Whitney make a good point…..Glad I do not own Washington Mutual (WM) shares (
Disclosure (“none” means no position):None
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It is apparent that the potential bids GE (GE) has received for its appliance unit are far from what it expected..
With sales of $7.2 billion last year, GE had hoped to get $6 to $8 billion for the unit. The fact they have now decided to consider a spin, an option not originally specified, can only mean conversations with potential buyers have resulted in prices much below that.
In an spin scenario, if it is a tax free exchange like the ones Altria (MO) has done with Kraft (KFT) and Phillip Morris International (PM), GE receives nothing in the exchange. It is shareholders who receive proceeds. They could opt to retain a percentage of the business and profit from its future growth that way if they opted. Perhaps they would spin 50% of it and retain the other half to sell at a later date when the market for it improves. This option may just be a move to pacify shareholders who have been frustrated for the better part of the decade.
No matter what they do, it is clear this is not unfolding as they expected. Immelt is out stumping the “brand” as if to remind potential buyers the value of having GE on an appliance. I am not sure this is in doubt in the appliance world.
The problem is buyers know he has to do something because he has already stuck his neck out and had it swiped at. He is also trying to sell into a very weak market. Add those two together and you have a seller who has a problem.
Disclosure (“none” means no position):
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VIN Botton…..
Attention All Readers: Please read this post …
I have installed the following button from George for the Value Investing News site.
It is at the bottom of all posts. It allows you easily to send a post to VIN or vote for it from ValuePlays if you like it. If you are a blogger it is easy to install and readers ought to use it for its convenience…
Disclosure (“none” means no position):
Wish I had wrote this one……Great job Jeff
“I read an article called “Sears majesty to hedge-fund dust” at the behest of a reader on the gurufocus message boards, and I have to say it is one of the most uninformed and incomplete articles I’ve ever read. There are so many misguided and shallow statements that it’s hard to know where you’d even start to refute the allegations. Before you read my refutation, please read the article for context. Please read my refutation through before commenting.
I’ll start with a quote from the article, and continue on down from there:
“But as all readers of this site well know, things sure changed in 2007. Many of the hedge fund strategies that paid off like slot machine jackpots in the previous two years, such as huge heavily leveraged bets on subprime mortgage paper, came up lemons last year.”
Leveraged bets on subprime mortgage paper? What on God’s green earth does subprime mortgage paper have to do with ESL Investments? While this reporter basks in the failure of many hedge funds last year that were doing things extremely far removed from what ESL does, I question if he actually looked at any other ESL investments outside of Sears and Citigroup. If he did, then it’s a classic red herring argument fallacy; he is using irrelevant information that doesn’t have anything to do with the argument at hand.”
Disclosure (“none” means no position):Long SHLD
This is beautiful…….nice job James
“Ever since Berkshire Hathaway (BRK.A) reported earnings earlier in the month, a number of people have been abuzz about the “losses” generated from marking-to-market some of the derivatives on the books. Barron’s had a Q&A with short hedge fund manager Doug Kass (one of my favorite contrarian voices) where Kass said he was short BRK because of Buffett’s “investment-style drift,” which has led him to take large positions in derivatives instruments – which he famously derided as “financial weapons of mass destruction” in his 2002 letter to shareholders. And while I’m not sure of his positioning, Mish Shedlock echoed similar thoughts, saying that Buffett’s mark-to-market derivatives loss has given him “$1.2 billion less to invest because so far he is underwater on his short…”
I think Kass and Shedlock are taking their bearish act too far – perhaps because they are doing some unconventional style drift of their own and backing off their normally-sharp research. As Buffett notes in the section of his letter dealing with derivatives, the term “covers an extraordinarily wide range of financial contracts” and range from simple puts, calls, and futures to exotic agreements on any number of reference points, such as total return swaps. Actually reading the two-plus pages of Buffett on derivatives, it becomes clear that the concern centers on long-lived or extremely complex contracts that need to be marked-to-model, allowing for fudging profitability. Buffett isn’t talking about the simple derivatives contracts that Buffett has been increasing Berkshire’s involvement in – namely equity index puts and credit default swaps. I don’t have any explanation why so many people get this wrong, other than to assume they didn’t actually read the relevant passage.”
