Archive: March, 2007

Performance Review – Week of 30 March 2007

The quarter ended with a strong performance from each watch list, all of which are now revamped as of the closing price Friday March 30. Remember, the watch list tracking began at the end of January, so our quarter-end performance figures here reflect only two months.
The Small Cap Watch List (Track at Marketocracy) lost 87 basis points for the week, but this beat the 102 basis point loss for the S&P small cap as well as the 109 basis point loss for the Russell 2000. It ended the quarter up just over 2%, compared with a virtually flat S&P Small Cap and a slightly-down Russell.

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The Mid Cap Watch List (Track at Marketocracy) lost 99 basis points for the week, faring slightly worse than the S&P midcap’s 84 basis points. For the quarter it was up 3.53% compared with just 1.12% for the S&P Midcap.

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The Large Cap Watch List (Track at Marketocracy) lost only 18 basis points, much better than the 106-basis point loss for the S&P 500. This helped the watch list to end the quarter essentially flat, compared with a 1.6% loss from the S&P 500.

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Both our personal holdings and the legacy watch list, which has seen no activity other than corporate actions since June 2006, bore slight losses for the week.

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Topics: Russell 2000 (RUT), S&P 500 (SPY), S&P Midcap (MID), S&P Smallcap 600 (SML), Stock Market, Watch List | No Comments

CNBC Bonus Bucks News Trivia: How many new stores did Home Depot open in the U.S. in 2006?

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News question for Friday, March 30:

How many new stores did Home Depot open in the U.S. in 2006?

Home Depot store growth slows in 2006: filing – Yahoo! News

The home improvement industry leader said in a filing with the Securities and Exchange Commission that it opened 86 new Home Depot stores, including eight relocations, in the United States during its 2006 fiscal year.

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Topics: CNBC Trivia, Stock Market | No Comments

CNBC Bonus Bucks Video Trivia: The FDA-approved drug Provenge is used to fight what disease?

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The Video trivia question for Friday, March 30:

The FDA-approved drug Provenge is used to fight what disease?

Video – CNBC.com

An FDA panel says that Dendreon’s Provenge, a vaccine for advanced prostate cancer, is reasonably safe

2,000 Bonus Bucks for us.

Topics: CNBC Trivia, Stock Market | No Comments

Large Cap Watch List Changes

With the end of the first quarter approaching, it is time to adjust the names in our Watch Lists. We will price all the new lists as of the close on Friday, March 30. Today we present our planned updates to the Large Cap Watch List (Track at Marketocracy).

Though less than the Small Cap Watch List and Mid Cap Watch List (Track at Marketocracy), there was still relatively high turnover in this list. 14 of the original 33 names made the cut for the new list (which was trimmed to just 26 names.) Part of the reason for the turnover was to reduce overlap between the lists. One third of the Mid Cap Watch List (Track at Marketocracy) names appear on each of the Small Cap and Large Cap Watch List (Track at Marketocracy)s, but there is no longer any overlap between small and large.
So without further ado, the names on the chopping block from the previous list are:

3M (MMM); Continental (CTTAY.PK); Mitsui (MITSY); Anheuser-Busch (BUD); ConocoPhillips (COP); Helix Energy (HELX); IndyMac Bancorp (NDE - Annual Report); Barr Pharmaceutical (BRL - Annual Report); Quest Diagnostics (DGX); Public Storage (PSA); ITT Educational Services (ESI); Equifax (EFX); Rent-a-Center (RCII); Kroger (KR); Ricoh (RICOY); First Data Corp. (FDC); Expeditors International (EXPD); and Keyspan (KSE).

