7/6/10 Midafternoon Report: Heat wave melts market rally, or maybe it was common sense

Holy crap is it hot out today.  It's so hot that the only difference between the East Coast and hell is that Jim Cramer isn't in hell, yet.  Anyway, the market was rebounding a bit after downing several vials of muscle relaxant to help cure the severe case of lockjaw it developed from going down so much and so frequently over the past few weeks, but that all changed in the afternoon when reality sunk back in to investors' portfolios.  While this was likely a minor temporary relief rally, like Mel Gibson's career after his first anti-semitic tirade but before his second tirade where he told his wife that that he was going to burn the house down among other colorful and completely insane ramblings, you should all trade in to it carefully.  And yes, things have now gotten so bad that Money McBags is forced to use Mel Gibson's racist rants as analogies for the market, so we've got that going for us, but at least we'll always have the dot-com boom.

The main problem today is that macro news is lighter than Suze Orman's resume and that is why the market tried to rally a bit.  The ISM released their non-manufacturing index which measures 90% of the legal economic activity in the US and to the surprise of no one (other than analysts, economists, and CNBC), it fell to 53.8 which was a 4 month low and below the 55 guess of analysts.  Out of the 11 metrics the ISM measures, 10 slowed down and one stayed the same (something called Supplier Deliveries, and in this economy all deliveries are being supplied in the rear). 

Internationally, Australia kept interest rates at 4.5% claiming “uncertainty about the pace of future global growth."  Though if you read the fine print, they say the uncertainty is whether it will be 0%, negative, or global economy crushing.  Finally, the market waits for Thursday's ECB policy meeting where Jean-Claude Trichet will try to the soothe the market's fear of european banks failing by assuring them that stress tests will be run and then offering the market a nice sitz bath.  While it's nice that the ECB is contemplating stress tests (which will no doubt show that european banks need to add more fish oil to their diets, start running for 30 minutes a day, and clean up their fucking balance sheets to try to get healthy), there is absolutely no way that european banks don't get a clean bill of health and there is absolutley no way the ECB's assessment will be correct.  151 banks just rushed to get funding from the ECB which is the most in a year and if that is a signal of health, than my name isn't Money McBags.

In large cap stocks, a report from the Semiconductor Industry Association showed chip sales were up 47% last month thanks to demand from China, India, and the Lawson family.  This has helped lift chip stocks and regardless of the economy, Money McBags is a believer that the pace of technological advancement will continue to accelerate and thus having some semi exposure in your portfolio should be a longterm benefit like windpower should be a benefit to the environment,  saving should be a benefit to the economy, and a tracheotomy to Lady Gaga should be a benefit to ending noise pollution.  Also, BP was up today after an upgrade by RBS from "Hold" to "Buy."  In addition to that upgrade, RBS announced they will be dropping the "R" from their name to hereby just go as "BS" and are retroactively initiating coverage on Enron with an "Accumulate" and Kate Beckinsale with a "Sell."

In small cap news, it is ugly out there.  Money McBags favorites KITD and KIRK continue to get pounded even though they are so cheap that if they were materials, not even China would use them.  KITD is a bit funky because so much of their revenue is Euro driven so Money McBags has no feel for their upcoming revenue because a lot will depend on the average fx rate they use in conversion as well as the actual revenue split.  So he expects them to miss analyst revenue estimates in the short term but long term, this company is growing 50%+ ex. currency effects, it is in a fast growing market, and they are among the biggest players with cash to spend to continue the roll up.  This is the time to be building a position here even though the market is totally full of shit.  You wait for chances like this to buy good companies cheaply, same with KIRK, so keep KITD and KIRK front of mind.

One interesting name which continues to fall and is becoming more appealing is IMAX.  Money McBags broke them down a few months ago but basically they have been able to grow rapidly due to a JV theater strategy that has allowed them to open more theatres and take less risk.  The did $42MM of adjusted EBITDA in Q1 but that was driven by a little something called Avatar which has now passed through the theater system like a kidney stone through a urethra only with less pain and with more aliens.

