Here are the most read posts for the month of July
1- Macy’s Into Sears Holdings?
2- Sears Holdings: If Lampert Is Buying more, Shouldn’t We?
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DOW Looking To Enter Russian Market
Dow Chemical (DOW) is looking for a Russian partner to construct a petrochemical plant in Russia.
Gazprom has been indicated as a possible partner in the plant construction. DOW representatives note that Russia currently produces less ethylene than any of Dow Chemical’s plants around the world. Last year Dow’s turnover in Russia and CIS countries totaled $530 million. Current rates of growth of the Company’s Russian business exceed 30%.
In January, DOW started up its first ever production facility in Russia. The plant, located at Kryukovo, outside Moscow, will produce STYROFOAM™ brand extruded polystyrene (XPS) insulation boards for Dow Building Solutions, one of Dow’s market-facing business units.
Now, doing business with Russia has proven to be a bit risky, but for 30% growth, there is a price to do it. Not only that, but to be the first there with a major facility would be a major coup.
In Q3 DOW has said they will produce a “white paper” on the progress and outlooks for their multitude of JV’s around the world. This is a much anticipated event and it will be a huge catalyst for the company and by default, it’s stock price. It will detail expected future earnings from the JV’s going forward. On another note, a birdy tells me to look for another dividend increase or an additional share repurchase announcement around the same time.
The end of the current “commodity cycle” is expected to be around the turn of the century and typically in the past, DOW has seen earning plummet during these times. It is no coincidence the the huge JV’s in Saudi Arabia and Brazil are scheduled to come on line at that time to counter the expected earnings fall.
It was announced this week that Disney (DIS) had purchased the children’s social networking site “Club Penguin”. My initial reaction was that it was a good idea but, something just did not sit right with me.
After more thought it hit me. I wonder if Disney has considered how this may possibly backfire? The news a few weeks ago that there were 29,000 convicted sex offenders on News Corp.’s (NWS) MySpace that were using there own names tell us that the internet and social networking sites are the “playgrounds” of the 70’s and 80’s for pedophiles.
Now, admittedly the Disney Penguin site is not as well known as Myspace but now that Disney is the new owner, that will change. I am sure that Disney has plans for the Penguin to become THE social site for youngsters and with that comes the inevitable problems of this century.
I am also sure that Disney will take extra precautions to ensure pedophiles do not use their own names but if one wants to become anonymous in today’s age, they can easily pretend they are a 6 year old.
Because it is now a Disney site, expectations for safety will be far greater and a single problem will instantly become an enormous issue. Any issue with the site will rub off on the theme parks. People will begin to wonder, “if the pedophiles are on the site, are they in the parks also”? Personally, as the father of three it will be a cold day in hell before any of my kids spend time on any of these sites, but millions of children are daily and shows like “To Catch A Predator” on Dateline should illustrate the depth pedophiles will go to meet children.
Disney is in a tough place with this one. If the site becomes very popular and profitable it will attract the sickos, if it doesn’t it was wasted money.
I have a feeling Disney will regret this one….
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CSX: A Great Buy For An Odd Reason
Over year ago my sons and I were waiting at the train station in Worcester, MA for a family member to come for a visit. My kids, who were three and thought Thomas The Tank Engine was (and still is) the coolest thing in the world wanted to leave early that day so they could watch the freight trains in the rail yard. After about 45 minutes of watching I struck up a conversation with the rail worker waiting for the next train to arrive.
He said that in his 15 years there it had “never been this busy” and that there are days that the trains are just lined up trying to get in to get through to various points in New England. I asked him if this was just a local issue and he said that his friends in other areas along the CSX (CSX) line reported the same issues. “It is just crazy everywhere” he claimed.
When I asked him why there were tractor trailers on the train cars he said “it is cheaper to haul them by train and then just move them locally”. Why? I asked. “Gas” he said in a word. “As long as gas stays high, it will cost too much to ship by truck and we will haul it all”. Bingo…
I asked my kids “if they wanted to buy part of the train company” and after they finished jumping up and down for joy, we went back home that day and bought CSX shares for their education accounts at $23 a share. Just to see their faces, I let them push the “buy” button and laughed as they jumped and clapped as the screen changed. I wanted to teach them about “ownership” and how the business world around them functions and yes I know they were only 3 at the time but even basic lessons are good ones, no?
