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Showing posts from June, 2011

Stat of the Day: Chicago PMI Smashes Double Dip Theory

The Chicago PMI came in today at a seasonally adjusted 61.1 much higher than expectations of a faltering economy. This number showed a nice jump from the 56.6 in May. More importantly the Production and New Orders components accelerated.

With such a strong June report for the manufacturing sector in the Chicago area, the soft patch theory is starting to hold water. Production surged to 66.9 from 56.0 in May while New Orders jumped back over 60 from a very low 53.5 in May. These numbers jive with the rebound in industrial production in Japan during May and June following the disaster in March.

Watch for a stronger ISM Manufacturing report tomorrow. Prior to the Chicago number today, the market expected a rather weak 51.8 which was a drop from last month. Now it wouldn't surprise us to see the number ramp up from the 53.5 in May. The correlation has been very strong in the past. Could a 54-55 number be possible?

Myspace to be Sold for $35M

The sell of Myspace by News Corp for $35M after buying the company for $580M around 6 years ago should signal to investors to tread carefully with the current hype with social media companies.

Even going back to Yahoo (YHOO) and how ten years ago it was the hot internet property. In a way, these companies have an initial spurt of business when they become cool with the early adopters or younger generation. Unfortunately like in the case of YHOO or Myspace at some point they become outdated or just can't keep up with the cool new features.

The four social media companies in the process of IPO'ing in the next year all face significant risks to valuations that seem very obsessive compared to existing companies.

Facebook - might not IPO until 2012. Though they are the dominant player in social media they face a significant issue with remaining the focal spot for youth. Youth originally dominated the site, but its recently seen a huge influx of adults. We all know that kids don'…

Spreadtrum Communications Survives Short Attack: Turning Point for the Sector

Spreadtrum Communications (SPRD) became the next in a long line of Chinese stocks to be accused of improper accounting. The stock initially plunged $4, or 34%, but then the market got a surprise as the stock rallied back to breakeven. A couple of weeks back, our article on Chinese frauds suggested that when the clouds finally lifted on all these fraud allegations, the surviving companies would soar. SPRD might be the signal that the constant allegations are finally being overdone. Clearly the market doesn't believe this one as it lacks the merit of the previous cases against Longtop Financial (LFT) or Sino-Forest (SNOFF.PK).
Read the full article at Seeking Alpha.com.


Disclosure: No positions in stocks mentioned. Information is provided for informative purposes only. Please review the disclaimer page. 


Sector Review Since the Financial Crisis: Life Insurance

This is the 4th in a series of articles on stock sectors that have struggled to recover from the levels prior to the financial crisis. (See the first three here: 123) This article focuses on the life insurance and retirement financial services sector. As in most sectors, these companies don't have the exact same business models making broad comparisons an initial step of research.
Read the full article at Seeking Alpha.


Disclosure: Long CB, HIG, LNC in client and personal accounts. Please review the disclaimer page. 



China Jumps 2%, US Market Looks in the Wrong Direction

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Still amuses us that the market is more focused with Greece than China and/or Japan. China is the number 2 economy and it's stock market has slumped since mid April with fears of rate tightening caused by inflation. With the significant drop in oil prices over the last few months, those inflation fears are starting to subside.

Japan recently dropped to the number 3 economy and was devastated with the March earthquake and tsunami. The combination of which sent industrial production down some 15%. Production is expected come close to the February levels in June.

Instead of looking at Japan coming back online and China beginning to push back to growth mode, the SP500 is slumping for what would be an 8th straight week  if not for a minuscule gain last week. What is concerning the markets the debt problems in Europe and more specifically Greece. Yet, both the EU and IMF have pledged to ensure that Greece doesn't fail and cause and collapse of the financial markets in Europe.

With t…

Accenture Trades Close to All Time High, Company Continues Buying Shares

After the close on Thursday, Accenture (ACN) reported earnings that surpassed earnings estimates. The company continues to report strong numbers with 21% revenue growth and 27% earnings growth. More important to us is that all though the stock traded at an all time high during the quarter at $58.21, the company bought back $644M worth of stock at an average price of $56.50. The stock remains a top five pick in our Net Payout Yields (NPY) portfolio, which invests in stocks with high yields comprised of dividends plus stock repurchases.
Read full article at Seeking Alpha.

