Archive: December, 2006

Watch List: Year End Review

We haven’t provided an update of the Watch List performance recently, and year-end seemed an appropriate opportunity.
performance1.jpg

The Wach List, in the dark blue line, trailed the S&P 500 by 150 basis points since its inception on July 1, 2006. However, given the fact that most of the companies on the watch list are small/mid cap it may be more appropriate to compare its performance to similar benchmarks. On that count it fared much better, besting its counterparts by anywhere from 100 to more than 500 basis points while appearing to experience lower volatility.

The original intention was to rebalance the Watch List quarterly. That was not done, and one reason was that the 100 names on the Watch List started to seem unwieldy. We’re considering having multiple Watch Lists based on capitalization ranges (small, mid and large) with fewer (20-30) stocks in each. Thoughts?

Topics: Stock Market, Watch List | 1 Comment

If Trucks Aren’t Carrying Anything, Who’s Buying Anything?

Several times we have commented on the transportation names, both for their own investment merits and as an indicator of overall economic activity. Since anything sold from any store is transported there by truck, a slowdown in trucking means stores are seeing no need to stock up. Barry Ritholtz makes that point when discussing the latest American Trucking Association tonnage data at The Big Picture | Truck Tonnage Plummets:

November 2006 marked the single worst month for for-hire truck tonnage since the last recession,” said ATA Chief Economist Bob Costello. “Both the month-to-month and year-over-year decreases indicate that the economic slowdown is in full gear. The most troubling number is the 8.8 percent contraction from November 2005, despite the fact that year-over-year comparisons are difficult due to the very robust volumes during the same month last year. One month certainly doesn’t make a trend, but if we continue to see year-over-year reductions of similar magnitudes in the next couple of months, it could indicate a greater economic slowdown than economists are projecting at this point.”

Naturally, a tonnage slowdown is bad news for truckers. Investors who are into the relative game, can play the non-asset based names like Landstar (LSTR - Annual Report) and CH Robinson (CHRW - Annual Report). Those who simply prefer positive absolute returns may want to steer clear of the whole group.

Disclosure: Author holds put options on FedEx (FDX - Annual Report) and Union Pacific (UNP) and is short put options on Landstar (LSTR - Annual Report).

Topics: Arkansas Best (ABFS), CH Robinson Worldwide (CHRW), FedEx (FDX), Landstar Systems (LSTR), Stock Market, Union Pacific (UNP), United Parcel Service (UPS), YRC Worldwide (YRCW) | 3 Comments

SAP Looks to Improve Productivity – Its Own!

While Oracle (ORCL - Annual Report) has been buying up applications software makers to grow, rival SAP has been bulking up its sales force. Now it expects them to actually bring in some more sales.
The CIO Weblog: SAP to go slow on hiring!

An article in Bloomberg highlights the plan to reduce hiring in SAP, As inidcated by Claus Heinrich an SAP board member in charge of personnel.: Excerpts:The ratio of new software engineers to total new hires will drop in 2007 from more than 50 percent this year, said Claus Heinrich, in an interview. Expansion of the sales force will also decelerate as SAP relies more on the Internet to sell to smaller companies. “It’s clear that we peaked in 2006,”

SAP plans to hire engineers at a lower pace next year and focus on improving employee productivity after expanding its workforce by about 20 percent in two years.

There is little doubt that application software is a maturing industry, and that more salespeople aren’t likely to translate into significantly higher sales. We prefer Oracle’s strategy, and wonder if the slowdown in hiring signals SAP’s realization that thye aren’t as likely to get the productivity they were hoping for from new hires.

Topics: Oracle (ORCL), SAP (SAP), Stock Market | No Comments

Will Massive Upgrades Be Enough to Counter Product Cycle Blues for Adobe (ADBE)?

