Showing posts from November, 2009

IB Net Payout Yields Model

Stat of the Day: Chicago PMI Surprises to the Upside

While everybody is focused on the relatively small issue in Dubai (it's a lot smaller then AIG after all), the Chicago PMI reported a fantastic number at 56.1 today. New orders remained strong and inventories were weak. Strong combination for future growth. The estimates were around 53 with expectations of a drop from 54.2 last month. So the number was up with expectations for a mild drop. The Chicago PMI number bodes well for the ISM Manufacturing Index to be released on Tuesday and the ISM non-Manufacturing number on Thursday. Highlights Gains in new orders and a slowing in deliveries hightlight November's Chicago purchasers' report, offsetting further losses in employment and further draws in inventories. Chicgao's headline index rose nearly 2 points to 56.1 to indicate a month-to-month increase in the pace of overalll business activity in the area. New orders rose 1.4 points to a very strong 62.8, a plus-60 level that, because of its strength, will be hard to match

Russell 2000 Weakness

Since late September, the Russell 2000 has been particularly weak. The index of small cap stocks made a slightly higher high in mid October, but hasn't come close to the 625 high in November while the S&P500 continues to trade above the Sept/Oct levels. Part of the reason could be that a lot of the smaller cap stocks are more domestic plays and the more international exposure you have the better. Its also been the case that financial stocks such as regional banks have been weak during that period. Regardless its led our Growth Portfolio to underperform the last month after a huge outperformance this year - up nearly 70%. A lot of the smaller investments such as Liz Claiborne (LIZ) have been hit hard after surging. LIZ is down from a high around $7.5 all the way to $4.5. Many other examples exist as well. Hard to explain why the smaller stocks have been so weak with the world economy showing signs of growth. They should do better in a recovering economy. Maybe people were just

Coal Companies Wrongfully Smashed by China Imports Data

Coal companies were hit hard intraday becuase of supposed weak coal import data from China. Guess the data was negative or positive depending on how one viewed it. On one hand the imports were down 11% from September. On the other hand they were up 220% over last year. Apparently the market was looking for a number similar to Septembers. Regardless the YOY gains are enormous and the month to month numbers are bound to fluctuate. The trend still appears for bullish for longs. Companies that we like such as Alpha Natural Resources (ANR) and the new IPO Cloud Peak Energy (CLD) were all hit hard today especially in comparison to the strong gains in the market. ANR was down 5% from its high around the opening bell. U.S. coal mining shares fell on Monday after data showed China's coal imports dropped 11 percent in the last month, even though exporters expect a booming market in the Pacific region for the next few years. Indeed, the latest official Chinese customs data showed coal impo

Atwoods Oceanics Reports Solid Results

Atwoods Oceanics (ATW) as usual posted their normal earnings beat. ATW is a semi deep water focused oil/gas drilling firm. Earnings were down from the solid $1.16 last year, but they did report strong 15% YOY earnings growth for fiscal 2009. Not bad for a stock trading at roughly 10x earnings. Now with oil back around $80, the demand for their services appears to be picking up as evidenced by a couple of recent contracts. Earnings likely bottomed out this Q and analysts expect earnings of at least $4.04 for fiscal 2010. Look for earnings to continue rising with the improved demand environment and new builds on the horizon. 4:59PM Atwood Oceanics beats by $0.06, beats on revs ( ATW ) 37.96 +0.97 : Reports Q4 (Sep) earnings of $0.75 per share, $0.06 better than the First Call consensus of $0.69; revenues fell 18.5% year/year to $131 mln vs the $128.4 mln consensus.

