Archive: June, 2007

Performance Review – Week of 30 June 2007

The watch lists all managed to beat their respective benchmarks in the last week before yesterday’s rebalance.

The Small Cap Watch List (Track at Marketocracy) lost one basis point, compared to a 10 basis point loss for the S&P 600 and a 13 basis point loss for the Russell 2000.

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The Mid Cap Watch List (Track at Marketocracy) gained 1.51%, compared to a loss of 10 basis points for the S&P 400 (thanks, Western Digital!).

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The Large Cap Watch List (Track at Marketocracy) gained 1.29%, compared to a 5 basis point gain in the S&P 500.

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I turned on tracking for the new portfolios at StockPickr, and will continue to monitor the previous ones as well.

Topics: Stock Market, WDC | No Comments

Magazine Cover Indicator Update

Conventional wisdom holds that magazine cover stories are contrarian indicators – by the time a company’s success or failure reaches the cover page of a major publication the story is so well known as to be completely reflected in the stock price. Therefore, all good news is priced in and the stock can only underperform or all bad news is priced in and the stock can only outperform.

While simplistic, the magazine cover indicator now has the support of recent academic research. This research did find that cover story headlines on Business Week, Fortune and Forbes tended to indicate that the mood (bullish or bearish) of the story was about to change in the market.

As a result of this research, we have decided to develop a portfolio of stocks based on using those three magazine’s covers as a contrary indicator. We also track this portfolio on StockPickr. This week’s results:

FORTUNE 500, news, interviews – FORTUNE Magazine on CNNMoney
Who business is betting on
Who business is betting onIn a wide-open race, candidates are scrambling to get CEO endorsements. Our exclusive Fortune survey goes behind the scenes from Wall Street to Silicon Valley to find surprising alliances and discover how they were forged.

Contrary Pick: No stock pick, but Hillary’s supporters may need to watch out.

Business Week offers its annual retirement guide. No contrary pick for them, either.

Topics: Cover Indicator, Stock Market | No Comments

WDC, KOMG: A Merger For My Watch List

Western Digital Corporation (WDC), and Komag, Incorporated (KOMG) announced today that the two companies have entered into a definitive agreement for WD to acquire Komag for $32.25 in cash per share for a value of approximately $1 billion.

Komag is currently a member of the Mid Cap Watch List (Track at Marketocracy), but is due to be replaced at today’s market close. Meanwhile, Western Digital is scheduled to join the Large Cap Watch List (Track at Marketocracy). The deal’s timing is perfect in that the Watch List will participate in the announcement-related rise in KOMG shares while avoiding any losses Western Digital might suffer today as the acquiror.

From a longer-term perspective, it is unclear whether the merger will reduce the bloody disk drive supply chain environment.

Topics: KOMG, Stock Market, WDC | 4 Comments

RIMM: Research In Motion Dusts Me

Research In Motion (RIMM) Reported First Quarter Results. Revenue for the first quarter of fiscal 2008 was $1.082 billion, while GAAP net income for the quarter was $223.2 million, or $1.17 per share diluted. Both numbers were well outside the high end of the guidance range the company provided last quarter, and I feel like a chump for hanging onto my puts.

Given that the deals still abound, the iPhone debuts today and the puts are nearly worthless anyway I will continue to hold onto them, though without much hope of them expiring in the money.

Topics: Research in Motion (RIMM), Stock Market | 4 Comments

APOL: Apollo Revenues Look Nice, Costs Don’t

Mid Cap Watch List (Track at Marketocracy) and Large Cap Watch List (Track at Marketocracy) member Apollo Group, Inc. (APOL) reported financial results for the third quarter ended May 31, 2007. The Company also announced that its Board of Directors (”Board”) authorized the repurchase of up to $500 million of Apollo Group Class A common stock.

Consolidated revenues for the three months ended May 31, 2007, totaled $733.4 million, which represents a 12.2% increase over the third quarter of fiscal 2006. Total degreed enrollments grew by 12.2% year-over-year to 311,100.

Net income was $131.4 million, or $0.75 per diluted share (174.6 million weighted average shares outstanding), compared to $131.5 million, or $0.75 per diluted share (174.5 million weighted average shares outstanding) for three months ended May 31, 2007 and 2006, respectively.

For some reason Apollo still finds it necessary to break out the results as though stock based compensation did not exist (what I call Unaccepted Accounting), despite the fact that the consensus estimate of $0.67 apparently is on the basis of earnings reported under Generally Accepted Accounting Princples. Revenues were also ahead of analyst expectations, which helped the shares rally after the report was issued.
With revenues rising double-digit but earnings actually down, it is clear that costs are rising faster than sales. Bad debt expense continues to rise, which the company attributes to “a shift in the Company’s student mix.” Clearly the mix has shifted (to students who are not paying their bills) but the company has not presented a clear justification for admitting students who cost more than the incremental revenue they generate.

Topics: Apollo Group (APOL), Stock Market | No Comments

GDP Data Confirms Current Rally Being Driven By Optimism, Not Profits

According to the Bureau of Economic Analysis:

Real gross domestic product — the output of goods and services produced by labor and property located in the United States — increased at an annual rate of 0.7 percent in the first quarter of 2007, according to final estimates released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 2.5 percent.

