No sleep, Tuition, Death by Texting, Another List
– Just what we need, less sleep.
– Why are the nations so call “enlightened” only now figuring this out?
– A driver texting kills a 13 year old.
– Here is a good one on the “5 Dumbest Things on Wall St. for 2007”
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Wachovia (WB) CEO Ken Thompson said last week the bank currently only has about $700 million in exposure to the dreaded collateralized debt obligations, or CDOs.
We bought Wachovia a while back in October because of a business model at Wachovia that Thompson has called “low-risk.” Almost 60% of Wachovia’s earnings come from general banking or simply put, checking and savings accounts, retirement services, auto financing and other retail and small business products. That area of the banking business remains healthy.
For 2008 Thomnpson said “We believe that 2008 will be a much better year for us than 2007, and we think the market will recognize that as we go more and more through the year,” he said. When you consider the stocks yields 6.7% and trades at 8 times earnings, once people realize the world is not ending, there is substantial upside.
We have been saying essentially the same thing for months now and Thompson’s comments should give those looking at financials some confidence.
I am confident that when we all do those “Best of” lists for 2008, those who are buying financial currently will be at the top…
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Back in September I commented Wal-Mart’s (WMT) new ads were “simple and brilliant”. It would seem I am not alone.
For the first time in recent memory, Wal-Mart has won the Holiday sales battle with Target (TGT). There are two simple reasons. The new ad campaign started in time for the holidays and the success of Walmart.com’s “site-to-store” program.
“Save Money, Live Better”
In May I lamented “I have been in 4 Wal-Mart the past 2 weeks and one thing sticks out. They have not changed at all the past 7 years. Everything feels the same, the look , the merchandise, the people, everything.” I continued, “Wal-Mart’s image has taken a hit. When people want something “cheap” they think Wal-Mart, when the want a value, they think “Target”.”
With one simple phrase (and a few billion invested in the stores), Wal-Mart changed that. Going from “Always Low Prices” which to be honest was a line best suited for the Dollar Stores to Save Money, Live Better Wal-Mart changed the perception of their operations. The commercials, which focused on family trips and gave an emotional element to their advertising that had never been there before. Guess what? It worked. Credit the Martin Agency, ranked by Advertising Age as one of the top five agencies of the year in 2006.
Site-To-Store
In July, after my first try at the program, I posted “Wal-Mart said that “more than 50 percent of Site-to-Store orders [came] from new customers who make their first purchase at Walmart.com using the service.” The chain also reported a 20 percent increase in the number of Site-to-Store “customers who spend an additional $60 on purchases in the store when picking up their orders.”
This clearly spilled over into the holidays. I actually was one of these folks as were ordered items for the kids on “Black Friday” picked them up in the store 7 days later and while there, picked up several other items. This option, for some inexplicable reason is not available at Target. The best part of the program is that I can buy thousands of items not in the stores, making my local Wal-Mart even larger.
The thing about retail is that it is hard to change perceptions once they are set in consumers minds. Now that Wal-Mart has managed to finally do that, as the economy slows, any hope Target had to turn the tide anytime soon is all but lost. Shoppers have clearly bought into Wal-Mart’s tag line and as times get tougher, this will become even more apparent.
If all this is not bad enough for Target, the death comparison was recently made. Craig Johnson, president of retail consultancy Customer Growth Partners said “As a merchandiser, you can’t ignore the customer experience. The level of helpfulness in Target stores is approaching Home Depot (HD) territory.” OUCH
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I have been invited to participate in a stock picking contest for Q1, 2008. I normally do not do these because to be honest I have no idea what stocks are going to do in only three months but I do like the work Asif does at the SINletter so I will give it a shot.
Here are the rules of the contest:
1. Stock contest starts on January 2nd, 2008 and ends on March 31st, 2008.
2. Only stocks that trade above $1 at the time of selection and that are listed either on the NYSE, Nasdaq or the American Stock Exchange will be accepted (sorry no pink sheet or bulletin board stocks this time around).
