Friday, April 29, 2011

Weekend Reading from The Economist

I'd like to highlight a series of thought provoking articles in The Economist, which long time readers of FMMF will find familiar to many themes we have promoted here since 2007.  Due to the length of some of them, I'll just tag the headline and provide a little blurb.

1) Angst in the United States - What's Wrong with the American Economy?  (read here)

Its politicians are failing to tackle the country’s real problems. Believe it or not, they could learn from Europe.

A careful reading of the polls suggests that Americans’ worries stretch well beyond the next couple of years: about stagnating living standards and a dark future in an economy slow to create jobs, saddled with big government deficits and under threat from China.  Are these worries justified? On the plus side, it is hard to think of any large country with as many inherent long-term advantages as America: what would China give to have a Silicon Valley? Or Germany an Ivy League? But it is also plain that the United States does indeed have long-term economic weaknesses—and ones that will take time to fix. The real worry for Americans should be that their politicians, not least their president, are doing so little to tackle these underlying problems. Three failings stand out.

2)  Botox and Beancounting  (one of my long time pet peeves! [Apr 23, 2008: Barry Ritholtz on Disappearing Economic Indicators].  [May 10, 2008: Finally Some Mainstream Reports are Figuring Out the Spin from Government] [Dec 16, 2010: Inflation as Measured in the 1980s would be 8%+, as measured in 1990, 4%])  (read here)

Do official statistics cosmetically enhance America’s economic appearance?

COSMETIC surgery is more popular in America than in Europe. Statistics, too, may be making things there look less saggy. For several headline economic gauges, America uses a different (and more flattering) measure from that employed on the other side of the Atlantic. The number-crunchers are not deliberately massaging the figures but the effect of some of America’s official statistics is to Botox its performance relative to Europe’s.

3) Still Full of Ideas, but Not Making Jobs  (read here)

America needs to share the benefits of innovation more widely.

America’s ability to innovate and raise productivity remains reasonably healthy. The problem is that the benefits of that innovation and productivity have become so narrowly concentrated that workers’ median wages have stagnated.

4) Life in the Slow Lane (read here)

Americans are gloomy about their economy’s ability to produce. Are they right to be? We look at two areas of concern, transport infrastructure and innovation.

America, despite its wealth and strength, often seems to be falling apart. American cities have suffered a rash of recent infrastructure calamities, from the failure of the New Orleans levees to the collapse of a highway bridge in Minneapolis, to a fatal crash on Washington, DC’s (generally impressive) metro system. But just as striking are the common shortcomings. America’s civil engineers routinely give its transport structures poor marks, rating roads, rails and bridges as deficient or functionally obsolete. And according to a World Economic Forum study America’s infrastructure has got worse, by comparison with other countries, over the past decade. In the WEF 2010 league table America now ranks 23rd for overall infrastructure quality, between Spain and Chile. Its roads, railways, ports and air-transport infrastructure are all judged mediocre against networks in northern Europe.

5) Decline of the Working Man (some scary statistics here as many of the jobs outsourced or erased via technology are traditional male roles; one just hopes we are not on the path of Japan [Jul 29, 2009: Japan's "Herbivore" Men - Young American Men's Future?])  (read here)

Why ever fewer low-skilled American men have jobs.

The project is at the sharp end of one of America’s biggest economic problems: the decline in work among men. Of all the big, rich Group of Seven economies, America has the lowest share of “prime age” males in work: just over 80% of those aged between 25 and 54 have a job. In the late 1960s 95% worked.

To count as unemployed, you have to be looking for work, yet ever more men have simply dropped out of the recorded labour force. Some, it is true, work “off the books”; but many receive disability insurance, are in prison, live on spouses’ or partners’ incomes, or have otherwise given up looking for a job. America has a smaller share of prime-age men in the workforce (ie, in a job or seeking one) than any other G7 economy.

96 Stocks that Would Have Already Made You 50%+ this Year

With 2011 a third of the way complete, the S&P 500 has already surpassed the fashionable "year end" target of 1350 that most Wall Street strategists have put out at the end of 2010.  In constant dollar terms the S&P 500 is barely up for the year, but thankfully it is priced in U.S. pesos, so the nearly 1:1 correlation between dollars and equities has led to nominal gains. 

However in real terms you have to do better to offset the loss of your purchasing power to really get ahead.  Here are 96 names that have already gained at minimum 50% this year.  To keep out the low rent stuff, the minimum market cap is $300M, minimum stock price is $10, and average volume has been in excess of 200K shares a day.

On this list I've been tracking Sky-mobi (MOBI) since early February, but have not mentioned it on the website.  I did tweet about it yesterday saying it was up 80% in 10 days - not too shabby!   We mentioned (REDF) earlier this week which is now a "Groupon of India" play - due to one press release... and (TZOO) which is now a "Groupon-lite" with its 20M subscribers.  Sina (SINA) I've obviously been pounding the table since late last year, while (YOKU) ["The Youtube of China"] has been laughing at my face since IPO with its ridiculous valuation.  Some old names like Acme Packet (APKT), Tibco Software (TIBX), Baidu (BIDU), et al are also here... along with a host of energy plays. And of course the silver ETF.

