Posts

Showing posts from October, 2009

More on the Tax Loss CarryBack Legislation

The Wall St Journal is reporting that the proposal to allow Tax Loss Carry Backs for 5 years is poised to be approved next week. It's been difficult to find information on this subject as we originally wrote about it on Wednesday[Tax Loss Proposal Gains Support] and hadn't seen any news about it until finding this article.

The proposal is significant because it will provide immediate capital to a lot of struggling small cap stocks such as Liz Claiborne (LIZ) mentioned in the article. Basically any company losing money now would immediately be able to receive a portion of the taxes back that they've paid the last 5 years. The more they've lost the better. The article doesn't mention financials so we're still wondering what the impact will be on companies such as Regions Financial (RF) or Synovus Financial (SNV) that both received TARP money. If those companies were to get a refund, Congress might come under fire. If excluded, LIZ or Terex (TEX) would be our favor…

Is the Market Correcting? NYMO Suggests Its Over Already

Image
Contrary to our posts of the last few days, the market seems to be in the midst of a big correction finally. Or at least that's what the market and media tells us as the market closed today. Polls on CNBC showed that 60%+ plus investors expect a 10%+ correction and nearly 30% expect a 20%+ loss. Just another indication of how bearish the market has become. Down 6 of 7 days and 7 of 9, its surprising how few 'experts' have suggested buying this dip.

One indicator that highlights the extreme negativity is the NYSE McClellan Index. At the close of today it ended at -114 or basically the same level as the end of February which is right before the market bottomed. The low number in the last year plus was just below -125 in October of last year. Those were some brutal moments in this market and indicative of how negative the market tone has become now.

Its no clear cut indication that the market will turn tomorrow, but it does provide support to the theory that the market is shor…

Tax Loss Carryback Proposal Gains Support

According to some news reports yesterday, the U.S. Congress is gaining support for a Tax Loss Carryback proposal. We're not seeing a lot of news about this proposal but it seems to be something that would be very bullish for the worst off stocks in this economy. Any corporation that made a ton of money in 2004-2007 and is now losing truckloads of money would be able to reclaim some taxes paid in those previous years.

It could be a huge boon to financials struggling to raise capital or manufactures that saw boom years and now are struggling to make ends meet in these lean times. It seems odd that Congress would inact such a law to help the hated banks, but then again a lot of the smaller banks could use some help to stay afloat and continue lending. On the flip side it would further help to support companies not allowing the best players to gain deserved market share. Some of the banks in strong capital shape might to see less growth potential with such a bill.

Some of our favorite f…

Stat of the Day: New Construction Project Inquiries at Highest Level Since Sept '07

Ok this stat was actually from last week, but I'm just now reading it. The AIA (American Institute of Architects) reported last week that the Architecture Billings Index creep up to 43.1 in September still showing an industry in decline. Like other industrial sectors, the index is clearly off the lows, but this one is definitely struggling more to regain growth.

The encouraging part of the index is that project inquiries grew to 59.1 showing signs that future demand will pick up. Its the highest level since September 2007 which is when the financial crisis really began.

It'll be interesting to see how this index progresses in the next few months. The stimulus bill clearly didn't meet the needs of this country if ABI is still negative this many months later. If we could only learn from the Communist in China.

Washington, D.C. – October 21, 2009 – As the nonresidential construction industry continues to struggle, the Architecture Billings Index (ABI) showed a nominal improvemen…

Correction-less Rallies

Great report from Ciovacco Capital Management. It shows that bull market rallies from corrections of 35% or more tend to last alot longer then most people think. In fact everybody clamoring for a market correction of 10% have been amazingly off based from the historical norms. Clearly a correction for corrections sake isn't how the market works.

On average the market rallies 270 days or nearly 9 months after a major correction in the markets crosses back above the 200 MA. This means that the rally will last at least until early spring as the SP500 didn't cross back above the 200 MA until July 10th meaning the rally has really just begun. It's important everybody catches that part. Its not the market low of March 9th, but rather the point where the market became technically strong by crossing the 200 MA.

Probably the most likely comparison was the 1942-43 rally that lasted a whopping 372 days. In a lot of ways this economy has been compared alot to the depression. Since we …

Contraian Analysis Suggests Market Goes Higher

After the last week or so in the market and todays 1% drubbing, its difficult to remain overly bullish. Just about everybody claims the market is ready for a sizeable pullback and the drops in the SP500 in 5 of the last 7 days seems to bolster those thoughts.