I figured gas prices were not coming down anytime soon and if anyone new anything this guy would. I dismissed the historical “railroads suck cash” commentary and figured that were were entering a un-historic phase in the US pertaining to gas prices and the use of railroads for biofuels (ethanol). Quick research disclosed that any ethanol into the eastern US was shipped almost exclusively by CSX. That alone would dramatically boost volume. I figured that alone would boost pricing and earnings which would leave extra money for repurchases or dividend increases since building new railroads was probably not in the cards. I did not look into “discounted future cash flows”, beta, I did not do a chart analysis or look at earnings 10 years ago to the present, nor did I check to see what Wall St. analyst’s felt on the subject.
Well, almost a 100% return in a year and a half would prove that rail worker very correct indeed. In their most recent quarter, CSX produced record earnings and stated pricing and financial results looks to remain strong through the end of the decade. They are also in the process of repurchasing over 15% of the outstanding shares and have tripled the dividend. Word then came out in March 2007 that Carl Icahn, George Soros and David Dremen had all taken large stakes in the company. Maybe they spoke to the same rail worker?
Come to think of it, I bought them shares in McDonalds (MCD) for very similar reasons in 2003 and that has worked out spectacularly also with shares now sitting near their all time high.
Maybe simply listening to the people who are intimately involved with the operations and looking at macro factors is not the “wrong way” after all but the “right way”?
I think I am going to get Peter Lynch’s book. Anyone read it?
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Upgrades / Downgrades
Here are the late Thursday’s and Friday’s analyst calls
UPGRADES
KBR Inc. KBR Wachovia Mkt Perform » Outperform
Eagle Bulk Shipping EGLE Wachovia Mkt Perform » Outperform
Timberland TBL UBS Reduce » Neutral
DaVita DVA Piper Jaffray Underperform » Market Perform
Entercom ETM Banc of America Sec Sell » Neutral
Advanced Medical Optics EYE Citigroup Sell » Hold
ONEOK Partners OKS Citigroup Hold » Buy
Network Appliance NTAP Citigroup Hold » Buy
NRG Energy NRG RBC Capital Mkts Underperform » Sector Perform
Harleysville Grp HGIC Ferris Baker Watts Neutral » Buy
Comp Vale Do Rio RIO Canaccord Adams Hold » Buy
Barnes & Noble BKS CL King Neutral » Strong Buy
Gen-Probe GPRO Ferris Baker Watts Neutral » Buy
Blackboard BBBB Wedbush Morgan Hold » Buy
Cleveland-Cliffs CLF Longbow Neutral » Buy
General Maritime GMR Cantor Fitzgerald Hold » Buy
O2Micro OIIM Needham & Co Buy » Strong Buy
Fred’s FRED Avondale Partners Mkt Perform » Mkt Outperform
Smith Micro Software SMSI Rodman & Renshaw Mkt Perform » Mkt Outperform
Gasco Energy GSX Nokia NOK Davenport Strong Buy » Neutral
CGI Group GIB BMO Capital Markets Outperform » Market Perform
DOWNGRADES
Alliance Bankshares ABVA Stifel Nicolaus Buy » Hold
Revlon REV Sun Trust Rbsn Humphrey Buy » Neutral
POZEN POZN Jefferies & Co Buy » Hold
Gulfmark Offshore GLF Jefferies & Co Buy » Hold
Clorox CLX Lehman Brothers Overweight » Equal-weight
Nokia NOK Davenport Strong Buy » Neutral
CGI Group GIB BMO Capital Markets Outperform » Market Perform
Reliv’ International, Inc RELV Canaccord Adams Buy » Hold
Kyphon KYPH Lazard Capital Buy » Hold
Getty Images GYI McAdams,Wright,Ragen Buy » Hold
RC2 RCRC Wedbush Morgan Strong Buy » Buy
Autodesk ADSK Credit Suisse Outperform » Neutral
Chipotle Mexican Grill CMG Morgan Keegan Outperform » Mkt Perform
Liquidity Services LQDT Stifel Nicolaus Buy » Hold
Alliance Resource ARLP Stifel Nicolaus Buy » Hold
Alliance Holdings AHGP Stifel Nicolaus Buy » Hold
U.S. Steel X Matrix Research Strong Buy » Buy
Norfolk Southern NSC Matrix Research Strong Buy » BuyWachovia Mkt Perform » Outperform
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"Fast Money" for Friday
Here are Thursday’s results and Friday’s picks.