Future Stat of the Week: Weekly Jobless Claims Again

Just two weeks ago, Stone Fox Capital talked about the importance of a weekly jobless claims figure below 500K. The number didn't make it reporting in at 505K (502K originally), but that is where the key of understanding the future is a lot of times more important then the number reported. On Wednesday, the consensus estimate for Weekly Jobless Claims by Bloomberg is 495K. The low estimate is an incredible 460K with the high only 500K which would happen on its own to be a low for this cycle. So while the market sweated the number reported last Thursday, it was without doubt that the next sequence of numbers would be lower and possibly much lower just the next week. Don't fight the trend by sweating weekly nuances. Especially considering we're most likely to see sub-400K numbers before the trend even becomes a question. Released on 11/25/2009 8:30:00 AM For wk11/21, 2009 Prior Consensus Consensus Range

Buying Cloud Peak While it Trades in the Valley

The Cloud Peak Energy IPO (CLD) priced last night at $15 which was below the original range of $16-18. Very perplexing considering the commodities sector and especially coal stocks have been very hot of late. Then Reuters published some analyst comments that made us more bullish. Basically the analysts are concerned that the proceeds are going back to Rio Tinto (RTP) and that the deal was overpriced and coal demand is uncertain. Huh? Are they serious? Why has Peabody Energy (BTU) and Massey Energy (MEE) rallied so hard lately? This really seems like Wall St playing games with a forced seller. RTP needs the money to reduce it's debt load. CLD is clearly not overvalued as both BTU and MEE sport PEs in the 20s while CLD starts in the 7-8 range. If anything CLD is extremely undervalued. Gillette, Wyoming-based Cloud Peak raised about $459 million but almost all of the proceeds will go to Rio Tinto, which will retain a 48.3 percent stake in Cloud Peak. Rio Tinto is saddled with debt st

Remaining Bullish on Sears Holdings After Q3 Earnings

Today, Sears Holdings (SHLD) reported earnings and revenue that beat estimates. Some of the more positive notes were that KMart stores had positive comps and they bought back 3.5M shares. Continuing to shrink the float at a dramatic rate leaving very few shares not owned by strong institutions. SHLD continues to be a very cheap stock compared to the asset base. See our previous posts on the details. Everybody will come out and scream how SHLD is a big short in the $70s because they make limited amounts of money. The PE is too large.... yada, yada, yada. SHLD is extremely cheap. Period! 6:09AM Sears Hldg beats by $0.28, beats on revs ( SHLD ) 75.77 : Reports Q3 (Oct) loss of $0.81 per share, excluding non-recurring items, $0.28 better than the First Call consensus of ($1.09); revenues fell 4.4% year/year to $10.19 bln vs the $9.92 bln consensus. Domestic comparable store sales declined 2.3% in the aggregate for the quarter, and included an increase at Kmart of 0.5%, offset by a decli

Cloud Peak Energy IPO Piques Our Interest

Cloud Peak Energy (CLD) is an IPO spin off from Rio Tinto (RTP) that has huge potential. By all accounts, the deal will be cheap as evidently RTP needs the cash. The deal is expected to price in the $16-18 range giving it a7 PE multiple. Very odd considering the PE multiples in the 20s that most coal producers trade at currently. CLD is completely focused on the Power River Basin (PRB) area in Wyoming and Montana. The surfice coal in the PRB is much easier to mine then the mountaintop mines in the East and especially in Central Appalachia. Also, the coal is 'cleaner' then the East because of lower sulfur amounts. Now honestly just about every other energy option is 'cleaner' then coal such as natural gas, solar, and wind. Unfortunately coal is the cheapest option and the US along with emerging economies like China and India are somewhat stuck using it so demand is expected to grow. Another issue with the Central Appalachia is that it has declining reserves and faces reg

Future Stat of the Week: October Leading Indicators

The trend is your friend and that's acutely important when dealing with economic stats. One very important stat is the Leading Economic Indicators from the Conference Board that comes out on Thursday at 9am. These numbers have been soaring the last 6 months growing at an annual rate of over 10%. The expectations for Oct is that the indicators increased by 0.4% and First Trust estimates 0.5%. Lower then the 1% in Sept but still very solid growth. Until this number turns negative, it's difficult to turn negative on the stock market or the economy. Especially with the indicators growing substantially and the yield curve remaining very high. That combination is a recipe for huge growth and market gains.

