Friday, April 30, 2010

GlaxoSmithKline On Simmer

The last of the run for today (I think...):

Why Stocks Aren't That Scary

This is my second article for Investopedia's (relatively) new FinancialEdge website:

Reading the news these days, it almost seems like there is something a little wrong with you if you are not afraid of the stock market. We have seen two major stock market declines in less than 10 years. On top of all that is the ever-present fear of losing money.

Still, potential investors should think a little more about the real risks in the stock market. Stocks are not actually that scary, and if people keep a few points in mind, they can successfully navigate the real hazards and be at ease with investing in stocks. (If the unpleasant emotions in When Fear And Greed Take Over are allowed to influence your decision-making, they may cost you dearly.)

For the rest:

Can Boston Scientific Ever Get It Right?

And so continues my long love affair with not liking Boston Scientific (BSX).

It is only fair to state that from the beginning that I have been a long-term skeptic and critic of Boston Scientific (NYSE:BSX), going back to the late 1990's when I covered the stock as a junior research analyst. Ever since, my skepticism has been rewarded as the company has made missteps and blunders too numerous to recount here. 

With a relatively new CEO at the helm and earnings fresh on the tape, it's worthwhile to take another look at this well-known name to see if anything has changed for the better.  

For the remainder of the article:

Plum Creek Gets Pruned

I wrote the following on Plum Creek (PCL), one of my favorite REITs and a stock I wish I had just held on to instead of sold a long time ago...

Memo to Plum Creek Timber (NYSE:PCL) management - in the future, try not to post earnings on the same day that western Europe appears to be melting down into the financial Stone Age. 

That would be the most logical explanation to this writer, as to why the stock is down nearly 8% (as of Tuesday's close), on earnings that were at least acceptable. Still, whenever the stock of a high-quality company goes down more than it should in the absence of truly bad news, I get a little interested.  

For the rest, click on through:

WellPoint Still On Point

There will be several articles by me going up on Investopedia today (and maybe Monday). Here's the latest.

The health insurance industry has seen more than its usual share of turbulence over the past year, what with the healthcare reform debate and seemingly mandatory attacks on the health insurance industry. Through all of that, WellPoint (NYSE: WLP) has continued to run its business exceptionally well. 

Results That Get Better As You Go AlongAdmittedly, top line growth is not a preeminent reason to own WellPoint shares. For the first quarter, the company saw revenue drop a fraction of a percent, while operating revenue was down about 3%. The economy is primarily responsible for this; with rising unemployment, the company saw premium revenue drop about 2% on a similar decrease in membership. (For more, see Intro To Insurance: Health Insurance.)

The rest can be read at Investopedia:

Silicon Labs - Quality Doesn't Come Cheap

The following went up on Investopedia this morning.

The semiconductor business is not for the faint of heart. Lucky for Silicon Labs (Nasdaq: SLAB) shareholders, then, that they have a rather bold and skilled management team. Remember, this is a company that decided about three years ago to sell a profitable wireless business that was about one-third of the company's revenue because management foresaw increasing competition and decreasing profitability. Since that gutsy move, the company has almost completely replaced that revenue despite the recession. 

A Very Strong Quarter In The BooksSilicon Labs reported earnings April 28 that should leave its shareholders satisfied. Revenue rose 51%, while gross margins jumped almost 6%. With significantly higher gross profits, the company was better able to leverage its overhead more effectively even while reporting higher R&D and SG&A expenses. Operating income, then, was significantly higher than in the year-ago period, and the company handily beat estimates.

The rest at:

Thursday, April 29, 2010

Canadian National Needs To Do More

Here is an analysis of Canadian National (CNI) that I wrote for Investopedia.

I wish I had had the space to go into some of the complaints that have been lodged against CNI by its customers, and the possibility of regulatory involvement in Canada as a result. I don't think it really moves the needle with the company or stock, but it gives a different perspective on how the company conducts itself.