Read the remainder of the article here
Disclosure (“none” means no position):None
I have a hard time feeling sorry for Mr. Bailey…..
First things first. Angelo, disable the “reply” button in outlook. Less problems going forward.
“This is unbelievable,” Angelo Mozilo, Countrywide’s (CFC) CEO wrote Tuesday. “Most of these letters now have the same wording. Obviously they are being counseled by some other person or by the Internet. Disgusting.”
Mozilo apparently clicked “reply” instead of “forward,” sending his comments back to Bailey rather than forwarding them to the intended recipient. Baily then posted the email on online forums.
Daniel Bailey Jr., asked the company to modify his adjustable-rate mortgage. He said he didn’t fully understand the terms, was wrongly told he could refinance after a year and was on the verge of losing his home of 16 years because of unaffordable payments. His e-mail went to 20 Countrywide addresses and he used language from a form letter from a website, which offers advice to borrowers in trouble.
Now, had Mr. Baily been laid off from a job, or disabled he would garner sympathy. But, let’s be honest. He decided to refi the house and cash out equity to the max and repay is as cheaply as possible. Greed. The market turned against him and now he is holding the bag. Oh well….
He admits he signed documents “without understanding them”. Why? If he is a big enough boy to borrow hundreds of thousands of dollars he ought to be big enough to either understand what he is signing or suffer the consequences of his actions.
While a terrible PR move given the current political environment and the pending Bank of America (BAC) merger, Mozillo is right, being stupid is no reason to be given a break…..
Disclosure (“none” means no position):None
I have a hard time feeling sorry for Mr. Bailey…..
First things first. Angelo, disable the “reply” button in outlook. Less problems going forward.
“This is unbelievable,” Angelo Mozilo, Countrywide’s (CFC) CEO wrote Tuesday. “Most of these letters now have the same wording. Obviously they are being counseled by some other person or by the Internet. Disgusting.”
Mozilo apparently clicked “reply” instead of “forward,” sending his comments back to Bailey rather than forwarding them to the intended recipient. Baily then posted the email on online forums.
Daniel Bailey Jr., asked the company to modify his adjustable-rate mortgage. He said he didn’t fully understand the terms, was wrongly told he could refinance after a year and was on the verge of losing his home of 16 years because of unaffordable payments. His e-mail went to 20 Countrywide addresses and he used language from a form letter from a website, which offers advice to borrowers in trouble.
Now, had Mr. Baily been laid off from a job, or disabled he would garner sympathy. But, let’s be honest. He decided to refi the house and cash out equity to the max and repay is as cheaply as possible. Greed. The market turned against him and now he is holding the bag. Oh well….
He admits he signed documents “without understanding them”. Why? If he is a big enough boy to borrow hundreds of thousands of dollars he ought to be big enough to either understand what he is signing or suffer the consequences of his actions.
While a terrible PR move given the current political environment and the pending Bank of America (BAC) merger, Mozillo is right, being stupid is no reason to be given a break…..
Disclosure (“none” means no position):None
Categories
Barnes and Nobel Reports
Results in line. The real news will be made on the conference call in a few minutes.
Barnes and Nobel (BKS) reported sales for Q1 increased 1.1% to $1.2 billion. Barnes & Noble store sales increased 1.1% to $1.0 billion, with comparable store sales decreasing 1.5% for the quarter, marginally below guidance for slightly negative comparable store sales. Barnes & Noble.com comparable sales were $99.6 million for the quarter, a 7.2% increase compared to the prior year period.
In Q1,the company acquired 6.5 million shares under its share repurchase program at an average price of $30.57 per share or $199.7 million in total.
Although the company lowered its sales forecast, it continues to expect full-year EPS to be in a range of $1.70 to $1.90 based on a reduced fully diluted share count of 58.5 million shares as a result of the share repurchase activity noted above. Second quarter earnings per share are expected to be in a range of $0.08 to $0.13.
