4/28/10 Midafternoon Report: The debt claims in Spain fall mainly down the drain

Same shit, different day.  The markets continue to bounce around on news of Europe's impending doom, though this time not by the Daleks or the smell emanating from Posh Spice's girl power, but rather from bankruptcy.  While Angela Merkel continues to tease Europe's proverbial cock with her low cut dresses and constant pledging of support to Greece only to quickly pull that support back like Lucy pulling back a football when Charlie Brown is about to kick it, the US vigorously debates financial reform (only whatever the exact opposite of vigorously is).  Unfortunately Senators accomplished nothing in their questioning of Goldman Sachs yesterday as Lloyd Blankfein, or his doppelganger, answered every question asked to him by simply squawking "inconceivable."  When Senator Carl Levin responded "I don't think that word means what you think," Blankfein pointed to the clock behind the Senators and quickly downed a vial of iocane powder while they weren't looking thus ending the day of questioning.  With the drama out of the way, Democrats and Republicans can now get together and argue the merits of real financial reform and agree to sweeping legislation that will correct the wild west of Wall Street where incentives to cheat the system are more perverse than a Vincent Gallo film.  Oh wait, politicians can't even agree to start the debate as they are too busy trying to keep their egos from running in to the common sense portion of their brains.  At least the interests of the American people are at the forefront of all of this, and yes that was sarcasm.

Anyway, macro data was light today with markets anticipating the Fed notes in the afternoon (and as an aside, Money McBags was privy to one of those notes before it was released and it read:  "Janet, when you said you "liked me" did you mean you "like liked me" or just "liked" me.  Circle one.  Bennie B.").  The only economic data is that mortgage applications fell, though that was driven by a lack of refinancing as purchase applications were up 9% with 50% of that gowth coming from people trying to get the $8k government tax credit before it runs out.  These are just more signs that we are skidding along the bottom (though if it were Alexis Texas' bottom, Money McBags would happily enjoy the skidding) and the question remains how long will it take for a real recovery to occur and will Europe going bankrupt deter further growth.

As for Europe, the Greek financial crisis rages on and has now become the second longest greek saga after the Iliad.  However, there was a new wrinkle to the mess in Europe today and that was Spain being downgraded from entree to tapas by Standard and Poor's.  Apparently the 16 hour work week and 24 hour siesta week has finally caught up with the Spanish.  Now Money McBags isn't calling them lazy, but their top tourist attraction is a church that has been under construction since 1882.  Seriously, when it's finished it better have one hell of a good organ and some pimped out confessionals as only Joan Rivers' face has had construction lasting that long.  Anyway, Germany is back to bailing out Greece as expeditiously as possible, or until tomorrow, which ever comes first (and Money McBags bets whichever one is watching Helena Mattsson will come first) so the markets will continue to bounce around this uncertainty.


In stock news, Comcast's profit rose 12% as they grew their subscribers and apparently started charging for calls of complaints.  Advertising revenue was up 24% mainly due to whatever company is behind Xfinity blasting the airwaves to get their new brand image out.  The stock is up almost 2% today and analysts think they might be starting a meaningful growth trend but Money McBags thinks the cable/high speed internet model will be going the way of black and white TVs and civility longterm, so he couldn't care less.  In other stocks news, DOW saw pricing grow 17% and volume grow 16% as they put up a quarter that was so good it seemed to be made out of bone china and not plastic.  They earned $.43 per share easily besting analyst guesses of $.30 and saw strength pretty much across all business lines.

In small cap news, CRUS continues to run so hopefully you are all enjoying an extra visit to the champagne room on Money McBags, while BWLD and SMCI are going down faster than a hefty 18 year old girl in Tommy Lee's trailer.  BWLD same store sales fell by ~3% across the board as Americans have decided that shitty chicken wings, crappy beer, and awful decor are no longer in vogue.  BWLD now thinks they will be challenged to meet their full year targets and Money McBags would avoid this company like he avoids their crapy restaurants.  SMCI is a different story.  Money McBags has written about SMCI on When Genius Prevailed several times and after their last quarter remarked that they were likely reaching the high end of their valuation.  Of course SMCI ran up about 30% since then so good for you if you owned it but after today's ugly guidance, they are almost back down to where they were.  The company actually just put up a decent fiscal Q3, beating top line street guesses with 87% y/y revenue growth and coming in line at $.21 eps.  There is a lot to like about that like, maybe not as much to like as Kate Hudson's thong, but it was good nonetheless.  The problem is that their guidance for next Q was a bit short on the bottom line with guidance for $.20 to $.23 eps and analyst guesses at $.24.  So guidance is for sequential topline growth, but a potential flat to down bottom line as margins appear to be coming back down which is usually a sign of increased price competition.  Money McBags has not had a chance to listen to their call, but since the CEO's english is about as good as Ben Roethlisberger's dating advice, Money McBags is going to wait for the transcript.  That said, the company has a decent balance sheet with $73MM in cash and no debt even though they had negative operating cash flow as their inventories and A/R have spiked (with their topline rapidly growing, that is mostly explainable).  The comany is trading at ~9x this year's EV/EBITDA and depending on your forecast, ~7x to 9x next year's EBITDA.  That said, it's not clear what growth is going to be for next year as this year featured both a bounce back from the dwindling economy and positive momentum with INTC's launch of the nehalem chip.  Analyst estimates for fiscal 2011 are ~$1.20 so if you believe those a $14 price isn't unreasonable for a cyclical company at the peak or moving towards the peak of its cycle.  That said, we may already be at peak earnings for SMCI as they rely to some degree on new chip launches and with nehalem already out, Money McBags is unaware of the next chip release.  The point is, this is a well run company with a real competitive advantage in that they are able to nimbly meet customer demand and get in early in the cycle, but that early cycle may be over for now.  Their CEO still runs it like a small firm which is good in that they have a singular focus, but bad in that he probably needs to step back a bit for it to continue to grow.  Either way, Money McBags doesn't have a great feel for what next year will look like for SMCI and thinks the price is probably pretty fair.  They've been earning ~.20 per quarter so in a no growth scenario, annualize that to $.80, throw a 12x to 15x multiple on it and you get a $10 to $12 stock which is probably the low end of where SMCI should trade.  If they can continue to grow, this is a good entry point so the real question you all should try to figure out is what the fuck is going to drive sales for SMCI next year because if you think they can continue to grow, the stock is reaching another good entry point, though not quite as good of an entry point as Megan Fox's mouth.  Money McBags would never short this company, but without more details it is too early for him to go long.

