7/7/10 Midafternoon Report: Bulls hit

The market was up today because we are due for a brief rally until we resume our fall in to the abyss like King Midas' son Anchurus (only without saving the Earth) or like Alan Greenspan's reputation.  The market has reached the point where some stocks have simply been oversold and with the lack of meaningful macro data and the beginning of earnings season, it should take less to get the market excited in the short term than it takes a teenage boy with a bad case of priapism to get excited.  We basically have a tired market that is succumbing to VIX (not unlike a tired Gay succumbs to Dix).  Today's rally is being driven by State Street announcing they will beat earnings and by retail sales defying all logic, common sense, and income levels and being estimated to have grown at their fastest pace in 4 years.

The International Council of Shopping Centers (known more familiarly as ICSC or "Who?") preannounced the results of the study they will release tomorrow, in affect scooping themselves in a strategic move to try to keep LeBron James's choice of teams for free agency out of the news and to make the ICSC more of a household acronym than PETA, ROTC, and NAMBLA .  The ICSC remarked that retail sales "probably" came in at 3% to 4% growth for the month and will average 4% for the first five months of the year.  Of course you all might remember that the ICSC also said Teddy Ruxpin will "probably" make a huge comeback, Walmart shoppers "probably" understand that one size doesn't fit all, and Lindsay Lohan will "probably" show up for her treatment any time now, so buyer beware.

Internationally, Europe has installed a cap on bank bonuses with bankers not allowed to take more than 30% of their bonuses in cash.  The remaining 70% will now be awarded in stock, gold, or the still beating hearts of freshly clubbed baby seals.  Europe bank stocks are also rallying because the rumor is that the haircuts they will have to take on Spanish bonds will be done by Ken Paves and not some dildo with a flowbee at Supercuts.  It was leaked that Spanish bonds will only be written down by 3% and not the presumed 10% to 20% some people estimated while German bonds will get no haircuts and thus will go for the Chrystal Gayle look.  In other international news, The Agricultural Bank of China raised $19.2B in their IPO yesterday which gives it a valuation richer than C, GS, or Christina Hendrick's bra.

In US stock news, STT is rallying the entire market as they expect to beat earnings guesses soundly by bringing in $.93 per share vs. guesses of $.72.  They also announced a $251 injection of capital to support certain trust funds managed by State Street Global Advisors that engage in securities lending and other types of fraud, I mean portfolio maintenance.  In theory, this "mitigates potential liability concerns" unless someone really wanted to sue them because there isn't one financial services company that is not involved in shady activities.  In other stock news, Family Dollar dropped ~9% after beating quarterly analyst guesses but giving below consensus guidance.  Guidance was for $.46-$.51 per share next Q and guesses were for $.53 while CEO Howard Levine said "The environment remains challenging for consumers, and customers continue to buy close to need, that said, we are being conservative but think ultimately we will do well since we sell cheap shit and people can only afford cheap shit"  (though the last part of that quote could have bee made up).  The sell off seems overdone to Money McBags but he doesn't follow FDO so he is not sure where comps are trading right now but at the high end their full year guidance is only $.01 below street guesses so either the whisper number on the street was much higher (and thus analysts as usual were scared to stick their necks out) or dropping 9% on guidance a Khagendra Thapa Maga nut hair below guesses is a buying opportunity.

In small cap news everything is up (well everything except for ZAGG).  KITD is finally rallying after yesterday when Money McBags said "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."  Look, Money McBags knows he talks about this company as if they made blow jobs and caviar, but it is one of his biggest holdings and he thinks it has great long term potential and now it is just trading so fuck cheap that if you're going to buy it, you should have a full position.  An interview with their CEO was posted yesterday by an industry follower and it is a great read for those trying to understand exactly what the company does, though it does get a bit technical.  For instance you learn of their expansive definition of an enterprise customer, their deeper-in-the stack, multi screen strategy (not to be confused with Lexington Steele's "deeper in the sack, multi-scream" strategy), and that 40%-45% of their business deals with the back end side (which is similar to Alexis Texas as 45% of her work also deals with the back end side).

