The market ran faster today than Roman Polanski going to get his keys to pick the baby sitter up because the manufacturing sector grew at its slowest pace since December, private construction spend dipped for the second month in a row, and Ben Bernanke said shit still sucks out there. So rally fucking on like Donkey Kong having his way with the princess, only if the princess had tainted his banana wth AIDS.
With the market rallying on macro news that was about as positive as a RuPaul pregnancy test, Money McBags is left to wonder what he is missing, how much the market would rally if there were actually something positive going on in the economy (like maybe either the second derivative of released data positively increasing or the unemployment rate decreasing and not from just from a declining labor force participation rate), and how he overlooked this delightful NSFW Alice Eve scene which has caused his Oscar to stand and applaud. Money McBags is not quite sure how to interpret the market moving in opposition to macro data, as the language of giberrish wasn't on the rosetta stone the last time he checked, but he hopes those of you buying in to this capitualting market are careful.
As for macro news, Benny B warned us that "we have a considerable way to go to achieve full recovery in our economy, and many Americans are still grappling with unemployment, foreclosure, and lost savings, in addition to the angst and nausea they feel every time they look at the deficit and realize their kids may be more fucked than Stephen Hawking in a duel." Ok, perhaps that last bit was made up but, whatever. Bennie B did get slightly positive by saying he fully expects consumer spend to pick up in the next few quarters as wages rise, business demand picks up, and the US finally figures out what to do with all of the underwear they stole.
Money McBags is a bit skeptical of Bennie B's claims since unemployment remains more stagnant than the Terri Moulton Horman for "Stepmother of the Year" campaign or jokes here on the great When Genius Prevailed so it's not clear where these rising wages are going to come from unless it's from laying more people off and then giving those still employed a bit of the saved salary, which of course would do nothing for overall consumer demand. But hey, when Bennie B gets his Fed on, the market listens (to the parts it wants to hear).
In other macro news, the ISM came out with their numbers for July and the manufacturing sector grew at its slowest pace this year, but luckily, the 55.5 number was better than the 54.2 analyst had guessed so rally on my friends. It was the third straight month (and the month was so straight it even got it up for a Kathy Najimy-Rachel Ray threesome) of slower growth but remember, readings above 50 still signal expansion, so apparently there is nothing to see here (except for new orders dropping to their lowest level in over a year, production slowing down, and Kagney Linn Karter).
In the final bit of macro news, construction spending rose .1% as increased investment in public projects (perhaps maybe a bridge to somewhere) offset the 15th straight monthly decline in private nonresidential construction and the .8% decline in private homebuilding (which included growth from the Greenspanville's being erected across the country, and yes, Money McBags said erected). Yowsa. As usual, last month's new construction was revised downward from a .2% drop to a 1% drop as part of the government's "hold the shock and hope for no awe" strategy, so this month's .1% decline should be labeled as "wishful thinking."
Internationally, China's manufacturing sector cooled further as the government tries to reign in reckless speculation on real estate and ben wa balls. The official purchasing managers' index fell to a 17 month low of 51.2 from 52.1, a separate PMI released today by HSBC and Markit Economics showed a drop to 49.4 from 50.4, and a third reading of PMI from the desk of Sum Dum Gai simply took the average of the two. China's ec0nomy slowing down is actually favorable as it has been growing at a rate less sustainable than a conversation involving only eye contact with Christina Hendricks so having it moderate a bit and perhaps not inflate to a bubble like every other emerged economy would be beneficial for all involved.
Driving the market today was the European banking sector thanks to HSBC putting down its fag, rolling up its sleves, and earning the fuck out of some profits. The bank doubled its profits to $7B despite revenue growth declining by 7%, operating expenses increasing by 9%, and no one having any fucking money. Profits rose as losses on bad loans tumbled to $7.5B, just over half of last year's losses, and were the result of bad loans rolling off the books and the bank not lending anyone any money. BNP Paribas also put up a good Q, with the French bank's profits rising due to credit getting better and having Laetita Casta on call to help coax out customer deposits. Just like in the US, bank profitablity seems to be rising across the globe despite declining revenues as credit is improving. That said, credit can only drive earnings for so long until the banks are going to have to start lending to people again to drive revenue and thus the vicious cycle will begin anew.
