Category: Articles

Corporate tax, Lampert, Investment Banks, Verizon misses

CNBC is reporting that Citigroup (C) is set to receive $15 billion from its largest shareholder, Saudi Prince Alwaheed…

Disclosure: Long Citi

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Wachovia (WB) is aggressively pushing its expansion overseas but not in the way its rivals are…

While banks like Citigroup (C) and Bank of America (BAC) open physical branches to expand their business, Wachovia has taken a decidedly different path. Recognizing local banks have more coverage in the regions they operate that a international bank with a few branches in the capital, Wachovia covers cross-border payments, letter of credit and open account trade, treasury clearing and has signed over 100 agreements to run white labelling operations for banks since 1990.

Wachovia’s head of global financial institutions and trade Micael Heavener, instead of competing with local banks that have increasing lending capabilities, has decided to partner with them. Said Heavener, “We must be one of the largest banks in the world whose international business is built primarily around a global financial institutions strategy, so we’re kind of in a perfect world. We have all the scale and all the resources we need to keep this business growing and deepening, and yet we can be clear to our clients that we are in no way competitive.”

“Wachovia is focused primarily on the global financial institutions business in many of these international markets, and so we’re able to say that we’re partners, not competitors, and that’s reassuring to our correspondents,” Heavener says.

So what do they actually do? They handle the bulk of the check collection, export order collection, credit support and risk underwriting and other labor-intensive transaction processing technology. So while company “A” may use a local bank in Hong Kong for a transaction, much of the back office work is being done by Wachovia.

To put a number with the description of activities, in Hong Kong Wachovia handles 10% of the special administrative region’s exports.

The big key here, especially in today’s environment is that Wachovia needs minimal capital to keep this expansion going. There is significant capital required to open a walk in branch, almost none to do what Wachovia does…

Perhaps this is why they are virtually the only bank expecting a better year in 2008 that in 2007?

Disclosure: Long Wachovia, Long Citigroup, None in any others

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People have grasp onto Bernanke’s last sentence in Thursday’s speech. they seems to have missed what he said before and they may wish they didn’t.

It seems the only thing the market heard was the following sentence. “Based on that evaluation, and consistent with our dual mandate, we stand ready to take substantive additional action as needed to support growth and to provide adequate insurance against downside risks.”

What they seemed to have missed was this little nugget in the prior paragraph:

“Even as the outlook for real activity has weakened, there have been some important developments on the inflation front. Most notably, the same increase in oil prices that may be a negative influence on growth is also lifting overall consumer prices and probably putting some upward pressure on core inflation measures as well. Last year, food prices also increased exceptionally rapidly by recent standards, further boosting overall consumer price inflation. Thus far, inflation expectations appear to have remained reasonably well anchored, and pressures on resource utilization have diminished a bit. However, any tendency of inflation expectations to become unmoored or for the Fed’s inflation-fighting credibility to be eroded could greatly complicate the task of sustaining price stability and reduce the central bank’s policy flexibility to counter shortfalls in growth in the future. Accordingly, in the months ahead we will be closely monitoring the inflation situation, particularly as regards inflation expectations.”

While a rate cut upcoming seems to be a forgone conclusion, it would seem Bernanke is trying to tell the market not to get too far ahead of itself down the road. Fed funds futures seem to be pricing a full percentage point cut or more in rates this year. What Bernanke is telling the market is that while it will get its cut this month and it will most likely be a 50 point one, inflation will determine the ability of future cuts to be made…

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UPGRADES
MSC Software MSCS B. Riley & Co Neutral » Buy
EnerNOC ENOC Pacific Growth Equities Neutral » Buy
Amdocs DOX JP Morgan Neutral » Overweight
BankAtlantic BBX Fox Pitt In Line » Outperform
Getty Images GYI Kaufman Bros Sell » Hold
U.S. Steel X KeyBanc Capital Mkts Buy » Aggressive Buy
Matrix Service Co MTRX KeyBanc Capital Mkts Hold » Buy
Southern Copper PCU UBS Neutral » Buy
Amerigon ARGN Roth Capital Hold » Buy
Macrovision MVSN Jefferies & Co Hold » Buy
Boston Prpts BXP Bear Stearns Peer Perform » Outperform
Centennial Comms CYCL Bear Stearns Peer Perform » Outperform
UPS UPS Bear Stearns Peer Perform » Outperform
ADA-ES ADES JMP Securities Mkt Perform » Mkt Outperform
Equity One EQY JP Morgan Underweight » Neutral
GMH Communities Trust GCT JP Morgan Underweight » Neutral
Fedrl Rlty Inv Trst FRT JP Morgan Neutral » Overweight
Mentor Corp MNT CIBC Wrld Mkts Sector Perform » Sector Outperform
Wynn Resorts WYNN CIBC Wrld Mkts Sector Underperform » Sector Perform
AvalonBay AVB Bear Stearns Peer Perform » Outperform
GSI Commerce GSIC Bear Stearns Peer Perform » Outperform
SAIC SAI JP Morgan Neutral » Overweight
UAL Corp. UAUA JP Morgan Neutral » Overweight
Waste Connections WCN JP Morgan Neutral » Overweight
Healthspring HS Lehman Brothers Equal-weight » Overweight
CIGNA CI Lehman Brothers Underweight » Equal-weight
Louisiana-Pacific LPX Citigroup Hold » Buy
Ingersoll-Rand IR Lehman Brothers Equal-weight » Overweight

Friday’s Picks
Jeff Macke recommends selling the Retail HLDRS (RTH) $89.35

Guy Adami prefers Blackstone (BX) $19.84

Karen Finerman says, “if you’re short Garmin (GRMN) $78.0 cover it.”