Sector Review Since the Financial Crisis: Engineering & Construction

This is the third in a series of articles on the performance of stock sectors since the financial crisis. The first article focused on steel producers while the second article was on women's apparel. As with the first two articles, the goal is review a sector where stock prices remain drastically depressed from highs seen prior to the financial crisis back in 2006-2008. In some cases, this might be a sign that the sector was just overvalued back then and hence the current price is deserved. In other cases, this might signal that the sector has plenty of room for recovery especially if the global economy gets over the current soft patch.
Read the full article at Seeking Alpha
Disclosure: Long FWLT in client and personal accounts. Please review the disclaimer page for more details. This information is provided for informational purposes and should not be relied upon as investment advice. 

Sears Holdings Files to Spin-off Orchard Supply Hardware Stores

Interesting news from Sears Holdings (SHLD) after the close today. SHLD announced plans to spin-off the 80% controlling interest they have in Orchard Supply Hardware to existing shareholders. Must admit I didn't even remember that SHLD owned this asset.

This is interesting as shareholders have been waiting for SHLD to unload the numerous assets they have trapped in the losing retail concepts of Sears and Kmart. Its also compelling that they've decided to spin the assets out instead of outright selling the company and possibly using the cash to repurchase more stock. A lot of shareholders have suggested that SHLD should spin off the real estate assets in order to unlock value. Possibly this is the start of things to come.

According to the PR, Orchard Supply Hardware has 89 full service hardware stores in California which also explains why I have no knowledge of the stores as well. The news is limited at this point so the flow over the next few months will be interesting. Not to…

Sector Review Since the Financial Crisis: Women's Apparel

This is the second in a series on stock sectors that have yet to recover from their pre-financial crisis levels. The first report focused on domestic steel producers (Are Steel Stocks Poised to Recover?) that aren't anywhere near to recovery levels. I pointed out in that article that a major user of steel such as Caterpillar (CAT) has had a fantastic recovery to new highs.

This time, the focus will be on the apparel sector and more importantly mainly women's clothing providers. Many of the high end retail providers such as Ralph Lauren (RL) or Coach (COH) or V.F. Corp (VF) have rebounded to new highs in 2011, easily surpassing the previous 2006/2007 highs. Whether it's because these companies provide higher end merchandise or focus on items that typically fall into the gift category or maybe it's even more of a focus on men that has helped these retailers; the stocks have all fared much better than the women's apparel sector. 




Read the full article at Seeking Alpha

Exporting Nat Gas to Reduce Oil Prices

Interesting comments from the CEO of Cheniere Energy (LNG) on the Mad Money show. The debate continues to rage on whether the US should export the abundant natural gas supplies now provided by shale drilling. Naturally the US would want domestic supplies to fuel domestic consumption, but its apparent that the government isn't going to come forth with policy that encourages the use of nat gas for domestic vehicles.

The next best alternative is for the domestic producers to export that nat gas to foreign markets where not only can they obtain higher prices, but also the use of nat gas by markets more willing to replace gasoline in vehicles with lng would actually reduce the consumption of oil. In theory, this would reduce the prices of oil though it might just increase the prices of nat gas hence diluting the benefit to the US consumer.

The biggest benefit would be businesses in the sector exploring and drilling for nat gas that is now open to the global market. Employment would als…

Sector Review Since the Financial Crisis: Steel Producers

As the market has rallied significantly off the March 2009 lows, it's worth reviewing how sectors have performed over that time period. Some companies such as Caterpillar (CAT) have recently reached all time highs. Others like the steel sector have struggled to even approach those levels.

This will be the first in a series of articles reviewing sectors that remain significantly below the pre-financial peak. Some sectors might offer huge upside as their sector might join the rally while others might never recover. 




Real the full article at Seeking Alpha




Disclosure: Long X is client and personal accounts. Please review the disclaimer page.