Ticker Company YTD  Mkt Cap  Industry
MOBI Sky-mobi Limited 312.6%                709 Diversified Communication Services
REDF India Ltd. 210.0%                479 Internet Information Providers
SIMO Silicon Motion Technology Corp. 162.6%                326 Diversified Electronics
VRUS Pharmasset, Inc. 132.6%            3,750 Drug Manufacturers - Other
ALJ Alon USA Energy, Inc. 121.6%                731 Oil & Gas Refining & Marketing
IPGP IPG Photonics Corporation 120.3%            3,290 Semiconductor - Integrated Circuits
GLNG Golar LNG Ltd. 116.7%            2,182 Shipping
WTW Weight Watchers International, Inc. 108.5%            5,692 Personal Services
TZOO Travelzoo Inc. 103.3%            1,385 Internet Information Providers
SGI Silicon Graphics International  102.6%                554 Diversified Computer Systems
ISTA ISTA Pharmaceuticals Inc. 100.0%                345 Drug Manufacturers - Other
GMCR Green Mountain Coffee Roasters 99.0%            9,261 Processed & Packaged Goods
AMRN Amarin Corporation plc 97.4%            2,026 Drug Manufacturers - Other
REGN Regeneron Pharmaceuticals, Inc. 96.8%            5,812 Biotechnology
SRZ Sunrise Senior Living Inc. 91.9%                597 Long-Term Care Facilities
BSFT BroadSoft, Inc. 91.8%            1,199 Application Software
SINA Sina Corp. 89.6%            7,948 Internet Software & Services
GLBC Global Crossing Ltd. 87.5%            1,471 Diversified Communication Services
DK Delek US Holdings Inc. 86.6%                736 Oil & Gas Refining & Marketing
WWWW Group, Inc. 85.8%                447 Internet Information Providers
VRX Valeant Pharmaceuticals Int'l 85.8%          15,535 Drug Delivery
TBL Timberland Co. 84.2%            2,344 Textile - Apparel Footwear & Accessories
BAS Basic Energy Services, Inc. 83.1%            1,255 Oil & Gas Equipment & Services
SFLY Shutterfly, Inc. 82.0%            1,862 Consumer Services
PANL Universal Display Corp. 80.4%            2,130 Computer Peripherals
MAKO MAKO Surgical Corp. 79.4%            1,114 Medical Appliances & Equipment
VHC VirnetX Holding Corp 77.2%            1,304 Internet Software & Services
NSM National Semiconductor 76.8%            5,864 Semiconductor - Broad Line
PDC Pioneer Drilling Co. 76.1%                843 Oil & Gas Drilling & Exploration
HEES H&E Equipment Services Inc. 74.0%                705 Industrial Equipment & Components
GRM Graham Packaging Company, Inc. 73.8%            1,487 Packaging & Containers
SCSS Select Comfort Corporation 73.3%                879 Home Furnishings & Fixtures
ABMD Abiomed Inc. 72.2%                626 Medical Instruments & Supplies
MTW Manitowoc Co. Inc. 71.0%            2,954 Farm & Construction Machinery
ARUN Aruba Networks, Inc. 69.2%            3,561 Networking & Communication Devices
AHD Atlas Energy, L.P 68.8%            1,290 Gas Utilities
YOKU Inc 68.8%            6,085 Internet Information Providers
SD SandRidge Energy, Inc. 68.0%            5,052 Oil & Gas Drilling & Exploration
SOHU Inc. 67.4%            4,057 Internet Information Providers
BODY Body Central Corp. 66.3%                372 Apparel Stores
LOOP LoopNet, Inc. 65.7%                598 Property Management
IL IntraLinks Holdings, Inc. 65.5%            1,661 Security Software & Services
AH Accretive Health, Inc. 64.9%            2,549 Management Services
SSYS Stratasys Inc. 64.6%            1,136 Computer Peripherals
RHB Rehabcare Group Inc. 64.0%                969 Hospitals
JAZZ Jazz Pharmaceuticals, Inc. 63.5%            1,309 Biotechnology
MERC Mercer International Inc. 62.6%                577 Paper & Paper Products
GGC Georgia Gulf Corp. 61.8%            1,322 Synthetics
LXU LSB Industries Inc. 61.7%                830 Electronic Equipment
SKH Skilled Healthcare Group, Inc. 60.5%                548 Long-Term Care Facilities
EXK Endeavour Silver Corp. 59.5%                952 Silver
FMCN Focus Media Holding Ltd. 59.1%            4,996 Advertising Agencies
ACTG Acacia Research Corporation 58.6%            1,434 Research Services
VRTX Vertex Pharmaceuticals Inc 58.6%          11,406 Drug Manufacturers - Other
ANV Allied Nevada Gold Corp. 58.5%            3,706 Gold
CBST Cubist Pharmaceuticals Inc. 58.5%            2,016 Drug Manufacturers - Other
MPEL Melco Crown Entertainment Ltd. 58.0%            5,379 Resorts & Casinos
NXPI NXP Semiconductors NV 58.0%            8,292 Semiconductor - Broad Line
WNR Western Refining Inc. 57.9%            1,517 Oil & Gas Refining & Marketing
CRR CARBO Ceramics Inc. 57.5%            3,764 Oil & Gas Equipment & Services
TITN Titan Machinery, Inc. 57.4%                544 Specialty Retail, Other
UTEK Ultratech, Inc. 57.3%                785 Semiconductor Equipment & Materials
AMMD American Medical Systems  56.9%            2,278 Medical Appliances & Equipment
SLV iShares Silver Trust 56.6%          15,194 Exchange Traded Fund
FTO Frontier Oil Corp. 56.4%            2,946 Oil & Gas Refining & Marketing
TPX Tempur Pedic International Inc. 56.4%            4,296 Home Furnishings & Fixtures
AGP AMERIGROUP Corporation 56.0%            3,393 Health Care Plans
SGY Stone Energy Corp. 55.9%            1,703 Independent Oil & Gas
CYOU Limited 55.4%            2,285 Multimedia & Graphics Software
HS HealthSpring Inc. 55.4%            2,359 Health Care Plans
VDSI VASCO Data Security International 55.4%                477 Security Software & Services
ULTA Ulta Salon, Cosmetics & Fragrance 55.3%            3,203 Personal Services
PDS Precision Drilling Corporation 55.2%            4,147 Oil & Gas Equipment & Services
MTZ MasTec, Inc. 54.8%            1,778 Heavy Construction
SSW Seaspan Corp. 54.8%            1,307 Shipping
PLCM Polycom, Inc. 54.5%            5,312 Processing Systems & Products
APKT Acme Packet, Inc. 54.3%            5,395 Communication Equipment
OPEN OpenTable, Inc. 54.3%            2,551 Business Services
MOH Molina Healthcare Inc. 53.9%            1,309 Health Care Plans
SVVS SAVVIS, Inc. 53.7%            2,254 Business Services
BIDU Baidu, Inc. 53.6%          51,665 Internet Information Providers
APL Atlas Pipeline Partners LP 52.8%            1,981 Oil & Gas Pipelines
KEYN Keynote Systems Inc. 52.6%                342 Internet Software & Services
MDVN Medivation, Inc. 52.5%                803 Biotechnology
GPOR Gulfport Energy Corp. 51.9%            1,550 Independent Oil & Gas
EVEP EV Energy Partners LP 51.7%            1,973 Oil & Gas Drilling & Exploration
MFN Minefinders Corp. Ltd. 51.5%            1,340 Industrial Metals & Minerals
SRX SRA International Inc. 51.4%            1,774 Information Technology Services
ARMH ARM Holdings plc 51.3%          13,835 Semiconductor - Specialized
KND Kindred Healthcare Inc. 51.2%            1,097 Medical Instruments & Supplies
WTI W&T Offshore Inc. 51.2%            2,007 Oil & Gas Drilling & Exploration
TWI Titan International Inc. 51.1%            1,240 Auto Parts
RNOW Rightnow Technologies Inc. 51.0%            1,165 Application Software
CHTR Charter Communications Inc. 50.6%            6,718 CATV Systems
EXEL Exelixis, Inc. 50.6%            1,347 Biotechnology
TIBX Tibco Software, Inc. 50.4%            4,920 Business Software & Services

