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Showing posts from February, 2010

Sears Holdings: The Mosted Hated Stock

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According to this report from Bespoke Investment Group, Sears Holdings (SHLD) tops the list with Eastman Kodak (EK) and AIG as the most disliked stocks by the analyst community. Pretty impressive company to be in the same group as AIG. The contrarian in me suggests that this makes SHLD an excellent investment at these levels.

SHLD reported nearly $4 in earnings per share in 2009. Considering how horrible the retail environment was last year, its likely that SHLD will report even better numbers in 2010. Even lowly chain KMart has now turned around its fortunes and actually posted positive comps in Q4. Trading at nearly $100 the PE might seem high at nearly 25 on a trailing basis, but as has been documented numerous times on my website and via other reports SHLD has several assets that aren't properly reflected on its balance sheet such as its real estate. Its worth a lot more just earnings alone.

All in all, its strange that only 3 out of 500 stocks in the SP500 have a 50% sell ratio…

Natural Gas Inventories Nearly Even with 5 Year Average

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After a year when Natural Gas inventories hit record levels, it might surprise people to see that the weekly report is now showing inventory levels only 0.7% above the 5 year average. In fact, the important East market is 2.4% below that average.

With weak industrial demand, its likely surprising to most that storage levels are now inline with normal trends. Alot of the burn down has been due to the gruesome weather especially the record snows in the East. Regardless, though the more normal inventory levels set us up for higher prices as demand returns.

To us, the natural gas stocks still reflect a return to prices in the $6-7 range and therefore we are more bullish on coal. For electricity demand or thermal coal, we remain bullish on Cloud Peak Energy (CLD). A return to higher natural gas prices will push more utilities back to goal as a substitute fuel. Alpha Natural Resources (ANR) is another favorite, but we like it most for its coking coal used in making steel. Both will benefit re…

SP500 Bounces Above Key Technical Levels

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As we wrote yesterday on the Consumer Confidence report, the market drop was as technical as it was related to the supposed lack of confidence. We mentioned that the 20/250EMAs were very crucial junctures and it's not surprising to see the market drop back down to test the support before continuing the rebound.

Today, we saw a solid bounce back above the support. Now any move about the 1110 -1112 range will likely lead to a retest of the 1150 highs and possibly a move to the pre Lehman levels of 1200-1250.

$35B Jobs Bill to Only Add 250K Jobs

After losing 8.4M jobs during this recession, a jobs bill that is estimated to only add 250,000 jobs seems rather worthless to pursue. After all, we're talking about a lot of rules and regulations that must be adhered to in order to qualify not to mention the accounting work that it takes to work out that numbers and track which employees do and don't qualify for these tax breaks.

Mark Zandi is a very credible economists so we'll go with his numbers. They pretty much sum up the bill. Too little and too much work to track.
The new hiring tax credit could spur about 250,000 new jobs, according to economist Mark Zandi of Moody's Economy.com. The economy has shed 8.4 million jobs since the recession began in December, 2007.
The new bill will exempt small businesses from paying the 6.2% Social Security tax until December and a potential $1,000 credit if they remain employed for a year. Plus it provides funds for federal transport projects to the tune of $20B. The 2nd part soun…

Rising Interest Rates Aren't Always Negative for Stocks

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It seems intuitive and the markets always seem to react as if rising rates are negative for equities and declining rates are positive for equities. As usual with the stock market, simple thinking can burn you very fast. The market is much more complex then just "Don't Fight the Fed".

Go back to 2008 and question that thesis. Rates were declining and stocks were getting crushed. Why? Well its because even though the interest rate direction has an impact on the economy it takes a long time of up to 12 months for the impact to be felt. When the Fed is lowering rates from an already low level it signals distress which leads to panic in the markets. Did the Fed lower the fed funds rate from 2% to 1% because it wanted to juice the recovery or because they feared the Great Depression II?