Buy This Met Coal Leader After a 30% Sell-Off

In January, Alpha Natural Resources (ANR) soared to a 52-week high around $68. Since then the stock has cratered some 30%. During that time frame, ANR snatched up Massey Energy (MEE) and now controls the largest domestic metallurgical reserves, enough to become the third largest in the world. (See The New Met Coal Powerhouse.) So why has the stock been hammered from those January highs to the lows today around $46? Difficult to tell in this fickle market. The deal with MEE closed recently and the stock has just plunged during June. Maybe a bunch of MEE holders have dumped the stock upon the conversion to ANR shares. If so, this is the ultimate buying opportunity.
Read the full article at Seeking Alpha
Disclosure: Long ANR in client and personal accounts. Please review the disclaimer page for more details. 

Suffering From Premature Accumulation

Great interview with Bruce Berkowitz of Fairholme Capital Management. Berkowitz was named Mutual Fund Manager of the Decade and has some interesting long term views on the market. Interesting that he shares some of the same stock picks as our more aggressive Opportunistic models.

Both Sears Holdings (SHLD) and Regions Financial (RF) appear in his top 10 holdings. His fund has suffered this year and with his voice suffering in the interview he made possibly the quote of the day "suffering from premature accumulation". Any portfolio manager knows that being early is the same as being wrong. Even if you eventually end up long term, being a year or two early can significantly hurt performance.

Berkowitz does seem too bullish on financials for us. Typically a market leader over one decade becomes a laggard the next. Similar to how the tech sector soared in the 90s, then struggled after the internet bust. Stone Fox remains bullish on financials such as Hartford Financial (HIG) and…

Investment Report - June 2011: Net Payout Yields

The Net Payout Yields Model had a positive month on a relative basis, but on an absolute basis the model lost money. The model was down 0.15% versus the 1.35% drop for the SP500. More verification of how this model can outperform in down markets. For 2011 as of the May 31st close, the model was up 7.53% versus 4.53% for the SP500.

The model spent the month of May switching out of low yielding stocks and moving into higher yielding stocks. As the model is designed, when the Net Payout Yield (combination of dividends and stock buybacks) declines its a sign that the stock might be fairly priced compared to earnings and cash flow or just the visibility of management is more negative about the future. Naturally as a stock goes up, the dividend yield will decline making a stock less attractive. Also, the companies are less likely to engage in stock buybacks when a stock rises in price. This makes the model less emotional and a sleep well at night concept. Also as a stock in the model declin…

Investment Report - June 2011: Opportunistic Levered

May was a very rough month for the Opportunistic Levered model. It severely underperformed the market as China specifically and emerging growth stocks in general were hit much harder than the overall market. This trend will likely continue into June, but eventually will provide great upside potential as most of the stocks in these areas remain extremely cheap.

Expanded Track Record
Recently the track record was expanded back to January 30, 2009 adding a little over a year to the previous record. As one can see, the model can be very volatile, but the end result has been very good for anybody that remains invested. Sometimes an investor has to accept wild price swings in order to make long term gains. It is not uncommon for top stocks to drop more than 25% before eventually rebounding to higher prices. At times it can be worthwhile to cash out to avoid losses such as the recent sell of Limelight Networks (LLNW). The sell limited losses without incurring material capital gains impacts as…

Streaming Profits of Soda Might Just Sink Shorts

SodaStream (SODAreported an impressive 50% gain in Q1 revenues to roughly €45.1M. More importantly, SODA reported a 141% increase in adjusted net income to €5.3 Million. Impressive growth numbers, but the debate rages over whether SODA is a fad or a future consumer powerhouse. See Cramer vs Greenberg challenge on CNBC to see the debate. To back up a little, SODA is a leading manufacturer of home beverage carbonation systems. These systems provide an easier and greener way of consuming soda at home. According to the taste test, the SODA product even tastes better....
Read the full article at Seeking Alpha
Disclosure: No position in any stock mentioned. Please read the disclaimer page. 