It is an odd quirk of Wall Street that the best operators in an industry do not always get the most respect from analysts and buy-side fund managers. I think the reasoning is basically that the underperformers have the most room for improvement, and this hoped-for improvement constitutes a "catalyst" in the lexicon of the Street.  

So, in an earnings season where rival rail operators Union Pacific (NYSE: UNP) and CSX (NYSE: CSX) have already reported strong earnings, an "all right" performance from Canadian National (NYSE: CNI) gets a cooler reception. 

For the rest, please click on to:

Wednesday, April 28, 2010

Can BBVA Be B-B-Believed?

Amidst all the talk of Europe going back to a financial Stone Age, we got to see the earnings from Spain's second largest bank, Banco Bilbao Vizcaya Argentaria (BBVA). In a way, it was something of an anticlimax - no howls of pain, no eye-popping losses, no dire projections or grim predictions of failure. It was an okay report ... maybe almost too okay?

Gross loans were down just slightly from last year, and up a little on a sequential basis. Spain's unemployment is 19%, Portugal's is about 9% (though I've seen a wide range on this stat), and Mexico's is officially about 5 or 6% (but common assumption is that the real rate is much higher). So who, exactly is BBVA lending to? I mean, I realize loans don't disappear just because the economy is bad, but it's just the first oddity that hit me.

Net interest income was up a bit from last year, and down a little on a sequential basis. Deposits were likewise mixed - up a little on a yoy basis, down a little sequentially. Okay, no big deal there. 

Here's where things get really squirrely for me. The non-performing assets ratio was flat from December, at 4.3%, and up from last year's 2.8%. Impairments were up 17% from last year to 1.1B, but down a fair bit from December. Provisioning was up about 8% sequentially (to 9.3B) and up 73% from last year's level. Surprisingly, the company has also been showing really strong recoveries as part of its non-performing assets -- recoveries of 2.4B were booked this quarter, and that was up 20% sequentially and nearly double the year-ago level.

On a net basis, then, the company added 874M euros to NPA, the lowest rate of increase in quite a while; half of December's increase, and a third of last year's. The coverage ratio has gone from 76% in March of 2009 to 59% now.

Now let's just think about this for a moment. With everything we've been seeing in Spain, Portugal, Mexico, and so on, do you really think it makes sense that coverage ratios are decreasing and net provisioning additions should be declining?

BBVA's actions seem to be suggesting that the worst is over ... but the general thought seems to be that trouble has only begun in Spain. What makes this even worse is that Spanish banks used to have a reputation for playing a little fast and loose with numbers - being slow to classify loans as non-performing, extending new loans to bad debtors to allow them to continue making payments on the prior loans, etc, etc.

Now, I happen to like BBVA to a point. I generally like the markets that the company is in, and I think there is good long-term growth potential here. But something about this earnings release just doesn't sit well with me. I hope I'm misinterpreting things or making mountains out of molehills. If I'm right, though, and my suspicions have merit, then BBVA management may be fiddling while their credit burns.

If you have a lot of confidence that Spain and Portugal will somehow walk through the minefield safely, and a faith that BBVA's management is taking a conservative approach to their credit, then this may be a great opportunity to buy while everyone else is panicking.

I, however, don't have that kind of confidence, nor that strong of a stomach. So I'll sit tight for now. I wish BBVA the best and will keep them on the watchlist, but I want to see at least a couple more quarters before I pony up my own cash for these shares.

The Easy Way To An Organized Budget

This article is a little different than my normal work.
Investopedia has developed a site that's more focused on personal finance topics, and I'm writing for this side of the business as well.

So, this won't be the usual buy-sell-hold, but I hope that it's useful all the same.

Imagine waking up one day and seeing the sky through a hole in your roof. Or think about what you would do if some knucklehead wrecks your car on the way home from work. Can you write a check without worrying about going into debt or seriously digging into your savings?

We all know that we are supposed to save money for a variety of future needs like emergencies, retirement or big-ticket items. What is not mentioned is how to go about doing this. Creating a budget spreadsheet and earmarking your savings to specific categories is an easy way to make sure you are meeting your savings needs and goals.