This “final” release of Q1 economic data (it will still have future benchmark revisions) is more or less in line with the prior estimate, and at any rate the subsequent quarter is nearing its end – making the data relatively stale. But the trend, shown in our chart as the year/year change in GDP (bars) and the year/year change in spending for business equipment and software (line) is clearly softening.
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Furthermore, even though most prognosticators are pointing toward a GDP recovery later this year the data for that won’t be released for months and months – so right now it is still just a prognostication. As such, my economic data table is classifying this release in the “bad and deteriorating” column. It will move when the data, rather than the forecasts, justifies it.

EconomicData

Bad and Deteriorating Bad but Improving Good but Deteriorating Good and Improving
Existing Homes (June) Chicago Fed NAI (May) Consumer Confidence (June) Real Disposable Income
Employment (June) Durable Goods (June) Personal Spending (June) ISM Manufacturing (July)
New Home Sales (June) Construction Spending Retail sales (August 2007) ISM Services (June)
ATA Truck Tonnage (June) CPI (July 07) Leading Indicators (June)  
GDP (Q2 Advance) Trade deficit (July 07)    
PPI (July 07) Durable Goods (July)    
Industrial Production (July 07)      
Housing Starts (July 07)      
       
       

Since there weren’t really dramatic revisions from the prior release (which I discussed then) there are few additional comments to make.  The main one remains that profits are growing single-digit year/year. The current rally is on the back of investors being willing to pay more for each dollar of earnings.

Topics: Economy, GDP, Stock Market | No Comments

AOB: Why is American Oriental Bioengineering Issuing Shares Now?

Mid Cap Watch List (Track at Marketocracy) member American Oriental Bioengineering (AOB), which will also join the Small Cap Watch List (Track at Marketocracy) as of Friday afternoon, has announced it will issue a secondary offering for 8 mln shares:

Pharmaceutical company American Oriental Bioengineering Inc. (AOB.N: Quote, Profile , Research) said in a regulatory filing that it will offer 8 million shares and selling stockholders will sell 500,000 shares.The company expects about $63.8 million in net proceeds from the sale, assuming an offer price of $8.60 per share. It plans to use the proceeds primarily for sales and marketing of products, acquisitions and research and development activities.

True, the company is spending $30 million to acquire a Chinese company. But the company already has $90 million in cash on the balance sheet and no debt. It also has consistently generated enough free cash flow to replenish its account. With the stock down more than a third since the January highs, I am perplexed by the decision to issue shares right now. To me it suggests there is either another very large acquisition in the works, or management is concerned about the future cash flow.

Insiders, by the way, are selling about 7% of the shares being offered, although they will still be significant shareholders.

Topics: American Oriental Bioengineering (AOB), Stock Market | No Comments

Durable Goods: Not As Bad As It Looked?

May durable goods orders fall, stir growth fears – Yahoo! News

New orders for long-lasting U.S.-made manufactured goods tumbled a larger-than-expected 2.8 percent in May, raising doubts about the strength of the factory sector and business expansion plans.
It was the first drop in durable goods orders since January and followed a 1.1 percent rise in April, the Commerce Department said on Wednesday. Analysts were expecting orders to slip by only 1 percent.

Scary headlines aside, the report was indeed weak. Shipments and new orders for all durable goods barely showed positive growth over the last 12 months.

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Still, in three of the last six months the shipments and order growth was negative. So, while this is a somewhat subjective classification, I included the durables report in the “bad but improving” column for my updated economic data table.

EconomicData

Bad and Deteriorating Bad but Improving Good but Deteriorating Good and Improving
Existing Homes (June) Chicago Fed NAI (May) Consumer Confidence (June) Real Disposable Income
Employment (June) Durable Goods (June) Personal Spending (June) ISM Manufacturing (July)
New Home Sales (June) Construction Spending Retail sales (August 2007) ISM Services (June)
ATA Truck Tonnage (June) CPI (July 07) Leading Indicators (June)  
GDP (Q2 Advance) Trade deficit (July 07)    
PPI (July 07) Durable Goods (July)    
Industrial Production (July 07)      
Housing Starts (July 07)      
       
       

One area that seems to be gathering steam is computers. Shipments and orders both appear to be recovering.
Computers.jpg

Other than that, many of the other industries were exhibiting patterns similar to that of overall durable goods – weak, with growth down significantly over the last 6-12 months, but with signs of a possible improvement in the last couple of months.

Topics: Durable Goods, Economy, Stock Market | No Comments

Apologies and Update

Stock Market Beat had some operational issues yesterday. I ended up doing a restore to the previous day’s status, and re-entered the posts this morning. Sorry for any inconvenience this may have caused.

Topics: 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 my Watch Lists. I will price all the new lists as of the close on Friday, June 29.

Today I present my planned updates to the Large Cap Watch List (Track at Marketocracy). There was a fairly high level of turnover to the list. 14 of the 26 names from the previous run made it to the current list, which was only 25 names. Performance-wise, the list created in March has returned an unweighted average return of 3.8% through June 28, with 64% of the stocks in positive territory.
So without further ado, the names on the chopping block from the previous list are: Steel Dynamics (STLD - Annual Report), NVR (NVR - Annual report), RWE AG (RWEOY), Sierra Health (SIE), Sallie Mae (SLM), Moody’s (MCO), TJX Companies (TJX), Abercrombie & Fitch (ANF), IMS Health (RX), Oracle (ORCL - Annual Report), CH Robinson (CHRW - Annual Report) and PG&E (PCG). Sallie Mae was one of the portfolio’s bigger winners due to its pending buyout.

The new list is:

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I will continue to track both lists on StockPickr.

Topics: Stock Market | No Comments