Posts tagged VMW
The market ran up again today because Warren Buffett said the economy is fine (and as we at the award winning When Genius Prevail know, if you keep saying something, people will eventually believe you) as noted by the fact that he is back to eating four scrambled faberge eggs for breakfast with his soylent green as opposed to just two, Basel III was agreed to by central bankers, regulators, and shamans (to be potentially ratified sometime later this year), and all of the regression models which use outdated data to forecast the economy have decided to draw hockey stick charts in honor of the coming winter season. So it was a good day if you were long equities and locked in some profits, but probably a better day if you were long Sophie Monk and locked in your twig and bits (and yes, that is the worst pun in the history of the award winning WGP, but you get what you pay for).
The new bank regulations caused financials to rally as the regulations are seen as not stringent enough to keep banks from further manipulating the market, and yet stringent enough to give the optics that they will curtail the predatory lending behavior that started this whole global economic recession cum depression. The most important part of the new requirements is that banks will now need to hold 7.5% of common equity as reserves (up from 4% in the US, 2% in most of Europe, and 0% in Greece) and will be forced to comply by 2019, which only gives banks 9 more years to manipulate the shit out of lending and cause another global meltdown before different rules are not put in to place when these become outdated before they are even implemented. Whew.
Seriously, Money McBags is breathing so much easier now that in potentially 9 years (that is if Basel III is fully ratified by the end of the year and the EU still exists by 2019), banks will have to hold more reserves, or simply just push more loans down to off-balance sheet accounting sleights of hand like conduits, structured investment vehicles, and the inconceivable Lloyd Blankfein‘s E*Trade account. The market simply wants to rally but you’ll excuse Money McBags if he is more fascinated that blind people read Playboy than he is in anything that will likely not happen for 9 years as with the exponential acceleration of technology and medicine, in nine years we all may be living on Uranus (or the slightly larger and infinitely more comfortable Ines Sainz’ anus) grokking the downfall of society and not caring one iota about whether or not C or BAC is holding reserve capital.
There wasn’t much US macro news today which allowed investors to forget the worsening fundamentals and instead focus on their feelings. Internationally, the EU raised their 2010 growth forecast to 1.7% from “fuck if I know.” Growth forecasts were raised based on strong second quarter output and bored analysts who want to see how long they can mess with people before being caught. That said, the recovery is still going to be more uneven than a Kafka novel or Tara Reid‘s boobs as the EU has disparate economies that misreport their borrowings in many different ways (for instance, Greece misreports their borrowings in semaphore).
In the market, just about everything was up led by financials thanks to Basel III (and Money McBags hears Basel III will contain much more nudity than Basel II: Regulator Bugaloo and the original BASEL I: Central Bankers Have More Fun). In M&A news, HPQ is buying ARST for a ~25% premium and Hertz is spending $1.5B on Dollar Thrifty (with most of that money going to clean out the puke stains in the back seats of the cars). While in T&A news, Sheyla Hershey sold off her assets for nothing but the promise of living another day in a world where no one will ever pay attention to her again, damn you vanity, damn you. MSFT was bizarrely up 5% today on no news other than Steve Ballmer pimping technological innovation and that people apparently like companies that haven’t innovated in 20 years and sell a product that sucks. Strangely, classic large cap growth company VMW, which has been bending the market over for months now as if it were Bedman and the market were Throbbin, was down on the day. As always, Money McBags is a big fan of VMW and the whole cloud computing space but it is time for some sector rotation after the run up but that should soon yield a decent entry point for VMW.
In small cap news, just about everything was up as well. One company that has had a strong last two weeks and Money McBags has no idea why, is MLNK. Money McBags broke the company down after their awful earnings the other month (and if you’re going to read one thing today, it should be that analysis, if you’re going to read two things today, it should be that analysis and Leticia Cline‘s fortune). Basically MLNK is a global supply chain management company levered to the consumer technology industry. They have 50% of their market cap in cash and are at a $32MM EBITDA run rate so are trading at ~5x EBITDA and with any kind of consumer pick up should be back earning positive EPS as there is more bottom line leverage in the model than there is bottom line leverage in this model. That said, the company’s last conference call was a bit confusing and as for management’s execution, well, Money McBags is all for it with how they have crapped the bed as of late. Money McBags didn’t ditch his shares after the last Q because it was just too cheap but he may look to do so in the next few days. However, volume has been good (300k+ shares traded at the bottom on both 8/31 and 9/1, but perhaps a fund was just liquidating or something) so Money McBags may hold on for a bit longer with a nice stop loss order at $7ish. Just strange timing for this stock to be moving, though earnings are in a couple of weeks so maybe someone knows something (unfortunately that someone is not Money McBags because all he knows is that this company sucks). Worth keeping an eye on this name but Money McBags would not be a buyer in front of their Q.