I will comment on the earnings call later
Disclosure (“none” means no position):
Categories
Dow Chemical EPS Outlook
Last summer Andrew Liveris predicted Dow Chemical (DOW) would earn “in excess” of $2 per share at the next industry trough. Last fall that was increased to $3 a share and in this winter, “north of $3 per share”. Yesterday Liveris supplied new numbers.
$3.50 per share is the latest number. It should be noted that only takes into account 3% volume growth that, without the commodity business that will be sold, looks painfully conservative. Consider Dow Agro, which will constitute almost 50% of earnings after the commodity sale is growing at a double digit rate, 3% looks like a cake-walk. The specialty business, the other main driver after the commodity sale last year grew 8%.
If we just take a slight discount to current growth rates then we are looking at $4 a share rather easily.
Looking down the road a bit, 2005 was the last industry “peak”. 2015 will be the next. Liveris yesterday said Dow ought to earn in excess of $10 a share at that time. If we take a typical 12 times earnings multiple (for chemical companies) we arrive at $120 a share for Dow stock. One also has to account for the current 4.5% yield that is growing.
Liveris said Dow will about $57 billion in cash between 2008 and 2015 and approximately 70% of this will be generated through cash from operation. Liveris intends to use roughly $29 billion of it toward acquisitions and share buybacks. Just under 25% of it will go into dividends. That gives us $14.25 billion for dividends $15 a share based on Dow’s 930 million shares currently outstanding. One also has to take into account the massive share repurchase expected once the Kuwait deal closes. Liveris has consistently alluded to its likelihood. Even if just $10 billion of the $29 is used for that, it would take just under 1/3 of Dow’s stock off the market.
Doing so would cause the per share dividend calculation to increase $5 per share in the example above.
The rest will be used for capital spending.
Disclosure (“none” means no position):Long DOW
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Thursday's Links
College, StockMasters, Brands, Icahn
– We value the exchange of ideas (as long as they are ideas we agree with)
– Another nailed pick
– Would have been great to listen to this
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Thursday’s Links
College, StockMasters, Brands, Icahn
– We value the exchange of ideas (as long as they are ideas we agree with)
– Another nailed pick
– Would have been great to listen to this
Categories
Thursday's Upgrades and Downgrades
Upgrades
Baker Hughes (BHI)- CapitalOne southcoast Neutral » Add
Tesco (TESO)- CapitalOne southcoast Add » Strong Buy
Key Energy (KEG)- CapitalOne southcoast Add » Strong Buy
Central Garden (CENT)- Piper Jaffray Neutral » Buy
Wolseley (WOSLY)- Deutsche Securities Hold » Buy
Arris (ARRS)- Friedman Billings Mkt Perform » Outperform
China Sunergy (CSUN)- Jefferies & Co Underperform » Hold
National Fuel Gas (NFG)- UBS Neutral » Buy
Micron (MU)- Deutsche Securities Hold » Buy
Downgrades
Aracruz Celulose (ARA)- BMO Capital Markets Outperform » Underperform
Pride Intl (PDE)- Wachovia Mkt Perform » Underperform
AMR Corp (AMR)- Soleil Hold » Sell
Continental Air (CAL)- Soleil Buy » Hold
UAL Corp. (UAUA)- Soleil Buy » Sell
First Solar (FSLR)- Friedman Billings Mkt Perform » Underperform
Smart Modular Tech (SMOD)- Lehman Brothers Overweight » Equal-Weight
Continental Resources (CLR)- JP Morgan Overweight » Neutral
Smart Modular Tech (SMOD)- Oppenheimer Outperform » Perform
Intuit (INTU)- Citigroup Buy » Hold
Nucor (NUE)- UBS Buy » Neutral
Enersys (ENS)- Merriman Curhan Ford Buy » Neutral