The rest at:

Cummins Comes On Strong

Another piece recently published on Investopedia.
I definitely have a soft spot for industrial tech companies like Cummins ...

(please note: something a little goofy happened to the first paragraph in the editing process. We're working on it...)

All Clear In Energy Services?

Here is the latest article of mine on Investopedia. I should note that there was a bit of a holdup in the editing process, so this may read as slightly dated. The basic themes in the piece are still very much relevant and timely, though, so I hope you find it interesting.

The last few quarters have not been the easiest for energy services sector, as troubles in Mexico, lower activity in the Gulf, weather difficulties, and project delays have all led to lower demand and lower prices. Still, it was not as though the sector closed up shop, as many U.S. natural gas shale play are economical below the $4 natural gas price level.

On a more positive note, it looks like the operating conditions may be about to turn. The earnings and commentary we have seen from the past week was supportive, and should give fundamentally-inclined investors a bit more evidence that the turn in the business is real. 

For the rest of the article:

Tuesday, April 27, 2010

From Sons of Athens ... to Sons of Anarchy

Thanks Greece.

Virtually every financial system is built upon a certain level of trust and good faith amongst its members, and Greece seems to have taken up the role of "turd in the punchbowl". Greece basically lied their way into the European Union, gorged on cheap debt, wasted it on unproductive assets, and then turned around and held the financial system hostage with a version of "bail us out … or else!".

Of course, anybody wasting their time bashing on the Greeks is overlooking events a little closer to home. Let's see … lying to get favorable loans, using those loans foolishly, and then whining, wheedling, and begging for a bailout. Where have we seen that before?

Oh yeah, that's right. We did that too.

Now we have the S&P lowering Greek debt to "junk" (way to be on the stick ahead of time, guys … oh wait, we've seen that before too!), Greek 2-year notes yielding about 19%, and a lot of people nervously watching Portugal, Spain, and Ireland for signs of weakness.

Think about that for a moment … Greek 2-year notes are yielding almost 19%. That's like credit card rates. On second that, maybe I shouldn't have said that … Capital One (COF) may soon be seeing a flood of applications from Athens at this rate.

The scary part, though, is how long this could last. Latvia went into crisis a little while ago and even massive cuts to government wages, pensions, and spending (and other austerity measures) didn't help much. Greece, then, could be looking at quite a few years of high taxes, a sharply contracted public sector, malaise, and discontent. Not too many countries have the capability to withstand that, and there could be unrest as a result (as seen a few years back in Argentina).

It's almost a given that the "market" won't be much help here, and the rescue package will have to come out fully-funded by other European countries. On top of that, you're probably looking at wage cuts of 20% or higher as part of the package, and I don't think many Greek civil servants will be happy about that. Worse still, after 12 or 18 months of that, it may still not be enough and Greece may opt to default/restructure that debt and send more ripples of chaos through the market. Simply put, we're talking here about a program that would take four or five years … and that's assuming that Portugal and Spain don't fall over and make it even worse.

In the meantime, a lot of banks have gotten smacked already. Several German and French banks have (or had) major exposure to Greece, with names like Commerzbank, Credit Agricole, Societe Generale and BNP Paribas among them. The damage there is probably already done, but I'd be very cautious around any banks heavily exposed to Spain … or frankly almost any European country at this point.  After all, plenty of British banks have loans on the books for vacation homes in Spain, so you can never just assume a bank in Country X is safe.

Sooner or later, this storm will pass. The U.S. economic recovery isn't heavily predicated on Europe at this point, though chaos in the credit market can quickly become a global issue. But that isn't to say that the fallout won't cause some chaos and hairy days. Expect talk to begin about creating a mechanism to boot out European Union countries that can't get their stuff together, and should the Euro actually collapse … well, that's probably a really good day to own gold (and probably dollars as well, because as messed up as we are, we're not that bad).

Here's hoping the sons of Athens figure a way out of this mess before it gets too much worse.

