Thursday, February 4, 2010

2/4/10 Midday Report: Market shows Paris Hilton isn't the only thing that can go down

Tim-motherfucking-ber.  The market is nosediving today like a Biggest Loser contestant going after the last gravy covered deep fried twinkie at an all you can eat "stuff that's bad" for you bar (and no offense to you weight-challenged people out there, but did you really need to go on a TV show to figure out you need to eat a fucking salad every once in a while?  I mean for fucksake, it's not like you need to decipher M-Theory or particle physics, you just need to stop eating crap and walk a little.  Jeesh.)  Driving the market down is what we here at When Genius Prevailed call serial unemployment (as opposed to Quisp's cereal unemployment, which we hear has caused Quisp to resort to tickling Franken's berries to pay the rent).  New claims for unemployment came out and they were higher than last week and above analyst estimates.  Claims rose 8k to 480k while expectations were for a drop to 460k.  10MM people continue to receive unemployment benefits or extended benefits and to give you an idea of how large of a group that is, it is is roughly equivalent to the population of Portugal, Belgium, or people who will show someone their tits on Bourbon Street should the Saints win the Super Bowl (and Money McBags fully supports Saints fans).  So the economy may be getting a bit better but as long as there are so many displaced workers, full recovery will be difficult (to put it mildly) which is why the S&P is probably a wee bit overvalued, like long walks on the beach, Alan Greenspan, or Michael Chabon novels.  Alternatively, labor productivity increased in January above analyst estimates as those with jobs have to work a fuckload harder to keep them (so instead of slacking off and looking at Miranda Kerr pictures for 6 hours a day like workers in a healthy economy like Australia, US worker now only slack off for 4 hours a day and are forced to look at internet pictures of Shirley Hemphill).  Also positive news is out today on factory orders which gained again in December as businesses build back and try to maintain inventory.

In international economic news, investors are getting more skittish on Europe as they deal with the Greek budget crisis which will likely cause the EU to revive their hit doin da butt in making Greece their submissive (though luckily, and not to overgeneralize, but the Greeks seem to enjoy that).  Fears are now spreading to Portugal, Spain, and any other country where two hour midday siesta's are followed by 3 hour midafternoon siestas.  Also, China is gettng a bit frisky with the US, objecting to claims that they are keeping down their currency in order to help exports.  The Chinese Foreign Ministry spokesman said they will stop artificially deflating their currency when the US stops artificially inflating the value of free speech.

In stock news Cisco put up a nice quarter (and for the record Money McBags has been long CSCO, though the stock has moved strongly sideways on him) as revenue was up 8% and their adjusted earnings of $.40 beat analyst estimates of $.35.  While many companies have beat earnings forecasts, CSCO was one of the few who also beat on the top line and not only that, they said the global technology environment is getting better and they will be hiring 3,000 people.  So take that rise in jobless claims to 480k, Cisco will be hiring 3k of the 15MM-20MM unemployed so the recovery is on like Donkey Kong.  CEO John Chambers did say that “we are already in the second phase of a capital spending increase" which is great news, though Money McBags was unaware that phase one had actually ended.

In small cap news, TSYS reports tonight and Money McBags eagerly awaits their earnings release which he discussed two days ago while JOEZ put up a nice quarter.  Now Money McBags understands the appeal of Joes jeans about as much as he understands the appeal of Desperate Houswives or unshaved lady parts (and that is not at all).  They are expensive jeans which people really have no reason to buy given the recession and cheaper alternatives.  That said, Joe's grew net sales by 42% as apparently people not only like the jeans but things called "woven shirts" and "denim leggings" (we'll assume "pants ponies" are not one of Joe's SKUs).  The company earned about $.05 per share (excluding their big one-time tax benefit due to chugging a jar of metamucil and thus releasing their valuation allowance) thanks to the increase in sales and a higher gross margin.  For the year, they earned somewhere between $.09 and $.13 depending on how you want to deal with their taxes and had around $3MM of EBITDA in the latest Q.  On the call they talk about aggressively growing stores and categories so they will continue to expand which means a bigger marketing spend and a more complicated business to manage.  On the positive side, they have $13MM cash, no debt, and products that snugly fit the lovely Anna Lynne McCord.  It's possible that they can continue to grow and keep gross margins the same with some better channel distribution, so maybe they earn $.15 per share next year, though that is a total stab in the dark guess based on growth off of last year and something analysts refer to as "putting a finger in the air."  The company is trading at around $1.85 today, is rapidly growing, and is relatively cheap (1.5x current revenue and if they can best their current earnings number, under 20x eps).  If you want retail risk in this shaky economy, this is one way to get that with some pretty nice upside.  Money McBags will not be purchasing JOEZ, despite the potentially good returns, because he just doesn't get overpriced jeans and never trusts the easily changing fashion tastes of  US consumers (the ones who brought you the rat tail and Hammer pants).  That said, people are making money here and it does not appear to be ridiculously overpriced for a growth company.

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