In other market news, Blackberry is not just losing market share to the iPhone but now the UAE said they will cut RIMM's data service like the dirty infidel that it is. The UAE cited security concerns over RIMM's reliance on encrypted emails which make it easier for criminals to operate and harder for the government to watch that stupid fucking video of the double rainbow that everyone seems to be emailing around. Not since Peter Chung anointed himself King has there been an international email controversy like this and it does not augur well for RIMM's jobs overseas going forward as other countries like Saudi Arabia are also thinking about taking steps to ban Blackberry's mobile services.
Finally, KO got an upgrade today from JP Morgan on the strength of the company's emerging markets and having read Money McBags' columns about the solid brand equity overseas the company enjoys. An article in Baron's also pimped KO today, saying it could rise by at least 10% in the next year because of North American markets and because it still tastes better than water. And last but not least, Corning was up nearly 6% on news that it's 50 year old Gorilla glass could be the next bazillion dollar product for flat screens and touch screens as it is 2 to 3 times stronger than regular glass, half the thickness, and sells for only a few bananas. The lighter, sturdier glass should cut down on shipping costs and scratched screens while also being easier to clean after one gets done with a chat roulette session.
In small cap news, everything was up. Money McBags is short on time today but he wants to highlight KIRK which remains too fucking cheap even though it was up strong today. Money McBags broke KIRK down a little over month ago saying its low end market focus (midwestern/southeastern housewives who love tchotchkes more than Joanie loves Chachi), growth through the downturn (and now they are going to be opening stores instead of closing them), and valuation (it is now trading ~9x to 10x eps estimates not including the $3.50 per share of cash on the balance sheet) make it almost as attractive as Diora Baird, and nothing has changed since then except for John Kyl's stand on the 14th Amendment. The other interesting small cap name is NTRI who traded down big on Friday after what Money McBags thought was an OKish quarter. He has to go through it in more detail and while he wouldn't be a buyer of the stock until their management team actually performs (they are 0 for the last bazillion quarters, rounding up to the nearest bazillion), they pay a nice yield, have a terrific cost structure, and are in a growing (pun intended) market. It's worth keeping on a watch list for when/if they can figure out how to start accelerating their growth rates (Money McBags votes for getting Nicole Eggert as a spokeswoman, but that's just him).
Showing posts with label KIRK. Show all posts
Showing posts with label KIRK. Show all posts
Monday, August 2, 2010
Tuesday, July 6, 2010
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.
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.
Tuesday, June 29, 2010
6/29/10 Midevening Report: Market searches for a bottom, hopefully it's Brooklyn Decker's
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Thursday, June 24, 2010
6/24/10 Midnight Report: Market dials up LifeCall as it has fallen and can't get up
The market tanked at the end of the session like Money McBags' day which has caused today's column to be late, short, and in need of one more read through, but it is what it is. You see, Money McBags was cranking away at his terminal, busily breaking down the news, perusing 10Ks for cheap stocks, and most importantly scouring the interweb for just the right picture of Kelly Brook, when life got in the way and he was called out to the cruel cruel world to fix some dumb shit. With dumb shit marginally fixed, Money McBags is drained of his energy and thus will be publishing his halfway done column today. It ain't Shakespeare or Fante, but luckily it also isn't Santelli, Colmes, or Bartiromo, and so it goes...
New claims for unemployment came out today and they were down 19k, or 15k, depending on if you want to use the number reported last week as your baseline or the "revised/manipulated" number released today. Last week new claims were 472k and this week claims were supposedly down 19k to 457k. Once again, if you do the math you get an equal sign more confused than Helen Keller's dogs (because how the fuck would they know to sit, stay, or roll over when every command sounded like "arhgahgaha."). Analysts guessed new claims would come in at 460k, so they were close enough that one might be deluded in to thinking their regression models actually regress to something believable and that this week's close call was not just luck caused by a random fluctuation, but Money McBags knows better and knows that those models have no clothes (though he is usually in favor of clothes-less models). Either way, the job market remains more challenged than a bus driver in El Salvador or a color blind synesthiac. 4.55MM people remain on traditional unemployment, another 5.3MM remain on extended unemployment, and another 10MM remain on no employment and must subsist off the heat generated from their dying hopes and dreams. Luckily there was news out today that was portrayed as slightly positive with durable goods orders excluding transportation (and durable goods are anything expected to last for 3+ years like cars, machinery, and Savannah Stern's chest) rising by .9% after a .8% decrease in April bringing orders slightly above where they were in March. So in honor of tonight's NBA Draft and the great Derrick Coleman, "whoop-de-dam-do." Additionally, orders for non-defense capital goods excluding aircraft, rose by 2.1% which gives a bit of confidence to the markets that businesses will still be operating in a month.