3. You can pick ETFs and closed-end funds.
4. Regular dividend payments will not be taken into account both on the long side or the short side.
5. The stock contest price would be the highest price of the day for long stocks and lowest price of the day for short stocks if you pick the stock during a trading session. If you pick a stock after hours or over a weekend, the next trading session will be used to determine the highest price of the day for long stocks and lowest price of the day for short stocks.
6. It is not possible to use margin or leverage.
7. The value of S&P 500 you enter will be utilized as a tie breaker in case two or more contestants have the same returns at the end of the contest.
8. Because of shipping costs, this contest is currently only open to residents of the United States. If all you care about is bragging rights and not the prizes then please feel to participate irrespective of your location.
9. One entry per email address.
10. Each winner will be contacted a maximum of three times and in case we don’t receive a response within 5 days, we will contact the next highest ranked contestant.
11. We reserve the right to disquality any entry at any time at our sole discretion.
12. We reserve the right to change these terms and conditions at any time.
13. This contest is for entertainment purposes only and we assume no liabilities for inaccurate information entered by us or contest participants, typographical errors, programming errors or equipment malfunctions.
14. We reserve the right to stop accepting new entries at any point.
That being said, here are my picks and a brief reasoning:
1- Altria (MO)
PMI ought to be spun off in Q1 and the massive share buybacks for both entities will be announced. If the economy does happen to look as though it will slide into recession, investors will flock to MO as a defensive play.
2- Citigroup (C)
What else could Citi say that will drop the stock price even further? Other than they are closing shop, I do not know. Hedgies and funds all sold out of Citi for the end of the year window dressing. That being said, it is dirt cheap and they recognize this and ought to begin buying in Q1.
3- Starbucks (SBUX)– Short
Starbucks faces a slowing economy, rising input prices, relentless competition and a management team that seems to recognize none of the above. Add them up and spot the stock a price 26 times forward earnings and shareholders are not in for a “Happy New Year.”
You can track the contest results here:
Disclosure: Long Citi and Altria. No position in Starbucks
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Wednesday’s Picks
Brian Schaeffer, Van Der Moolen Capital Markets Managing Director, recommends buying Nordstrom (JWN) Open $36.73
Carter Worth, Oppenheimer Chief Market Technician likes Altria (MO) Open $75.58
Jon Najarian prefers Starbucks (SBUX) Open $20.47
Monday’s Results
Pete Najarian likes Caterpillar(CAT) Open $73.16 Close $72.55 LOSS
Karen Finerman says short Big Lots (BIG) Open $15.77 Close $16.02 GAIN
Guy Adami recommends Deere & Co (DE) Open $92.28 Close $93.16 GAIN
Results since 6/21/2007:
Guy Adami= 58-46 = 56%
John Najarian= 13-4 = 76%
Jeff Macke= 60-40 = 60%
Pete Najarian= 49-41 = 54%
Tim Seymore= 7-7 = 50%
Karen Finerman= 40-30 = 57%
Stacey Briere-Gilbert= 3-0 = 100
Ned Riley= 1-0 = 100%
Carter Worth= 0-1 = 0%
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Here are 8 prediction for 2008. I will update these throughout the year as warranted and at the end.
1- Sherwin Williams (SHW) gets a bid from a potential buyer
2- The US does NOT slip into recession
3- Citigroup (C) does not cut its dividend and does not break it self up.
4- Google (GOOG) purchases Sprint (S)
5- Dow in June 2008, 13,600. In December 2008, 15,200
6- Oil crosses $100 in January and does not retreat below it. By December 2008, it sits at $135
7- Apple’s (AAPL) iPhone does not sell 10 million units before its one year anniversary without another price cut to $299.
8- President Mitt Romney is elected saving all investors from a catastrophic tax increase.
Disclosure: Long Citigroup, Sherwin Williams and USO
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GPhone debut?, Cash, Graduation, Best Sellers
1- It looks like a February debut for the gPhone
2- Google is offering $10 million for the best application for the phone
3- Is it worse than we thought?
4- Here are some of the best sellers at Amazon.com (AMZN) this holiday season.
