you are tone deaf or Grigori Perelman). Money McBags hasn’t seen anything so contrived since Ricky Martin acted straight in one of his videos. That said, the downgrade made Magnus ver Magnussen, a man so important they named him twice, pick up a giant boulder and crush the S&P’s entire Iceland office. Anyway, Money McBags scoffs at any rating, no matter how confusing, by any rating agency due to the inherrent conflicts of interest and the piss poor track record of those ratings agencies (see US financial markets circa 2007). Of course this downgrade has caused investors throughout the world to not just try to locate Iceland on a map, but to learn for the first time that Iceland actually had credit ratings. In other international news, an auction of 1B euros of 12 year Greek bonds garnered interest in only 390MM euros worth of them which caused the offering to be more undersubscribed than Bernie Madoff’s new investing magazine (tentatively titled, MisFortune). The lack of interest in the bonds (well, technically the interest is actually quite high at 5.9%) has caused the yield spread between Greek debt and German debt to double. Investors continue to worry about Greece’s ability to fund themselves while Money mcBags bets in 1 year no one will remember any of this.
In stock news Apple is up on reports that they are designing an iPhone to be CDMA compatible thus potentially giving iPhone users a choice of carriers and not restricting them to AT&T. AAPL allowing competition is a bit like North Korea alowing photographers or Ellen Degeneres allowing penetration, but it should be positive for consumers and thus positive for the stock. In related news, RIMM announces earnings after the bell tomorrow and is limping in to that announcement. While Money McBags likes owning the number two competitor in a market about as much as he likes country music, RIMM is cheap for its growth trading at less than 20x earnings estimates. Money McBags is an owner of RIMM and will be holding it through the quarter because this should really be at least a $95 stock. That said, if they miss, look out below because RIMM will go down faster than Hillary Duff after getting an engagement ring.
In small cap news, CRUS seems to be riding the news of the potential newly designed iPhone and is up 6%+. Money McBags is an owner of CRUS (he mentioned he was buying in his 1/29 Midday Report where he said he “did dip his toe into the CRUS waters yesterday (and it was delightfully stripper piss warm)).” The original analysis of CRUS was done on 1/12/09 but the company basically produces ICs for two sectors, audio and energy. In the audio market they won a chip in the iPhone a few quarters ago as their IC delivers better sound quality and as a result, that segment grew 83% last quarter and was 72% of sales. In the energy market, their business was hit harder than a bottle of Mad Dog by Betty Ford in the 1970s as sales dropped ~40% in the downturn. Their main energy segment involves selling chips that go into power meters and their biggest customer is Itron and Itron sales were up 10% last Q, so that could be a good indicator of this business coming back. Of course a better indicator is that they have had two sequential up quarters in the energy segment after bottoming out and that segment is what delivered their positive earnings surprise last Q. Money McBags thinks the company can earn ~$.65 in the fiscal year ending 3/2011 and that assumes just 10% growth in the audio segment (and remember they just grew 80% and could be getting more business if the Apple news from today is true) and 20% growth in the energy business. The 20% energy business growth is a bit aggressive because it has been down so much, but that growth assumes $18MM in revenue per quarter and before the downturn they were regularly doing $20MM-$24MM. The company has $2 in cash on it’s balance sheet and is trading at ~13x Money McBags estimate (which may now be too low) including that cash. They could also earn ~$50MM in EBITDA in this next fiscal year and thus are trading at only ~8x EV/EBITDA. This stock is cheap and has a nice cash cushion (while Jessica Biel has a nice ass cushion). Money McBags doesn’t like to own cyclical companies, but CRUS is in the spanktasitc part of the cycle so it is worth owning at these levels. In other small cap news, RICK continues to tumble (and remember, Money McBags sold last week, so phew) while KITD had their quarterly call and didn’t disappoint. Money McBags previewed KITD’s Q yesterday but will break it down for you tomorrow. Let’s just say he found it titillating and is looking to add to his holdings.