1/27/10 Midday Report: In bid to increase approval ratings, Obama to unveil Apple Tablet at State of the Union address as a panacea for US budget problems

The market continues to limp it's way down as investors await tonight's State of the Union address where President Obama is likely to whip out his small business tax breaks and smack them against a non-defense discretionary spending budget freeze.  This budget freeze supposedly applies to 17% of the Federal budget and will have enough loopholes in it to make it less well-followed than the failed reality TV series: Federal Reserve Bank Governor Idol (though Sandra Pianalto yelling at Chuck Evans for leaving the toilet seat up in the house was must see TV).  It does likely mean that the president won't be getting the X-Box he asked for for his birthday as times are tough.  In addition to Obama going after the budget tonight, Apple is set to finally release their new tablet which has techies more excited than they were for the release of Avatar, extra-strength Accutane, or Olivia Munn's Princess Leia photos.  Honestly, Money McBags has not seen anything this eagerly anticipated since the release of those vapidly redundant Harry Potter books or Hanna Hilton's first girl on girl scene (and Money McBags gave that two bums up).  The tablet is supposed to be so awesome that it is said to have cured Steve Jobs' cancer and to run on the tears of baby unicorns.  And finally, the FOMC is meeting today with Bernanke expected to keep rates at their current 0 to 25bps or what we in the business call "free."

While the market awaits that news, there were some macro-reports that came out which highlight the worries people are starting to get about the economy.  New home sales fell in December by 7.6% and were short of expectations as analysts expected sales to rise (and I believe this now makes analysts' incorrect prediction of the simple 50-50 guess at the direction of home sales statistically significant at the 95% level, so they've got that going for them).  Home sales were down as a result of the government tax breaks drying up and the forgotten fact that no one has any money.  Plus as the job market is more frozen than an Alaskan's nuts after a midnight skinny dip in Lake Chilkoot (and yes that is really the name of Lake in Alaska), people simply aren't moving.

In world news, Greece teeters on bankruptcy causing investors to stock up on credit default swaps of sovereign debt and all the tzatziki sauce on which they can get their hands.  Greece is trying to remedy the situation by pawning off 25B of Euro bonds to China as well as stadium naming rights to the Parthenon, and the Golden Fleece.  The flight to quality and away from sovereign debt like Greece has caused one month treasuries to have a negative yield for the first time since March of last year which is about as good of an omen for the stock market as stairs are for Stephen Hawking.

Berkshire Hathaway's B shares are shooting up today like a young Drew Barrymore as word is they will be added to the S&P 500 index after their acquisition of BNI.  Also, Toyota announced they will be shutting down production on eight lines of cars which make up 57% of their 2009 sales due to problems with the accelerator pedals seemingly caused by something called a friction lever.  A friction lever joke is way too easy for Money McBags but this bears watching as the street wonders if Toyota has started to slack on their quality which has been their competitive advantage.  In other stock news, YHOO turned a profit despite a 4% drop in year over year revenue.  Revenue was up 10% sequentially and management said they see search revenue stabilizing so any investor who wants to own a portfolio of market laggards, now is your time to buy.

As for small cap stocks, ZAGG once again continues to trade down making Money McBags' bet on 12/31/09 seem even better as it was likely risk free.  So just remember, betting against Money McBags is like challenging Greg Oden to a cock off (very NSFW or actually anyone, but the news needs reporting), you can't possibly win.  And SMCI put up a huge quarter.  Now SMCI basically makes custom servers and server solutions for businesses, usually being the first to market with new INTC chips, hence the Nehalem release has been driving new business for them.  They just put up $.22 of earning per share on $182MM of revenue (up 42% y/y), easily beating analyst estimates of $.17 and $160MM.  The company also gave above street guidance of $.18 to $.21 eps for next Q and $180MM of revenue in what is typically a down quarter for the industry.  SMCI is an extremely well run little niche company with $82MM of cash on their balance sheet and no debt.  They have a competitive advantage in that they are small and nimble (like Speedy Gonzales or the slightly smaller and more nimble, Shawn Johnson) and therefore can be first to market and customize at the same time.  The company may be peaking but on the call management said they could get back to 30% growth rates as the end of the year should be good for them with AMD and INTC introducing new products.  Estimates for fiscal 2011 are for around $1.10 and they are currently trading at 13 or so times that not including their cash after today's run up.  This should be a cyclical company and this may be the top of the cycle as they have just strung together some very good quarters so Money McBags would not be buying today as the easy money has likely been made.  That said, this really is a quality company and has proven over time that they are good at what they do and well managed.  Should there be a dip, this is definitely a company to accumulate but either way it is worth doing your own research here as they could continue to outperform.