Ho fucking hum. Retail sales fell again in June as stores keep trying to charge money for products and people keep not having any. Sales dropped .5% in June, though if you exclude automobiles, sales only dropped .1%, and if you go one step further and exclude anything bought in a store other than ramen noodles and despair, sales would have doubled. It wasn't just auto sales that drove the numbers down though as furniture, building-materials, sporting goods, groceries, and especially Mel Gibson's career, saw weakness. This is in contrast to the ICSC's report last week where they broke out their crayolas and limited knowledge of cropping photos or using excel to put out an eyesore-ingly bad table showing that chain store sales were up 3% for the month. To Money McBags, that means people are skimping on more discretionary items and shifting their spend to staples and to stores with lower overheads that can offer deep discounts, of course, all of the data is made up anyway like leprechauns, unicorns, and Larry Craig's wife, so who really fucking knows.
That said, with the consumer remaining hesitant to spend on anything but lottery tickets and something called jeggings (which Money McBags thinks are a mixture of jeans, leggings, and awesomeness), the stimulus having worked most of its way through the system, and extended unemployment benefits on the same life support as George Steinbrenner, there is little about which to be excited (unless you live next door to Sofia Vergara, and if you do, Money McBags would be happy to quickly come over).
In other macro news, mortgage applications sunk to a 13 year low despite record low mortgage rates, declining house prices, and buy one get free specials at foreclosure auctions. Loan requests dropped by 3% with the federal tax break now over and frictional unemployment becoming less voluntary and more permanent thus causing the supply of people moving for work to shrink more than the attendance will for Yale's women's basketball games once Yoyo Greenfield graduates. Finally, the minutes from the last Fed meeting were released today with the Fed lowering their growth forecast for the first time in a year citing lackluster job growth and the creeping in of common sense. The continued struggles of the economy have them contemplating ways to stimulate the market again if data continues to worsen such as buying more assets, keeping rates low until the next bubble, or having Sara Jean Underwood man the Fed's discount window.
Internationally, word is leaking out that 11 banks may fail the european bank stress test including Germany's Commerzbank, Italy's Banco Popolare, and France's Banque de la Pret Merde. But Macquarie Securities director Alessandro Roccati tells us not to despair because "only 11" of the 46 banks will likely fail and 25% of handpicked banks failing a contrived test set up so that none of the banks would fail is only a minor problem, like the hole in the ozone layer, the oil spill in the Gulf, or John Edwards' Q score. In other international news, Singapore raised their growth guidance from 7% to 9% for 2010 to a whopping 15% citing their burgeoning biomedical production capabilities, strong growth in their electronics cluster, and a rise in demand for helicopters. Also helping the Singaporean economy was the opening of two casinos and influx of tourism for "cane your kid at work" day.
In stock news, INTC beat analyst guesses by reporting record revenue and giving guidance way above the street's guess for next Q. Revenue was up 43% and eps of $.51 easily beat analyst guesses of $.43 as the corporate PC upgrade cycle has finally begun since with fewer workers, companies actually need shit to work. INTC's Q has led a rally in large tech stocks such as CSCO, VMW, and MSFT as the upgrade cycle should benefit PC makers.
In small cap news, Money McBags wants to highlight CTGX once again. Now this is one of the stocks he puked out during the "flash crash" becuase it is less liquid than a corn shit and it only takes one fund with a margin call to sink the name, but long term the company should be fine. Money McBags broke the company down for all of you way back in February, but the quick summary is that they have two businesses, one is a boring crappy staffing and solutions business whereby they supply IBM with people to help map out and install servers (which sounds about as fun as dry humping Bea Arthur while being serenaded by the Charlie Daniels Band) and a health care services business which is growing and set to capture share in the electronic medical records market.
The reason Money McBags brings this company up today is that the federal government issued new rules yesterday that will reward doctors and hospitals for the “meaningful use” of electronic health records. The previous rules were a bit too onerous, like Ted Kennedy's designated driver or Susan Boyle's bikini waxer, but the new ones will allow for more hospitals and doctors to get started on EMR. The main point though is that the Department of Health and Human Services said that doctors and hospitals may receive up to $27B in funds to help install electronic medical records over the next 10 years and while Money McBags is not an accountant (though he plays one on April 15th), $27B is a lot of fucking money. Also, starting in 2015, hospitals and doctors will start facing fines and penalties under Medicare if they are not compliant and while doctors hate taking medicare patients because they can't set exorbitant prices for their inelastic demand service (you want your arm reattached? That will be $1MM and a five minute taint tickle, but with your good arm of course), those patients are becoming an increasingly large part of the health care business. Not only will hospitals be getting money to help install EMR and facing penalties if they don't, but as said prevously here, only 20% of doctors and 10% of hospitals already have EMR and there are only ~6 companies who can install them. So this is a big market that is being funded by the government and CTGX is one of only an Antonio Alfonseca handful of companies doing this.
CTGX has said their operating margins are 10%+ on an EMR project and that they last 2-3 years and bring in $2MM to $3MM per project annually so if they can do an incremental 20 projects a year (Money McBags thinks they are starting or working on ~11 right now) and get 10% margin (which may be low), that would translate to an incremental ~$.24 per share. Their guidance is for this year is ~$.50 eps so say their core business just maintains in 2011, that means they could earn ~$.75 on 50% eanrings growth, >20% top line growth, and they are currently trading at ~10x that number. There is a lot of Y2K about this business but installations should ramp up in 2011 and last for a good five to seven years so once this story hits, the stock should have some nice room to grow. Plus, their competence in installing EMR and the dearth of companies who do it combined with the oncoming demand which should be stronger than Andrew Jackson's hatred of Henry Clay or Faye Reagan's breath after a full day on the set of Cock Pigs, should make CTGX an acquisition target for a bigger company like IBM who wants to increase their presence in EMR.
The things to worry about with this company are the liquidity and their core IBM business going to shit since they have less control over that than Whoopi Goldberg does over her bladder or her face. That said, the company has an ok balance sheet and when EMR hits, there is no reason they shouldn't trade at 15x given the likely growth and that would make them an $11-$12 stock (and to be clear, management has not given any guidance on how many EMR projects they can do or what the margins will be other than at least 10%, so Money McBags is making his own estimates which could be too low or too high). You still have time on this name and as long as the core business is going to spit out ~$.50 eps annually, you have a cushion too, so take a look again and buy the dips.
And don't forget WGP is on Facebook and Twitter and if any of you know a good cheap web designer, shoot Money McBags an email at MoneyMcBags@gmail.com because its time to make WGP look better than something the ICSC or Ray Charles would produce (and that's not because Ray Charles was blind, but because he's dead).