The new list is:

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Topics: 3M (MMM), Abercrombie & Fitch (ANF), Accenture (ACN), Anheuser Busch (BUD), Apollo Group (APOL), AutoZone (AZO), Barr Pharmaceuticals (BRL), CH Robinson Worldwide (CHRW), Coach (COH), Colgate Palmolive (CL), Conoco Phillips (COP), Continental Tire (CTTAY), Davita (DVA), Equifax (EFX), Expeditors International (EXPD), First Data (FDC), Freeport McMoRan (FCX), Frontier Oil (FTO), Helix Energy Solutions (HLX), IMS Health (RX), ITT Educational Services (ESI), IndyMac Bancorp (IMB), KeySpan (KSE), Kroger (KR), MEMC Electronic Materials (WFR), Mitsui (MITSY), Moody's (MCO), NII Holdings (NIHD), NVR (NVR), Oracle (ORCL), PG&E (PCG), Public Storage (PSA), Quest Diagnostics (DGX), RWE AG (RWEOY), Rent-A-Center (RCII), Ricoh (RICOY), S&P 500 (SPY), SEI Investments (SEIC), SIE, SallieMae (SLM), Statoil (STO), Steel Dynamics (STLD), Stock Market, Superior Energy Services (SPN), TJX Companies (TJX), UST, Watch List | 5 Comments

UTIW: Don’t Jump to Conclusion that UTi Worldwide’s Miss is Company-Specific

Shares of non-asset based transportation and logistics provider UTi Worldwide (UTIW) fell sharply today after the firm Reported Fiscal 2007 Fourth Quarter and Year-End Financial Results:

For the fourth quarter of fiscal 2007, gross revenues increased 31 percent to $951.3 million from $728.2 million in the prior-year fourth quarter. Net revenues also increased 31 percent to $331.2 million for the fourth quarter of fiscal 2007 from $253.7 million in the prior-year fourth quarter. Continued organic growth across all geographic regions, as well as contributions from the company’s March 2006 acquisition of Market Industries, Ltd., contributed to the fiscal 2007 fourth quarter revenue growth. After adjusting for the impact of acquisitions made by the company since November 1, 2005, as well as currency fluctuations on the comparison of UTi’s results, gross and net revenues each grew organically by 14 percent in the fiscal 2007 fourth quarter, when compared with the corresponding period a year ago.Operating income in the fourth quarter of fiscal 2007 rose to $32.8 million versus $17.5 million in the fiscal 2006 fourth quarter. Net income for the fiscal 2007 fourth quarter was $23.6 million, or $0.24 per diluted share, compared with $9.7 million, or $0.10 per diluted share, in the fiscal 2006 fourth quarter.

Consensus estimates called for $0.26 per share on $935 million in revenue. Because the miss related to cost issues rather than top-line growth, investors appeared to treat the miss as company specific, according to this Reuters report:

In a research note R.W. Baird & Co. transportation analyst Jon Langenfeld described the quarter as “disappointing, adding “top-line growth was solid and ahead of our expectations, but elevated costs drove meaningful earnings miss.”

Bear Stearns analyst Edward Wolfe also noted that revenue was stronger than expected, but added “UTIW has not yet straightened out its cost structure.”

However, we wouldn’t be so quick to attribute the revenue gains, more than half of which came from acquisitions, to a strong transportation environment. Recent data have shown a slowdown in trucking, a disappointment from FedEx (FDX - Annual Report), and other signs that fewer goods are being moved about. Meanwhile, the shares of companies similar to UTi such as Large Cap Watch List (Track at Marketocracy) member Expeditors International (EXPD) and Small Cap Watch List (Track at Marketocracy) and Mid Cap Watch List (Track at Marketocracy) member Landstar Systems (LSTR - Annual Report) have held up well.

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It is quite possible that today’s disappointment will not spread to these other names, and we continue to like the non-asset based transportation names as long-term investment plays. However, in the short term we wouldn’t be surprised to see the weakness spread to more of the transports.

Update: We missed the fact that the railroads also had a setback, but apparently that, too, is company-specific.

Topics: Expeditors International (EXPD), FedEx (FDX), Landstar Systems (LSTR), Stock Market, Transportation, UTi Worldwide (UTIW) | No Comments

HRB: H&R Block Looks Like it’s Taking Tax Share from Intuit

When Intuit (INTU) recently reported its interim sales figures for TurboTax, we said:

Sales since November are up 1%, but the company expects sales for the full season – ending in less than a month – to be up 3-5%? We know people procrastinate on their taxes, but didn’t they procrastinate last year as well? By sticking to the previous guidance, Intuit is saying people are significantly more likely to procrastinate this year than they were last year.