In the quarter prior to last, the company did ~$20MM in EBITDA (so $80MM annual run rate) and estimates are for $100M both this year and next year with the Avatar business leaving but new theaters picking up that lost growth.  The current EV is ~$800MM so the company is trading as 8x to 10x EV/EBITDA which isn't terribly cheap on the high end, but at the low end, it is getting to be attractive (not quite Alice Eve attractive, but probably Amber Lancaster attractive, and Money Mcbags is ok with that).  The problems are that there has been a lot of retail money in this name which needs to get out, there is fear of pricing pressure killing their high ticket premiums, it is unknown how many JVs they opened this Q, and the business still relies on content and content is fickle (as noted by the brilliant WGP which every now and then misses the mark, like perhaps today, but in Money McBags' defense it is very very hot).

The most recent Shrek movie underperformed because at some point even little kids can only take so much of Mike Myers so that, on the heels of Avatar going CGbye, is setting up IMAX for a top line miss.  Today, the stock was down 10%+ on no news other than pretty decent numbers for the latest Twilight movie which is sure to slowly, unoriginally, and vapidly kill pre-teen brain cells everywhere.  IMAX brought in $9MM from that likely abortionally bad movie in the opening week which is certainly at least as good as they could have expected.

Look, Money McBags could talk about EBITDA, revenue growth, and Ashley Greene in 3D, until he turns bluer in the face than a depressed smurf but the issue with IMAX stock is not the fundamentals, it's the investor base.  The stock was a high flyer, a momentum trendy name that drew in a lot of retail investors who institutional investors and hedge funds were able to continue to milk until deciding to blow out.  Basically, once Avatar left and the story went from "we have the hottest fucking movie in history in a unique format" to "come watch an animated donkey in 3D," growth investors ran.  They bought the rumor and sold the news as if the news had slept with Magic Johnson.  So now IMAX is in that weird stage where momentum investors have left and it is not yet cheap enough for value investors to buy.  That thesis makes less fundamental sense than string theory, but it is what it is.  So with institutions having puked this out, retail sellers are now taking their losses and when they wash out, value investors may start to kick the tires, check the oil, and make sure all of the company's johnson rods are in order.

So look, Money McBags thinks this company is certainly on pace to do $80MM-$100MM of EBITDA this year and will likely at least hit those same numbers next year as JVs grow and people take even fewer vacations and thus spend more money on cheap family entertainment.  So if you are a longterm owner, you don't need to ditch anything here.  That said, this should trade down with the market as people take gains and value investors probably won't get interested until ~6x EV/EBITDA and if they earn $80MM-$100MM of EBITDA, that is still 25%-40% down to go, so you can probably still find a better entry point.  Now it is possible for the company to earn much more than $100MM of EBITDA next year, but one has to make a few leaps of faith on JV openings, content, and the economy not going to $0, to get there, which is why Money McBags prefers to use the safer $80MM-$100MM run rate.  The company basically needs to show they can perform without Avatar and while Money McBags thinks it is likely they will continue to drive traffic, he would hold off buying for another 20% down (and if it rockets up and you miss it, you need to be ok with that) because no matter how much you try there are four things you shouldn't do in life:  Spit in to the wind, start a land war in Asia, forget to look for the Adam's apple, and fight the market.  So keep IMAX on your watch list and get ready to pounce when it washes out.

And don't forget, When Genius Prevailed recently joined Facebook to make it easier to spread the gospel.

3/12/10 Midday Report: Macro data sending more mixed signals than a drunk married co-worker at a holiday party

The market was down in the morning with conflicting economic data having been released.  Retail sales increased in February by .3% which easily beat estimates of a .2% decline (though the difference is so insignificant it could be contributed to a rounding error or some d-bag buying that one extra pair of Joes Jeans).  Excluding auto sales, retail sales were up .8% which should give investors confidence that people will still buy shit even though they can't get jobs (and snowstorms in the Northeast didn't stop people from continuing to run down their savings either).   Alternatively, making matters worse was the University of Michigan's consumer sentiment index coming in below expectations.  The index came in at 72.5 (not 72.4 or 72.6 for those of you scoring at home) and was below last month's 73.6 and expectations of 74.  Look, Money McBags continues to be befuddled by what any of those numbers mean.  How much worse is 72.5 than 74?  Really?  If the number had been up just an additional 1.5 points then the market would have been fine.  The consumer sentiment number seems more fictitious than Larry Craig's wife and more preposterous than someone with a constipation fetish (and I'm pretty sure that guy is not a mathematician even though he apparently likes to work things out with a pencil).  So retail sales were good, but consumers apparently feel bad about spending on shit they can't afford.  Welcome to America, no go buy a flat screen (that you can't afford).