From a stock perspective, the CEO once again addresses the organic growth rate by saying it has been ~55% of their growth, he mentions that they are able to keep "virtually" all of acquired companies' clients, and he talks about some of the stresses of being a public company especially when your stock is down 40% and investors are breathing down your neck and thus need to be coddled like the lovely Emanuelle Chriqui.  He also reaffirms that they will beat $75MM revenue guidance as with their last two acquisition they are near $100MM and says their goal for the next couple of years is to grow their global market share from 15%-20% to 50%.  Most interestingly, he talked about their last assrammingly dilutive equity raise where shareholders were treated like Mel Gibson at a gay pride parade by saying:

"The raise was driven by an unsolicited reverse inquiry from a large institutional investor. It was a tough decision to take in the money (given the resultant dilution), but ultimately we felt it was the right thing to do in that it allows management to focus on building our business without the distraction of frequently accessing the capital markets to finance future strategic moves."

This was all very intersting stuff and while there wasn't a ton of new information, it was nice to hear the story again and have guidance confirmed given the assawful stock action of the past month.  That said, Money McBags is calling bullshit on the $100MM revenue number.  Last month Money McBags made the argument that with the declining Euro and ~70% of their business non-US, the exchange rate should make their topline unattainable.  In fact, it could crush next year's revenue as well.  The company currently has 23.3MM shares so ~210MM market cap and ~$57MM in cash (Money McBags believes those are the pro-forma numbers after their last equity raise and acquisition, but the cash figure may be closer to ~$30MM), so ~$150MM in enterprise value.  With the decline in the Euro, Money McBags estimated that next year's EBITDA could be ~$20MM on the low end but in a best case scenario, he thinks they can earn ~$30MM EBITDA.  So even on a worst case scenario they are cheap and in a best case scenario, they are cheaper than a Kevin Federline autographed picture as they are trading at ~5x EBITDA with plenty of cash.  If you don't have your position built yet, this is the time to get in.  It may drop a bit tomorrow after today's run up, and it may drop a bit more with the market, but this is a solid opportunity to step in to this company as a longterm holding.

And remember WGP is on Facebook now and Twitter as Money McBags embraces social networking as if it were Lauren Conrad.

7/1/10 Midafternoon Report: Market sucks again, swallows investor gains

It was another volatile day in the market as initial jobless claims came out and were much worse than expectations which is not surprising to anyone except for those who make those expectations.  Claims were up by 13k to 472k while analysts had guessed that they would drop to 452k which means on average they couldn't even get the 50-50 directional guess right.   And as usual, claims were part of the weekly we suck at math derby (also known as "Numbers Manipulation Thursday") as last week initial claims were 457k, so if they grew by 13k this week, that should have made claims 470k, but of course the (No) Labor Department wants to try to mitigate the fuckawfulness of the economy so they always release a slightly better number and then revise it worse when no one is paying attention.  So last week's claims were revised up to 459k and thus we get the true mathmatical equation 459k + 13k = Holy shit we're fucked (or 472k, potato, puh-tato).  The good news is that people claiming extended benefits dropped by 376k, the bad news is that number fell because the government voted to stop paying them, so um, welcome to the double dip (and not the kind where you only get bacteria), make sure you are properly supplied with canned foods, matches, and plenty of viewing material because this could get interesting.  And to reiterate, Republicans filibustered a bill to continue extended unemployment benefits which is the first time this has ever happened with an unmeployment rate above 7.5% during a recession and it immediately cuts off 1.5MM unemployed people from cash flow they may need.  If ever Money McBags wanted to lose an election, that is exactly what he would do, fuck the people who need help in the midst of the biggest recession in history.  What wasn't reported was that Republican Senators also filibustered dignity and common sense while proposing legislation to have unemployed people serve as speed bumps on Pennsylvania Avenue to keep drivers from going to fast.

In other US macro news, pending home sales also hit the shitter (and hit it with the force of a taco bell bean burrito slathered in extra hot sauce and Ecoli) which surprised analysts but shouldn't have surprised readers of WGP.  The pending home sales index fell to 77.6 from 110.9 because the first time home buyers tax went away which is only something that has been known for months.  The 30% drop in the index dwarfed the 12% drop analysts had guessed once again proving that past performance is no indication of future performance in regression models when we live in a fat tailed economy.  Finally the House passed a financial overhaul bill which will now go to the Senate for a vote on what should be sweeping changes but has been watered down more than Christina Hendricks in a wet t-shirt contest. 