Friday’s picks
Jeff Macke recommends buying Callaway Golf (ELY) on the dip. Open $15.67
Pete Najarian likes Juniper (JNPR) ahead of Cisco (CSCO) earnings. Open $32.55
Guy Adami and Eric Bolling didn’t have any stock picks.
Thursday’s results
Jeff Macke said Starbucks (SBUX) is a sell. Open $27.60 Close $26.92 Gain $.68
Pete Najarian liked St. Jude Medical (STJ). Open $44.81 Close $45.35 Gain $.54
Guy Adami recommended buying Short Dow30 ProShares (DOG) Open $59.50 Close $58.96 Loss $.54
Eric Bolling liked El Paso Corp (EP) Open $16.81 Close $16.67 Loss $.14
Records:
Since my tracking began on 6/21 (1-1 means one up pick and one down pick and no results from my vacation week)
Adami= 10-9 Gain $26.22
Bolling= 8-9 Loss $4.16
John Najarian= 13-3 Gain $15.54
Macke= 17-10 Gain $6.34
Pete Najarian= 6-5 Gain $18.30
Seymore= 1-1 Gain $.01
Finerman= 1-2 Gain $.68
Gilbert= 1-0 Gain $.29
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Today’s 52 Week Low List
Homebuilders actually escaped the list for the first day in a month. But, regional banks are still get whacked. Here are some others…
THLD Threshold Pharmaceuticals
TBL The Timberland Company
TAST Carrols Restaurant Group
RCRC Rc2 Corp
NCOC National Coal Corp
MNI McClatchy Newspapers, Inc
KCP Kenneth Cole Productions
JRC Journal Register Co
JMBA Jamba Inc
BSET Bassett Furniture Industries
BIOF Biofuel Energy Corp
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Leap Frog Earnings
LeapFrog (LF) saw its sales fall 17.8 percent in the second quarter, while its loss grew to $28 million vs. $25.7 million in the second quarter a year ago.
Sales fell to $56 million in the quarter, down from sales of $68.1 million in the same quarter last year. Low sales of discontinued products contributed to this drop, the company said.
LeapFrog is focused on the new products it will begin selling this holiday season, and feels they will rejuvenate its sales. They cut their advertising costs in half, down to $4.2 million for the quarter, since they plans to spend more on advertising in the fall when new products hit shelves.
“The first half of the year and the second quarter came in on plan,” said Jeffrey G. Katz, president and chief executive officer of LeapFrog. “We continue to focus on better execution at retail while placing a big emphasis on our new product launches this fall and in 2008. We’re on track with our plans to relaunch our once substantial reading business next year, grow our successful educational gaming business, and strengthen our infant business as well. We have also begun implementing a series of initiatives to ensure that our growth over the next few years translates into solid earnings. These initiatives, which are geared toward driving operational efficiencies and reducing costs, will begin to take effect immediately and will be realized over the next 12 months.”
Wedbush Morgan Securities analyst Sean McGowan wrote in a note to investors on Monday that the recent decline in LeapFrog shares has made the stock more attractive. “We believe the recent price decline has eliminated much of the downside risk, and that even minor whiffs of encouraging news in the coming months could lead the stock higher,”.
As I have said before, this Christmas is make or break and LF is such a small part of the portfolio, we will wait and see what happens. The new products are very good and early reviews have been overwhelmingly positive. I think the main thing to be worried about is not necessarily are they are good or will they get accepted, but if retail shoppers are in a position to spend the money for them..
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WalMart’s Path To "Quality"
In a previous post I commented that “when you think “cheap”, you think Walmart (WMT), when you think “value”, you think Target (TGT)“ Walmart seems to be taking an interesting and to date, very effective path to altering that image, electronics.