According to the recent report from Mark Hulbert, the evidence suggests that the market remains too bearish for a big correction. Hulbert has long been a tracker of the sentiment in the financial newsletter circuit. When this group gets too bearish, the market typically rallies as it did in Mar/April until. After such a long rally the market tends to get too bullish and hence a correction happens. Oddly and maybe not really that oddly, the average newsletter is more bearish now then it was in April. Everybody continues to expect the correction that won't happen as long as everybody expects it. After big recessions and bearish markets there has been a tendency towards long rallies without a 10% correction.

Based on the Leading E…

Leading Economic Indicators Show Impressive 6 Month Gain

Still amazes me how little attention the Leading Economic Index from the Conference Board gets from the market. The Conference Board reported a September number with a 1% increase and a 5.7% 6 month growth rate. This forecasts huge growth in Q4 and Q1 but oddly the head of the Conference Board stills tells a cautious tale. With a 6 month rate at the highest since 1983, its difficult to see any negative scenarios for the economy.


The Conference Board Leading Economic Index™ (LEI)for theU.S. increased 1.0 percent in September, following a 0.4 percent gain in August, and a 1.0 percent rise in July.

"With the sixth consecutive increase, the LEI's six-month growth rate has improved to its highest pace since 1983," says Ataman Ozyildirim, Economist at The Conference Board. "Except for average workweek and building permits, all the leading indicators contributed positively to the index this month. At the same time, the contraction in the coincident economic index has ha…

Riverbed Drops on Downgrade by Whom?

Its always comical to us how stocks continue to trade based on analyst recommendations. Especially ones without street credibility. After all we've seen in over the last decade that takes place on Wall Street, its difficult to read some of these reports with a straight face.

Last night, Riverbed (RVBD) reported great numbers with earnings beating estimates by 28% and reporting 18% Year over Year growth. They also guided higher then the Street. Also considering how easily they just beat the Q3 guidance they gave back in July its hard to take their numbers as anything other then the baseline - $104-107M and $.18.

So how could any analyst downgrade a stock after that report? Well, it turns out that one of the analysts with highest numbers decides to take management at face value. Management says $.18 so now he all of a sudden thinks they'll hit that number exactly. He does maintain the high end of the revenue. All in all he recommends a sell with a $20 target.

See report at StreetIn…

TerreMark Jumps on Competitors Buyout

Good news for one of our favorite stocks that has been lagging of late. Competitor Switch and Data Facilities (SDXC) got a buyout offer from Equinix (EQIX) last night providing nearly a 30% premium for the share price of SDXC. In addition, EQIX beat earnings estimates by 57% providing more support for investing in TerreMark (TMRK).

Remember, Stone Fox Capital invested in TerreMark Worldwide because it has a great connection with the Federal Govt and VMWare (VM) making it our top pick in the sector. The news from EQIX suggests that the sector as a whole is improving dramatically from last year.

Details on the merger:

entered a definitive agreement for Equinix to acquire Switch and Data in a transaction valued at approximately $689 million in cash and stock, based on yesterday’s market close. The combination of the two companies will further strengthen Equinix’s leadership position in the global data center services market by extending the company’s pres…

Trade: Added KHD

Image
Added more KHD Humboldt Wedag to our Growth Portfolio today when the stock plunged down to the 50ema. Can't find any news to explain the plunge so hopefully it's just a technical move and the stock will recover nicely.


F5 Networks Points the Way for Riverbed

After the close today, F5 Networks (FFIV) posted earnings that easily beat analyst estimates. Considering that F5 Networks has had a much rougher recession then Riverbed (RVBD) its encouraging to see the turnaround. F5 Networks reported an increase in their pipeline and movement of project on hold. All very promising for RVBD even though they aren't exactly the same business they somewhat track each other.

If you recall, RVBD had a disappoint Q2 even though sales were up 17%. They were hit somewhat by customers delaying projects and this report by FFIV hints that RVBD might see that those projects ramped up in Q3. That supposed buyout around $34 that we talked about last week might not be enough if RVBD shows similar results.


Comments from Reuters on F5s earnings report:

Oct 21 (Reuters) - Network-equipment maker F5 Networks Inc's (FFIV.O) quarterly profit beat market estimates on increased bookings and improved customer spending, sending its shares up 8 percent. The company also…

Freeport-McMoRan Surgess to 52 Week High on Earnings

Freeport-McMoRan (FCX) is a big miner of copper and gold and a favorite of Stone Fox Capital. They are possibly one of the best run mining companies in the world. With China being the largest user of copper, it stands to reason that copper will benefit from their rapidly expanding economy. Not to mention that FCX has a large gold operation and $1,000+ gold prices is a big help.