In other news, apparently Janet Yellen, the current president of the Federal Reserve Bank of San Francisco (where everyday is funday) is set to take over for Donald Kohn as Ben Bernanke's #2 in charge after a strong showing in the swim suit competition.  It was neck and neck between Yellen and Federal Reserve Bank of Boston president Eric Rosengren until Rosengren went for the hail mary by breaking out a thong and prancing down the runway to the Go-Gos "We've Got the Beat."  In the end (both literally and figuratively), the thong worked against him.  Yellen is said to be in favor of low rates, economic stimulus, and long walks on the beach.  In her free time she studies the labor markets, authors economic texts, and makes a mean peach cobbler.  She is also married to a Nobel Prize winning economist who won the award for his work on assymetric information, though he clearly understood the work better than the Nobel judges (and for you non-economics geeks out there, trust me, that was hella funny).  So welcome to the job Janet, working directly under Benny B should be quite an experience, just ask Mrs. Bernanke (Oh! drumshot please).

In stock news Schwab warned that Q1 will fall short of Q4 as trading volume in February was down 14% and the company now expects to earn around $.10 per share which is below estimates of $.15.  Most troubling is that trading volume was down despite February being the first month of lowered prices for small investors.  This either says that trading is inelastic (which it is) and thus they should raise their prices (oligarchy be damned) or they should just keep prices where they are and start a monthly contest to stimulate trading.  Money McBags would propose a contest where each time a trade is made, that person should get an entry in to an end of month drawing with the prize being a momentum day trading session with CNBC's Amanda Drury where she'll interpret your bollinger bands and show you how your wiener process can cause her some brownian motion (and yes Money McBags used that joke the other day, but it needed to be said twice).  Look Money McBags knows Schwab has to lower prices in order to be competitive with other online brokers to bring customers in, not to actually stimulate trading, but still, the whole industry needs to either just make trading free, or stop lowering prices in their poorly played game of chicken.  Online brokers are so bad at game theory they must think the Prisoner's Dilemma is whether the prisoner should pick up the soap or not once he has dropped it in the shower.  In other news, POT raised their Q1 earnings guidance from $.70-$1.00 per share to $1.30-$1.50, well ahead of analysts $.94 estimates.  The increased guidance was caused by a rebound in potash demand and higher-than-expected margins in nitrogen and phosphate, or to put it more simply, more people were buying the shit out of POT's nutrients at much higher prices.  Money McBags has owned POT for quite some time as a way to diversify his portfolio (he found that simply reading The Biography of Frederick Douglass to his portfolio was not an effect diversyfing tool, though it did increase his portfolio's empathy) so he'll take the increased guidance.

In small cap news WILC finally placed their 3MM shares to raise $20MM of cash to go with the $26MM of cash they already have while diluting shareholders by 15% (or about what the stock is down today).  The offering price was $6.05 so Money McBags is a fucking idiot for not selling yesterday when he told all of you readers he was a "Vern Troyer taint hair" away from selling.  This company is Biz-fucking-zarre.  We might as well hold on now until the phone call so Zwi can share his wisdom with us as to why a $70MM market cap company needs almost $50MM in cash and perhaps he'll also let us know why he includes discontinued operations in his quarterly earnings summaries.  Money McBags is less happy about this share offering price than when he found out that that no talent assclown Mario Lopez was boning this chick (and Money McBags would love to be saved by her bells).  IMAX is also trading down today after their big Q yesterday which may have triggered a momentary short squeeze while also likely triggering a few cases of epilepsy in those who actually sat through Avatar in 3D.