And even with the implausible guidance, consensus estimates were at the high end of management’s range. No wonder the shares are down after hours. For those procrastinators out there, however, it’s time to file your taxes. If you’re getting a refund it should arrive just as the stock is bottoming.

A commenter begged to differ, saying:

The guidance isn’t at all implausible. Intuit delivers TurboTax two basic ways: through software installed on desktop computers, and with a web version. With the desktop version, you pay up front; with the web version, you pay only when you file. Both products cost the same amount.

If the broad trend toward the web version continues, you would expect a higher percentage of turbotax purchases to occur when people finish their taxes, not when they start them. And it’s not completely a guessing game, either; Intuit can track activity on the web version, and they should have a pretty good idea of who is and isn’t likely to ultimately purchase and file through TurboTax.

We found that to be a solid argument. However, it appears to be at least partially refuted by H&R Block’s Interim Tax Season Results:

H&R Block Inc. (HRB - Annual Report) today reported tax season results for the interim period from Nov. 1, 2006, through March 15, 2007.

Total clients served (for both the company’s retail operations and digital tax solutions business) reached 14.6 million, an increase of 467,000, or 3.3 percent, over the prior year period. Digital tax clients served advanced 14.1 percent over 2006 while office-based clients increased 0.5 percent.

So H&R Block’s digital customers showed even more growth than its overall rate, which shoots a hole in the increased-web-migration argument (though Intuit could still have more web-based filers as opposed to software purchasers relative to H&R Block.)

Yet another possibility is that filers start out on Intuit’s software, then give up and hire a human. So regardless of Intuit’s customer awareness, we’re sticking with our Intuit-ion and repeat our thesis that their guidance sounds implausible.

Topics: H&R Block (HRB), Intuit (INTU), Stock Market | No Comments

GDP: More Production, Less Consumption

Based on the best estimate we have so far of the quarter that ended three months ago, U.S. stock futures rally as GDP revised above expectations – MarketWatch:

U.S. stock futures rallied Thursday, as a stronger-than-expected revision to fourth-quarter economic growth and a further drop in jobless claims helped lift sentiment, with the Dow industrials set to end a three-session losing streak.

According to the Bureau of Economic Analysis, which produces the GDP report:

The final estimate of the fourth-quarter increase in real GDP is 0.3 percentage point, or $6.5 billion, higher than the preliminary estimate issued last month. The upward revision to the percent change in real GDP primarily reflected an upward revision to private inventory investment that was partly offset by a downward revision to equipment and software investment.

What that means is that more stuff was produced (this is Gross Domestic Product, after all) but less was consumed. Instead it sat in inventory. Not that this should be a surprise, given the recent data from durable goods, transportation, and other sources. The slowdown in tech spending could reflect anticipation of the Microsoft (MSFT - Annual Report) Vista release.

An important question is whether inventories, which are low compared to historical averages, should be rising – and how much further they may in fact need to rise. The economic bulls could argue that inventory levels could increase 10% from current levels and still be at about the point they were in 1996. However, they have already been arguing that the declining inventory levels were proof that the new economy had indeed made businesses more efficient. So either way there is a positive and a negative argument surrounding inventory growth.
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Strangely, the most bullish nugget we found relates to the contribution from exports. For all the news about the trade deficit, it is important to remember that a constant deficit in a growing economy can be a contributor to overall change in production. And while we (and others) have typically looked for U.S. businesses to come to the rescue whenever the consumer stopped spending, it is important to remember that there are four components, and either foreign consumers or (last resort) increased government spending could also do the trick.
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Corporate profits are still growing at a rapid (and ultimately unsustainable) rate, though cash flows have slowed considerably.

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All in all, the GDP report seems like little on which to hang a rally hat. But it isn’t that bad, either.

Topics: Economy, Microsoft (MSFT), Stock Market | No Comments

CNBC Bonus Bucks News Trivia: Starbucks is teaming up with AmRest restaurant group to expand into what country?