Say Goodbye to Erin....

It's a slow day in which the dollar degrades and everything melts up (where have I heard that before), so onto the gossip column.

For you CNBC fans, looks like Erin Burnett is set to sign a long term deal with CNN.  Maria B must be pleased... the queen retains her throne on CNBC. ;)

  • The CNBC anchor Erin Burnett is poised to sign a long-term contract with CNN, according to three people with knowledge of her plans.  Ms. Burnett, who was considered a rising star within CNBC and its parent, NBCUniversal Media, held talks with two broadcast networks, ABC and CBS, before deciding to join CNN, according to two of the people. They insisted on anonymity because the deal had not been made public.
  • Ms. Burnett has been an anchor at CNBC since 2005. Before then, she worked at Goldman Sachs, Citigroup and Bloomberg Television.

European Inflation Continues to Rise; Pressuring Dollar Yet Again

At this moment, the euro is up for the 9th consecutive session versus the dollar.  We'll leave out the record highs of the Australian dollar, and Swiss franc for the moment (not to mention precious metals) to concentrate on the euro.... which is not exactly a region the U.S. should be faltering against.  But with the willful neglect of the dollar by The Bernank (who deflects all commentary on this subject to the US Treasury), and the ECB on a path of increased interest rates - the euro is winning the ugly duckling contest.  And as you should know by now the only trade in the market nowadays is the inverse dollar trade - when it sucks wind, you can buy anything.

This morning the euro region reported another uptick in inflation - I don't know the ins and outs of how they create their inflation figures as I do with the U.S. and U.K., but it seems laughable that a region with essentially 1 booming country (Germany)... and 3 in states of default or rescue.... not to mention 1 with a 21%+ unemployment rate (Spain) is showing higher inflation than the U.S.  But since we're in the Matrix let's eat our blue pills and play along.  With the sole mandate of the ECB to control inflation, today's figure should point to further rate hikes - which benefits the euro in interest rate differentials... and of course leads to further pressure on the dollar.

Via Reuters:

  • European inflation accelerated to the fastest pace in two and a half years and confidence in the economic outlook declined as surging energy prices threatened to undermine growth. 