Today FCX reported earnings that easily topped analyst estimates and even soared 77% above last years results. Even more impressive is that they achieved the earnings gain with lower revenue. Its also amazing how the CEO talked so much about the weakness in the marketplace and yet they made huge profits. Imagine what it'll be like when the US economy is good enough to start building houses.

Some snippets from an AP report:

Freeport-McMoRan cut production and delivery costs by 40 percent over the past three months, generating gains that more than offset a quarterly decline in revenue.Sales fell 10 percent to $4…

Is KHD Humboldt Wedag the Ultimate Value Play?

Until this article at Realmoney.com, I'd never heard of KHD Humboldt Wedag (KHD). KHD owns companies that operate internationally in the industrial plant engineering and equipment supply industry, and specializes in the cement processing industries. They have a negative enterprise value meaning that cash in the bank outnumbers the market cap. This is a pretty rare situation especially considering they are basically a emerging markets play with 95% of their backlog in Russia, Eastern Europe, Asia (mainly India), and the Middle East.

Back to why this stock made my radar. They fall into the same sector as Liz Claiborne (LIZ), Terex (TEX), and Manitowoc (MTC) that we've owned this year and still own LIZ and TEX. What sector is that you ask? They are all still down roughly 80% from their recent highs and were 'blistered' alot more then deserved. The author suggests stocks deserving to be down 20%, but that dropped 80%. We're not so sure about just 20%, but even 50% would…

Regions Financial Builds Provisions

Today, Regions Financial (RF) reported Q3 results. The results were to some degree worse then expected, but in the crazy world of banking stocks RF rallied today after an initial selloff.

Looking at the numbers and reading the transcript of the CC, it appears that RF largely reported a bigger then expected loss due to dramatically increasing the provision for losses. In fact the loan provisions were some $300M greater then charge offs and up over $100M from the linked quarter.

Net loan charge-offs increased to $680 million or an annualized 2.86 percent of average loans, driven by value-related write-downs and problem asset dispositions Allowance for credit losses increased to 2.90 percent of loans with $1.025 billion provision for loan losses, exceeding net charge-offs by $345 million

It appears that alot of investors see Q3 as the peak in provisions especially considering the comments about the inflows of non-performing …

Trade: Bought KHD Humboldt Wedag International

Just getting around to posting that Stone Fox bought KHD Humboldt Wedag (KHD) for the Growth Portfolio at $10.35 on 10/13. More to come on this play, but to summarize its a great value play in the Engineering & Construction segment with a huge focus on emerging markets like India.

Sold the Natural Gas ETF (UNG) to make room for this trade. Not much positive to say about this ETF. Just read any of the stories on popular financial websites to see why this ETF has turned out to be a huge bust.

Riverbed Supposedly has $34-35 Offer on the Table

Rumors of buyouts fly around all the time, but its interesting to see that the one involving Riverbed Technology (RVBD) has been so persistent. Now seeing reports that an offer for $34-35 in now on the table from both Hewlett Packard (HPQ) and Juniper Networks (JNPR). RVBD has been one of the best performing companies during this recession having actually grown revenue YOY. That list is very small so it isn't surprising that they'd become a takeover target.

That offer would be nearly 40% above the $24-25 level today and would be very enticing to Stone Fox Capital. We have no doubt that RVBD would reach these levels themselves within the next year, but why take the chance. Better to have the money on merger Monday, then wait for the hard work. Also as the stock market melts up to our targeted 1,200 range we'll be looking for stocks to cash out of and this deal would just make it easier.

Now wouldn't it be funny if that analyst from Wells Fargo places a Market Perform ran…

Net Payout Yield Focus: Yum Brands

Yum Brands (YUM) has been a desirable investment over the last few years because of its presence in China with KFC. As of September 30th, YUM caught our attention as a potential Net Payout Yield stock. On that day, YUM announced a 11% dividend increase and a $300M buyback. Anybody following our Net Payout Portfolio knows that we love stocks that generate plenty of cash to make dividends and buybacks.

With a market cap of over $16B, the buyback is only roughly 2% so not too impressive. Combined with the 2.4% dividend YUM is getting close to a 5% net payout. Somewhat below average but not too bad for a company forecasting 12% profit growth this year. Considering the buyback was higher in 2008, its also possible they'll up the buyback amount as the recovery takes hold.