Money McBags is short on time today and will likely be short on time next week but will still try to pump out a daily market update.  Stock analysis may just be lagging.  Either way, join Money McBags on twitter and enjoy the weekend.

3/11/10 Midday Report: Yield curve spread continues to fatten, claims it wants to star in Precious sequel

The market is holding steady today as foreclosures in the US rose at their slowest pace in four years.  While slowing rates of foreclosures are sort of pyrrhic news similar to declining new cases of AIDS or slumping sales of country music cds, a slower rate means a slower rising homeless population and that can't be bad (unless you're scabies).  Though foreclosures were up 6% from last year, they were down 2% from January, and were aided by government legislation and loan modification programs such as helping homeowners to lower monthly payments, refi to lower rates, and break in to loan officers' file cabinets to burn original copies of their mortgage documents.  California saw default filings down 15% though still remained the state with the most default notices, but interestingly Florida's defaults rose by 16% and Michigan was up a ridonkulous 59% which begs the question "who knew people still lived in Michigan?"  Also making the market nervous today is investors increasing their bets on inflation with the yield curve within spitting distance of swallowing up its all time high.  The spread between thirty year bonds and two year bonds is now 377 bps as investors are starting to demand more yield for buying long term bonds thanks to the potentially Madoff-ian style recovery the US government is attempting to manufacture by borrowing $7ishT which they will pay back later once they raise some more debt or win the Powerball lottery just a few billion times.  Jobless claims were also out today and they fell by 6k to 462k which is also about the number of people who caught ear herpes from inadvertently turning on the radio to a Black Eyed Peas song.  Economists were expecting claims to fall by 8k, so the number was slightly disappointing but the difference between dropping by 1.3% instead of the expected 1.7% is less meaningful than William Henry Harrison's presidency or Tom Cruise's marriage.  While initial claims were slightly down, 4.56MM people continue to receive unemployment benefits and to put that number in perspective, it's more people than the entire population of Irleand and only slightly less than the number of "working" actresses Ron Jeremy and Peter North combined to bone in the 1980s.

In international news, Greek workers have continued to strike with no flights, trains, or buses operating in Greece yesterday so it's good that tourism only accounts for 15% of their GDP (and yes that was sarcasm).  The Greeks contiue to cut their well chiseled greek noses just to spite their faces (and if they go near Maria Menounos's face, they will have to answer to Money McBags).  Courts also shut down while hospitals remained with just emergency staff.  Wow.  So with no transportation, no laws, and little medical attentions, Greece has just become the Detroit of Europe.  In other international news the Chinese CPI was up 2.7% which is below the government's 3% target but a bit higher than estimates.  Depending on which news source you read, the 2.7% number is either manageable or way too high, so draw your own conclusion (though if Money McBags were to draw a conclusion, it would probably look something like this(maybe NSFW)).

In stock news, financials continue to rally with AIG and C leading the way as Enron executives now lament not receiving a government bailout as they opine: "if only we had more time."  Money McBags remains less interested in owning C than he is in getting in to a tickle fight with Eric Massa (and honestly, Money McBags doesn't care if it's your 50th birthday but if you ever try to tickle him and your name isn't Kate Bosworth or you weren't born with a uterus, there will be a fucking problem).  In other stock news Navistar continues to plunge after driving itself off of a cliff with an earnings number the other day that was only 1/3 of what analysts were expecting ($.23 per share vs. expectations of $.85).  A spokesman for the company said "if you just round up the nearest dollar, we at least met expectations." He then pointed to a spot behind reporters and yelled "Hey look.  Kool Aid!" before bolting out of the room.