    Euro zone inflation rose further above the European Central Bank's target in April, increasing the chances of an interest rate rise in June, despite a weakening of economic sentiment and household demand.  Inflation in the 17 countries using the euro rose to 2.8% year-on-year this month from 2.7% a month earlier, the highest level since October 2010, when it was 3.2%.
  • Consensus expectations had been for a flat reading compared to March ahead of next Thursday's European Central Bank meeting on interest rates. "I can imagine that some market participants will expect the rate increase by the European Central Bank at an earlier date. We expected June, the market is still expecting July. I guess the consensus will now move to June," said Piet Lammens, economist at KBC.
  • The ECB raised its main interest rate from record lows of 1.0 percent to 1.25 percent in April, concerned about the impact on consumer prices of rising costs of energy and food.

  • Euro zone consumer inflation expectations, which have been rising quickly since November 2010, edged marginally lower to 30.7 from 30.8.

    Caterpillar (CAT) Continues its Winning Ways

    If there has been one company at the center of the global construction story, its Caterpillar (CAT).   Aside from the fundamental growth story, the ability to move workers to lower cost countries, play the U.S. tax code (as any good multinational), and benefit from government spending the world over are amongst its drivers.  The acquisition of Buycrus (BUCY) was a brilliant fit, at least from this set of eyes.  The main concern here go forward is either too high of expectations and/or the increase in commodity costs beginning to hit their cost structure.  But thus far, neither are the case - indeed gross margins actually expanded nearly 2%.  Another sizzling report this morning.
    • Gross margin, or the difference between a company's cost of producing products and the price it receives for them, widened to 30.1% from 28.5%.  
    • Construction-industries revenue, the largest sales contributor, jumped 71%, while power-systems sales were up 51%.


    • Caterpillar beats by $0.53, beats on revs; raises FY11 EPS (midpoint) above consensus, raises revs, in-line; FY11 Japan impact ~$300 in rev, $100 bln op. profit  
    • Reports Q1 (Mar) earnings of $1.84 per share, $0.53 better than the Thomson Reuters consensus of $1.31; revenues rose 57.2% year/year to $12.95 bln vs the $11.69 bln consensus. 
    • Co raises guidance for FY11, raises EPS to $6.25-6.75 from near $6.00 vs. $6.26 Thomson Reuters consensus; raises FY11 revs to $52-54 bln from >$50 bln vs. $52.43 bln Thomson Reuters consensus. 
    • The order backlog was $20.8 bln at March 31, 2011, a new record. During the first quarter of 2011 the order backlog increased 11 percent from $18.7 billion at December 31, 2010, and is significantly higher than March 31, 2010, which was $12.7 billion. 
    • "While our 2011 outlook has improved, the increase would have been greater if not for the impact of the disaster in Japan. Our facilities were not damaged by the earthquake and tsunami, but many of our suppliers in Japan were impacted. As a result, we are experiencing sporadic production disruptions at many of our facilities around the world. We expect the disruptions will have a negative impact on sales, factory efficiency and costs--particularly in the second quarter. While the situation has steadily improved in the aftermath of the disaster, it will likely have a negative impact on 2011 sales of about $300 million and negatively impact operating profit by about $100 million... 
    • Acquisitions of MWM and Bucyrus have not been completed and, as a result, are not included in our outlook for 2011. However, the outlook does include about $50 million of expense for the bridge financing facility related to the planned acquisition of Bucyrus plus some additional costs related to integration planning... Given our strong cash position, we believe sufficient cash will be available to minimize or eliminate the need for new equity to complete the Bucyrus acquisition."

    [Jan 27, 2011: Caterpillar - Another Home Run Report]
    [Oct 21, 2010: Caterpillar Scores with Now Redundant Playbook: Slashed Domestic Labor + Emerging Market Growth = Mad Money

    No position

    Thursday, April 28, 2011

    A Profile of the Hedge Hog Bill Ackman - The Busybody of the Beresford

    For those of you who follow the hedge fund world, you will know of one of the younger breed of gurus Bill Ackman, who is a regular on the CNBC circuit.  The New York Observer has a pretty in depth piece on him, touching on his major investments but also from a personal perspective - interesting to hear about where these success stories came from, and what they do in their free time (Ackman plays tennis with Andre Agassi and George Soros).  Like many of the top dogs in the industry, Ackman is super competitive in every part of his life. 

