Thursday, May 13, 2010

5/13/10 Midafternoon Report: Market down as Prozac prescription runs out, or common sense prevails, take your pick

The market bounced around today before closing down as it seemingly takes a breather from a week so volatile that it caused quants to come out of the closet and question their autoregressive conditional heteroskedasticity (but that is what they get for having a GARCH model and not Brooklyn Decker as the centerfold for last month's Automated Trader Magazine).  In US macro news, new claims for unemployment were down slightly, or they weren't, depending on who is making up the data this week.  According to the Labor Department, claims fell by 4k from last week to drop to 444k new claims.  Of course last week, claims dropped by 7k to also reach 444k.  Hmmm.  Now look, Money McBags is no Stephen Hawking (and that's not just because Money McBags isn't a professor of Mathematics, but also because Money McBags can walk), but if new claims for unemployment were 444k last week, how the fuck could they fall by 4k to the same 444k this week?  Unless high frequency traders have also begun manipulating the laws of mathemetics, Money McBags is pretty sure 444k - 4k = 440k.  In fact, he's more sure of that than he is sure that Cheryl Cole is hot and that John Edwards is not just a scumbag, but also has bad taste.  So what say you Department of Labor with your statistics, PhDs, and cluttered website?  Is this some new kind of math that will lead to solving the great P=NP problem or finally answer the question of how all of those clowns fit in to that one little car?  Ohhhh, I see.  Apparently, the Labor Department revised last week's number up by 4k to 448k in order to have another positive headline this week.  So good on you Hilda Solis, because who can't get logically confused and thus miss the point by reading "new claims for unemployment fall by 4k from 444k to 444k."  And the point of all of this is new unemployment claims are stagnant, or they're not, apparently, it depends on what day you ask, but things are not getting appreciably better.  In other US news, the NY AG is going after banks who may have lied to ratings agencies about what was in their MBS CDOs.  Wow, really?  You think the banks were fudging the details a bit or do you think rating agencies were turning their heads the other way and coughing as the banks cupped their bottom lines?   Or do you think, I don't know, that everyone was fucking complicit?  Jeesh.  There were more shenanigans going on in CDO deals than there were in Lawrence Taylor's hotel room last week.  If the SEC, NYAG, or the ghost of Nipsey Russell wanted to seriously prosecute the banks, it would take like one second of research to do so since the banks have been manipulating markets since Alexander Hamilton donned a powdered wig and let Maria Reynolds sample his US Mint.  So a big fucking yawn until someone actually does something to protect investors.

In international news today, the ECB is trimming their purchasing of Italian and Spanish bonds after trying to save the market from collapsing in a pool of its own inflation.  By providing liquidity to the Europe bond markets, the ECB hopes they have fooled investors into thinking there are actual bids in the market and are also hoping that investors will continue to have shorter term memories than Charlie Sheen's wife.  Also, Portugal announced an austerity plan following the leads of Spain and Greece.  When Prime Minister Jose Socrates was asked if he would also jump off a bridge if Spain and Greece did first, he replied that it would depend on the height of the bridge and the motion of the ocean beneath.  Portugal's austerity plan calls for a 5% cut to the salaries of senior public officials, increases in value added taxes, and the end of free Madeira Mondays.

In stock news, CSCO reported a solid Q (and Money McBags is an owner of CSCO), yet is getting walloped after CEO John Chambers gave forward guidance weaker than a warm O'Douls.  Revenue and earnings both beat analyst guesses as the company grew topline 27% thanks to increased demand for web and video applications and showing topline Austin Kincaid's greatest hits.  Guidance was lacking though as revenue for the upcoming quarter was forecast to be $10.7B which was inline with guesses but below the high end estimates of $11B.  With the stock overreacting to that news, Chambers went on CNBC to try to do some damage control by reminding investors that they were going to grow revenues 25%-28% and that the market was "over interpreting" what he had said on the conference call.  The fact is, when a company like CSCO can grow 25%+ and is selling off, you should think about building a position as the internet, data, and the NSFW spankwire.com aren't going anywhere and will need CSCO's back end solutions to keep them running (though I hope they never find a solution for Alexis Texas' back-end).

In small cap stocks today, CRUS continues to run and stomp all over Money McBags' hopes and dreams.  Money McBags was in at ~$7.75 and yet sold last week on liquidity fears, so good on all of you who still own it.  Money McBags promised he'd take a look at FHCO's Q and he finally had a chance to do so though he still has yet to test out the product like all good investors should.  FHCO's Q was rather uninspiring and frankly a little confusing.  They earned $.06 per share which was down from last year's $.07 per share due largely due to increased operating costs.  Revenue was flat with last year though that was to be expected as they shifted to the lower priced, higher margin, better tasting FC2.  So while revenue was flat, gross margin was up from 53% to 58% yielding a 7% increase in gross profit thanks to 23% growth in units (Money McBags will allow you to write your own unit growth pun for that one as it is just too easy, like Tila Tequila after a shot of whiskey).  The problem they had  was that operating expenses were up by $600k or ~40%.  What is not clear is how much of the increased expenses were one-time charges and Money McBags has not listened to the conference call yet so perhaps they answered it.  $120k was due to stock comp and $100k looks like it was due to restructuring and exiting their FC1 UK operations, but the rest of the increase seems ongoing as $60k was for marketing the FC2 in US retail channels and $100k was for staff expansion and team training (and Money McBags would expand his staff and train a team on FC2 free of charge if that team included Kate Bosworth and Alice Eve).  Anyway, if ~$220k was onetime, eps would have been closer to $.08 per share but that is not the kind of growth one would like to see.  The company maintained their guidance of 30% to 40% operating income growth which would put their operating income ~$6.5MM and their operating EPS ~$.23 per share.  But even with an increase in expenses, their operating eps this Q was $1.9MM so they are at a close to $8MM operating EPS run rate which would equate to $.28 per share.  The point is, this company is trading at over 20x that and it's not clear how much that is going to grow next year.  Sure they have a nice yield with $.05 quarterly dividend and $5MM cash and no debt on the balance sheet, but Money McBags thinks this stock is a bit ahead of itself unless they can continue to grow earnings at 20%+.  If operating earnings grow at 20% next year from the current $2MM per Q run rate, the company could earn $.30 to $.35 per share next year and is trading at a reasonable mulitple for that.  So Money McBags wouldn't be buying here, but this remains an interesting little company.

6 comments:

banellie said...

Love your blog! Keep up the great work! Love the analogies too!

Money McBags said...

banellie,

Thank you for your kind words. Money McBags is happy he can provide you with insight, analysis, and dick jokes to make the markets both understandble, entertaining, and deilicious .

Money McBags appreciates your support like James Polk appreciated Andrew Jackson's support and like Keely Shaye Smith appreciates Hostess' support (though if she dropped 150 lbs, Money McBags would happily swap her a devil dog for some of her twinkies).

The markets remain volatile, but Money McBags is here for you, so tell a friend, tell an enemy, or tell Ashley Dupree .

Bottoms Up,

Money McBags

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