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Showing posts from October, 2011

Deficient Infrastructure Costs Business

Another amazing story of how America is turning into a third world country. As China builds everything brand new, the US continues to allow our infrastructure from bridges to sewers to just crumble.

According to this Bloomberg report, 3,538 bridges were closed in 2010 while 150,000 bridges are structurally deficient.

How is it possible to not only allow a bridge to get into this state of disrepair, but also to allow a bridge to become closed? Businesses and consumers depend on them and life is majorly disrupted when one is closed.

Of course, that has become the issue and nature of the American sprawl. As communities move farther and farther from metro areas new infrastructure is built while the outdated roads and bridges are left to deterioate. This naturally encourages home buyers to move to where the infrastructure is brand new.

What would happen if the old bridges were replaced first? Would buyers or renters prefer to stay closer to downtown in that case?

Tulsa could become an inte…

Whirlpool Results Hammer Sears Holdings

Sears Holdings (SHLD) is down 5% today after disappointing results from appliance maker Whirlpool (WHR). Maybe logical if investing in Sears a decade ago, but the current ramp in the stock price has more to do with the potential leasing of unused retail space and the externalizing of brands.

SHLD had been on a huge run since bottoming below $52 in late September so a pause at $82.50 isn't that shocking. It just took a little negative news for traders to jump ship. Nothing that alarming since SHLD should not be owned based on whether Kenmore appliances are selling well.

SHLD will likely see some follow through weakness next week. The key will be holding the 10ema around $75.30.


Details from WHR press release:

Third-Quarter Consolidated Revenue up 2% EPS of $2.27 Versus $1.02 in Prior-Year Period Company Announces Major Cost Reduction Initiatives to Support Margin Expansion and Strengthen Global Competitive Position "During the quarter, we experienced weaker than expected global…

Lorillard and Chubb: When Stock Buybacks Work

Many experts claim that buybacks don't work. To the contrary, just about everybody pounds the table on dividend yields. Why don't investors look for a high buyback yield?

When reading over the Lorillard (LO) earnings released on Monday, I was shocked to read that Q3 earnings were increased by $.18 due to the share buyback plan. Wow! That's real earnings for each remaining stockholder. And to top that off, stockholders aren't paying taxes on these earnings gains.

Read the full article on Seeking Alpha.


Disclosure: Long CB and LO. Please review the disclaimer page for more details. 



Wild Times at MF Global Holdings

Today Moody's downgraded MF Global (MF) to Baa3 putting them on the verge of junk status. Then, MF announced that it has upped the Q3 earnings report to tomorrow morning instead of Thursday. This all comes after last week MF had to increase capital after the Financial Industry Regulatory Authority (FINRA) raised concern about exposure to European sovereign debt.

All of this new has led the stock to a hit a fresh 52 week low of $3.48 today. All the way down from a 52 week high of $9.28 back in January. Considering financial like Goldman Sachs (GS) and Morgan Stanley (MS) have had huge bounces recently, it should be concerning to any investor that Wall Street knows something.

Is this extreme fear warranted? Is $6.4B of exposure to Italy, Spain, Belgium, Portugal, and Ireland with a weighted maturity of October 2012 worthy of a drop from $7.5 at the start of August?

Heck, Citigroup (C) stock is already above levels from mid-August with sights on the pre market collapse levels. Even R…

C&J Energy Services Signs Deal for Sixth Hydraulic Fracturing Fleet

C&J Energy Services (CJES) now has a two-year contract for its sixth hydraulic fracturing fleet to be deployed in December to the Permian Basis. While not disclosing the customer, it is supposedly a large independent E&P company.

The 6th fleet comprises 32,000 hp and will evidently be deployed mostly into two 16,000 hp fleets for vertical completions.

Other than that, CJES didn't provide many details. It is still on schedule for Fleets 7 and 8 in 2012. Considering the company just deployed Fleet 5 in Q3, it remains on pace for significant growth going into 2013.

On the flip side though, the stock has been amazingly weak since the IPO at the end of July.  This action remains puzzling considering CJES easily surpassed Q2 estimates and is expected to earn above $4 in 2012. Considering it just signed another 2 year contract, I'm not sure what the market is so concerned about. With the stock trading at just over $17, it is definitely one worth watching and possibly adding t…

4 Stocks That Could Reclaim July Highs

After a summer of watching the markets tank-- especially in the global growth sectors, the economic news and earnings reports clearly haven't backed up the market dive. This apparent fear of a 2008 repeat without the matching reality got us to thinking about what would happen if stocks reclaimed prices prior to the summer swoon. Nothing aggressive like 52 week highs or even all time highs, just a simple recent stock price that the numbers suggest shouldn't have been thrown away.