In addtion to macro news that was so bad not even Chris Dodd could have done something to make it worse, Goldman was further questioned by the FCIC today on their derivatives trading as relates to AIG (and as usual Money McBags would love to have the FCIC's Heather Murren question him about the exposure of his long derivative).  CFO David Vinnar was nice enough to constantly conflict himself by telling the commission that Goldman doesn't have a "derivatives business," but when questioned on how Goldman can call themselves a "top five derivatives dealers in the world," he acknowledged that Goldman's derivatives business is "a very big part of what we do."   Money McBags guesses that kind of logical fallacy or semantics masturbation is bound to happen when one talks out of their ass.  Anyway, this whole thing is just theatre since if the government really wanted to shut themselves, I mean Goldman, down, it would take about 3 minutes of actual investigation.

Internationally, China is showing more signs of slowing down than Robert Byrd, as new data shows the second derivative of their manufacturing sector is likely abating.  Two indexes (indices?  indi? indiyouknowwhatthefuckimean) came in below analyst guesses, though still showed expansion (but that expansion is now more like from flaccid to quarter chub as opposed to full pitched tent).  Tao Wang (not to be confused with Tiger Wang, Dong Wang, Peter Wang, or Wang Chung)  an economist at UBS China said “economic growth is strong but momentum has peaked” and if that is true, the global recovery may need another shot of stimulus or else it could flatline worse than Gina Lee Nolin's acting career.  In other intentational news, Spain was able to sell 3.5B of 3 year Euro bonds after promising not to default on them and promising to have Rebecca Ronda personally deliver them to all buyers along with a refreshing spanish milkshake.   The fact that Spain was able to get their bonds out and not at a too exorbitant yield is a positive, though Moody's  has now placed Spain’s credit ranking on review for a possible downgrade, citing “deteriorating” growth prospects, challenges in meeting deficit targets, and the fact that no one in the country works.  That said, Money McBags cares what Moody's has to say about as much as he cares about Donald Rumsfield's thoughts war strategy, Chuck Klosterman's opinion on pop culture, or Aristotle's view on the heliocentric universe.

In stock news it's uglier out there today than it was in Barbara Streisand's bridal suite when James Brolin went out for a smoke.  One stock moving nicely up though is Ford as they announced a 13% rise in sales for the month of June led by the Ford Focus, their Super Duty F1 series, and pure luck.  That said, the company announced a $4B buyback yesterday so has had good news two days in a row which currently qualifies it for the award as greatest stock ever.  In other news, financials continue to sputter because there is currently less faith in the financial system than there is in Norse mythology.  The Treasury department has been reducing their holdings of C which is good because the government shouldn't own public companies, especially ones going $0.

In small cap news, ZAGG is unsurprisingly selling off after it hit $3 for no reason the other day and Money McBags broke down why the stock was at least $1 too expensive.  One sector that Money McBags has liked but is getting destroyed today like a college senior's hopes and dreams is the home health care sector.  Small cap names AFAM and LHCG have been solid performers as they offer a service that is both cheaper than hospital stays and better for patients as home recovery rates are better than hospitalization recovery rates.  The problem is these companies rely heavily on medicare funding and their billing practices have always been questioned.

Well today, the SEC announced they are launching an investigation in to AFAM and AMED around the companies billing more home visits to medicare than they actually made.  That news is less good than waking up next to an unshaven Kathy Bates.  As a result the sector is down 10% today and rightfully so, in fact if Money McBags owned any of these companies he would be puking them out like a bulimic with a vomit fetish.  That said, LHCG does not seem to be part of the investigation so it could be a good time to try to pick this up on the cheap once things settle.  Money McBags has always preferred LHCG in this group because they are a bit more rural than the others and therefore face less competition.  That said, the market is enticing as it is growing 10%-15% a year as the population ages and home health care becomes a more ready solution.  It costs medicare $132 per home health care visit vs. $6k for a hospital stay and as mentioned before, recovery rates are better at home because patients aren't around so many fucking sick people all day.

LHCG earned $.64 a share in Q1 and gave guidance for $615MM to $625MM in full year revenues and $2.75 to $2.85 eps.   With the sell off today the stock is trading at only 9x this year's eps guidance and yet the market is growing by double digits.  Revenue was up 17% last Q and guidance does not take in to account any de novo branches which only take a year to reach full margins.  The company has ~$13MM net cash to still make acquisitions and the market is ripe for continued rolling up as the top 4 players are only ~10%-12% of the market.  The problems are the reliance on medicare funding and the government's ability to slash that at any time, the need for continued acquisitions, the uncertainty of any future medical liability issues (as with all health care providers), and the current SEC investigation on competitors.  Still, this is a growing market and is a cheaper alternative for medicare and insurance companies that ultimately provides better service and better results so why not buy this for 9x earnings when you can?  As he said, Money McBags would let this settle because the last time fudged billing fears struck the industry, these stocks got pulverized even though none of the public companies were found to be complicit.  So bide your time but put this on your buy list.  And to reitirate for those of you new to WGP (and if you're new, don't forget to join WGP on Facebook), Money McBags' buy/interesting list consists of KIRK, KITD, TMRK, CTGX, CRUS, QCOR, NTRI, EPAX and now LHCG among others.  Many of those are getting to be pretty washed out (KIRK, KITD, CTGX) and yet have nice earnings streams and solid longterm businesses so once the market is done dying, those are companies that should see positive momentum.  And while the market drops, there is always WGO and ZAGG to short, or just buy TWM and watch Wall Street burn.