In the last two years Walmart has added Apple (APPL) ipods, Dell (DELL) computers, Toshiba laptops, Samsung TV’s and Verizon (VZE) wireless phones to it shelves. The results has been a $1.5 billion increase in electronics sales fronm 2005 to 2006 and an expected 10% to 12% this year which is well ahead of the 7% the industry as a whole is expected to grow. These gains, it should be noted are coming at the expense of competitors like Best Buy (BBY), Radioshack (RSH) and Circuit City (CC).
What is happening out there is Walmart is now being recognized as a seller of “quality electronics at great prices”. That is a powerful combination. Personally I do not care where I get my Dell laptop from, it is the price I care about. Same thing for my ipod or any other electronic device.
Now, studies have proven time after time that once I go to Walmart to get my electronics I will invariably pick up additional items. If Walmart begins to draw people to it’s stores (clearly it is) ancillary sales will also increase (CD, DVD etc.).
Another very important point. The “quality image” is a weird thing. It is an illusion of quality, not necessarily the reality that is most important. Many designer clothes have the illusion of quality even though the reality may be very different. Now, if Walmart can get that image to stick to it and can get it to transfer to it’s apparel, watch out. It was a brilliant move to start with electronics because the brands there are the most easily recognizable by the widest audience of people and the acceptance there, unlike apparel, is instant. When people begin to go to Walmart because of their “quality” electronics or tools or sporting goods then it is only a matter of time until that shopping trip extends to clothing by association.
I have said it before and still believe it. Walmart only needs to make their clothing “good” in order to be hugely successful and these other moves they are making will dramtically help.
Starbucks (SBUX) released earnings Wednesday and the results were well, uninspiring? They reported a 9 percent rise in quarterly earning, helped by more than 1,000 new stores, and backed its full-year profit outlook.
Net income for the fiscal third quarter was $158 million, or 21 cents per share, in line with the average estimate of Wall Street analysts. Last year, Starbucks earned $145 million, or 18 cents per share.
Sales at coffee shops open at least 13 months, a key retail measure known as same-store sales, rose 4 percent. Customer transactions increased 1 percent, while the average value per transaction was up 3 percent. Here is the quote that matters and it is from my buddy CEO Jim Donald. He said in an interview that “a lot of things” kept customer transaction growth small, including new stores taking business from older ones and weakened consumer spending.
“Maybe people aren’t going four times a week,” he said. “Maybe it’s three times a week.”
Okay, so I have not been crazy after all the last 6 months in saying people are not going to the stores as often as before?
Starbucks earlier this week raised prices on coffee and other drinks by an average of 9 cents a cup. Chief Financial Officer Michael Casey said in another stunner that, while price increases have not historically affected customer traffic, this time could be different since the company raised prices less than a year ago.
“We acknowledge the possibility that it might have a short- term negative impact on traffic,” he said. Where have we heard that before?
Also for the first time in my memory Casey admitted “I don’t expect that the bottom line growth rate, absent some transformation in the business, is going to re-accelerate up to the 25 percent level again,”.
The only people who should be happy about this call are the SBUX shorts and McDonalds (MCD) shareholders. In one call they admit that their new prices will shrink store traffic that is already falling and that the big growth days are over. This call for a re-evaluation of the premium people should pay for shares and that premium will be lower (and it is not 35 times earnings).
If they are relying increasingly on prices increases and ancillary sales for growth, lower store traffic will compound the negative effect on that..
Let’s reverse everything. was there anything on the call that would make you think the current trends, which are negative, will reverse? Me either..
Here is another great take on Starbucks from Jeff Mackey
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Home Depot: More Blunders
Home Depot (HD) has been trying to clean up it’s image with customers and investors but just as it seems they may be making strides, more weird negative stuff comes out.
First, they send an email to customers stating they “do not nor have we ever” advertised on FOX’s “O’Reilly Factor” despit well, having advertised on it. There is a whole email conversation you can view here. I make no comment on the decision on whether or not they should advertise on the show, my only comment is that before they deny ever have been on it, they ought to be sure they never have.