The announcement by the Fed last Thursday night after markets closed that they were raising the discount rate to 0.75% from 0.50% nearly sent panic around the world. That is until the US markets…

Fast Money Doom & Gloom

Fast Money is always an interesting show because it features 4 traders and its always good to know why traders are doing what there doing. When this show is as bearish as it was today during lunch, it makes Stone Fox Capital much more bullish. Especially when we are already bullish.

So why were they so bearish today? Surely it was due to higher interest rates or negative earnings reports or a meaningful economic report. Nope. It was because of the weak Consumer Confidence report today. A report that is generally dismissed because of its lack of forecasting actual consumer spending trends.

The report showed that consumers were more bearish today then anytime in the last 10 months. Really? When you review the facts, how is that possible? The economy is growing, the stock market has soared, and job losses are now negligible yet consumers are really much more bearish then when the world was still falling apart? It's really absurd that none of the traders or even the host pointed out the…

Chesapeake Drilling For Oil

Interesting to see Chesapeake Energy (CHK) drilling for more oil. The CEO has a great point that if they have a huge find in natural gas it will cause spot prices to decline, but if they hit it big in oil the spot prices won't be impacted. More signs of how their success in drilling has impacted the prices they sell the product since they haven't been able to provide for more outlets to absorb the additional production.

Great point on coal, but it doesn't appear to be in the works. We're still a bigger bull on coal since its more of a global demand story then the domestic natural gas.

Aubrey is a great interview as always:








Liz Claiborne: Best Upside Opportunity

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Liz Claiborne (LIZ) has been a favorite of Stone Fox Capital for a while now. Not sure we'd agree with the best upside pick, but possibly in the retail space. LIZ has a huge opportunity to rebound and the current retail climate is becoming more favorable. The WMT news shows signs of consumers starting to move back up the retail ladder.

The 2011 EPS target of $.68 is very compelling with the stock in the $6s. Our target continues to be in the $12-15 range. A stronger retail environment will all of a sudden make that transformation much more successful.

KeyBanc analyst says, "Despite a high operating risk profile, we think Liz Claiborne represents one of the best absolute upside opportunities in our coverage. The Company was beset by strategic missteps predating the current macroeconomic environment. Management has engaged in what we consider to be some of the most aggressive transformational activities we have ever seen in a company – divesting its eponymous Liz Claiborne brand,…

Terex Shows Some Potential for Growth

You won't hear that in the media reports tomorrow. It'll all be about a larger loss then expected (more on that later) or blah blah this and that. In reality, Terex (TEX) continues to work through a deep and devastating recession in the heavy equipment market. One that has completely crushed end markets as revenues were down some 50% from the 2008 levels of $8.5B. At the end of the press release though, TEX provided a nice little nugget regarding revenue.

Revenue is expected to grow 25% next year to hit $5B partially because of adding the port equipment but a lot because of a return to growth.

As far as 'missing' the estimates I mentioned earlier, we've already got a Reuters report talking about how they missed estimates. Reuters is quoting the same numbers on Yahoo! Finance that clearly haven't been updated for the sale of the mining division. The revenue for 2009 is in line with the estimates given after the sale of the mining division and actually tops the low…

Bullish Close on the SP500: Above 20EMA

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After a gut wrenching drop that had the SP500 near correction levels, it made a huge bounce off the 200EMA. Now today, 7 trading days later that market has reclaimed the 20EMA after taking back the 50EMA. This is very bullish action and any bounce off it the rest of the week should be bought aggressively.

The chart clearly looks like it wants to at least retest the 1150 high from mid January and we're still positioning for a push to the levels reached right before the Lehman collapse last year around 1200-1250.

Even though the market couldn't break above 1100 with a close just shy of that 'magical' number, it doesn't really provide any real resistance similar to how it was easily broken on the way down.