Sappi Limited (SPP)- UBS Buy » Neutral
Categories
Thursday’s Upgrades and Downgrades
Upgrades
Baker Hughes (BHI)- CapitalOne southcoast Neutral » Add
Tesco (TESO)- CapitalOne southcoast Add » Strong Buy
Key Energy (KEG)- CapitalOne southcoast Add » Strong Buy
Central Garden (CENT)- Piper Jaffray Neutral » Buy
Wolseley (WOSLY)- Deutsche Securities Hold » Buy
Arris (ARRS)- Friedman Billings Mkt Perform » Outperform
China Sunergy (CSUN)- Jefferies & Co Underperform » Hold
National Fuel Gas (NFG)- UBS Neutral » Buy
Micron (MU)- Deutsche Securities Hold » Buy
Downgrades
Aracruz Celulose (ARA)- BMO Capital Markets Outperform » Underperform
Pride Intl (PDE)- Wachovia Mkt Perform » Underperform
AMR Corp (AMR)- Soleil Hold » Sell
Continental Air (CAL)- Soleil Buy » Hold
UAL Corp. (UAUA)- Soleil Buy » Sell
First Solar (FSLR)- Friedman Billings Mkt Perform » Underperform
Smart Modular Tech (SMOD)- Lehman Brothers Overweight » Equal-Weight
Continental Resources (CLR)- JP Morgan Overweight » Neutral
Smart Modular Tech (SMOD)- Oppenheimer Outperform » Perform
Intuit (INTU)- Citigroup Buy » Hold
Nucor (NUE)- UBS Buy » Neutral
Enersys (ENS)- Merriman Curhan Ford Buy » Neutral
Sappi Limited (SPP)- UBS Buy » Neutral
Categories
"Fast Money" for Thursday
Thursday’s Picks
Jeff Macke recommends the United States Oil Fund (USO) $108.31 with a $105 stop.
Guy Adami suggests AMR Corp. (AMR) 6.22 for a trade.
Karen Finerman prefers getting long the Oil Service HLDRS (OIH) $213.88 along with USO puts.
Pete Najarian thinks Disney (DIS) $33.66 is a buy.
Wednesday’s Results
Guy Adami thinks Public Service Enterprise Group (PEG) $43.91 is a buy.Close $43.66 LOSS
Pete Najarian recommends getting long Excel Maritime (EXM) $55.03 Close $53.10 LOSS
Joe Terranova suggests shorting Hess (HES) $133.8 Close $103.78 LOSS
Jeff Macke likes getting long the SPDR Trust (SPY) $141.89 with a $139 stop. Close $139.79 LOSS
2008 Records:
Brian Schaeffer= 0-1
Carter Worth= 1-1
Jon Najarian= 4-3
Jeff Macke= 40-32-1
Tim Seymore= 17-14
Guy Adami= 40-36
Pete Najarian= 38-35
Karen Finerman= 35-30-1
Joe Terrenova= 1-3
2007 Results (Since 6/21):
Guy Adami= 58-46 = 56%
Jeff Macke= 60-40 = 60%
Pete Najarian= 49-41 = 54%
It would seem that credit markets, frozen at the beginning of the year are beginning to shake loose..
AmeriCredit, who provides financing to car buyers with poor credit, raised $750 million in the year’s first public sale of bonds backed by subprime auto loans.
The offering was increased from the $500 million initially planned. The simple explanation is that investors are once again looking for asset backed securities. The AAA portion of the sale with a three-year maturity priced to yield 365 basis points over benchmark rates. The bonds were being marketed at a spread of 380 basis points over the benchmark. The weighted average coupon on the Notes to be paid by AmeriCredit is 6.0%. It is the first sale since September for ACF.
The co-managers are Barclays Capital (BCS), Lehman Brothers (LEH) and Wachovia (WB). Net proceeds from securitization transactions will be used to provide long-term financing of receivables.
This is good news for ACF investors like Leucadia (LUK) and still more evidence that auto related investing ought to hold up in the current environment and excel as we come through it.
Bloomberg reports “Demand is also returning for bonds backed by car loans made to borrowers with good credit. The finance arms of Ford Motor Co., GMAC LLC and Chrysler LLC have raised a total of $9.7 billion since April 15 by selling asset-backed debt, including a $5 billion sale by Ford, its biggest since 2002.”
Time to get serious about the sector.
Disclosure (“none” means no position):Long WB, None