If that was not enough, word comes out of Atlanta that four four purchasing managers were fired because they were allegedly paid millions of dollars in a kickback scheme to insure certain flooring products made their way onto the company’s shelves. Jerry Shields, company spokesperson could not say how long the employees had worked for Home Depot but confirmed the products involved tile and other flooring made by foreign vendors based in Asia. The employees were not identified.
Kent Alexander, U.S. attorney for the Northern District of Georgia from 1994 to 1997, could not speak specifically about the case, but said that federal charges are a possibility anytime an alleged crime crosses state or international lines.
Wire or mail fraud charges are likely in these instances he said. Typically each count of wire fraud can yield up to five years in prison and the government could also see whether international statutes were violated.
Now, CEO Frank Blake did take immediate action upon learning of the scheme and fired the employees and this is good, but the damage is done. On Thursday, the company will hold meetings with employees to reiterate its ethical standards.
Home Depot said that the situation would not have a “material effect” on its financial condition. Just it’s public image (my statement)
It just seems that HD is turning into the “gang that couldn’t shoot straight”. A month ago they announced a massive share buyback but did not give a time frame for it’s completion and the only result has been a share price fall and their credit got downgraded by rating agencies. Not the result I am sure they hoped for when they planned it.
Now after these gaffs, it seems Home Depot just cannot get it together to instill trust in itself.
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Upgrades / Downgrades
Here are the recent calls
UPGRADES
Advanta Corp ADVNB Friedman Billings Mkt Perform » Outperform
AGCO Corp AG Bear Stearns Peer Perform » Outperform
Anadarko Petro APC BMO Capital Markets Underperform » Market Perform
Apogee Enterpr APOG Matrix Research Hold » Buy
Apple AAPL Citigroup Hold » Buy
Apria Healthcare AHG Oppenheimer Sell » Neutral
Arch Chemicals ARJ Wedbush Morgan Buy » Strong Buy
LodgeNet LNET CL King Strong Buy » Accumulate
SumTotal SUMT Wedbush Morgan Buy » Hold
Otter Tail Power OTTR DA Davidson Underperform » Neutral
Scotts Miracle-Gro SMG CL King Neutral » Strong Buy
Arch Chemicals ARJ Wedbush Morgan Buy » Strong Buy
Activision ATVI Janco Partners Mkt Perform » Accumulate
Vistaprint VPRT Longbow Neutral » Buy
Capital Corp. of the West CCOW FTN Midwest Neutral » Buy
Hutchinson HTCH WR Hambrecht Hold » Buy
Hutchinson HTCH Needham & Co Hold » Buy
Silicon Motion SIMO Needham & Co Buy » Strong Buy
Suncom Wireless TPC Stanford Research Hold » Buy
Westlake Chemical WLK Lehman Brothers Equal-weight » Overweight
DOWNGRADES
AC Moore ACMR Credit Suisse Outperform » Neutral
Amgen AMGN William Blair Outperform » Mkt Perform
Community Health CYH Citigroup Buy » Hold
RRSAT Global RRST CE Unterberg Towbin Buy » Market Perform
ON Semiconductor ONNN CE Unterberg Towbin Buy » Market Perform
Summit State Bank SSBI DA Davidson Buy » Neutral
Crystal River Captial CRZ AG Edwards Buy » Hold
STATS ChipPAC STTS Lehman Brothers Overweight » Equal-weight
LodgeNet LNET CL King Strong Buy » Accumulate
SumTotal SUMT Wedbush Morgan Buy » Hold
Buffalo Wild Wings BWLD Dougherty & Company Buy » Neutral
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"Fast Money" for Thursday
Here are Wednesday’s results and Thursday’s picks.