The news today is earnings, earnings, earnings, and Sophie Turner. The markets are inching up after a strong slate of mostly positive earnings reports (not so fast AT&T and GILD). However, before we get to earnings which featured Apple taking other handset makers out to eat, getting them drunk, and then giving them a cleveland steamer as a reminder of their dominance, Greece is back in the news. Investors are worried that Greece may take 45B euros in aid before actually agreeing on the terms which is very TARP-esque of them (one wonders if they are going to use Hank Paulson’s preferred contractual device of a napkin to agree to country changing policies). With terms of the aid more open than Joslyn James‘ anus right before Tiger Woods “sinks a putt,” the risk premium on Greek bonds has soared to 512bps which is higher than anything in Greece has gone since Icarus let his ego get the best of him. Concerns remain that Greece may not be able to pay the 8B euro coming due in a month and in a show of support, Greek workers are about to embark on their 3rd 24 hour strike since the crisis began which would be crippling if that weren’t somehow still more hours than they typically work in a day. Luckily for them, France is gearing up to loan Greece 6B to 8B euros as part of the aid package. French economy minister Christine Lagard, who in 2009 was named Best Finance Minister in Eurozone by the Financial Times after a stunning rendition of “Mo Money Mo Problems” in the talent portion of the show, tried to calm the fears of a Euro meltdown by opining: “I won’t say Portugal is next in line…” before adding “but I just saw Prime Minister Jose Socrates listing the Iberian Peninsula on Craigslist for “roses.” Boooyah!!! Can I get a Quelle Quelle?”
As for earnings, AAPL crushed their quarter with iPhone sales up 130% leading to a 90% increase in profit and a 49% increase in sales. Apple earned $3.33 per share, well above analyst guesses of $2.45 and said they were “shocked” by how well the iPad was selling. Holy fucking shit is it on. Apparently Apple’s app for taking over the world is a little too good as their products are selling faster than Adam Smith’s invisible hand can fondle unwitting young ladies during New York’s Fashion Week. In other earnings news, Morgan Stanley traded the fuck out of some shit (and Money McBags apologizes for getting overly technical there) earning $1.03 per share after one-timers largely because of their sales and trading unit. Book value is up to ~$28 per share and ROEs are creeping back up hitting 13%. Like every other investment bank, revenues and profits were driven by fixed income traders who bought and sold shit we’ll never know about, who we can’t actually track to see what the fuck they are doing, and who are likely ignoring all but one SEC regulation (and that one of course is to not get high off their own supply). The paper economy lives on, long live made up shit. Also, MCD beat guesses by earning $1.03 per share after one-timers and Money McBags is an owner of this stock because there is huge brand equity for continued international expansion. Operating margins were up 2.2% and same store sales were up 4.2% for the quarter and 5.2% in March driven by 4.2% growth in the US, 5.9% growth in Europe, and 7.9% growth on Mars. MCD is not going to be a high flyer but it offers a nice yield for a franchise that should do well in a world becoming more globalized, even in a down economy.
In other earnings, BA beat numbers, YHOO had a nice bottom line (though not nearly as nice as Jessica Biel’s bottom line) yet missed on revenues since they compete with something called GOOG, and AT&T had a good Q but is selling off as new subscribers were the lowest since 2004 during the bizarre and short lived rotary phone trend. Also, VMWare put up a huge quarter and Money McBags did something he rarely does by buying the quarter of a ridiculously high priced stock. Honestly, Money McBags hates buying things this overvalued more than he hates long walks on the beach, sentences that end with prepositions, and Jane Austen, but he believes in virtualization. This not a fucking fad like Wacky Wall Walkers, YoYos, or the way way too short lived rainbow parties. Revenue was up 35% to $634MM, Non-Gaap earnings were up 45% to $.32 per share, free cash flow was up 68% to $326MM, and overall cash on the balance sheet was a healthy $2.8B. Guidance was for 30% 2010 revenue growth of $2.6B to $2.7B which means the company is currently trading at around 9x 2010 revenues but closer to 6.5x 2011 revenues ex. cash. Yeah, it is a total bullshit metric and Money McBags crapped all over metrics like this yesterday when he advised that SFSF was too fucking expensive, but companies like VMWare often get purchased at multiples of revenue between 6x and 10x so we’re still at the low end of 2011 potential revenue multiples. It certainly isn’t cheap and on a P/E basis it is trading somewhere between astronomical and Warren Buffet heart attack high, but they are a market leader in a space that is absolutely here to stay. IT departments are cutting costs quick and deep, like Lexington Steele losing his virginity, and VMWare’s virtualization software is at the forefront of this (or, to continue with the Lexington Steele analogy, the foreskin of this). Money McBags believes in this sector and cloud computing almost as much as Burton Malkiel believes in efficient markets or as much as aspiring Hollywood actors believe in Scientology and it is why Money McBags will soon be buying TMRK (who by the way received a big investment from VMWare last year). So yes, the stock is pricier than an Ashley Dupre blumpkin, but sometimes you have to pay up for quality.
In small cap news, a Money McBags favorite and his largest small cap holding KITD is bouncing back after a big block trade on them yesterday afternoon which sent them stumbling. The stock is probably range bound to down until they announce a new acquisition or until their next quarterly call in a couple of months so there is no reason to panic and if you are are not an owner, buying any dip is certainly worthwhile. Also, CRUS which Money McBags owns and has written about many times is getting some AAPL momentum today as they produce an iPhone audio chip and as said earlier, iPhone sales were ridonkulous.