    In this story in 2008 we learned that Ackman was one of those encouraging Goldman Sachs to restore confidence by getting a cash infusion from Warren Buffet.  He also made one of the best investments of the past few decades, by investing into General Growth Properties.
    • His most successful investment to date may be the purchase of General Growth Properties, the mall operator. Mr. Ackman bought at 34 cents a share and led it through bankruptcy, and now it trades in the mid-teens.
    • Since launching Pershing Square, Mr. Ackman has turned a $54 million initial investment into a $9.3 billion behemoth, according to his March report—conveniently leaked, as it always does, on the rambunctious Wall Street gossip site Dealbreaker.
    • "I want to have one of the great investment records of all time, why not?" Bill Ackman, founder of hedge fund Pershing Square Capital Management said nonchalantly over breakfast one Saturday in early April.  "That's why I have to be healthy," Mr. Ackman continued. "It's not just compounding a high rate; it's living a long time. Buffett has a 55-year-old record. I've got a seven-and-a-half-year-old record. It's going to be 90-I'll be almost 90 by the time I've got a 50-year history." He paused to refine the math. "I'll be 87." (He could shave a few more years off since Pershing is currently returning 24 percent annually compared to the 22 percent of Warren Buffet's storied Berkshire Hathaway.)
    • While he prefers to see his seven-year-old fund in the same positive light as many people view the work of Mr. Buffet, comparisons are more often made to Mr. Icahn. Both he and Mr. Ackman are known for their activist investing, taking huge stakes in the bluest of blue-chip companies and then agitating for changes they believe will improve the stock price. Mr. Ackman, who considers his work as benevolent and beneficial—not just to the companies but also to the entire country—hates the comparison to the notorious corporate raider.
    • LIKE A HANDFUL of other hedge fund managers, Mr. Ackman's profile exploded at a time when pretty much everything else around him was imploding.  It all began in 2002, when he had made a now-notorious bet against gargantuan muni-bond insurer MBIA. Before that, there had been the occasional headline-grabbing deal, such as when he tried to separately team up with Donald Trump and Jerry Speyer to buy Rockefeller Center from the Japanese in the late 1990s, or when he led the first successful hostile takeover of a real estate investment trust, Cleveland's First Union. But it was not until he got a tip that the federally backed agricultural insurer Farmer Mac was grossly overleveraged that he would hit upon the investment strategy that serves him to this day.
    • Like its bigger siblings, Fannie and Freddie, Farmer Mac had hordes of unregulated, risky loans sitting on its books, just waiting to default. At the time, though, it had "buy" or "strong buy" recommendations from a number of major banks, another counterintuitive investment for the combative Mr. Ackman. Gotham Partners took a huge short position in the company, then released a report titled "Buying the Farm."  In the meantime, Mr. Ackman reached out to a reporter at The Times, Alison Leigh Cowan, whose brother was a business school classmate of his. When the gambit worked—some said thanks to Ms. Cowan's reports—it made the fund $75 million and sent Mr. Ackman looking for another company to pursue. 
    [Jan 13, 2009: Logic Behind Bill Ackman's Purchase of General Growth Properties]
    [Jul 15, 2009: Bill Ackman Offers a Solution to Fannie/Freddie Mess

      Social Networking Bubbles Continues to Percolate - 12 Week Old Startup Company Sells for $20-$30M!

      I don't usually go to the New York Post for my financial news, but someone pointed this story out to me, and if true - it is amazing.  I am beginning to have flash backs to the days when Yahoo made Mark Cuban a billionaire with their stupid $5B buyout of  Apparently a guy named Adam Cahan started a company 12 weeks ago, and just sold it to Yahoo for somewhere north of $20M.

      • In every coffee shop and Internet cafĂ© in Silicon Valley, tech hotshots dream about turning their ideas into a million-dollar winner. Few, though, probably think they can do it in three months.
      • But that is exactly what happened to Adam Cahan. Just 12 weeks ago, he started IntoNow, a social-networking tool that allows TV viewers to identify shows they are watching and tell their friends.  Yesterday, he sold the company to Yahoo! for between $20 million and $30 million -- including costs to retain the seven-person staff, according to people familiar with the matter. 
      • IntoNow, founded in Palo Alto, Calif., works similar to Shazam, an application that works in the music sector.  "Twelve weeks might be a record of sorts" from startup to exit, said Cahan, who is a new vice-president at Yahoo! following the sale.
      • Indeed, the acquisition is among the more buzzed-about deals so far this year and indicates how hot the tech sector continues to be. IntoNow represents the latest trend in "checking-in" that started with real-world services such as Foursquare and migrated to the virtual world of sharing one's digital whereabouts. "Relying on social channels as a means for discovering content -- whether it's on a PC, mobile device or TV -- is rapidly on the rise," Yahoo! said in a statement yesterday.

      [Videos] Elizabeth Warren on The Daily Show

      I have not heard much from Elizabeth Warren since she was appointed to "assist" the newly formed Consumer Protection Agency.  (the banking lobbyists would not allow her to be the head honcho - and what banking lobbyists want in Cramerica, they get)

      She appeared Tuesday evening on The Daily Show with Jon Stewart so I've embedded the extended interview below - 3 clips.  Email readers will need to come to site to view.

      Part 1: 7 minutes

      Part 2: 6 minutes

      Part 3: 4 minutes

      [Feb 2, 2010: Elizabeth Warren Explains (Part of) Financial Crisis so Even 3rd Graders Can Understand]
      [Aug 13, 2009: The Parallel Reality: Nassim Taleb and Elizabeth Warren

      BorgWarner (BWA) Continues to Impress, but Japan and Commodity Costs Weigh on Sector

      The automotive group - especially the suppliers - were one of the biggest bull market sectors of 2010.  While results continue to impress for many of these names, the Japanese situation (supply chain), and specter of ever increasing commodity costs are weighing on the shares.  BorgWarner (BWA) is a fine example of this situation.  The company beat estimates by 4 cents ($1.00 v $0.96) and increased revenue guidance for the year but the stock is non responsive.  Indeed, BWA has been range bound for over 2 months, trading between $70 and $82.  For now it appears the hot money has left the sector, and in a market dominated by HAL9000 and his automated trading friends - the sector is only good for some range bound trading.