Thursday’s picks
Jeff Macke said Starbucks (SBUX) is a sell. Open $27.60
Pete Najarian liked St. Jude Medical (STJ). Open $44.81
Guy Adami recommended buying Short Dow30 ProShares (DOG) Open $59.50
Eric Bolling liked El Paso Corp (EP) Open $16.81
Wednesday’s results
Jeff Macke recommended selling Wendy’s (WEN) on the Peltz takeover news. Open $35.03 Close $34.93 Loss $.10
Pete Najarian preferred Alvarion (ALVR) Open $10.26 Close $10.82 Gain $.56
Guy Adami liked EMC Corp. (EMC) Open $18.51 Close $19.09 Gain $.58
Records:
Since my tracking began on 6/21 (1-1 means one up pick and one down pick and no results from my vacation week)
Adami= 10-8 Gain $26.76
Bolling= 8-8 Loss $4
John Najarian= 13-3 Gain $15.54
Macke= 16-10 Gain $5.66
Pete Najarian= 5-5 Gain $17.76
Seymore= 1-1 Gain $.01
Finerman= 1-2 Gain $.68
Gilbert= 1-0 Gain $.29
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Huge Victory For Lead Paint Defendants
Put another one in the books for Sherwin Williams (SHW), NL Industries (NL) and other lead paint defendants thanks to the Ohio Supreme Court. Proving, unlike Ohio AG Marc Dann it can count to ten and yes this was really that type of case, the Court ruled in favor of the legislature. “Writing for the majority in today’s decision, Justice Cupp held that under Section 16 Article II of the Ohio Constitution, when the legislature passes a bill and adjourns its session sine die before presenting the bill to the Governor, the time limit after which the bill becomes law unless vetoed by the governor runs from the date the legislative session was adjourned, not from the date on which the bill was presented to the governor. Based on that analysis, the Court ruled that Governor Strickland’s January 8, 2007 veto of Am. Sub S.B. 117 was not filed within the ten-day time limit, and that Secretary of State Brunner is therefore required to accept and process the bill as filed by Governor Taft on January 5, 2007 as duly enacted legislation.”
This effectively ends the potential for lead paint litigation in the state of Ohio. Dann, who had been getting pointers from Rhode Island Patrick Lynch on the latest wealth transfer scheme, must be humiliated. Now, in order to prove who is responsible for any lead paint poisoning (aside from the obvious, property owners who do not maintain their property) prosecutors must prove whose lead paint in responsible and there is no reliable test available to prove what manufacturers 50 year old paint is on the windowsill Jr. has been gnawing on all day.
Once again, the blog Law and More has the most comprehensive coverage of the ruling. Please visit Jane Genova’s blog here for details
Earlier Dow Chemical CEO Andrew Liveris said he wanted a $3 to $4 billion dollar coating business. Well, he may be about to get there.
Shares of Britain’s Imperial Chemical Industries (ICI) advanced 1.4% to 633 pence in afternoon London trading, following a report in the Daily Telegraph that Dow Chemical (DOW) was considering making a bid for the U.K. paints maker. ICI, the maker of Dulux paints, has long been tipped as a bid target after slimming down to focus on higher-margin paints and adhesives. ICI has turned down two approaches from Akzo Nobel (AKZOY) including one valued at 7.8 billion pounds, or 650 pence a share, in cash.
According to the report, Dow Chemical has asked Lazard to provide it advice.
In other news, Dow AgroSciences, announced today that it will substantially expand its Brazilian corn seeds business with the acquisition of Agromen Tecnologia Ltda. Brazil is the third largest corn-planting nation in the world. “The acquisition of this premier seeds business reflects Dow’s commitment to grow its Agricultural Sciences activities globally. This is another example of Dow’s commitment to pursuing strategic investment opportunities that drive value growth in the Company’s downstream performance businesses and in rapidly growing geographies,” said Jerome Peribere, Dow AgroSciences president and chief executive officer.
He continued, “The expanded seed platform that we are building with both this acquisition and the recent acquisition of assets of the Europe-based corn germplasm provider Maize Technologies International will enable us to leverage superior Dow and Dow AgroSciences input and output traits in key crops around the world, for both agricultural and industrial uses,”.
Dow is on fire expanding it’s business outside of the old commodity businesses that made earnings so erratic. In getting into the seed business is a major way it now has become very competative with Monsanto (MON) and DuPont (DD) in the corn seed business. If you have watched the news lately the corn business is surging and there does not seem to be any end for demand for the product in the immediate future.
Anything Dow does to diversify earning is wonderful for investors and both these deals would do just that.
Can’t wait to see what they do tomorrow!!