Internationally, Greek default swaps reached record highs as common sense creeps back in to the market. Eventually Greece isn't going to be able to roll over their debt so we can either make like math doesn't exist and time doesn't move linearly (Einstein's relativity be damned) and live in a happy world where Greece can function in perpetuity despite a debt level so fuck awful that even Stephen Baldwin laughs at it, or we can just buy the fuck out of Greek CDS and get our fiddles ready so we can pull a Nero when Athens burns. In other international news, Australia elected their first female prime minister in Julia Gillard who was born in Wales, is a lawyer by trade, and though never married, dates a male hairdresser which I believe makes him a well trimmed beard. Gillard promises to work with mining companies and be tough on spending to keep Australia's economy from going down under (eat your heart out on that one Jay Leno).
In earnings news, Nike just did it, well that is if "it" is missing analyst guesses of revenues. NKE profit was up 53% which was inline with guesses but revenues of $5.08B were up only 4% (ex. currency flucutations) and missed analyst guesses of $5.15B. Orders were up 9% though and the company did earn $1.04 per share so while the stock sold off ~4% today, it's not like they totally shit the bed or perhaps more appropriately, it's not like they shit on the cold floor in the corner of the room where 20 sweat shop workers sleep on the hour they have off in between shifts of sewing fucking swooshes on canvas sneakers. In other earnings news, Discover found their way to a strong quarter with profit up 14% thanks to improving credit trends, increased customer spend, and the House financial reform bill not having been passed yet. Charge-offs were up year over year to 8% from 7.5% but down sequentially from 8.5% so depending on what trend you want to use, card users are acting better or worse.
In small cap news today KIRK was down ~7% today and as Money McBags said yesterday, he thinks this is a good entry point (though not as good of an entry point as the gap in Jessica Hart's teef). That said, Money McBags refuses to catch falling knives and this stock is clearly falling as investors take profits on shit that has gone up as the market now falls, so wait for this to settle before jumping in as fundamentally it remains as strong as Money McBags' belief in truth, honesty, and Hayley Atwell.
New claims for unemployment came out today and they were down 19k, or 15k, depending on if you want to use the number reported last week as your baseline or the "revised/manipulated" number released today. Last week new claims were 472k and this week claims were supposedly down 19k to 457k. Once again, if you do the math you get an equal sign more confused than Helen Keller's dogs (because how the fuck would they know to sit, stay, or roll over when every command sounded like "arhgahgaha."). Analysts guessed new claims would come in at 460k, so they were close enough that one might be deluded in to thinking their regression models actually regress to something believable and that this week's close call was not just luck caused by a random fluctuation, but Money McBags knows better and knows that those models have no clothes (though he is usually in favor of clothes-less models). Either way, the job market remains more challenged than a bus driver in El Salvador or a color blind synesthiac. 4.55MM people remain on traditional unemployment, another 5.3MM remain on extended unemployment, and another 10MM remain on no employment and must subsist off the heat generated from their dying hopes and dreams. Luckily there was news out today that was portrayed as slightly positive with durable goods orders excluding transportation (and durable goods are anything expected to last for 3+ years like cars, machinery, and Savannah Stern's chest) rising by .9% after a .8% decrease in April bringing orders slightly above where they were in March. So in honor of tonight's NBA Draft and the great Derrick Coleman, "whoop-de-dam-do." Additionally, orders for non-defense capital goods excluding aircraft, rose by 2.1% which gives a bit of confidence to the markets that businesses will still be operating in a month.
Internationally, Greek default swaps reached record highs as common sense creeps back in to the market. Eventually Greece isn't going to be able to roll over their debt so we can either make like math doesn't exist and time doesn't move linearly (Einstein's relativity be damned) and live in a happy world where Greece can function in perpetuity despite a debt level so fuck awful that even Stephen Baldwin laughs at it, or we can just buy the fuck out of Greek CDS and get our fiddles ready so we can pull a Nero when Athens burns. In other international news, Australia elected their first female prime minister in Julia Gillard who was born in Wales, is a lawyer by trade, and though never married, dates a male hairdresser which I believe makes him a well trimmed beard. Gillard promises to work with mining companies and be tough on spending to keep Australia's economy from going down under (eat your heart out on that one Jay Leno).