      • Revenues rose 34.4% year/year to $1.73 bln vs the $1.63 bln consensus. 
      • Co reaffirms EPS guidance for FY11, sees EPS of $3.85-4.15 vs. $4.13 Thomson Reuters consensus. 
      • Rev growth in 2011 is now expected to be 19% to 23% compared with 2010, up from the previous guidance range of 16% to 20%, primarily due to the Haldex Traction Systems acquisition that closed in January.

      Full report here.
      • Excluding the impact of currency and sales related to the Haldex and ENSA acquisitions, our sales were up approximately 26% in the first quarter, compared with a global market that grew only 5%. We successfully managed costs while growing our sales during the quarter resulting in a solid operating income margin of 10.4%.
      • "Clearly there is great deal of concern regarding the disasters in Japan and their impact on the global automotive market," Manganello said.  "While uncertainty remains, we expect that the impact on our business will be limited. Vehicle demand remains strong in our largest markets and should offset the volume declines in Japan."

      [Jan 12, 2011: BorgWarner Guides to 35-40% Earnings Growth in 2011]
      [Dec 16, 2010: BorgWarner is a Stud]
      [Oct 28, 2010: BorgWarner Raises Guidance]
      [Jul 30, 2010: BorgWarner Beats, Raises - Auto Supplier Base Continues to Look Interesting]
      No position

      [Chart] Bears Stand Down

      The long awaited breakout in the S&P 500 finally occurred earlier this week.  In the past, this sometimes set up a trap for the bulls as every last short threw up their hands, and only then would the market reverse - but rarely has that been the case since March 2009.  (I am reading on the internets that even noted bear David Rosenberg has finally given in)  It seems as long as the dollar gets punished with the Bernanke Put, bulls feel they have nothing to fear outside of the random geopolitical event.  Until/unless we get back into this purple box there is not much for bears to base a case on technically.

      Volume in Silver ETF (SLV) Surpassed that of SPDR S&P 500 (SPY) Earlier this Week

      We are reaching a fervor in the silver market now.... for those who watch the intraday action, the entire market has turned into the "anti dollar" trade and yesterday was a prime example.  The dollar held in ok in the morning, then began to weaken once the FOMC announcement was made just after noon.  Gold and silver began to run.  As Bernanke began talking in the 2 oclock hour (effectively denying the Fed actions have anything to do with the greenback's action) the dollar began to fall apart, and gold & silver shot up, especially the latter which has become the high beta trade.

      This story in the WSJ highlights how much fast money has moved into silver.  The most popular trading vehicle for the general market is the SPDR S&P 500 (SPY) ETF.  On Monday, volume in the silver ETF actually surpassed SPY!  And Tuesday was quite close as well.  Amazing for an ETF that is relatively new to the market, but this is fever pitch action at its best.

      People keep emailing me about silver, and I will keep repeating the same mantra - the near term upward move usually ends in momo trades like this on a big intraday reversal (with volume).  i.e. when the ETF jumps up to begin the day, but acts poorly later in the day and closes on the low (preferably low than the previous day), on a big volume spike.  Maybe it is "different this time" because The Bernank is in a personal war with the U.S. dollar, but that is usually the sign to look for.
      • The mania for silver has spread to the stock market as day traders pile into the buying.Trading got so heated during the past two days that shares traded in the iShares Silver Trust, the biggest exchange-traded fund tracking the price of silver, topped that of the SPDR S&P 500 ETF, usually one of the most actively traded securities in the world.
      • Day traders "are going crazy," says Joseph Saluzzi, co-head of trading at brokerage firm Themis Trading. "It's typical of the bubbly speculation that's been going on in silver."
      • On Monday, trading in the silver ETF was especially heavy, as silver prices soared to new 31-year highs and approached $50 an ounce.  The heavy ETF trading continued on Tuesday, as silver prices retreated. 
      • Volume in the silver ETF on Monday reached a record 189 million shares, compared with an unusually low 65 million for the SPDR. The trading in the silver ETF was five times that of the 37 million daily average of the first quarter and blew past its previous daily peak of 149 million shares set in early November. On Tuesday, the silver ETF's trading was 125 million shares, falling just 21 million short of the SPDR volume.
      • The volume in silver ETFs is remarkable because the ETF until recently was relatively small and was shunned by mainstream traders. Its ascent reflects a surge in appetite for silver, which itself is reflecting a rise in the price of gold.

      • Trading volume of silver futures contracts on the commodities exchange owned by CME Group rose to 319,205 contracts on Monday, a 58.6% jump from its prior record hit in November. Month to date, the contract's average daily volume has more than tripled compared with the same period last year. Total outstanding contracts in the silver-options market also reached a record on Monday.
      • The evidence of day-traders flocking to silver can be seen in the surge of trading in high-octane ETFs designed to magnify the moves in silver prices up or down. Trading in ProShares UltraShort Silver, an ETF that offers a levered bet on falling silver prices, totaled more than nearly eight times its average daily volume over the last three months. The fund is down more than 40% in 2011.
      • On Monday, "we saw a lot of the shorts capitulate," Mr. Redler says.

      No position

      Wednesday, April 27, 2011

      Baidu (BIDU) Another Solid Report, with Raised Guidance

      Baidu (BIDU) reported tonight and while they only beat estimates for the quarter by 2 cents (47c v 45c), revenue guidance for next quarter was pushed up to the $493 to $504M range, above the $484M consensus which seems to be enough to keep investors happy.  The stock is doing little after hours.  I would have expected the bar to be higher since the stock has rallied 50%+already in 2011, but at this point anything Chinese internet is completely teflon.  With that said, revenue was up 88% year over year - very impressive.