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WRI Weingarten Realty Inv … 31.50
WEN Wendy’s International … 25.76
SBGI Sinclair Broadcasting … 8.21
RURL Rural/Metro Corp 2.14
RUBO Rubio’s Restaurants, Inc. 8.25
RTLX Retalix Ltd 15.36
RRGB Red Robin Gourmet Bur … 32.08
JNY Jones Apparel Group, Inc 16.00
JCOM J2 Global Communicati … 21.21
JBLU Jetblue Awys Corp 5.91
BWS Brown Shoe Inc New 15.12
BONT The Bon-Ton Stores Inc 9.44
BJRI BJ’s Restaurants, Inc. 16.23
CKR CKE Restaurants, Inc. … 13.25
CHS Chico’s FAS Inc 9.04
CHRK Cherokee Intl Corp 2.04
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It is the end of the year and it is time to take credit for the prophetic like calls I have made and then take my lumps for the, well, “was he drinking?” ones.
BEST:
1- Starbucks (SBUX). On Feb 8th, with shares at $33, I wrote, “The switch to premium coffee is clearly working for McDonald’s. In the last couple conference calls they have given huge credit to their coffee for both their increase in sales and customer counts. Contrast this to Starbucks’ call in which they intimated their profit increases were mainly due to price increases on coffee and by selling customers more products once inside, not by increased customer counts. Translation, they are losing people to McDonalds (MCD).”
Since then Starbucks shares have cratered, down 40% and McDonalds shares are up 40% to all-time highs.
2- Oil (USO). On Jan. 30th, I wrote with oil at its lowest point since the index was created, “If you are long term (years) you are really only looking at supply and demand, as long as it does not change from its current long term trend, the price must go up.” Since then the price has risen roughly 70%.
3- Harley Davidson (HOG): On Feb.7th with shares at $70 I wrote, “It will get cheaper”. The initial price point was set at $60 and was then was reduce over the summer to under $45, where shares sit today, a 35% decline.
I have a feeling I will end up buying Harley shares around $40 in the not too distant future.
4- Dow Chemical: On 12/7 I wrote: “How about using the very same strategy they have been using for the past year? Selling chunk of this business to outsiders and placing them into the Joint Venture (JV) category. This would provide Dow billions of dollars instantly to be deployed in buying some specialty chemical makers without impairing the balance sheet.”
The next week Dow did just that.
5- Ethanol: In January I said that 2007 & 08 will be a battle for the hearts of the FOS’s (fly over states) for politicians and that battle would be fought with ethanol. Each party would battle to bring the largest biofuel mandate to that area and the #1 benefactor would be Archer Daniels Midland (ADM). Sure enough the 2007 Energy Bill featured massive biofuel increases. ADM? Up 50% since January.
WORST
1- Google (GOOG). On Feb. 2nd, I wrote with shares of Google at $500 “I repeat my prior statement. Google is a great company with great product, it’s stock is just overpriced.”
Since then shares have risen 35% to $685. I still think it is overpriced, maybe next year we will be able to move this one to the “best call column”. Who knows…
2- Apple (AAPL). On May 16th, with shares at $110, I wrote “the introduction of the iPhone will be the first miscue for the company and send it’s shares, priced for perfection tumbling.”
Shares since then have risen 63% to $185. Here was the flaw, iPod and especially Mac sales have exploded and with it, the profitability of the company. iPhone sales have been “lukewarm” or “spectacularly average”? It surely has not been a flop but it has not been a smash hit either. The real winner in the iPhone rollout was AT&T (T), the sole carrier of the product. In all fairness to myself I did also say the phone at $599 was way over priced and apparently Apple agreed (or sluggish sales indicated) as the price was dropped 33% to $399 almost immediately after roll-out and $100 refunds given to early buyers. In my initial May post I did say “drop the price to $299 and you’ll have something”. Apple met me more than half way.
With Verizon (VZ) and Research in Motion (RIMM) the Blackberry maker coming out with touch screen phones in ’08, it will be interesting to see how iPhone sales are effected.
The Jury is Still Out
1- Citigroup (C): Down 30% since first purchase.
