Thursday, April 29, 2010

4/29/10 Midday Report: HP thinks it bought a rosy PALM, no word on whether they will also buy her five sisters

The rally is back on thanks to solid earnings, Greece likely getting bailed out again (for now), and the FED reaffirming their promise to keep rates low until the next bubble.  Not only that, but new claims for unemployment were down by 11k which was just shy of analyst guesses and just shy of asking Kristen Bell out on a date.  In financial news, Republicans voted to finally allow debate on financial reform because somehow the good of the country became more important than the search for birth certificates, reigning in wide stances, and understanding what about tea bagging is so appealing to Sarah Palin.  Money McBags hopes there will be real reform like you know, requiring reserves to be held on insurance contracts more commonly known as CDS, limiting the size of financial institutions, and closing down the ratings agencies whose business models incent them to do the opposite of give unbiased ratings and who sucked at their jobs like a blind skeet shooter or a fluff girl on the set of a Sabrina Johnson record breaking film.  While there is no doubt Wall Street will eventually find the loopholes in any regulation because greed is a dish best served with caviar, Dom Perignon, and peach cobbler (the first definition of course) and that shit ain't cheap, at least the government can make it a bit harder.  Money McBags is all for the Volcker rule, for hedge fund regulation, and for derivatives regulation even if the last one may cause Warren Buffett like a millisecond of a sleepless night on his mattress made of gold and the tears of baby bald eagles.  The SEC's new found ballsac is refreshing and Money McBags hopes they are serious about regulating the markets and watching porn instead of just watching porn (unless it is first time lesbian porn, and then Money McBags understands).

Internationally, Greek is getting some drachma again as the IMF promised to raise their bailout funds from 45B euros to 120B over 3 years.  However, as part of the stipulation for getting funding, Greece is going to have to put in place stricter austerity plans and better track and report their finances by allowing the IMF to inspect their "cash boxes" once a year on the island of Lesbos.  Greek Prime Minister George Papandreou was said to have started negotiating with labor unions to cut two of their fourteen monthly salaries, to institute higher value added taxes, and to require they work longer than three hour work weeks.  The real question is whether German Chancellor Angela Merkel stops being a sour kraut and agrees to help with the bailout or if she continues to waffle in hopes of maintaining support in Germany to propel her party to victory in the upcoming North Rhine-Westphalia election.  That's right, Merkel is letting Greece, Europe, and the global markets dangle in the wind because of some do shit election in a country that isn't going to even exist should Europe go bankrupt.  Angela, be a good girl and come listen to Money McBags.  I know it is fiscally irresponsible to continue with the steroidal Wimpy strategy of getting a hamburger today and paying for ten of them on Tuesday, I know you want to stay in power (though Germans fighting for power scares the gifelte fish out of Money McBags), but sometimes you have to do stupid stuff for the greater fucking good.  Yeah, Greece acted less fiscally responsible than Stephen Baldwin or a homeless crack addict on pay day, but as the great Zeno Cosini once said "complete freedom consists of being able to do what you like, provided you also do something you like less."  So fucking lend Greece the damn money already and enjoy the freedom to have a European economy.  Now go get me a Kreppel but go light on the powdered sugar because Money McBags hates getting that shit on his fingers.

In stock news earnings were so jizztastic that the market is now expecting octuplets.  But before we even get to earnings, HP is buying PALM for $1.2B in a move that had been rumored for weeks.  Money McBags gets why HP did it as PALM has a good ass operating system and HPQ has the means to try to make it work with better hardware and distribution, but going after AAPL and Blackberry and GOOG is kind of like buying Dr. Pepper and trying to take on KO and PEP or thinking you can beat Lisa Ann and Alexis Texas in a nice ass contest relying on only the Butt Blaster and not implants.  The handset market is more fully penetrated than Bridget the Midget in a tryst with Lexington Steele so sure you might get a little market share with HP behind a Pre-type phone/operating system, but $1.2B seems like a lot to pay for a company that was dying.  Anyway, in other stock news MOT put up a quarter that beat on the bottom line thanks to aggressive cost cutting which did away with lobster thermidor Thursdays in the executive cafe.  Mobile phone shipments fell 43% despite the rise in smartphone sales but the company's guidance of $.07 to $.09 eps next Q was well ahead of analyst guesses of $.03 eps.  BIDU also put up a ridonkulous quarter as chinese people apparently searched for more than just their freedom.  Their profit was up 165% and BIDU's market share in China rose by 600bps to 64% thanks to GOOG's exit from the chinese market and thanks to Olivia Munn's new billboard which was posted online.   Other companies that beat earnings include V, HOT, FSLR, and anyone who sold anything anywhere over the last three months.

In small cap news CRUS continues to run while Money McBags' largest small cap holding KITD is breaking out like Cameron Diaz's face after a pepperoni pizza.  Money McBags has blogged about this so many times that he is risking being more repetitive than a stutterer reading a tongue twister, so he will spare you the details (just use the search function on When Genius Prevails), but this stock is easily worth $20.  They had a call the other day about the $50MM capital raise they just did and basically said it is a war chest to help them fend off Brightcove for acquisitions as Brightcove is going public, any deal they make will be immediately accretive and between 5% and 15% of revenue, they are still targeting 60% organic growth, and world domination is only months aways.  Ok, that last one was made up but the point is the video asset management space is more fragmented than J Howard Marshall's beneficiaries and KITD is in a strong position to help roll it up while putting on it's nicest Sunday dress to appeal to buyers (and yes, KITD will be acquired in the next 1-3 years, that is the play).  And it's still not too late to get in.  Money McBags has purchased three times and if you look at the archives, the first time was at ~$10 so hopefully you're all doing well on this too.  In other small cap news, another Money McBags holding, CTGX, put up a decent Q the other day.  Money McBags broke down CTGX on 2/22/10 so read the full analysis there but the story is they are basically a shitty IT services/staffing outsourcing business with a growing health care IT focus and a specialty in installing electronic medical records.  It's a bit like Y2K IT firms in 2000 in that there is a specific event (hospitals moving to EMR) that will last a finite time (though probably 3 to 7 years starting in 2011), but there are only a few firms who can do this and CTGX is the lowest priced one with the best service.  In this last quarter they finally saw revenue growth after a number of down quarters due to business spend going away in the recession like an 18 year old wanna be actress' dignity on her first casting couch.  Revenue was up 5%, operating income was up 28%, operating margin increased to 3.9%, and eps was $.11.  No real surprises but a nice sold quarter and that is all we're playing for right now.  Just keep ticking along until hospitals spend their stimulus money and seek out IT professionals to give them the MANDATED EMR systems (and yes, caps were intentional because hospitals are required to have EMR systems up by 2015).  The best news is that they said they closed a significant multi-year deal with a large physician practice for EMR, EMR proposal activity is accelerating, and "the first portion of the $19 billion in federal stimulus funds allocated to EMRs has been released to help states advance EMR projects."  Guidance was raised a bit for 2010 to 15% topline growth and EPS between $.47 and $.55, but if you go back and read Money McBags' archives, you'll know that 2010 is irrelevant.  It is not until 2011 that EMR will hit for them and as those projects have greater than 10% margins and bring in $2MM to $3MM of revenue per year, it is not inconceivable that CTGX can earn an incremental ~$.25 per share in 2011 from EMR and thus if they just hold their main business steady (though it should increase if businesses start spending again), they could earn $.75 and thus are only trading at ~11.5x that despite the possibility for >50% growth.  It's still early for this stock but now is the time to get in before it takes off.

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