No Double Dip According to Treasury Spread

Mark Perry's Carpe Diem blog had a great little post on the recession predictive ability of the Treasury Spread. The New York Fed has a great chart that I've used in the past that predicts the possibility of a recession over the next year based on the treasury spread between the 10 year bond rate and the 3 month bill rate.

As the chart shows, the possibility of a recession is below 1%. It just doesn't seem to happen when the treasury spread is this large. The market is increasing worried about a recession even though it just isn't likely under the current monetary circumstances. Clearly when an economy hits a soft patch as it did during April and May, the slant of the yield curve is hugely important in determining the next move whether up or down.

With such a positive curve at over 3%, corporations and investors are encouraged to take on risks and in essence buy the dips. While a negative sloping yield curve causes the reduction in borrowing and business expansions hen…

Toyota Returning to 90 Percent Production Levels

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In a sign that the global economy will return to normal production levels in June, Toyota now expects to hit production levels approaching 90 percent. Considering Toyota is the largest producer in Japan, this return to normalcy should shift the global auto market back into balance. Competitors could likely make up any difference at those levels.

After weak May manufacturing numbers spoked the market, the June numbers should be predictably better. The market doesn't act like the facts matter, but the data should naturally improve considering the major impact to both jobs and the growth numbers have been the auto sector. The industry will undoubtedly see higher numbers possibly approaching February numbers prior to the quake.

Outside autos, no evidence exists that a significant slowdown is under way around the world. Heck, even Dr. Copper has lurched back to $4.13/lb signaling strong demand. Copper bottomed out in mid May most likely when global production especially in Japan saw th…

Joy Global: Multi Year Expansion

Joy Global (JOYG) reported analyst beating quarterly numbers prior to the market open this morning. JOYG is the worldwide leader in high-productivity mining solutions. There report is very useful in gleaning insights into the worldwide mining sector and specifically coal and copper.

Throughout the earnings report, JOYG talks about record demand for equipment and commodities and a limited supply whether due to lower ore grades or delayed mine expansions from the financial crisis. Regardless of the reasons, it appears that mining companies are finally moving forward with plans helping JOYG reach records in bookings and shipments.

Considering that our models are big investors in coal and copper stocks, its always interesting to see their outlook on those markets. They see limited excess mining capacity today and hence see strong fundamentals even in a slower economic growth environment.

Also interesting is not only the data on China restocking, but the increased coal demand expected from…

Japan Industrial Production to Roar Back

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As world economies limp through weak data over the last two months, the market needs to look no further then Japan. After the March 11th earthquake and tsunami, industrial production plunged 15.5%. In April, it only bounced back 1%. While better then a decline, it was still a anemic rebound considering the huge plunge. Clearly signals of the short term impact to the global economy.

The good news though is that companies in Japan expect a major recovery in May and June. The May industrial production number is expected to soar by 8% and June up over 7.7%. Nearly back to the pre quake levels at that point.


Output rose 1.0 percent last month, below analysts' median 2.8 percent forecast, but manufacturers sharply increased their forecast for May, predicting output would rise 8.0 percent compared with the previous 2.7 percent forecast, data from the Ministry of Economy, Trade and Industry showed on Tuesday.Companies expect the recovery to continue in June with production seen rising 7.7 …

Poll of the Day: Investors Positioning for a June Correction

At every turn of this market rally from the March 2009 lows, investors have been very quick to head for the exits and brace for a correction. Unfortunately for the correction hopefuls, it just isn't likely to happen when  a majority of people are prepared for a correction. Corrections happen when a majority of investors are willing to buy the dips and hence nobody is left to buy forcing the market to keep going lower.

According to this Fast Moneypoll over 60% of investors that responded to their poll question on May 31st are positioned for a June correction. Sure its only 4,700 investors, but its a good indication of the investor sentiment heading into June. The economic data has been weak of late, but it appears that most investors are already on the sidelines waiting for an event not likely to happen as only a limited amount of sellers remains.





Are you positioning for a June correction? Yes... Greece non-starter, seasonally weak month. 62% No... global growth on good footing. 38% Tota…