Considering numerous high fliers and leading dividend stocks were able to maintain prices at 52 week highs, why couldn't others recapture those recent highs? In some cases, levels not even close to 52 week highs.

Read the full article at Seeking Alpha.


Disclosure: Long HIG, RVBD, TEX, WFT. Please read the disclaimer page for more details. 



Great Interview with Liz Claiborne CEO

As we wrote earlier this week  on Seeking Alpha [Liz Claiborne Transformation Complete: A Look at Whats Left], the transformation at Liz Claiborne (LIZ) is now complete. CEO William McComb went on CNBC this morning to discuss the transformation and the remaining brands.

LIZ remains one of the top picks in our Opportunistic portfolios and especially in the retail sector. Most investors have not caught on that LIZ just turned into a growth company with great comps from kate spade and Lucky Brands. Juicy Couture is still struggling, but any turn around would just 'juice' the growth profile anymore. Not to mention, LIZ dramatically reduced the capital structure by using the proceeds from the sell of Liz Claiborne and various other brands to reduce the outstanding debt.

Those 100% comps at kate spade are just mind blowing. Investors might just eat that up.

Our pick for the new name is still Lucky spade!






Disclsoure: Long LIZ. Please review the disclaimer page for more details. 


Net Payout Yields Updates

Below are a few updates on the net payout yields of companies in our model that just reported. Always interesting to see what a company did with stock buybacks during a very weak stock market.


Chubb (CB)

CB reported Q3 numbers after the close on Thursday. The company continues to reduce the outstanding shares as the count has dropped by 30M shares or roughly 10% in the last year.

CB was active in the quarter buying roughly 2.5% of the outstanding shares and more impressively at prices over $5 below the current market value of $65.35. Also, the 8M shares repurchased was an increase from the average in the first six months of below 7M a quarter.

With a buyback yield of roughly 10% combined with a 2.5% dividend yield, CB maintains a very appeals 12%+ net payout yield.



During the third quarter, Chubb repurchased 8.0 million shares of its common stock at a total cost of $480 million (an average of $59.97 per share).  As of September 30, 2011, there were 6.9 million shares of common stock rem…

Surging Utilization at United Rentals Bullish for Construction Equipment Providers

United Rentals (URIreported record margins and utilization rates after the close yesterday. Though construction demand in the US remains weak, URI continues to report record numbers. Earnings of $.92 easily beat estimates of $.76. Rental revenue increased 19% year-over-year due mainly to a 15% increase in volume. Time utilization was 73.5% and a record for the company. At that level, the company has very little down time for the large construction and industrial equipment it rents to construction and industrial customers, utilities, municipalities, homeowners, and others.
Read full article at Seeking Alpha. 
Disclosure: Long TEX. Please review the disclaimer page for more details. 

Amazing Numbers From Riverbed Technology

Riverbed Technology (RVBD) just reported numbers that were truly amazing. Not for the level that they beat estimates, but more for the fact that analysts spent the 90 so days since the last earnings report downgrading the stock and lowering estimates. In turn, RVBD beat the original estimates. Makes one just wonder what analysts do all day. Apparently they sit around and dream op scenarios that just aren't true.

These results back up our theme that many stocks have been unfairly punished since July highs. RVBD in escense has a double top in July around $42 and the stock traded just north of $22 today. How does a stock drop 50% when earnings actually grew faster than expected?

RVBD reported record margins, operating profit, and net income. It earned $.24 versus the reduced estimates of $.21. Revenue came in at $191M versus $185M estimate.

Guidance for Q4 was $.24 to $.25 at revenue levels around $200M. Solid numbers generally above estimates that likely will be exceeded easily. Wou…

Apple Guides Above Street Consensus

Though the stock is trading down some 5% in after hours due to a rare earnings miss from Apple (AAPL), anybody with a half full mindset will see a more bullish stance after hearing the conference call.

iPhone sales were very disappointing at only 17M which was below consensus closer to 20M. Here is where the debate begins. AAPL has already reported the strongest launch of a new iPhone model at over 4M for the first weekend. The CFO made it clear that demand waned as rumors began circulating that AAPL would release the iPhone5 in September or October. Why buy a 4 when the price will drop after the release of the newest model?