Trade: Sold Portion of Baidu

Sold about 25% of our Baidu (BIDU) position in the Growth and Hedged Growth portfolios this afternoon around $438. BIDU has been a huge winner in those portfolios including a 243% gainer in the Growth portfolio. BIDU appears to be trying to set up a double top so its at risk of peaking. This is similar to a lot of other stocks as well, but we also feel that BIDU is closer to the proper valuation then most stocks. Trading at over 40x next years earnings leaves BIDU with very little multiple expansion unlike most stocks in the market. Granted, BIDU could still just grow at its growth rate of over 40% and we'd be happy investors. For now, we've just cut back on 25% of our holdings in both portfolios. After selling, BIDU broke to a new 52 week high, but then quickly traded back down with the market. Seems to be a lot of resistance so we'll stick with locking in some gains for now.

Sears Holdings Showing Strong Relative Strength

Interesting note from on Sears. More signs that SHLD will survive and thrive with their huge balance sheet and asset base. 9:47AM Sears Hldg - - Relative Strength ( SHLD ) 78.76 +4.22 : Price displays Relative Strength as it extends Friday's upward momentum up through its October 75 highs. Next area of interest lies around the August highs near 78.00/80.00 zone.

KHD Humboldt Wedag Smashes Estimates

KHD Humboldt Wedag (KHD) smashes the estimates for Q3 reporting $.25 compared to the $.05 estimate. Revenues were also much higher at $148M versus the $102M estimate. The markets in Russia, Eastern Europe, Asia, and Africa appear to be moving forward finally. KHD is up 17% today, but the market cap is only $350M after this jump and still less then the cash balance of $407M. KHD remains one of the cheapest emerging market plays right now. Anybody following us should already own this stock, but any price close to $11 is still very attractive. Keep an eye on the gap in the charts and load up if it gets closed. revenues of $148.2 million with a net income of $7.5 million, or $ 0.25 per share on a diluted basis, which included restructuring charges. This compares to revenues in the third quarter of 2008 of $193.6 million and net income for that period of $30.8 million, or $1.01 per share on a diluted basis. Our margins, excluding special charges, for the third quarter of 2009 were 17 percen

Performance Review - Net Payout Yield

The Net Payout Yield portfolio continues to excel. The portfolio is beating the S&P500 by nearly an 8% annualized gain with a sub 1 beta and less then 15% annualized turnover. So a superior gain with less risk and limited turnover. A couple of the better performers have been the most recent additions of CSX and Agrium (AGU). Both stocks have gained more then 30% this year since being added. The portfolio is close to fully invested with only $25K in cash left. Stone Fox Capital continues to expect a year end rally to at least 1,150 or 1,200 on the S&Ps. At that point we'll likely increase the cash position. The below returns are from and contain assumed fees 1% higher then what Stone Fox charges for this type of portfolio. So the annualized returns of 6.93% would be 7.93%. Please contact us at with any questions. RETURNS Last Week 2.69% Last Month 2.48% Last 3 Months 12.12%

Kona Grill CEO Buys Shares

Not a huge surprise to see a new CEO buy into his new company. Especially a company seen as very undervalued if a turnaround takes place. It's only 22.5K shares at a little over $65K. Whats really intriguing though is to see 75K shares traded on a Friday which happens to be the highest volume since mid June. We'll see in a few days whether is was one of the Private Equity groups adding shares now that they have a more friendly CEO and BOD. The really odd part is that the trades went off without pushing the stock up. Insiders were basically the only ones on the bid the last week or so and yet it didn't drive the price up. Hmm... Keep an eye on this next week.

Synovus Insider Buys

Interesting note from Investopeida on the insider buys at SNV. Whats even more interesting is that the stock has been crushed. Insiders evidently saw the Q3 write offs as a peak while outsiders saw fear of more of the same in the future. We're still sticking with the insider for now. After all the yield curve is on their side. Synchronized Buying Synovus Financial Corp. (NYSE: SNV ) saw some very active buying in the last week by the company's CFO and one director, and steady buying from seven separate corporate insiders since September 22. The total number of shares purchased over that period was 162,500 with an average cost of roughly $3.00, for a total of approximately $488,000.