3/8/10 Midafternoon Report: Market more mixed than reviews of Oscar telecast (and for the record, Money McBags gave it two thumbs in the ears)
The market is quiet today, likely still in bed after staying up all night to watch something called The Hurt Locker win so many Oscars that that the people who couldn’t get tickets to Avatar may now go see it (that is if Alice in Wonderland is also sold out and they hate fun). The biggest news in the markets today is that AIG sold the second of its crown jewels, their foreign life insurance business Alico, to Met Life for $15B and with both of the AIG family jewels gone, they now qualify for a spot in the 2010 Eunuch Olympics. A business hasn’t sold off two profitable units like this since Pam Anderson downsized her boobs (of course she had them re-inserted faster than Warren Buffett talks up his own book because you always have to keep the things that make you money). This sale gives AIG enough cash to pay some of their debt back to Uncle Sam and thus keeps their proverbial kneecaps intact for at least another couple of months because Uncle Sam doesn’t play when you have his money, just ask Wesley Snipes. Unfortunately, AIG still owes the US government another $50B and seeing as how they have now sold off two of their biggest profit centers and their business won’t generate $50B in profits until sometime around the year “two thousand and go fuck yourself,” it is unclear what tricks they will do next to appease Uncle Sam (Perhaps Uncle Sam will “lend out” some of AIG’s CDS expertise to China to try to smooth over relations and yield a happy ending for the two super powers). You just don’t take daddy’s money and get away with it.
In stock news MCD same store sales were up 4.8% in February driven by overseas sales and the $1 menu in the US. Money McBags is an owner of MCD as he believes in their affordability and brand equity in the fast growing developing nations. So even if Money McBags won’t get high off his own supply by refusing to eat the swill that they serve at McDonald’s (he would rather eat a Gabourey Sidibe burger out of the bun than whatever it is they serve at MCD’s), Money McBags believes in the company. In other large cap names, RIMM got an upgrade from the Bank of Montreal today which has driven the stock up almost 5%. The BMO analyst raised his price target to $88 citing expected strong Q4 sales, a potential guidance raise, and Apple aboot (BMO and RIMM are Canadian after all, eh?) to go out of business because iPhones are for sissies (ok, that last one may have been made up). Now look, Money McBags is never a fan of owning the second best competitor in a space (he’ll go Bang Bus any day over Backseat Bangers), but he will admit that he owns some RIMM simply because it is as cheap as a homless man’s balls for it’s growth as it is trading at less than 20x 2010 EPS estimates and less than 15x 2011 eps estimates despite continuing to dominate the business handset market like Nipsey Russell dominated the 1970s game show circuit (where he did more than just fill in Brett Somers‘ blanks). RIMM is getting 20% topline growth and 30%+ bottomline growth and you’re only paying 15x for that. The stock is still a reasonable buy but it is unlikely to be a longterm holding for Money McBags as their end game is becoming more challenging than playing herpes roulette with Paris Hilton.
In small cap news, apparently a fuckload of people dropped some acid this weekend and went down to the local IMAX to see Alice in Wonderland (and Money McBags would march his hairs to the IMAX if it were Alice Eve‘s wonderland they were showing. He’d definitely let young Ms. Eve mock his turtle while he chesired her cat.). IMAX theatres pulled in nearly $12MM this weekend as this 3D spectacle eclipsed even Avatar’s opening run and led IMAX to sell out every seat they had for the entire weekend. This has sent IMAX stock up 9% but Money McBags is still not buying as the stock is expensive and the movement today is likely retail money on the announced headlines. IMAX could run some more as its momentum coming out of Oscar weekend could be so great that it attempts to defy the laws of physics and create a coefficient of restitution greater than 1, but this story is longer in the tooth than Kirsten Dunst. In other small cap news, EBIX annonuced their quarter and is trading down despite a 55% increase in revenue, a 53% increase in net income (operating leverage be damned), a 99.5% customer retention rate for the year, $12MM in cash flow for the Q, and a forward p/e less than 15x. Money McBags has written about EBIX many times as nothing about the company makes sense and their financials and business are more opaquely complex than the Weiner process of Brownian motion (and I can assure you that is nowhere as dirty as it sounds). The stock is ridiculously cheap based on the fundamentals of the business but shorts have been all over it due to aggressive acquisition accounting, receivables growth outpacing revenue, the CEO having a bigger ego than Joe Francis has, and a proclivity to switch auditors at the drop of a questionable debit. Short activity was addressed on the call as a caller brought up that short exposure has climbed from 200k shares to 10MM in six months and the fact that EBIX has changed their auditors more times than Heidi Montag changed her face. CEO Robin Raina addressed this with some kind of Jedi mind trick ping pong analogy (no really he did) and a quote from some Latin American intellect whose name yields zero google hits (the transcript from the call has Robin “Making it” Raina quoting some guy named Joe Moppi which is either spelled wrong or more fictitious than EBIX’s growth rate, can we get an auditor on this?). Kidding aside, Money McBags still has no idea what to do with this company. He has a hard time believing it is total fraud but there is enough smoke to just keep him away from it. That said, if you can get comfortable with their numbers, the stock is ridonkuously cheap. Money McBags wouldn’t short it, but as always, there are easier ways to make money (like KITD, MLNK, or CRUS).