So bears can fret over the weak Q4 numbers and bulls can relish that the going forward numbers will remain strong. Actually, it's hard to understand the bear case considering the past of AAPL. The iPhone4S had a monster launch so isn't it without a doubt that the new model launch caused the problem?

Oh well, the market doesn't work that way. Bears like…

China Growth Remains Strong Over 9%

As every pundit in the media wants to fret over 'slowing' growth at China, it makes us ponder why investors aren't happy getting the medicine that the doctor orders. Just earlier this year everybody though China was growing too fast and inflation was becoming a problem. What gives now that the government has engineered a soft landing?

The latest report shows that China GDP grew by 9.1% in Q3 after 9.5% in Q2 and 9.7% in Q4. This after inflation reported last week dropped to 6.1% for September down from the summer peak of 6.5%. Inflation is expected to drop further as commodity prices drop comparisons peak. China as inflation dropping faster than GDP providing for an ideal investing scenario.

Other encouraging news, September retail sales rose by 17.7% and industrial output rose by 13.8% both above estimates and suggesting that Q3 ended on a high note.

From the data, it's difficult to understand the hard landing fears. For a country full of savers, rising interest rates…

Liz Claiborne Transformation Complete: A Look At What's Left

Last Wednesday, Liz Claiborne (LIZ) announced numerous transactions that not only generated $328M in cash to drastically reduce debt, but most importantly, greatly reduced the complexity of the brand focus ending years of transforming the company.

The press release highlights just how complex the structure remained even after years of selling off brands. LIZ sold the namesake brand Liz Claiborne and Monet to JCPenny (JCP), Dana Buchman to Kohl's (KSS), terminated a license for DKNY, and sold three more minor brands to Bluestar Alliance. This was on top of the joint venture for MEXX and the Elizabeth Arden transaction recently announced . It also doesn't include numerous other brands sold off over the last 3-4 years of streamlining the focus of the company.

Read the full article at Seeking Alpha.


Disclosure: Long LIZ. Please review the disclaimer page for more details. 





Kinder Morgan Buying El Paso for $21B

Interesting surprise when checking the financial news on a lazy Sunday afternoon. Kinder Morgan (KMI) agrees to buy El Paso (EP) for over $21B. The deal provided a 37% premium to the closing price on Friday. It also amounted to 20%+ above the 52 week high.

Numerous interesting facts about this deal. First, this deal involves natural gas pipelines at a time that nat gas prices remains in the dumps. Second, KMI was willing to pay such a premium over the 52 week high when most investors have fled the markets. Third, KMI was recently re-joined the public markets in February after a nearly four year haiedus.

The combination will form the largest natural gas pipeline network in North America. It also creates the fourth largest energy company in North America with an enterprise value of $94B. Even more importantly, the deal with be cash flow accretive from the beginning.

The deal also provides approximate cost savings of $350M per year amounting to 5% of EBITDA. So again another reason for b…

Investment Report - October 2011: Opportunistic Levered

The best thing about the 3rd quarter is that it finally ended. The global growth stocks in this model were absolutely crushed while large cap dividend stocks held up much better than in 2008. This led the model to seriously underperform the benchmark.

The good news is that many stocks in the model such as Alpha Natural Resources (ANR), Foster Wheeler (FWLT), Hartford Financial (HIG), and Terex (TEX) reached levels similar and as attractive as the 2009 lows. Considering most of the companies have seen little to no impact from the financial crisis in Europe, the sell off was unwarranted.

The bad news is that risk still remains that the European Union will be unable to solve the crisis before it implodes or that China's economy might have a much feared hard landing. A good chance exists that the market has already priced in either outcomes. Being that the model remains highly leveraged in order to take advantage of the cheap valuations, the risk of more downside can not be ignored.

I…

Huge Reversal in the Shanghai Market Last Night

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For months now, the weakness in the Chinese stock market has hampered any recovery in US. The fears of a hard landing in China added on top of a EU blowup has just been too much for the markets.

After a week long holiday, Mondays' lame action in the Shanghai Composite was seen as very disappointing. Investors were hoping that the major reversal in the US markets last Tuesday would lead to a major rally, but instead nothing happened. Then, Tuesday was very volatile. Finally on Wednesday, the Shanghai started up down and then had a strong rally. The bullish engulfing pattern is typically a very bullish reversal.