Investors Countinue to Pour Money into Bonds

According to this report from Morningstar , investors continue to pour money into fixed income funds and out of equities. Amazingly though more money has come into the market this year then was pulled out in 2008, but just about all of the gains went directly into bonds. Anybody think the retail investor is right this time? With the economy starting to recover and interest rates at record lows, it seems like an odd time to be invested in bonds. Do people realize that bond funds lose money as interest rates rise? Bonds are the worst investment in rising rate environments. Wanna bet that the media convinced everybody that the market had come too far, too fast going into September/October. That bonds offer safety in a volatile environment. That bonds did better during the crash. Poor sheep listened again. Also, most people don't understand the difference between a bond and a bond fund. A bond in theory doesn't lose value as long as your willing to hold till maturity. You collect

The Ultimate Leading Indicator: Yield Curve

As we've been fond of pointing out this year, the leading indicators tell us where the market is going. A lot of investors have fought the trend by concentrating on lagging jobs reports or focusing on future write downs at banks. Those are all concerns, but the leading indicators have told us for months that the future is bright. One of the best leading indicators around is the Yield Curve. Unlike most indicators whether leading or lagging this one can be followed on a daily basis and doesn't rely on random sampling or questionable government reports. The old addage of don't fight the fed is alive and well. As the chart below shows, when the Yield Curve is above 3% or the difference between the 10 yr and 90 day Treasury bills yields that is the time to buy stocks. Conversely, when the yield flattens out and becomes flat is the time to sell stocks. The negative yields in both 2000 and 2007 were huge warning signs of impending problems. One interesting note going back to the

Stat of the Day: Weekly Jobless Claims at Low of the Year

As Stone Fox Capital posted earlier this week in our new focus Future Stat of the Week [Future Stat of the Week: Weekly Jobless Claims] , it's important to pay attention to where economic stats are headed and not so much where they've been. Today, the government reported that jobless claims declined to 502k for last week which is the lowest level since early January. Anybody sweating last Fridays Jobs report clearly is missing the trend. The 4 week average continued its decline hitting sub 520K. The jobless claims is clearly on a path to sub 500K and then probably closer to 400K in the next couple of months. Knowing that would you short the stock market? The Labor Department said Thursday that first-time claims for jobless benefits dropped to a seasonally adjusted 502,000 from an upwardly revised 514,000 the previous week. That's the fewest claims since the week ending Jan. 3, and below economists' estimates. The four-week average, which smooths fluctuations, dropped

Kona Grill Finally Hires a New CEO

Kona Grill (KONA) has long been a favorite concept of Stone Fox Capital with its blend of sushi with western foods, but it clearly lost its way over the last couple of years due to questionable management. Last Monday, KONA announced a new CEO plus a new BOD member. Positive signs that they've finally got quality management on board to turn the concept around. KONA was always criticized for being run by a hedge fund manager instead of an industry expert. Now we'll see. Mr. Buehler was the Chief Executive Officer of LS Management, Inc., the owner and operator of the Lone Star Steakhouse & Saloon/Texas Land and Cattle Steak House restaurant concepts, as well as Lone Star Business Solutions, an external accounting, IT and HR provider, where he served from July 2007 to May 2009. Lone Star Steakhouse & Saloon consists of 141 company restaurants, 5 domestic franchise restaurants, and 10 international franchise restaurants, while Texas Land and Cattle Steak House consists of

Terremank Q2 2010 Earnings Results

Terremark ( TMRK ) reported basically in line numbers. The most exciting number is the revenue bookings were up 24% YOY and at record highs. Booking growth rates continue to exceed revenue growth of 17% YOY. Added to the federal pipeline and continue to see record bookings in the current quarter. Also, expanding into Brazil (adding 5k sf with Yahoo as first customer) and Istanbul due to customer demand. The stock continues to be a buy based on the move to cloud computing and the online push of the federal government. Just don't see many companies with a 24% increase in bookings these days. Santa Clara datacenter is online for Q4 opening with customers like Akamai and Shutterfly already signing contracts. Total revenues for the quarter ended September 30, 2009 were $69.8 million, representing an 17% year-over-year increase EBITDA, as adjusted, was $18.0 million for the quarter, representing a 82% year-over-year increase Income from operations was $6.