In earnings news, Nike just did it, well that is if "it" is missing analyst guesses of revenues. NKE profit was up 53% which was inline with guesses but revenues of $5.08B were up only 4% (ex. currency flucutations) and missed analyst guesses of $5.15B. Orders were up 9% though and the company did earn $1.04 per share so while the stock sold off ~4% today, it's not like they totally shit the bed or perhaps more appropriately, it's not like they shit on the cold floor in the corner of the room where 20 sweat shop workers sleep on the hour they have off in between shifts of sewing fucking swooshes on canvas sneakers. In other earnings news, Discover found their way to a strong quarter with profit up 14% thanks to improving credit trends, increased customer spend, and the House financial reform bill not having been passed yet. Charge-offs were up year over year to 8% from 7.5% but down sequentially from 8.5% so depending on what trend you want to use, card users are acting better or worse.
In small cap news today KIRK was down ~7% today and as Money McBags said yesterday, he thinks this is a good entry point (though not as good of an entry point as the gap in Jessica Hart's teef). That said, Money McBags refuses to catch falling knives and this stock is clearly falling as investors take profits on shit that has gone up as the market now falls, so wait for this to settle before jumping in as fundamentally it remains as strong as Money McBags' belief in truth, honesty, and Hayley Atwell.
Wednesday, June 23, 2010
6/23/10 Midafternoon Report: Economy of Stale
The market was only marginally down today despite terrible macro data and a Fed statement about as optimistic as Nouriel Roubini at a funeral (the funeral of course would be for the US economy). New home sales dropped 33% to a record low as once again, and for all of you keeping score at home, THE GOVERNMENT TAX CREDIT EXPIRED (caps and exasperation intentional). According to the New York Times, analysts guessed home sales would drop to 400k from April's previously reported 504k, while according to CNBC, analysts guessed home sales would drop to 410k, and finally according to the WSJ analysts guessed home sales would drop to 430k, so no matter what news source you used, analyst guesses were still fuck awful and worse than Manute Bol's skin. On average, analysts predicted a ~19% drop in new home sales but the number being reported is a drop to 300k, so analysts' guesses of a 19% drop were off by ~25%. Wow. Money McBags wonders if their regression models suffer from colinearity, heteroskedasticty, or just stupid fucking dependent variables. To be that wrong about something and yet still be called professionals stretches the definition of the word "credibility" in ways that would make even Noah Webster's dictionary flaccid. And as usual, making the numbers seem slightly better is that last month's new home sales number was manipulated (Money Mcbags means readjusted) downward to 446k from 504k. So the drop being reported is 33%, or 446k to the all-time record low measurement of 300k when in actuality, the number fell 40% from 504k (which was the reported fucking number last month) to 300k. Readjusting the number downward before the awful report left 7% of "down" out of the reaction of investors who weren't paying attention and instead were busy trying to figure out who they have to fuck to get a job at CNN (And now we finally have a delightful answer to that). Making matters worse is that the supply of homes on the market was up 47% leaving an 8.5 month inventory (though the denominator in that equation, which Money McBags believes is the current annualized sales rate, is creeping towards zero which means we are getting closer to an undefined supply of homes on the market at which point Money McBags believes they should all logically be free and thus homelessness in this country will cease to exist, so perhaps that is the admirable goal of all of this). The point is, home sales/employment/Heidi Montag were all manipulated up over the past few months by tax breaks, stimulus plans, and plastic surgeons, but now that that is over, they are starting to turn back down and that could be worse than eating a shit sandwich with extra E. coli.
In addition to the drop in new home sales, the Fed came out today with their statement from their June meeting which was about as uplifting as the Diary of Anne Frank or nut cancer. According to the statement:
1. Housing starts remain at a depressed level
2. Financial conditions have become less supportive of economic growth on balance, largely reflecting developments abroad
3. Bank lending has continued to contract in recent months
4. Household spending is increasing but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit
5. Investment in nonresidential structures continues to be weak
6. Employers remain reluctant to add to payrolls
7. Hanna Hilton remains retired from porn
Honestly, all of that was taken verbatim from the Fed's statement (well, except for maybe the last one, but they were all thiking it). The Fed's statement paints a bleaker picture of the US economy than what Picasso would have done in his blue period. The Fed then went on to say the rates would stay between 0 bps and 25 bps for an extended period and at least we're not fucking Greece, yet. Money McBags doesn't see how anyone can get excited about the markets after reading that, but then again, he can't understand how anyone can get excited over soccer, so what does he know? But as an aside, congrats to the US soccer team for beating a country with 1/10th of the population of the US on a last minute goal. Truly impressive. For their next feat, Money McBags hears the US soccer team will challenge Michael J. Fox to a game of Jenga.