India to Import More Coal as Domestic Prodcution Continues to Struggle

Interesting news from India on the coal front. Further signs of the value in having commodity assets with the growth of India and China. The Telegraphhighlights the growing demand for imported coal as an issue with coal production in India. At least this time its production, but we all know that demand will surely grow. These reports how India is likely to remain behind the curve. Maybe they should make domestic coal prices more expensive and hence the local production might just magically increase.

The increase from 59mt in 2009 to 65mt in 2010 to 81mt in 2012 doesn't seem overly aggressive, but in a market where you're now competing with a global recovery and China importing massive amounts of coal. Any additional pressure will spike prices for any remaining production. Coal India seems to have aspirations for the global energy stage, but for now they remain in the minor leagues. This other article talks about them looking to invest over $2B in overseas assets, but it appears…

Alpha Natural Starts Drilling for Nat Gas

Somehow I've missed that Alpha Natural Resources (ANR) got 20,000 acres in the Marcellus Shale when they bought Foundation Coal. According to this report, ANR expects to drill 4 wells this year with plans for up to 100 wells in the future. Very interesting! We're very bullish on the future of natural gas, but we've had a difficult time finding any stocks trading at decent values. ANR has been a favorite for its metallurigal coal. With only 4 wells, this move doesn't sound like it will have any major impact on ANR, but it's an interesting way to diversify. Natural gas and coal are the 2 primary fuels of utilities in the US and having both options would provide coverage for any moves towards either option in the future.

In general, we doubt that ANR has the nat gas expertise so this move could be questioned, but anything in the Marcellus Shale is very valuable to have in your portfolio. Something worth watching in the future.

The company announced a joint venture Tuesd…

Hartford Financial's Huge Book Value

Hartford Financial Services (HIG) continues to report solid core earnings. The market seems to doubt the staying power of these earnings. Check out the book value for this $22 stock reported after the close with the Q4 earnings. Currently $38.92 or $47.56 if you exclude the AOCI. With core earnings approaching $4 in 2010 its perplexing to understand the multiple on this stock either based on earnings or book value. It won't last forever!


Quarterly Results




4Q '094Q '08Change Net income (loss) $557 $(806) NM Net income (loss) available to common
shareholders per diluted share $1.19 $(2.71) NM Core earnings (losses) $689 $(208) NM Core earnings (losses) available to
common shareholders per diluted share* $1.51 $(0.72) NM Assets under management* $380,834 $345,451 10% Book value per common share $38.92 $28.53 36% Book value per common share (ex. AOCI)* $47.56 $51.69 (8%)

Local.com Beats Again, Estimates Too Low

Local.com (LOCM) reported another strong quarter last week and again guided to strong growth in 2010. All in all they reported 47% revenue growth in 2009 amazing considering the economic environment and the history of LOCM failures. For Q4, they reported 8% sequential growth and generated $2.8M in cash. All of the reported numbers and guidance handily beat estimates (not that many exist). LOCM has clearly turned the corner to a fast growth, profitable company. Stock is still lagging for a lack of attention as they only had 2 analysts with estimates at that time.

What's interesting now is to look towards the estimates of LOCM. In the past (talked about this on 12/8- Local.com Ups Estimate Again), analysts were highly focused on the GAAP numbers for them. This forced them to view LOCM as a money losing company because of stock based compensation and amortization of intangibles. Contrary to that view, LOCM has been generating strong cash for the last few quarters and reported adjuste…

Growth Portfolio - 99.6% Invested

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After the SP500 touched just below the 200EMA at 1046, Stone Fox Capital used the roughly 7% cash we had accoummulated from selling US Steel (X) a few weeks back to become fully invested. The portfolio has only $4500 left in cash so we'll likely look to trim a few positions on a solid bounce in the market next week. A huge oversold market (at one point down 4.7% in less then 2 days) creates a great entry point for adding to positions.