Future Stat of the Week: Jobless Claims

Future Stat of the Week is a new focus post by Stone Fox Capital. Too often the market focuses on the current economic stat and not the future direction of the stat. Naturally current reported numbers can impact and will impact the direction of the future number especially at inflection points. Normally though the market sweats over gyrations of a number even though the direction of the economic number is unquestioned. Recently the employment numbers have been the major focus of the market. Both the weekly jobless claims (leading indicator) and the monthly jobless numbers (lagging indicator) are routinely hashed and rehashed by the media. Constantly focusing on the absolute monthly number and not the direction or future number. For the employment numbers, it's highly unlikely that the direction (in this case improvement) will change as long as the FED remains with its accommondating plan. For example: when the weekly jobless claims comes in at 550K when the estimate was say 535K a

The Leveraged Loan by Morgan Stanley to CF Industries says buy Morgan and Sell Terra

The prior weekend, it was announced that Morgan Stanley (MS) had agreed to provide CF Industries (CF) with $2.5B in financing for the potential takeover of Terra Industries (TRA). Considering that we've been bullish on this deal and negative on MS for not being more aggressive in lending, this appears to be a game changer in both ways. Also, Bloomberg reported that this $2.5B deal is the largest leveraged lender commitment this year. It should provide plenty of fees for MS and signals a turn in MS that we find appealing. Especially considering they have chosen a very juicy sector to start loading up on. Even though the deal possibly won't go through as the drama in the numerous deals in the fertilizer sector continue to unfold. Morgan Stanley’s outstanding loans and lending commitments to non-investment grade companies peaked at $43 billion as of Aug. 31, 2007, before shrinking to $18.5 billion as of Sept. 30 of this year, according to the firm’s quarterly financial statement

Buy Bronco Drilling on the Continental Resources Rig Expansion Plans

Continental Resources (CLR) announced early today a huge expansion in their drilling plans for the Bakken Shale in the Montana and North Dakota area. has some info about the move. Basically CLR had originally expected to end 2009 with 6 rigs working, but now they expect to be using 9 rigs. Then by mid 2010, they expect to be utilizing 23 rigs. Thats 17 more rigs that CLR will be putting to work. This is just one company operating in the Bakken Shale, not to mention Haynesville or the Marcellus Shale. Its unclear whether Bronco Drilling (BRNC) will benefit directly from this expansion, but it should benefit from the overall capacity utilization in the sector leading to higher day rates and margins. BRNC just began benefiting from a contract for 6 more rigs in Mexico working on drilling for PEMEX. Also, with the push in the US for more reliance on natural gas, BRNC seems like one of the best plays left. Most natural gas producers have already surged off the bottom along with

Hartford Financial Reports Big Jump in Book Value

After the close, Hartford Financial (HIG) reported a big jump in book value to $37.90 when they reported Q3 earnings . This wasn't all that surprising considering the rebound in the markets, but confirmation helps pound it home to people still negative on the stock. Considering its only trading at $27 in the after hours action it appears that some people are still dense. Book Value Per Share Jumps 18% From End of Second Quarter to $37.90 Also, HIG reported core earnings of $1.56 which handily beat the estimate of $1.11 and they raised 2009 estimates. They did report a net loss on charges and at that point the reporting for HIG gets very confusing and beyond the need of further research. The key is that HIG will survive and prosper and book value is likely to soon bounce back over $40. Earnings will likely be estimated at over $4 and mabye as high as $5 next year. So either way you slice the valuation based on BV or EPS, HIG easily hits the $50+ range. Until then we'll avoid str

ISM Manufacturing Suggest Employment Turning Around

The October ISM Manufacturing report came in at a much better then expected 55.7 compared to the 53 expected and the 52.6 reported last month. It was also the highest reading since April of 2006. This report paints that manufacturing is in a strong recovery mode with orders and production at high levels. Also very surprising was the 53 reported for the employment component which was nearly 7% points above the 46 reported last month and was positive for the first time in 14 months ( CNBC reported this was the highest number in years ). If employment is turning positive in Manufacturing already then it won't be long before a turn occurs in Services as well. This makes for an interesting October jobs report to be release on Friday. Looks like the consensus is for a loss of 175K jobs with about 45K coming from Manufacturing. These expectations seem much lower then what the ISM report suggests. Although employment is a lagging indicator a better jobs report could bolster the market to n