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News question for Thursday, March 29:

Starbucks is teaming up with AmRest restaurant group to expand into what country?

Poland’s AmRest signs preliminary cooperation agreement with Starbucks – International Herald Tribune

The Polish branch of the AmRest restaurant group said Thursday it signed a preliminary agreement with Starbucks Corp. under which it could open branches of the U.S. coffee store chain in Poland, the Czech Republic and Hungary.

1,000 Bonus Bucks for us.

Disclosure: Author is long Starbucks (SBUX) at time of publication.

Topics: CNBC Trivia, Stock Market | 2 Comments

CNBC Bonus Bucks Video Trivia: Citrus farmers are having a comeback year. Which is the largest grapefruit shipper in Florida?

Those playing the CNBC stock picking game can earn bonus points by answering trivia questions. Since we are all about doing the research to make it easier for other people to make investment decisions, we are pointing to the correct answers. Subscribe for free to get our daily updates. You might even pick up a few good picks when you visit. Click here for a list of all the questions.

The Video trivia question for Thursday, March 29:

Citrus farmers are having a comeback year. Which is the largest grapefruit shipper in Florida?

According to this video it is Riverfront Packing Company. 2,000 Bonus Bucks for us.

Topics: CNBC Trivia, Stock Market | No Comments

ADBE: Adobe’s Pride in its Headquarters Building Doesn’t Extend to the Balance Sheet

Design software maker Adobe Systems (ADBE) is rightly proud of its headquarters building, which it lauded last December in a press release:

Adobe Systems Incorporated today announced the U.S. Green Building Council (USGBC) has awarded Leadership in Energy and Environmental Design-Existing Building (LEED®) Platinum certifications for Adobe’s East and Almaden headquarters towers in downtown San Jose, distinguishing Adobe as the world’s first commercial enterprise to achieve a total of three Platinum certifications under the LEED program.

However, the pride in its building is more muted when it comes to showing the property and its associated debt on the balance sheet, as disclosed in a recent SEC filing:

On March 26, 2007, Adobe Systems Incorporated (the “Company”) renewed its lease arrangement for one of three buildings the Company occupies as part of its corporate headquarters, known as the Almaden Tower, located in San Jose, California (the “Property”).

Pursuant to a lease agreement (the “Lease”), dated March 26, 2007, between the Company as Lessee and SELCO Service Corporation as Lessor, the Company has leased the Property for a new five year term that extends to March 26, 2012, with an option to extend for an additional five years at the Company’s sole discretion. Rent payments under the Lease are a function of LIBOR; payments for the initial term are currently estimated to be $29.7 million. The Company has the option to purchase the Property at any time during the term of the Lease for approximately $103.6 million. The maximum recourse amount (or residual value guarantee) under this obligation is approximately $89.5 million. The Lease will continue to qualify for operating lease treatment under Statement of Financial Accounting Standards No. 13, “Accounting for Leases,” and as such, the Property and related obligations will not be included on the Company’s consolidated balance sheet.

With a value of $104 million and annual lease payments of approximately $6 million, the payments do not appear all that different from those the company would pay in a mortgage. It’s not like Adobe needs creative financing arrangements, either. With $2.2 billion in cash and short-term investments as of December, they could buy 20 such buildings without taking out a mortgage against any of them. We’re actually more concerned that management is spending time drafting arrangements like this than we are about the arrangement itself. But that’s not the least of it:

As part of the financing of the Lease, the Company purchased a portion of the Lessor’s receivable under the Lease for approximately $80.4 million, which will be recorded as an investment in lease receivable on the Company’s consolidated balance sheet for the quarter ended June 1, 2007. This purchase may be credited against the purchase price if the Company purchases the Property, or may be repaid from the sale proceeds if the Property is sold to a third party.

So rather than carrying the property on the balance sheet and taking a charge for depreciation and interest expense, the company keeps it off the balance sheet and pays rent. With the investment in the lease receivable, it makes us wonder why they even bothered.

Topics: Adobe Systems (ADBE), Forensic Accounting, Fundies, Investing 101, Stock Market | No Comments