Added to our positions in some extremely oversold stocks such as Foster Wheeler (FWLT), Terex (TEX), Puda Coal (PUDA), Phoenix Companies (PNX), and to a couple of stocks still in strong positions Local.com (LOCM) and Terremark Worldwide (TMRK). Most of these stocks will likely bounce the hightest, but if they stall at key technical levels on the way up that will trigger selling these purchases. Some charts like FWLT, TEX, and PNX are clearly broken. They all have 14 day RSI sub 30 and CCIs in the -160 range. For example, TEX has been down 14 of the l…

Will Rapid Productivity Growth Lead to Profitable Expansion?

With all the doom and gloom in the markets today (SP500 dropped 3.1%), it's easy to think that the global economic recovery is about to turn into a double dip recession. After all the jobless claims came in higher then expected at 480K and surely that means growth has stalled? Possibly but Brian Westbury - Chief Economist at First Trust - has a different twist on the numbers reported today. Specifically that the productivity numbers are not only making companies more profitable but those profits are going to lead to expansion and more hours worked.

Clearly the job creation spiget hasn't been turned on yet, but we're on the tip of the iceberg as corporate profits are soaring. Job growth likely depends on whether the government will get out of the way or instead force the US to crash into the iceberg. Last night Cisco (CSCO) talked about boom times ahead with record profits and the hiring of 2-3K employees in the next few quarters. The market wants to move a head and it clea…

Synovus Financial Pounded on TARP Repayment Fears

Now this news from CNBC and the fact Synovus Financial (SNV) is down 10% tops the list of absurdity. No way SNV would issue any share to repay TARP. They aren't in any pressure and in fact shareholders don't want them to repay TARP at this time. Maybe if the shares jumped to $5-6 they could consider an offering to repay TARP. Otherwise, thats just an issue for the major banks like PNC that did an offering this morning.

Buy the dips from the dips!

Analysts said regional bank shares were hurt by the prospect of TARP repayments, including dilutive common stock offerings like PNC's announcement, and investor worries about first-quarter 2010 performance.
Edit 3:10: Interesting note from FBR on buying the regionals on this dip.

Buy! says FBR Capital Markets analyst Paul Miller in a note to clients today.On a selective basis, we believe that such an overhang may present an attractive entry point for investors to add or build positions. Names that we would look to take advantage of ne…

Stat of the Day: ISM Services + Manufacturing Hits 3 Year High

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Today the ISM Services index was reported at 50.5 which showed growth but it was disappointing with expectations at 51. Not exactly a meaningful miss, but one non the less which I think enforced some fears that the economy is stalling. Ok, it went from contracting to growing in January so that doesn't really jive.

Good analysis of the ISM report from First Trust. They feel strongly that the Business Activity indicator at 52.2 is a better indicator of the sector then the sentiment induced headline number of 50.5.

Bespoke has a nice chart today averaging the 2 ISM indexes. Since Manufacturing as been very strong, it shows how the combined numbers tell a different story then what the market seems to think. A picture is always worth 1,000 words when it comes to economic data.

The average ISM came in at 54.5 for January a number not seen since summer 2006. Its also worth noting that the 2004 recovery saw a number hit the 60s and that was after a mild recession where the numbers hardly dip…

Riverbed Technology Continues Strong Growth

Even during the Great Recession, Riverbed Technology (RVBD) as able to post strong double digit revenue growth in 2009. For Q4 they posted 23% revenue growth and reported $.21 vs a $.18 estimate. Very solid numbers though it's not likely to push the stock price higher as the market seems to favor stocks that got rocked in 2008 and now have bounced back a little. Though it seems to not be noticed that RVBD peaked out over $50 so it has hardly rebounded even though they are reporting record numbers.

The really impressive number was the generation of $96M in cash during 2009. Cash now totals $326M or nearly 20% of the stock valuation. On a EV basis, RVBD now trades at roughly 13x cash flow (EV of $1.3B/96M cash flow). Its been stuck in the low $20s for a while so the valuation is becoming more and more compelling. Maybe 10x a $125M estimate for 2010. Cheap, cheap, cheap!

Introducing 3 new products for cloud computing. Interesting to hear that Amazon (AMZN) is a customer for these produ…