6/29/10 Midevening Report: Market searches for a bottom, hopefully it's Brooklyn Decker's

This summary is not available. Please click here to view the post.

1/29/10 Midday Report: Size doesn't matter as 6% GDP expansion fails to stimulate the market

The market is bouncing around today even though GDP grew 5.7%, the fastest pace in 6 years and beat estimates of 4.7% growth.  The upside was led by a restocking of inventories from their depressed levels (and inventories were more depressed than Kathy Griffin's bikini waxer the time she ran out of rubber gloves).  The change in inventories accounted for 3.4% of the growth with purchases of equipment and software up 13%, negating the 15% drop in commercial construction because building cardboard boxes is so much cheaper than actual homes.  So the question becomes is this a one quarter inventory rebuilding and stimulus induced anomaly or are we really on the way to a recovery?  In the delightful Elisabeth Kubler-Ross's model on the stages of grief (and for those who missed Ms. Kubler-Ross's induction into the National Women's Hall of Fame in 2007, the finger sandwiches were to die for), the economy has passed steps one and two by moving past denial (we are definitely fucked) and anger (openly calling for Dick Fuld to have his dick folded) and is now in the bargaining stage (please hire me, please, please).  Unfortunatley the next stage is depression, which hopefully isn't caused by another market crash when inventories fail to turn and/or by China's bubble bursting like Christina Hendricks' bustier.  Of course the last stage is acceptance and with any luck we will be accepting growth and recovery and not the realization that we are Japan circa 1989 or Taylor Rain's lovely backside in her brilliant performance in 2004's much overlooked film, Apprentass.


What is most concerning to Money McBags is that the market has been selling good news and is trading down now that the expected results are coming in much better.  Of the 195 companies in the S&P 500 that have reported earnings since Jan. 11, 154 have beaten analysts’ estimates, according to Bloomberg data.  That is an amazing stat and yet the market rally seems to have fizzled out like Lindsay Lohan's singing career (and acting career, and pretty much anything other than her whoring career, which actually makes us all winners).

The other big news of the day is that Ben Bernanke was confirmed by the Senate for another 4 year term by a 70 to 30 vote.  The thirty who voted against him also voted for Mountain Dew in the Pepsi challenge, Curly Joe as their favorite of the 3 Stooges, and Anna Karenina as their favorite Tolstoy novel.  Money McBags is a Bernanke supporter and thinks he has done a perfectly reasonable job as Fed Chairman, so kudos and huzzah for the Senate who took a wide stance and voted bi-partisanly on this one.


In stock news, MSFT earnings were up 60% thanks to Windows 7 and a little something they refer to as a "monopoly."  They beat estimates by $.15 by earning $.74 per share and promised that with earnings like this Bill Gates may finally be able to move out of his mother's basement.  Amazon also put up a huge quarter with sales rising 43% and earnings coming in at a robust $.85 per share, well ahead of the $.72 estimates.  They also announced a $2B share buyback which boggles the mind considering that they are trading at 50x next year's earnings and with the iPad coming in to the market and potentially taking share away from the Kindle.  Why a commodity business with low barriers to entry should trade at 50x is beyond me, but then again, so is M-theory and all of it's absurdly thought out 11 dimensions.

In small cap news MED and ZAGG continue to trade down while EBIX gives back some of their gains from yesterday.  CRUS is also down despite their better than street guidance yesterday and run of analyst upgrades today.  Money McBags did dip his toe into the CRUS waters yesterday (and it was delightfully stripper piss warm) and buy a small position so go buy some iPhones.  Next week promises to be a wild week in the small cap space with more earnings announcements than Jack Nicholson has chins, so enjoy your weekend and be prepared.

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.