In Europe, data was just as bleak as in the US although it was reported with one of those foreign accents so it sounded much more charming. The Eurozone PMI is having a bit of PMS as it cramped up and fell to 55.4 from 56.2 while Germany's Ifo was stronger than expectations but future sentiment eroded and stunk like month old sauerkraut left out in hot sun.
In stock news, JBL rocketed up after beating estimates, announcing above the street guidance, and promising to body slam the competition as if the competition were the lovely Meredith Whitney. Also CarMax's earnings took off and beat expectations thanks to selling cheap ass cars in an recessionary environment. The company earned $.44 per share, up from $.13 and easily beating analyst guesses of $.33 while growing revenue by 23%.
In small cap news, there isn't a lot going on but Money McBags wanted to spend some time talking about KIRK today as it has been selling off and is now getting to be cheap enough that you all should consider adding it to your portfolios. KIRK basically sells cheap shitty trinkets that midwestern housewives love to put on their mantels, on their side tables, or over their walls to cover up the beer stains. In yiddish, they're called tchotchkes and in english they're called garbage. That said, the company has been selling a lot of this shit as people are staying home more often and not travelling and thus they are looking for cheap ways to spruce up their houses with a nice Elephant Mother/Baby statue, a Drama Queen plaque, or (and I am not making this up) book boxes to give the illusion that they have some of that fancy learning while keeping the practicality of having somewhere to store their spare teeth and can of wintergreen Skoal. The point is, the company sells goods that are perfect for a recession as they are inexpensive and can brighten up the place where people spend most of their time.
Not only should there be demand for their products, but management has done a fantastic job of turning this company around. Basically a few years ago a PE firm had taken over and the management team was smart enough to saddle themselves with expensive mall based real estate, add too many product skus, and try to bring their products up market and sell their customers gold plated mirrors when all they really wanted were some monogrammed candles and a fucking amber wall sconce or two. The point is, the management team had misread their customers, killed their margins through higher operating expenses, and basically performed worse than a John Meriwether investment vehicle. Of course this was all happening as the recession was starting so it made everything much worse, but luckily Carl Kirkland got fed up with the dumb shit and took over his company again and brought in a management team to turn things around. Since then they have cut the skus, pared expensive real estate (they are now ~75% off mall), and focused the strategy back on selling cheap tasteless crap, and that has worked phenomenally. The company's revenue was flat in 2008 and grew in 2009 and last Q revenue was up 12% despite having 15 fewer stores (they now have ~280 stores). The plan is to open ~20 net new stores in the second half of the year and thus grow for the first time since the recession hit.
But here's the best reason to like this company, it is fucking cheap. They earned $1.71 last year and estimates for this year are ~$1.60 due to an increasing tax rate. That said, top line guidance is for 5% to 8% growth with 3% increase in operating margins so if you take the best case scenario, the company could actually earn ~$1.85 to $1.90 for the year. The stock has sold off recently and is now ~$18 which is <10x best case scenario and ~11x analyst guesses but they have ~$3.50 cash per share on the balance sheet and no debt which makes this almost as attractive as Nicole Trunfio. At a minimum this company should have a 14x market type multiple and throwing that on analyst guesses (which could be low) yields a $22.50 price and if you add the $3.50 in cash to that and you get to ~$26 target price which is ~40% upside to today. Also, they had ~$52MM of EBITDA last year ($47MM op. income + $~$15MM depreciation) and have a current EV of ~$300MM so are trading at <6x forward EBITDA since EBITDA should grow with growing top line and slightly improving margins. The negatives are that margins have pretty much topped out, they now have to show they can profitably grow new stores, and like all retailers they need to keep their merchandise relevant. That said, the stock has traded off for no reason so it's a good time to start a position (and if the position is a reverse eiffel tower, even better) because it's cheap and they seem to have a solid grasp of their target market.