      Full report here

      • For the first quarter, Baidu reported net income of $163.5 million, or 47 cents per American Depository Share. This compared with $70.4 million or $2.10 per share before a 10-for-1 stock split a year ago.
      • Total revenue for the first quarter came in at $372 million, above its own forecast of $360.6 million to $371.2 million and up roughly 88 percent from a year ago. Analysts estimates called for revenue of $367.3 million. 
      • Online marketing revenues for the first quarter of 2011 were RMB2.435 billion ($371.8 million), representing an 88.2% increase from the corresponding period in 2010. 
      • Baidu had approximately 274,000 active online marketing customers in the first quarter of 2011, representing a 24.0% increase from the corresponding period in 2010 and a 0.7% decrease from the previous quarter. 
      • Revenue per online marketing customer for the first quarter was approximately RMB8,900 ($1,359), a 50.8% increase from the corresponding period in 2010 and flat compared to the previous quarter.
      • Traffic acquisition cost (TAC) as a component of cost of revenues was RMB198.6 million ($30.3 million), representing 8.2% of total revenues, as compared to 13.2% in the corresponding period in 2010 and 8.1% in the fourth quarter of 2010. 
      TAC costs are widely watched and remain at a substantially lower level than a year ago, which is very good.

      [Feb 1, 2011: Baidu Pleases Street with Slight Beat on Earnings, Raises Guidance and Talks Social Networking]
      [Nov 21, 2010: BW - How Baidu Won China]
      [Oct 22, 2010: Baidu Continues to Execute]
      [Jul 22, 2010: Baidu With Another Strong Quarter of Growth, Raises Guidance]
      [Jan 13, 2010: Baidu Soars on Potential Pullout of Google in China]
      [Oct 27, 2009: Baidu Stains the Sheets with Guidance] 
      [Jul 24, 2009: Baidu Blows the Door Off; Phoenix (Nest) Rising]
      [Apr 27, 2009: Beats & Provides Nice Top Line Guidance]
      [Dec 11, 2008: - Lowers Guidance, Stock is Up]
      [Nov 18, 2008: Not a Good Week for Chinese Dot Coms]
      [Oct 24, 2008: Crunched on China Economic Fears]
      [Jul 23, 2008:, - Party Like It's 1999?]

      No position

      ARM Holding (ARMH) with Another Fine Quarter, but Range Bound for Now

      The last time we spoke of ARM Holdings (ARMH) mid March, it was beginning a bounce off the 100 day moving average.  I mentioned at the time:

      For those interested in ARM Holdings (ARMH) the stock has become much more attractive in terms of valuation (still not cheap - just cheap(er)) and entry point, than it was 2-3 weeks ago.  The stock has lost nearly a quarter of its value in that time and now sits right above the....the 100 day moving average.  This is also an area the stock tested a few times in January 2011.  One could definitely take a swing here and abandon ship if this support level is broken - the stock held up quite well during yesterday's market carnage all things considered.

      The stock was just over $24 at the time, after pulling back from $31.  Anyone who jumped in, would have enjoyed the better half of a round trip - as we're back to $31 the past few days; a cool 30% gain in about 6 weeks.

      The company reported overnight, and posted solid earnings.  However due to valuation it's been range bound.  Clearing those mid February highs would be a positive technically, but for now the way I'd play this is to dump all the shares bought back in mid March, and wait for either (a) a pullback or (b) a breakout over February highs, to get back in.

      Via WSJ
      • U.K. chip designer ARM once again delivers the goods; Wednesday reporting solid first quarter results ahead of market expectations on the back of its processor business. It’s also quietly confident about the outlook; reiterating its annual revenue guidance.
      • .... beat forecasts with a 34% rise in first-quarter earnings, helped by soaring demand for smartphones powered by its technology.  The FTSE 100 company, which is trading at 50 times its earnings, gained on the back of a 26% increase in revenue to £116 million. 
      • It secured 39 processor licenses in the quarter ended March 31 after signing 35 processor licenses in the previous quarter.
      • For 2011, ARM expects group dollar revenue, a figure closely watched by analysts as the group generates the bulk of its sales in that currency, to be in line with current expectations of around $730 million, despite uncertainty regarding the economic impact of the Japanese earthquake on the semiconductor industry supply chain and end-product markets.
      • ARM’s results were well received by U.K. analysts, who say they bode well for the company’s prospects.  Numis analyst Nick James said “the licensing performance of ARM is very encouraging for its long term growth prospects.” Mr. James, who reiterated his add rating on ARM and 660 pence target price, also noted that it is “becoming increasingly apparent that Mali is a credible competitor in the market for mobile graphics, a trend which is negative for Imagination (Technologies).”
      • Peel Hunt analyst Paul Morland has upgraded the stock to a hold rating from sell “as the company is growing faster than we thought possible.” The results were “exceptionally strong”, which should lead to upgrades of at least 5%, he added.
      • Matrix analyst Adrien Bommelaer described the results as “pretty good”, attributing the better-than expected performance on the processor business, with royalties and licenses up strongly. He expects full year consensus figures to go up a “little bit”, similar to what happened after the fourth quarter results in February. But he retains a reduce rating on ARM and 500 pence target price, noting the stock is “totally overpriced.