Considering that YUM provides the unique opportunity of a decent Net Payout Yield and access to the growth of the Chinese consumer this is an ideal candidate for both our Growth and Net Payout Yield Portfolios. With a f…

Poll of the Day: Is the Recession Over?

Image
This is a pretty stunning result from a CNBC poll. While Stone Fox Capital has been claiming that the recession was likely over in the June/July time frame, this poll suggests that only 20% of the people on CNBC think the recession is over 3 months later. On a purely technical basis, the recession is clearly over as Q2 GDP will likely grow at a 3-4% level.

I'd guess that the respondents to this poll follow the jobs market which is one of the biggest mistakes made my investors. The jobs market is a huge lagging indicator. The ability for companies to regain growth while still cutting jobs creates gains in margins leading to higher profits. Those profits lead to jobs growth. Not the other way around. Nobody hires people until they can make money with what they have.

To us this is yet another bullish sign as investors still aren't convinced that the economy has turned even after the NABE calls the recession over.




Did the NABE make the right call, is the recession over? * 2139 resp…

Barton Biggs Backs our Melt Up Theory

Stone Fox Capital has been adamant that we expected the market to continue to melt up the rest of the year. From both a technical and fundamental view, it appears that the market needs to hit at least 1,200 to brush off the huge falloff from last year. Now when we get to that level it doesn't mean that we'll rush off to new highs above 1,550. Heck we won't even be close to the old highs and that is the part that so many shorts continue to miss. Yes, the market is up 50% off the lows but it's still so far from the highs. The level of the rebound is determined by the size of the drop.

Barton Biggs of Traxis Partners went on CNBC today and discussed this issue. Hes in the camp that the rally has plenty more room













Airplane Lessors to Benefit from Exploding International Growth

Anybody just focusing on domestic US traffic would miss how the rest of the world is seeing explosive growth in airplane traffic. For airplane lessors it's mostly about international growth and with Boeing continuing to struggle to get their new plane out it just makes the planes owned by lessors like AerCap (AER) and Genesis Lease (GLS) more valuable. Below is a couple of examples of the explosive growth seen outside the US and in places other then China and India.

LAN Airlines (IFL) is one of the leading airlines in Latin America with a dominant position in Chile and Peru plus operations in Argentina and Ecuador. They reported a huge 11.9% increase in system traffic for September.

System passenger traffic for September increased 11.9% as capacity rose 9.3%. As a result, the Company's load factor increased 1.8 points to 78.8%. International passenger traffic accounted for approximately 71% of total passenger traffic.Domestic passenger traffic in Chile, Argentina, Peru and Ecua…

Atwoods Oceanics Hits 52 Week High on Upgrade

Ironically though it was only an upgrade to a Neutral. Another analyst that has missed the run and yet still not bullish. The time to unload Atwood Oceanics (ATW) is when this guy goes to a Buy. For now Stone Fox continues to hold it's position while the stock remains in a beautiful technial position.

Pritchard Capital Partners analyst Brian Uhlmer upgraded the company to "Neutral" from "Sell," based on a belief that all the company's bad news is known and baked into the current share price. Also, he noted that the company has helped its margins by cutting operating costs in recent months. Uhlmer held to his fourth-quarter profit estimate of 59 cents per share, assuming the company was not able to further cut operating costs in September. Analysts polled by Thomson estimate a profit of 66 cents per share, on average.

Interesting Comments on LIZ

Image
Options Edge from Schaffer Research put this out about the jump in Liz Claiborne (LIZ) today. I'd place some stock in the Mexx sale, but selling a prime brand like Juicy seems unlikely. Assuming they could get a good deal, reducing the debt would be ideal. Stock prices is still too low for the assets they own.


Liz Claiborne, Inc.Liz Claiborne, Inc. (LIZ: sentiment, chart, options) rallied 8.6% on Tuesday as speculation swirled that the company is preparing to sell one of its brands. The apparel issue is struggling under a $718 million debt load, and the sale could help ease LIZ's burden. The company declined to comment to Dow Jones, but analyst Brian Sozzi of Wall Street Strategies said that such a move could help assuage investors' anxiety."I continue to believe Mexx, with its new brand president having considerable retail experience and exposure internationally, would be first on the block," commented Sozzi, adding that Juicy Couture would be another lik…

Alvarion Signs Two Impressive Deals

Alvarion (ALVR) is the largest 'pure play' WIMAX equipment maker and should be a big beneficiary of the worldwide move to mobile internet. Early Tuesday, they announced 2 significant contract deals that the market has only modestly responded too by the close. ALVR signed deals with Safaricom in Kenya and Clearwire (CLWR) in Spain. Some people have probably heard of Clearwire (or maybe not), but not likely Safaricom. This highlights the typical problems ALVR faces. Customer name recognition isn't usually that high and explains why ALVR trades around an EV of .5 to Sales. They also have $130M in cash and only a $270M market valuation.