We recently took profits on our Adobe (ADBE) position because we have noticed the stock tends to trade down following the release of a major new upgrade on the theory that there will be no more good news for a while. Of course, this is not the typical upgrade and things could be different this time. For one thing, the switch to Intel-based Mac support should be a significant demand driver for the company’s creative professional customer base. For another, it isn’t just a Photoshop upgrade, as some users are reporting. Think Secret – Adobe Illustrator CS3 shaping up to be most significant release in years

A new feature dubbed Live Color will greatly ease color selection and management, helping designers find appropriate matching colors for their work, improving experimentation with new colors, and managing colors collectively, instead of individually. In implementing Live Color, Adobe has revamped the software’s Color Guide and Swatches palettes, adding such improvements as saving a set of colors as a group or extracting all the colors from a specified artwork in one step.The bulk of the enhancements will be found in the new Live Color dialog, which will sport a plethora of options, including the ability to easily color reduce artwork so that similar hues are mapped to tints or shades of a given color, as well as the ability to constrain color group selection to specific color palettes or spaces.

As the first version of Illustrator to be released since Adobe’s acquisition of Macromedia, improved Flash integration will also be at the top of Illustrator CS3’s selling points.

We haven’t taken up a new position one way or the other, but would prefer to see the normal valuation contraction before getting bullish again.

Topics: Adobe Systems (ADBE), Stock Market | 2 Comments

Festival of Stocks

Does Hewlett Packard’s $14.5 million settlement signal An End To Pretextgate?

How to Profit in Today’s Real Estate Market

Prepaid Legal (PPD) Needs a Marketing Overhaul.

The Thirsty Trader makes his own rules.

We were going to write this post until we noticed Abnormal Returns had done so already.

Curious about the Directional Movement Indicator (DMI)?

Niti means Strategy. Here’s Ashish’s.

5 Rules for Winning Dividend Stocks

If the housing boom goes bust, mortgage lenders will be left holding the bag.

Ask.com, shall ye receive?

When asked “What will the stock market do?” J.P. Morgan famously replied “It will fluctuate.” Brian’s predictions aren’t much different.

A review of discount brokers

Topics: Stock Market | 4 Comments

How Can LCD Revenue Be Down With Unit Sales Up 29 Percent?

Readers surprised by our general bearish stance on LCD panel makers generally point out how much demand for the monitors (both as computer monitors and flat panel TV sets) is rising. Indeed, Large-size LCD panel shipments dropped 4% in November, says WitsView

Worldwide large-size LCD panel shipments dropped to 26.3 million units in November, a 4% on-month decrease but 29% on-year increase, said research firm WitsView.

Ignoring the bearishness of the headline, 29% year/year unit growth is rather respectable. But with prices dropping 35% it means sales are lower this year than they were last.

Simple math.

Topics: AU Optronics (AUO), Corning (GLW), LG Philips LCD (LPL), Matsushita (MC), Sharp (SHCAY.PK), Sony (SNE), Stock Market | 1 Comment

Ceradyne (CRDN) Gets Expected Follow-on Order

Ceradyne (CRDN) opened sharply higher this morning when they announced some good news. Ceradyne Gets $133 Million Army Contract – 12/22/2006 4:31:00 AM – Manufacturing.Net – CA6402229

Ceradyne said Firday it received a $133 million delivery order for Enhanced Side Ballistic Inserts (ESBI) from the U.S. Army, Aberdeen Proving Ground, Maryland.

The thing is, the order was part of an already announced contract. For sales to the military companies generally get an umbrella contract for a large quantity over multiple years. However, each year’s portion is subject to Congressional approval. So while it would have been bad news if the company did not receive the follow-on, receiving it was more or less expected.

As trading continues, it appears the market is coming to this conclusion, as half the initial gains have been reversed.