2- Sears Holdings (SHLD): Ditto Citigroup
3- Owens Corning (OC): Down 30% since purchase
These do not go into the “worst” category for the simple reason I still hold them and as a value investor, you buy stocks when they are down, you are either right or wrong a year or two down the road, not in a few months. If these are still where they are now at thing time next year, we will have to move them into the “worst” category if for no other reason, the thought process behind the purchases and when they were made was flawed.
Please feel free to email or comment on any other ones you can think of and I will be happy to expand on any of them. I sure there are others but these are the ones off the top of my head…
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1- Has Lampert “Lost It”?, Did Buffett?
2- Eddie Lampert, World’s Worst Third World Dictator? Come on, Herb!!
3- MFP Investor’s Micheal Price on Sears Holdings
4- Autozone Easily Beats Estimates. Is Lampert a Genius Again?
5- Did Lampert Dump Burnett?
6- Walmart.com Blows away Competition.
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Monday’s Picks
Pete Najarian likes Caterpillar(CAT) Open $73.16
Karen Finerman says short Big Lots (BIG) Open $15.77
Guy Adami recommends Deere & Co (DE) Open $92.28
Friday’s Results
Karen Finerman recommends being short the iShares Dow Jones US Real Estate ETF(IYR). Open $66.48 Close $65.18 GAIN
Guy Adami likes Intel (INTC). Open $26.83 Close $26.76 LOSS
Pete Najarian says investors should buy Archer Daniels Midland (ADM). Open $46.04 Close $47.09 GAIN
Results since 6/21/2007:
Guy Adami= 57-46 = 55%
John Najarian= 13-4 = 76%
Jeff Macke= 60-40 = 60%
Pete Najarian= 49-40 = 55%
Tim Seymore= 7-7 = 50%
Karen Finerman= 39-30 = 57%
Stacey Briere-Gilbert= 3-0 = 100
Ned Riley= 1-0 = 100%
Carter Worth= 0-1 = 0%
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Here are the top 10 from VIN
In a live interview this morning on CNBC’s Squawk Box, Warren Buffett called his purchase of a big Marmon stake as a “bet on America over a long time.” He also revealed that while he has been approached by financials companies about buying a stake, “we have not seen a deal that causes me to start salivating.”
Greenblatt’s calculation of ROIC in TLBTBTM is a useful quick and dirty tool but when it comes to really analysing companies it may need some adjustments to give a clearer picture.
In 2005, Seth Klarman of Baupost Capital warned a group of Wharton business school students that a new class of “value pretenders” had emerged. Klarman, whose fund has earned more than 20% annual returns on more than $5 billion in holdings, provided the following description: “These investors apply a dip strategy.
More bad news for WAMU. SEC is investigating the possible use of inflated appraisals.
“If they are in the strike zone at all, the business ‘pitches’ we now see are just catching the lower outside corner. If we swing, we will be locked into low returns. But if we let all of today’s balls go by, there can be no assurance that the next ones we see will be more to our liking. Perhaps the attractive pries of the past were the aberrations, not the full pries of today.
VALUEPLAYS NOTE: Read a similar post from February at ValuePlays
Rockefeller and Buffett parallel
Diversity Breakdowns and Invisible Vulnerability. For he who is acquainted with the paths of nature, will more readily observe her deviations; and, vice versa, he who has learned her deviations will be able more …
DVW is currently trading at a 14% discount from its acquisition price. This provides a relativley risk free 14% return in just a few months.
Insight on why he is investing in Asia, with Marty Whitman, Third Avenue Management and CNBC’s Erin Burnett
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Equity One Inc (EQY)= $7,755,627
World Acceptance Corp (WRLD)= $2,374,380
Cousins Properties Inc (CUZ)= $ 1,479,383
Hercules Offshore Inc (HERO)= $1,404,247
Nuveen Municipal Value Fund Inc (NUV)= $1,393,820
Nuveen Global Value Opportunities Fund (JGV) = $1,368,600
Neuro Hitech Inc (NHPI) = $1,326,750
Osiris Therapeutics Inc (OSIR)= $1,237,000
Aca Capital Holdings Inc (ACAH )= $1,214,080
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