1/26/10 Midday Report: An Apple a day will keep the recession away (especially if it's one of those new tablets)

The market is bouncing around after Apple put up a ginormous quarter and is likely to announce their tablet on Wednesday while the global economy still sputters.  In macro news, US consumer confidence rose to 55.9 from 53.6 and we all know how important it was to break that 55 barrier (actually, I'm just kidding, I don't have a fucking clue as to the difference between 53.6 and 55.9, and I am guessing no one else does either, but bigger is better, just ask Keeley Hazell).  Also in the US, the Case-Shiller home price index was either up or down, again depending on which news source you use.  According to Bloomberg, home prices rose sequentially in November by .2% while according to the Wall Street Journal, home prices declined .2% sequentially in November.  As always, our tie breaker is the NY Times because the irony of having a newspaper noted for their lapses of fact act as our determining factor makes me giddier than Charlie Sheen at a hoedown.  According to the NY Times, home prices rose by .2%, so woofuckinghoo, home prices were slightly up, or not.  I think the moral of this story is that home prices remain stagnant and you can't believe everything you read, unless it is about Money McBags' way with the ladies, and then all reports are 100% accurate, and delicious.

In international macro news, Standard and Poor's lowered Japan's outlook to negative and warned that they might cut Japan's debt rating if Japan can not trim their mounting public debt and reliance on Pokemon cards to spur their economy.  Seeing as how the S&P credit ratings analysts did such a good job assessing US financial institutions before the biggest failure of the US banking system since the Great Depression (and yes, that is sarcasm), Japan yawned at the reports and went back to their game of Dance Dance Revolution.  In Europe, the UK announced that they have momentarily come out of their longest recession since the 1930s as GDP rose .1%, or by its more familiar name "a rounding error."  The growth disappointed most Brits, though not as much as their disappointment in General Cornwallis or dental floss.  Weighing most on the global economy though continues to be China where some banks are said to have been ordered to stop lending for the month.  With China threatening to make their monetary policy tighter and already less rigid than Joan Rivers' face, the global economy may be in for a bigger slow down than the current market implies.  Be wary of what is going on in China as they are currently driving the global economic rebound so if they put on the brakes, we all may get Chris Henry-ed.

In terms of stocks, the big news is that Apple demolished numbers like they were auditioning for the lead role in a Monsters of Cock video.  They earned $3.67 a share, up from $2.50 and had $15.68B in revenue, which was 32% topline growth.  This was led by Mac sales which were up 33% and grew at twice the rate of the computer market thanks to a 70% increase in iMacs.  Sure Apple did an accounting switcheroo from non-GAAP to GAAP which essentially pulled iPhone revenue forward by about $2B or so, but it's not like Apple has ever had other accounting issues so there's probably nothing to see here (though there is something to see here).  Some analysts were disappointed that the 100% growth of the iPhone was a bit below expectations, but being disappointed in 100% growth is a bit like faulting Brooklyn Decker for having bad breath for like one second every few years (though even her bad breath must smell of gold).

In small cap news, ZAGG continues to get pulverized, though it is unclear that there is any news, except for perhaps people realizing that this one trick pony's trick may not be that hard to repeat, like walking or dividing by 1.  As the market for smart phone covers has fewer barriers to entry than Paris Hilton's pants, ZAGG's business model should remain challenged.  EBIX also continues to trade down making Money McBags glad he sold his EBIX holdings to avoid the attack of the shorts there who may or may not have something on EBIX's accounting.  Also RICK has been selling off with the market but Money McBags missed a key announcement from them last week (unfortunately the announcement did not involve the words "free," "champagne," and "room").  Last week RICK said their high end spender is coming back.  CEO Eric Langan said: "What we are seeing is customers are spending more money on higher-ticket items. For example, last year, guys who were (used to) drinking $1,000 bottle champagne were ordering the $300 bottle.  Now, we are back to selling... those premium bottles of wine and champagne again."  In that same interview, RICK forecast fiscal 2011 to have 20% growth to $100MM of revenue.  They also expect operating margins to start expanding in Q2 and op margins were at 17.8% last year after being at a 26% the year before.  So let's say RICK can earn $100MM in fiscal 2011 and their operating margins go back to only 20%.  That is $20MM of operating earnings and then subtract out $3MM of scheduled interest payments and tax them at 34% and you get around $1.20 per share for their year ending September 2011.  They are currently trading less than 10x that number and margins could be a lot stronger than 20%.  As always, Money McBags is aware that there is a taint on this stock (pun intended) as they are just one rusty trombone away from being in serious trouble, but as long as they can keep the ladies walking that fine line of legality and awesomeness, this company should have improving financials and strong growth.  Money McBags is an owner of RICK and this is one time where he tries to do as much primary research as possible.