Topics: Ceradyne (CRDN), Stock Market | 1 Comment

FedEx (FDX) Trouble Probably Not Yet Over

After FedEx (FDX - Annual Report) missed earnings yesterday, the responses ranged fairly widely. The bullish case is perhaps best presented by Motley Fool at FedEx Is Just Fine [Fool.com] December 21, 2006:

Looking forward, the firm noted that “package volumes are solid this holiday season, and we see continued global economic growth in 2007″ (which logically means continued strong shipping volumes). On top of the anticipated gains in volume, FedEx will be raising rates on its services (and surcharges) at the end of this month. The hikes, in the low single-digit percentages, should do little to decrease demand for the firm’s services, but will almost certainly help it grow its profits faster than its sales.

But if the holiday volumes are so solid, why is the company sending out e-mails like this one:

 
   

The e-mail included four coupons for various services. Not the kind of thing a company does when they are booked solid. As we have noted before, the economy is clearly slowing. And FedEx is more closely tied to economic growth than most companies.

Disclosure: Author holds put options on FedEx at the time of publication.

Topics: FedEx (FDX), Stock Market | No Comments

Sony Says They Made the PS3 Too Expensive

We have commented before on how Sony’s (SNE - Annual Report) tried to bite off more than they could chew with the PS3 gaming system. Now, a bizarre statement from one of their executives leads us to wonder what, exactly, they are thinking. According to ArsTechnica:

In an interview with MTV, Sony executive Phil Harrison talked about the PlayStation 3 and where his company was planning on taking their latest game console.Harrison saved his most interesting comment for last. In discussing the future of the PS3, he stressed that developers are not currently using the machine to its full capacity. In fact, he stated that the current crop of games are using “less than half” of the machine’s power, and that “nobody will ever use 100 percent of its capability.” Of course, it is common at the beginning of a new console’s life for games to not make full use of the power of the hardware: it takes some time for developers to learn the best tricks and techniques for squeezing every last bit of calculating power from any new platform. But to claim that nobody could ever make full use of the system’s power, ever, seems a bit hyperbolic. Some developers, at least, will be wanting to tap the full power of the Cell, such as IBM’s high-end customers in the HPC market. Some of this knowledge is bound to leak over to the game development world.

If Sony doesn’t think developers will use the machine’s capability, then why on earth did they put all of the capability in the machine? All they have done, apparently, is make it later to arrive and more expensive.

Topics: Sony (SNE), Stock Market | 1 Comment

SEMI Equipment Takes A Breather – Don’t Hold Your Breath Waiting For it to End

Semiconductor Equipment and Materials International (SEMI) has released its latest semiconductor equipment bookings and billings data.

“North American semiconductor equipment bookings and billings have moderated in recent months, following a strong first half of 2006 and expected cyclic patterns,” said Stanley T. Myers, president and CEO of SEMI. “Though having slowed recently, bookings remain at levels well above those of the last slowdown in 2005.”

The slowdown in orders and billings is illustrated in the following chart.

bookingsvbillings.jpg

What is particularly interesting is that billings have slowed ahead of bookings. The normal relationship is for bookings to lead billings – you can’t install equipment you haven’t ordered. The faster deceleration of billings growth shows how quickly orders are being pushed back or canceled.

According to a recent MarketWatch article:

Spending on chip-equipment, or machines used to make computer chips in consumer electronics, will slowdown in 2007 but there won’t be a “collapse in demand,” according to Gartner Inc., a technology research firm.

“Looking ahead to 2007, we believe the capital equipment industry will take a breather as manufacturers slow their rate of expansion to allow demand to catch up,” Gartner said in a statement Wednesday.

There is one little problem with Gartner’s forecast, however. Best Buy (BBY) and Circuit City (CCS) have shown that end demand is even cooler than many industry watchers believe. With a slowdown in consumer spending on electronics looking increasingly likely for 2007, the orders will likely be pushed back further still. In other words, don’t hold your breath waiting for the industry’s “breather” to end.

Disclosure: William Trent has a long position in SMH.

Topics: Applied Materials (AMAT), Best Buy (BBY), Circuit City (CC), KLA-Tencor (KLAC), MEMC Electronic Materials (WFR), Semiconductor HOLDRS (SMH), Semiconductors, Stock Market | No Comments