Tonight will be telling as even positive market action would be the first positive confirmation since July when the market traded above the 10ema. The CPI numbers come out Thursday night and that will definitely move the markets. Inflation has been the biggest fear with China. The August numbers cooled down and September should follow as commodity prices imploded during the …

Sears Holdings Reclaiming July Levels

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Sears Holdings (SHLD) is up nearly 8% today due to the strong market and probably the positive comps news from WalMart (WMT). So far nobody is giving Stone Fox Capital credit for this jump like a few weeks back. Back then Barron's blog and others specifically suggested this Seeking Alpha article led to the huge gains in SHLD. Guess our 15 minutes of fame are up already. 
Incredibly SHLD has nearly closed the gap from the July highs. The stock mostly traded in the $75 range that month, but it did have a spike to $80. Currently trading around $72.75 puts it just a few bucks below that $75 resistance level. 
This theory of comparing a stock to the July highs is going to be a theme of ours for the rest of the year. Based on recent economic news, it is becoming more and more apparent that most if not all the drop since July 1st was pure panic about a financial crisis that isn't going to happen. In addition, China had a major reversal in its markets (more on that in another post) la…

Complete Production Services Buyout Pushes Us Back Into C&J Energy Services

Early Monday morning, Superior Energy Services (SPNagreed to mergewith Complete Production Services (CPX) by paying a 61% premium over Friday's selling price. According to the press release, the combination creates a premier diversified mid-cap oilfield services company. In essence, SPN wanted scale in order to compete successfully with the likes of Haliburton (HAL) and Schlumberger (SLB) in the fast growing hydraulic fracturing market in the US and enhanced size to grow internationally. Not to mention that the huge sell-off in CPX stock over the last few months provided an attractive entry point. CPX peaked over $42 in July and hasn't even cracked above $30 with this huge premium offered.
Read the full article at Seeking Alpha.



Disclosure: Long CJES. Please review the disclaimer page for more details. 

Radware Refines Guidance Within Previous Range

Somehow I missed this, but last week Radware (RDWR) refined guidance to within the previous range. of $42-43M in revenue and $.33 to $.34 in earnings. This cuts off the higher end of the previously range, but clearly the market had no expectations for RDWR hitting those numbers.

The numbers are actually higher than the estimates provided by Yahoo! Finance and are still supportive of strong growth. 
RDWR is a leader of application delivery and application security solutions for virtual and cloud data centers. The stock remains one of the cheapest technology companies and a solid investment in our Opportunistic models. 
The company also announced a $20M stock repurchase (this was the part we saw last week). With a market cap of only $475M now, $20M does provide for a decent percentage of the outstanding shares, but it's not how we prefer small cap techs too spend money. 

Per the RDWR PR: the company refined its expectations for its third quarter 2011 results to be within previously …

Dow, Saudi Aramco to Build Massive $20B Chemical Facility

On Saturday, Dow (DOW) and Saudi Aramco signed the Joint Venture agreement to create Sadara Chemical company. Sadara will be a $20B project comprised of 26 manufacturing untis, several of which constitute "mega projects". The complex will be one of the largest integrated chemical facilities and the largest ever built in one single phase. 
The plan is for the facility to take advantage of the cheap feedstock from Aramco and combine that with DOWs chemical expertise. Also, it will take advantage of cheap labor in Saudia Arabia. 
This project was originally discussed in 2007, but eventually delayed due to the financial crisis. 
It should be a boon for Engineering & Construction companies such as Flour (FLR) and possibly other like Jacob's Engineering (JEC) and Foster Wheeler (FWLT). FLR already has $1.9B contract for connecting all the utilities for the complex, but all companies in the sector will benefit as the project soaks up industry capacity. 
Would imagine that c…

Investment Report - October 2011: Net Payout Yields

September was another decent month for the Net Payout Yields model with a return vs. benchmark of 3.46% - the portfolio was down 3.72% while the S&P500 fell 7.18%. Naturally on an absolute basis the results are disappointing, but this model is not designed to time the markets. The goal remains to outperform on the way down and remain even on the way up, in the effort to produce superior returns over time. For 2011, the model remains roughly 7.0% higher than the benchmark. As of the end of September, year to date the model was down 2.92% while the S&P500 fell 10.04%.

Trades The model was inactive for the second month during September as the weak market increased the yields and hence the valuation attractiveness of most of the equities in the model. A few stocks though have recently reached new 52 weeks highs causing the yields to decline. For example, Bristol-Myers Squibb (BMY) has seen the dividend yield drop to 4% and without a buyback the Net Payout Yield (NPY) has reached bel…

Monster European Employment Index Up 18%

The Monster Employment Index Europe demonstrated year-over-year growth of 18 percent. Thought Europe was headed to a massive recession? Ok, the index is actually flat to down since peaking at 140 in June. Clearly the trend is not optimal, but it's not as dire as most in the media would suggest.