In small cap news, Money McBags still eagerly waits for a response from WILC COO Zwi Williger to the questions posed yesterday on When Genius Prevailed.  Money McBags' finger is now a Vern Troyer taint hair away from hitting the sell button on his computer to ditch his WILC shares.  IMAX was out with their 4Q results last night and posted a profit while forecasting a "very strong year" ahead.  Avatar helped fuel their profit for the year as people love getting motion sickness while not moving, yet it was not a huge contributor to Q4.  The company continues to perform well as box office receipts for the first two months of the year are up 6x to $187MM.  Additionally, their JV strategy has increased gross margins from 24% to 51% and they believe that they have a continued strong upcoming movie schedule with Alice in Wonderland, How to Train Your Dragon, and a 3D remake of Ishtar.  The company just earned $60MM of EBITDA for the year and $20MM in the quarter with about $30MM of net debt so they are trading at around 13x an $80MM annual EBITDA run rate which isn't crazy expensive for a compay producing these results.  Of course one could argue that the current EBITDA run rate is way too low based on recent performance and growth of JVs.  Now look, Money McBags has said the stock seems expensive, and it's certainly not cheap, but they just blew away his expectations.  They continue to outpace his skepticism so it is definitely worth doing more research on the name.  The 3D trend apears to have more staying power than an American Idol winner and the JV strategy is ridiculously profitable.  Money McBags only wishes they would show any of Gracie Glam's heartwarming movies in 3D, that is if he could have the theatre to himself.

3/8/10 Midafternoon Report: Market more mixed than reviews of Oscar telecast (and for the record, Money McBags gave it two thumbs in the ears)

The market is quiet today, likely still in bed after staying up all night to watch something called The Hurt Locker win so many Oscars that that the people who couldn't get tickets to Avatar may now go see it (that is if Alice in Wonderland is also sold out and they hate fun).  The biggest news in the markets today is that AIG sold the second of its crown jewels, their foreign life insurance business Alico, to Met Life for $15B and with both of the AIG family jewels gone, they now qualify for a spot in the 2010 Eunuch Olympics.  A business hasn't sold off two profitable units like this since Pam Anderson downsized her boobs (of course she had them re-inserted faster than Warren Buffett talks up his own book because you always have to keep the things that make you money).  This sale gives AIG enough cash to pay some of their debt back to Uncle Sam and thus keeps their proverbial kneecaps intact for at least another couple of months because Uncle Sam doesn't play when you have his money, just ask Wesley Snipes.  Unfortunately, AIG still owes the US government another $50B and seeing as how they have now sold off two of their biggest profit centers and their business won't generate $50B in profits until sometime around the year "two thousand and go fuck yourself," it is unclear what tricks they will do next to appease Uncle Sam (Perhaps Uncle Sam will "lend out" some of AIG's CDS expertise to China to try to smooth over relations and yield a happy ending for the two super powers).  You just don't take daddy's money and get away with it.

In stock news MCD same store sales were up 4.8% in February driven by overseas sales and the $1 menu in the US.  Money McBags is an owner of MCD as he believes in their affordability and brand equity in the fast growing developing nations.  So even if Money McBags won't get high off his own supply by refusing to eat the swill that they serve at McDonald's (he would rather eat a Gabourey Sidibe burger out of the bun than whatever it is they serve at MCD's), Money McBags believes in the company.  In other large cap names, RIMM got an upgrade from the Bank of Montreal today which has driven the stock up almost 5%.  The BMO analyst raised his price target to $88 citing expected strong Q4 sales, a potential guidance raise, and Apple aboot (BMO and RIMM are Canadian after all, eh?) to go out of business because iPhones are for sissies (ok, that last one may have been made up).  Now look, Money McBags is never a fan of owning the second best competitor in a space (he'll go Bang Bus any day over Backseat Bangers), but he will admit that he owns some RIMM simply because it is as cheap as a homless man's balls for it's growth as it is trading at less than 20x 2010 EPS estimates and less than 15x 2011 eps estimates despite continuing to dominate the business handset market like Nipsey Russell dominated the 1970s game show circuit (where he did more than just fill in Brett Somers' blanks).  RIMM is getting 20% topline growth and 30%+ bottomline growth and you're only paying 15x for that.  The stock is still a reasonable buy but it is unlikely to be a longterm holding for Money McBags as their end game is becoming more challenging than playing herpes roulette with Paris Hilton.