1/25/10 Midday Report: Bernanke likely to get bipartisan support despite claiming he doesn't swing that way

The market is trying to rally after last week's sell off which was caused by Obama letting Paul Volcker threaten to open up a can of whoop ass on the banking system, the senate seemingly hedging on reaffirming Ben Bernanke as Chairman of the Federal Reserve proving once and for all that the Senate is as good at making decisions as NBC is at handling their prime time schedule, and something called "data" which showed that unemployment remains higher than Brittany Murphy on the morning of 12/20/09.  Money McBags has been saying this for a while, but we are at an inflection point.  The market has rallied back to above a fair value based on earnings, so either earnings are going to have to be strong, or the market is going to have to do a very public walk of shame and re-trace some of its steps.

The news today is that the Senate has defied all known human physiology and started to think with their asses (because that is where their brains appear to be) and is likely going to reconfirm Ben Bernanke as Fed Chairman.  This move is said to largely be a result of the Senate's other top choices, Bernie Madoff and Raj Rajaratnam (or Raj-squared for short), currently being a bit indisposed (though to be honest, Money McBags highly approves of Mr. Rajaratnam's hiring practices and only wonders if he would have hired Mrs. Brosnan to cover large cap stocks or some woman named Heidi Montag to cover plastics).  InTrade is betting there is a 95% chance Bernanke stays as Fed chair which are exactly the same odds of the US highest income tax rate being above 38% in 2010 and Hilary Clinton being a man.

In macro news, US existing home sales plunged 17% which was the biggest decrease since they started keeping records in 1968 (thus after both the Great Depression of the 1930s and the scratch and sniff paint fad of the 1940s).  The drop in home sales was driven by the end of government tax incentives for first time buyers, continued unemployment, tougher lending standards, and not being able to find a carpet to match the drapes (a problem which Jenny McCarthy can sympathize with in this very not safe for work image).

In stock news, it's still earnings season and most people are eagerly awaiting Apple's earnings tonight after the bell.  If they beat estimates, will they be able to rise or will the market sell the news like they did to GOOG, INTC, and Jay Leno on prime time?  Haliburton announced earnings today and profits were down 7%. The company cited weaker drilling activity and the fact that Dick Cheney is no longer vice-president.  And Ericcson will be cutting 1,500 jobs due to an 82% drop in profits.  However, the drop in profit does disprove Tiger Woods theory that Swedes don't go down.


In small cap news, HAFC continues it's fall from a silly rally as it shows that the book value depends on the book (you hear that Peter Cooper Village?), and ZAGG is also taking it in the yingus as the market realizes that no one wants to pay $30 for an iPhone cover (and honestly, this might have been the easiest short since Bridget the Midget).  In fact on 12/31/09, Money McBags said this in the comment section of this very blog while debating with a reader: "In fact I will wager 1 share of ZAGG (and that is funny because ZAGG is going to $0)."  Just a few months ago, ZAGG was trading at a multiple greater than 30x, despite the fact that they sell one product which is overpriced, don't even own the technology, are in a market with low barriers to entry with a lot of competitors coming in, and it is easier and less time consuming to get Artie Lange off drugs than it is to apply their ZaggSkin product.  Plus management was talking about building ZAGG stores for all of their future products instead of figuring out how to make their current product easier to apply and cheaper.  They are now trading at around 14x 2009 expected earnings of $.20 per share, a number by the way which has maintained stagnant despite top line growth (which happens when you have to distribute products to more expensive channels and you pay more for shipping than you receive).  The easy money has been made on this short, but it is unlikely their ZaggBox sells even as well as Rosie O'Donnell's box and their App Store or marketplace or whatever they want to call it is more commoditized than fake boobs at a casting call for Van Wilder 3: The Rise of My Pants.  In other small cap news, MED pre-announced a good quarter today of 75% growth and EPS to be $.17 to $.20 in this Q.  The company has great ROEs, is growing faster than a steroidal weed, and is trading at only around 20x 2010 earnings and estimates will likely move up after today's pre-announcement.  Money McBags would ordinarily like a stock like this, especially after it's big recent sell-off, but there is something about multi-level marketing that feels oh so dirty to him and apparently others agree.  MED could be a big winner, but Money McBags is going to sit this one out.