The top growth areas were Engineering, Manufacturing, Transport, Telecommunication, and Real Estate. Clearly Europe lacks the mining and oil exploration growth that the US is seeing. This has and will be a major hamper to their economy as growing commodity prices can't be escaped via production increases.

The regional data is much more telling. Germany continues to soar up 37% YOY while all other regions have seen major declines since June. Even Belgium, France, Netherlands, and Sweden have seen declines. Not surprising to see Italy drop, but it does highlight why Germany wants the European Union to survive. The weakness in the other European countries is holding down the euro and makin…

The Alpha Wildcatter

Forbes has a fascinating story about Chesapeake Energy CEO Aubrey McClendon. His risk taking has made Chesapeake Energy (CHK) into the 2nd biggest producer of natural gas in the US and the largest land owner in the prolific shale plays in the US.

Unfortunately his level of risk taking has made investors shy away from the stock. Reading the detailed Forbes article makes a normal investors head spin. All the joint ventures, hedging, VPPs, and oil services make it very complex for an investor to understand the risks involved in an investment which will likely depress the stock in the future.

As skeptics point out, this all sounds eerily close to Enron though probably not fair. CHK is just the opposite in that it is actually hedging and selling production it owns. Building up land positions in shale areas and selling a portion for a profit is very smart. Sure beats the majors sitting around and missing the opportunity completely.

What actually scares me is that McClendon appears a lot mor…

Corning Ups Net Payout Yield Potential

Always looking for companies with high Net Payout Yields (NPY) potential, Corning (GLW) threw their cap into the ring last night. Remember that NPY is the combination of dividends and net stock buybacks. Stock buybacks continue to be ignored by most investors when considering the yield equation. Top companies only pay out roughly 30% of the yield via dividend these days.

GLW announced that the dividend would be increased 50% and that a stock buyback program of up to $1.5B through the end of 2013. This brings the dividend yield up to a solid 2.5%. With any decent contribution from buybacks, the total yield or NPY could jump into the 5-6% range. Now it needs to jump higher than that to make our portfolio that has many stocks exceeding 10% yields. Though a 5% yield would have to be attractive in this market of low interest rates.

According to the corresponding statement from GLW, lower capital spending in 2012 will drive up cash flow prospects. Accordingly this might signal that most of …

Is Acme Packet's Bad News Actually Good News?

After the bell Tuesday, Acme Packet (APKT) reported disappointing numbers for Q3 due to the delay of a major order until Q4. The company actually reaffirmed guidance for 2H making us ponder whether the supposed bad news is actually full of good news.

The stock has already been cut in half since the April $84.50 high yet the worse it can offer the market is that one of the top two service providers in the U.S. delayed a major order until the first part of Q4.


Read the full article at Seeking Alpha.


Disclosure: No positions mentioned. Please review the disclaimer page for more details. 


Why This Isn't 2008 FCX Style

Most people either love or hate Jim Cramer, but they're making a mistake to just ignore his research. Last night Cramer had a great example of why 2011 will not be a repeat of 2008. Corporate balance sheets are much stronger now. For the most part, companies have shored up their balance sheets with the massive profits in 2010 and so far in 2011.

Freeport McMoRan (FCX) is no exception to that common thought process. In the video below, he highlights the massive shift from a large net debt position in 2008 to a positive cash position now. So while FCX was forced to cut the dividend in the midst of the 2008 market crash now it might just increase the payout as it keeps earning loads of cash.

Naturally this is just one focus point in a market with thousands of data points, but the vast majority of companies are in the same position. Record profits combined with tepid spending and hiring leaves companies in positions where they don't have to cut back spending, fire employees, or c…

Are Sizzling Utilities Too Hot To Handle?

My utility holdings are making me nervous. First, utility stocks like Southern Co (SO), FirstEnergy (FE), Dominion Resources (D) and American Electric Power (AEP) have hit recent 52-week highs, with some even hitting all-time highs. Second, market analysts have become more bullish on the sector, making me more concerned the sector is too popular.

The main reason for the recent strong performance of the sector is that high-dividend-paying stocks are in favor with government bond yields at historical low rates. Combine the yield with the relative security of the sector, and the stocks have held up in this weak market.


Read full article at Seeking Alpha.



Disclosure: Long FE. Please read the disclaimer page for more details.