The Safaricom deal was significant both financially and strategically. Financially the deal is $12M for the initial phase of a 36 month deal. So already its likely a $30-40M deal over 3 years. Strategically the deal places ALVR in alliance with Vodaphone since they are part of the Safaricom joint venture. It also place them with an aggressive mo…

UBS Upgrades Hartford Financial and Restarts Phoenix Companies at Buy

This just further highlights why you have to be careful when following analyst calls. UBS today resumed coverage of the insurance group with Buy ratings on 2 of our Growth Portfolio stocks in Hartford Financial (HIG) and Phoenix Companies (PNX). The HIG call is just mind boggling as the target goes from $13 to $35. Basically by following UBS, investors missed over a 100% gain already. Yikes!

And Hartford shares jumped $1.41, or 5.4 percent, to $27.66 as Kligerman raised the insurer to "Buy" from "Neutral" and hiked his price target to $35 from $13.He said the company has the means to "absorb adverse equity markets, higher capital requirements and investment losses." The company has a new chief executive, Liam McGee, who is "coming into a good situation," he said. "We think HIGs near-term roadmap seems clear and extremely positive in terms of top-line life and P&C initiatives, as well as risk mitigation and capital management," the a…

Zacks Still High on Alvarion

Image
Alvarion (ALVR) continues to be one of the most disappointing stocks in our universe. ALVR is a mobile internet play for emerging markets. How doesn't it just soar based on that thesis? Even considering you need more then that, ALVR is a dominant player in the WIMAX market and continues to have huge potential in the emerging markets.

Zacks has remained bullish on ALVR over the last month or so. ALVR is extremely cheap but issues remain with the future of WIMAX. Nothing really new in that camp. Regardless, we agree with Zacks and would recommend buying at these levels.


Trade: Added Phoenix Companies and Synovus Financial

Image
Both Phoenix (PNX) and Synovus Financial (SNV) are small cap financials trading below book value. PNX being a badly beaten down insurance company left for dead and SNV being a regional bank that recently did an offering 10% higher. For SNV we have added to a position began at $2.8. If the economy continues to recover, these 2 financials will be big winners.


Edit 11PM: PNX closed above the 20EMA which remains above the 200EMA. If the stock gets follow thru tomorrow, its a must buy with a book value close to $8.




Disclosure: Long in client and personal accounts


Stat of the Day: ISM Service Index Growing

After nearly 1 year of shrinking, the ISM Service Index finally shows signs of growing in September. The index reported at 50.9 for September beating estimates of a 50.0 report and 48.4 in August. For a market that has been weak due to supposedly concerning economic reports, this report is a reminder that the economy and recovery is clearly still in an uptrend. Too much emphasis has been placed on whether such and such report beat estimates and not enough on the trend. Just look at the monthly trend in the table at the bottom. The July report was slightly below the June report giving fears of a top in the recovery. Yet 2 months later and the report is much higher. If a similar pattern were too happen in Q4 then October would be around the mid 49s followed by say 52 and 54 reports. Would you sell stocks on the 'weak' October report or buy more knowing its still going higher?

This months report saw substantial growth in Business Activities, New Orders, and Backlog. Consistently w…

Performance Review - Hedged Growth Year 1

Not sure what happened to the one I posted last week, but somehow the 3rd column was cut off. Unfortunately the numbers below from marketocracy.com include the extra 2 days from last week so it's slightly more then the first year.

Hedged Growth had a phenomenal performance in Year 1 beating the SP500 by nearly 27% (take the annualized amount and add 1% for the smaller fee). As of 9/30, the fund was also close to a 20% gainer with the SP500 down 7%. So just being positive would've been a good year on a relative basis with a weak market in the way.

Hedged Growth is a portfolio that hedges the downside of a portfolio with at least 1/3 of its portfolio either in cash or short stocks. Another 1/3 is either long Growth Portfolio stocks or like wise in cash while the last 1/3 is consistently in high Net Yield Payout stocks. This formula allows for the portfolio to excel in weak markets and maintain with the market in up trends. By preserving capital in weak market the portfolio out per…