      Via Reuters:
      • Smartphones, such as those running Google's  Android software, generally contain two or more of ARM's newer microprocessors, helping the average royalty per chip to rise to 4.8 cents from 4.6 cents in the previous quarter.

        Japan could still be an issue...

        • Finance director Tim Score said there had clearly been disruption in the industry from events in Japan, but the severity was not yet known. "I do not think anyone is yet clear to what extent the semiconductor industry supply chain may be impacted by the temporary closures and shutdowns we have seen in Japan," he told reporters on a conference call. "We also do not yet know what the impact will be on consumers in Japan.
        • ARM reports royalties a quarter in arrears, so the impact of the earthquake will not be fully apparent until its third quarter.

        [Mar 17, 2011: WSJ - Getting an ARM Up on Intel]
        [Feb 1, 2011: ARM Holdings Continues to Squash Critics with Latest Earning Report]

        No position

        Acme Packet (APKT) Beats Slightly on Top and Bottom Line, Enough to Please Market

        The FOMC decision is out today at 12:30 PM, but with no significant change I expect most of today's attention will be on the Bernank's speech and Q&A at 2:15 PM.  The market seems to be on hold until then.


        Much like, Acme Packet (APKT) was not doing so well last night in afteer hours but it is as if once midnight struck all memories of the previous day disappeared.  The stock is surging today on a small beat on both the top and bottom lines.

        Unlike Riverbed Technology (RVBD) and F5 Networks (FFIV), the stock did not take a beating ahead of earnings, so I am a bit surprised by the "relief rally" from the good (but not 'great') report.   It shows once more how impossible it is to gauge market reaction to earnings.   EPS came in at 27 cents versus 25 expected, and revenue at $74M vs $71.4M.   Gross margins fantastic at 84%.  Internal guidance for the year was upped a bit, but mostly to get more in line with what analysts already expected. Full report here.

        More commentary via IBD (written when the stock was down in after hours):

        • Acme Packet, whose biggest customer is phone carrier Verizon Communications (VZ), said Q1 revenue rose 45% from the year-earlier quarter to $74 million. Per-share profit minus items jumped 69% to 27 cents. Analysts polled by Thomson Reuters expected EPS of 25 cents on sales of $71.4 million.  
        • Analysts again expected Acme to boost its outlook Tuesday, and it did. But where Acme now forecasts 34% to 36% sales growth, it really needed to top 40% to impress the Street, says Pacific Crest Securities analyst Brent Bracelin.  "Expectations were very high coming into the first quarter that Acme would raise their revenue outlook for the full year," Bracelin said. "The street baked a lot of optimism into its (2011) estimates. Expectations have been running very high because Acme blew out the numbers last year."
        • "We continue to expect an acceleration in (product) demand in the second half of the year," Andrew Ory, Acme's CEO, said on a conference call with analysts. "The bookings activity is actually quite strong in the back half of the year."
        • Still, its Q1 sales rose just 5% from Q4 2010. Modoff says Acme's order flow from its customers, mostly phone companies, can be choppy but that fourth-quarter sales are usually strongest.  "Acme's normal pattern is to have a strong quarter and then level off sequentially for a quarter," Modoff said. "But they guide on an annual basis. The question for investors is whether that (2011 guidance) is enough, with the stock where it is. 
        • Shares in the Bedford, Mass.- based company have jumped 48% in 2011 and have nearly quadrupled in the past 12 months.  Its lofty valuation has raised questions about its growth potential amid intensifying competition.
        • Acme gets about 90% of revenue from sales of session border controllers, devices that set up Internet calls over landline and, increasingly, wireless phone networks.  SBCs are about the size of a pizza box and plug into other network gear such as routers.
        • Acme Packet's growth is linked to the growing use of an Internet communications standard called session initiation protocol. SIP is used for setting up Internet calls as well as videoconferencing and instant messaging.  In 2010, Acme Packet supplied almost 60% of the SBCs purchased by phone companies, says market research firm Infonetics. Acme faces tougher competition, though, from Sonus Networks (SONS) and privately held Genband. Alcatel-Lucent (ALU), a customer of Acme Packet, in February launched its own SBC devices, says Goldman Sachs analyst Simona Jankowski.
        • Despite the competition from Sonus and others, Peter Minihane, Acme's chief financial officer, said on the call that the company isn't seeing "any pricing pressure" affecting margins.

        • Acme Packet gained 79 new customers in the quarter and introduced three key new products. Management also raised its estimate of Acme Packet's total addressable market from $20 billion to $30 billion as management believes all of these legacy telecom solutions will eventually have to be replaced. Management also spent a considerable amount of time discussing the company's new technologies and how they are being deployed and why they are so important for IP networks.
          [Feb 2, 2011: Acme Packet Goes Ballistic on Analyst Upgrades]
          [Feb 2, 2011: Acme Packet's Fine Quarter, Increase in Guidance]
          [Nov 19, 2010: Acme Packet Catches New Wind on Barclays Upgrade]
          [Oct 29, 2010: Acme Packet with Small Beat, and Raised Guidance]
          [Jul 30, 2010: Acme Packet Punishes Investors Post Earnings Report]

          No position

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