Pete Najarian thinks Fortress (FIG) $13.79 is a buy

Thursday’s Results
Tim Seymour recommends Titanium Metals (TIE) $22.76 Close $24.62 GAIN

Guy Adami prefers NYSE Euronext (NYX) $79.80 Close $82.11 GAIN

Karen Finerman says get long American Eagle (AEO) $17.72 Close $18.97 GAIN

Pete Najarian thinks Alexander & Baldwin (ALEX)$45.31 Close $45.09 LOSS

2008 Records:
Brian Schaeffer= 0-1
Carter Worth= 0-1
Jon Najarian= 3-1
Jeff Macke= 3-2
Tim Seymore= 2-1
Guy Adami= 3-3
Pete Najarian= 2-2
Karen Finerman= 2-2

2007 Results (Since 6/21):
Guy Adami= 58-46 = 56%
Jeff Macke= 60-40 = 60%
Pete Najarian= 49-41 = 54%
Karen Finerman= 40-30 = 57%

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It looks as though the “worm had turned” for Wal-Mart (WMT) finally.

With retailers like Target (TGT), Kohls (KSS), JC Penny (JCP) and Macy’s (M) all reporting declines and disappointing numbers on Thursday, Wal-Mart’s results look that much better.

Wal-Mart’s total numbers:

                          Net Sales
                      5 Weeks Ended    Percent      48 Weeks Ended    Percent
                   1/4/2008  1/5/2007  Change     1/4/2008  1/5/2007  Change

   Wal-Mart Stores  $29.689  $28.127    5.6%      $222.036  $209.583    5.9%
   Sam's Club         4.938    4.735    4.3%        41.098    38.532    6.7%
   International     11.970   10.130   18.2%        84.994    72.486   17.3%
     Total Company  $46.597  $42.992    8.4%      $348.128  $320.601    8.6%

On a “same store sales” basis:

                             Five Weeks Comparable Store Sales
                      Without Fuel          With Fuel          Fuel Impact
                   1/4/2008  1/5/2007  1/4/2008  1/5/2007  1/4/2008  1/5/2007

   Wal-Mart Stores   2.6%      2.3%      2.6%       2.3%     0.0%      0.0%
   Sam's Club        1.3%      4.7%      3.4%       4.0%     2.1%     -0.7%
     Total U.S.      2.4%      2.6%      2.7%       2.6%     0.3%      0.0%

Why did Wal-Mart shine while the others all faltered? Two things folks cannot do without, food and drugs.

“In a difficult retail environment, we were pleased with our comparable store sales during this period,” said Eduardo Castro-Wright, Wal-Mart Stores U.S. president and chief executive officer. “Wal-Mart’s food performance was very strong, which helped drive traffic to other areas of the stores.

“Our price leadership position was clear very early in the holiday season, and customers responded throughout the period to our pricing and merchandise offerings, which were supported by well-integrated advertising and in-store communications,” he said. “Customers were also pleased with the improvements they saw through our faster, friendlier check-outs, as well as their overall in-store experiences. Our stores were well-merchandised and did a good job managing inventory throughout the Christmas season.”

I have noticed a dramatic change in the local Wal-Mart the last three or four months with the staff. Checkout people now stand at the end of the registers so an open register is now easily identifiable. There also seems to be more of them to aid and assist with any questions I may have. It is hard to put a finger on but when I walk into th stores now, they just seem alive.

Wal-Mart gave its guidance and true to form they gave the same numbers they have given since last summer. Yawn. The key is that as the economy slows, Wal-Mart isn’t and for shareholders, that is very good news..

Disclosure:Long WMT, None in others

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VALU Value Line Inc 36.54
SAVB The Savannah Bancorp Inc 16.52
RWC Relm Wireless Corp 2.80
RUBO Rubio’s Restaurants, Inc. 7.21
RT Ruby Tuesday, Inc. (G … 6.30
PLCE Children’s Place Reta … 19.32
PKTR Packeteer Inc 5.12
DEAR Dearborn Bancorp Inc 5.56
CWBC Community West Bancshares 8.00
BEBE Bebe Stores Inc 10.84
BDAY Celebrate Express Inc 6.00
ANN Ann Taylor Stores Cor … 20.24
AMIC American Independence … 8.07

Disclosure:

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Why do they get what we refuse to?

The WSJ reports today “Merrill (MER) is expected to get $3 billion to $4 billion, much of it from a Middle Eastern government investment fund. Citi (C) could get as much as $10 billion, likely all from foreign governments.”

“One possible source for fresh capital for Citigroup could be the Government of Singapore Investment Corp., or GIC. Mr. Pandit already has a relationship with the fund, which was one of the original investors in Old Lane Partners, a hedge fund that he co-founded and that Citigroup bought last year.”

Earlier in the month I commented after the last round of funding “When you are not at the vortex of the panic, it is far easier to see through to the the other side of it. Eastern investors are placing massive bets on US banks and financial services firms while US investors are running scared from them. The reason? My guess is that these foreign firms see the international operations of a Citigroup and recognize they are still earning money in their other areas of operations and that the US housing issue is a temporary one.”

Personally, I am hesitant to commit more money into the sector before earnings come out the next two weeks. Before you comment that I am not taking my own advice, I do have about 55% of my personal portfolio in the financial sector now. I do want to pick up more and most likely will once I get clarity after the next two weeks. There are plenty of them to pick from that are great operations trading at painfully low valuations to their book value with yields, based on cash flows that are safe and around 6% to 7%.

I think a couple years from now there are going to be a whole lot of folks out there lamenting “I wish I bought financials back then”

Disclosure: Long Citi, None in others

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