In addition to the drop in new home sales, the Fed came out today with their statement from their June meeting which was about as uplifting as the Diary of Anne Frank or nut cancer. According to the statement:
1. Housing starts remain at a depressed level
2. Financial conditions have become less supportive of economic growth on balance, largely reflecting developments abroad
3. Bank lending has continued to contract in recent months
4. Household spending is increasing but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit
5. Investment in nonresidential structures continues to be weak
6. Employers remain reluctant to add to payrolls
7. Hanna Hilton remains retired from porn
Honestly, all of that was taken verbatim from the Fed's statement (well, except for maybe the last one, but they were all thiking it). The Fed's statement paints a bleaker picture of the US economy than what Picasso would have done in his blue period. The Fed then went on to say the rates would stay between 0 bps and 25 bps for an extended period and at least we're not fucking Greece, yet. Money McBags doesn't see how anyone can get excited about the markets after reading that, but then again, he can't understand how anyone can get excited over soccer, so what does he know? But as an aside, congrats to the US soccer team for beating a country with 1/10th of the population of the US on a last minute goal. Truly impressive. For their next feat, Money McBags hears the US soccer team will challenge Michael J. Fox to a game of Jenga.
In Europe, data was just as bleak as in the US although it was reported with one of those foreign accents so it sounded much more charming. The Eurozone PMI is having a bit of PMS as it cramped up and fell to 55.4 from 56.2 while Germany's Ifo was stronger than expectations but future sentiment eroded and stunk like month old sauerkraut left out in hot sun.
In stock news, JBL rocketed up after beating estimates, announcing above the street guidance, and promising to body slam the competition as if the competition were the lovely Meredith Whitney. Also CarMax's earnings took off and beat expectations thanks to selling cheap ass cars in an recessionary environment. The company earned $.44 per share, up from $.13 and easily beating analyst guesses of $.33 while growing revenue by 23%.
In small cap news, there isn't a lot going on but Money McBags wanted to spend some time talking about KIRK today as it has been selling off and is now getting to be cheap enough that you all should consider adding it to your portfolios. KIRK basically sells cheap shitty trinkets that midwestern housewives love to put on their mantels, on their side tables, or over their walls to cover up the beer stains. In yiddish, they're called tchotchkes and in english they're called garbage. That said, the company has been selling a lot of this shit as people are staying home more often and not travelling and thus they are looking for cheap ways to spruce up their houses with a nice Elephant Mother/Baby statue, a Drama Queen plaque, or (and I am not making this up) book boxes to give the illusion that they have some of that fancy learning while keeping the practicality of having somewhere to store their spare teeth and can of wintergreen Skoal. The point is, the company sells goods that are perfect for a recession as they are inexpensive and can brighten up the place where people spend most of their time.
Not only should there be demand for their products, but management has done a fantastic job of turning this company around. Basically a few years ago a PE firm had taken over and the management team was smart enough to saddle themselves with expensive mall based real estate, add too many product skus, and try to bring their products up market and sell their customers gold plated mirrors when all they really wanted were some monogrammed candles and a fucking amber wall sconce or two. The point is, the management team had misread their customers, killed their margins through higher operating expenses, and basically performed worse than a John Meriwether investment vehicle. Of course this was all happening as the recession was starting so it made everything much worse, but luckily Carl Kirkland got fed up with the dumb shit and took over his company again and brought in a management team to turn things around. Since then they have cut the skus, pared expensive real estate (they are now ~75% off mall), and focused the strategy back on selling cheap tasteless crap, and that has worked phenomenally. The company's revenue was flat in 2008 and grew in 2009 and last Q revenue was up 12% despite having 15 fewer stores (they now have ~280 stores). The plan is to open ~20 net new stores in the second half of the year and thus grow for the first time since the recession hit.
But here's the best reason to like this company, it is fucking cheap. They earned $1.71 last year and estimates for this year are ~$1.60 due to an increasing tax rate. That said, top line guidance is for 5% to 8% growth with 3% increase in operating margins so if you take the best case scenario, the company could actually earn ~$1.85 to $1.90 for the year. The stock has sold off recently and is now ~$18 which is <10x best case scenario and ~11x analyst guesses but they have ~$3.50 cash per share on the balance sheet and no debt which makes this almost as attractive as Nicole Trunfio. At a minimum this company should have a 14x market type multiple and throwing that on analyst guesses (which could be low) yields a $22.50 price and if you add the $3.50 in cash to that and you get to ~$26 target price which is ~40% upside to today. Also, they had ~$52MM of EBITDA last year ($47MM op. income + $~$15MM depreciation) and have a current EV of ~$300MM so are trading at <6x forward EBITDA since EBITDA should grow with growing top line and slightly improving margins. The negatives are that margins have pretty much topped out, they now have to show they can profitably grow new stores, and like all retailers they need to keep their merchandise relevant. That said, the stock has traded off for no reason so it's a good time to start a position (and if the position is a reverse eiffel tower, even better) because it's cheap and they seem to have a solid grasp of their target market.
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