In small cap news, apparently a fuckload of people dropped some acid this weekend and went down to the local IMAX to see Alice in Wonderland (and Money McBags would march his hairs to the IMAX if it were Alice Eve's wonderland they were showing.  He'd definitely let young Ms. Eve mock his turtle while he chesired her cat.).  IMAX theatres pulled in nearly $12MM this weekend as this 3D spectacle eclipsed even Avatar's opening run and led IMAX to sell out every seat they had for the entire weekend.  This has sent IMAX stock up 9% but Money McBags is still not buying as the stock is expensive and the movement today is likely retail money on the announced headlines.  IMAX could run some more as its momentum coming out of Oscar weekend could be so great that it attempts to defy the laws of physics and create a coefficient of restitution greater than 1, but this story is longer in the tooth than Kirsten Dunst.  In other small cap news, EBIX annonuced their quarter and is trading down despite a 55% increase in revenue, a 53% increase in net income (operating leverage be damned), a 99.5% customer retention rate for the year, $12MM in cash flow for the Q, and a forward p/e less than 15x.  Money McBags has written about EBIX many times as nothing about the company makes sense and their financials and business are more opaquely complex than the Weiner process of Brownian motion (and I can assure you that is nowhere as dirty as it sounds).  The stock is ridiculously cheap based on the fundamentals of the business but shorts have been all over it due to aggressive acquisition accounting, receivables growth outpacing revenue, the CEO having a bigger ego than Joe Francis has, and a proclivity to switch auditors at the drop of a questionable debit.  Short activity was addressed on the call as a caller brought up that short exposure has climbed from 200k shares to 10MM in six months and the fact that EBIX has changed their auditors more times than Heidi Montag changed her face.  CEO Robin Raina addressed this with some kind of Jedi mind trick ping pong analogy (no really he did) and a quote from some Latin American intellect whose name yields zero google hits (the transcript from the call has Robin "Making it" Raina quoting some guy named Joe Moppi which is either spelled wrong or more fictitious than EBIX's growth rate, can we get an auditor on this?).  Kidding aside, Money McBags still has no idea what to do with this company.  He has a hard time believing it is total fraud but there is enough smoke to just keep him away from it.  That said, if you can get comfortable with their numbers, the stock is ridonkuously cheap.  Money McBags wouldn't short it, but as always, there are easier ways to make money (like KITD, MLNK, or CRUS).

12/11/09 Mid-Morning Report: In the year of the ox, China is showing it's hung like one too

There are three big pieces of news out this morning:  US retail sales beat expectations, China is producing the fuck out of some shit, and Nell McAndrew is hot (this may not be news to some, but Money McBags is just brushing up on his British history and he would have fought the fuck out of some Battle of Hatings for Ms. McAndrew).  As far as US retail sales go, they were up 1.3% and up for the second consecutive month.  Most interesting is that core retail sales (excluding gas, autos, building materials, and blumpkins) were up .6% with purchases of electronics and appliances up 2.8%.  Wow, color Money McBags impressed (as long as it is a nice soft blue color to match Money McBags' eyes).  Perhaps the consumer isn't as dead as feared and this is certainly a positive surprise.  People love them some electronics so as long as their credit cards haven't charged off, perhaps they can continue to support the economy.

New data is also out on China showing industrial output rose 19% and imports rose 26%.  Those numbers are so Bubblicous that Cadbury is thinking of suing for patent infringement.  Two important facts though before we get too excited like Rodman Renshaw pumping Chinese IPOs.  1.  China output still remains below where it was pre-crash.  2.  There was such a large stimulus by the Chinese government that Timothy Geithner is said to be quietly suffering from stimulus envy.  So let's temper our excitement just a bit and perhaps let the  Dom chill a bit more instead of cracking it open right now.

The market has had more of a tepid reaction to this news than Money McBags would have expected, but then again he also expected Wes Anderson to make a good movie after Rushmore and look how that worked out.  Perhaps the market is still in awe from opening night of Avatar which has critics in a tizzy and continues to pump up IMAX stock like a tulip in the Netherlands in 1636.  You would be getting in a little late in the game, but IMAX's JV strategy, new movement into Europe, and improved film distribution techniques thus allowing them to show a more diverse schedule and be more nimble, have been driving this stock up with Avatar's potential serving as the cherry on top of their ice cream sundae or the extra hands in their threesome, if you will.  The market seems to be selling the news a bit today, so keep your head up and be smart.