(Disclosure - I own shares of Societe Generale)

Monday, April 26, 2010

Viva la FEMSA!

Another one of my companies announced earnings today, this time it was Mexican consumer conglomerate FEMSA (FMX) reporting after the close. Although the results weren't a blowout, they were good enough.

Revenue was up a bit more than 6%, operating income was up almost 10%, and net income was up more than 150% as a lot of "other expenses" weren't repeated. Perhaps just as important for the short-term, the results were basically in line with the analyst estimates.

The company's Coca-Cola business saw revenue up about 5% and operating income up more than 6%, while the beer business saw operating income up almost 13%. Last and certainly not least, the company's Oxxo business posted nearly 29% operating income growth on same-store sales growth of 3%.

I'll be the first to admit that none of those numbers are great for a "growth" stock, but there were at least a few mitigating factors. Mexico's economy is in a rough patch too, particularly in the border regions, and that did no favors for the Coca-Cola and Oxxo businesses. Longer term, though, I still think there's a lot of leverage and potential left in these businesses -- particularly in the Oxxo business, which the company has only now just started to expand outside of Mexico.

Conglomerates pretty much always trade at a discount, and FEMSA is no exception (even if it's not as much of a conglomerate as, say, Nestle (NSRGY) or Pepsi (PEP)). Even with that handicap in place, though, there's an arbitrage opportunity with the Coca-Cola business (it's relatively cheaper to buy FEMSA than Coca Cola FEMSA (KOF)), the Heineken shares that the company is getting in exchange for the beer business, and growth opportunities still ahead with the Oxxo business.

All in all, I'm still quite happy to own FEMSA shares here. Yeah, it's not as exciting as some China stock, but you should be able to get another 20-25% out of this stock before it's trading at parity with its closest comps. That's good for a "Buy" for me.

WRB and ACGL - Two Great Insurance Companies

WRIt was a happy coincidence that two of my favorite insurance companies reported today. W.R. Berkley (WRB) is an exceptionally well-run (if somewhat "quirky") specialty insurance company, while Arch Capital (ACGL) is a player in the reinsurance segment of the market.

I'm not at all surprised to see that WRB posted slightly lower-than-expected revenue, but better-than-expected earnings. WRB is an efficient operator and a very disciplined underwriter -- if the prices aren't up to their standards, the company walks away. When you hear Berkshire Hathaway's (BRK.A) Warren Buffett talk about how most insurance companies lose money on their underwriting, that's why -- they feel like they have to "stay in the game" no matter what the cost. WRB doesn't play that game; if they don't like the terms, they take their money and go home.

So, as a result, gross premiums were down about 2% and net premiums were down about 4%. Operating income was down about 4% as well, though the bottom line result was still about $0.10 better than the average analyst guess. Along the way, book value rose almost 4% from December, and the ROE came in at 13.2%.

Admittedly those don't sound like numbers to do handstands over, but they should be kept in the context of a pretty soft insurance market - rates aren't very good, a lot of companies still have turbulence in their investment portfolios, and analysts aren't too keen on the sector as whole. But that's the point where I get interested in buying -- and I think WRB is an excellent insurance stock to buy in a soft market.

Similar to WRB, Arch Capital posted a beat on earnings and a miss on revenue and it was largely for the same reasons I talked about before; namely, that Arch won't write business that doesn't meet it standards. Right now, that's a problem ... but soft markets have a way of turning into hard markets and Arch Capital will reap the benefits when that turn comes.

Here too, the details don't look spectacular -- gross premiums were down 7%, operating income was down from last year, and the posted ROE of just under 10% isn't all that remarkable. Once again, though, the bottom-line results were better than conservative estimates and this is a company where there can be a lot of operating leverage when pricing firms up.

Arch might be a stock where you want to wait a bit before buying ... namely, until the hurricane season is underway. Major catastrophes like hurricanes are the risk factor for Arch, though experience and history suggests that the company has spread its risks around in such a way that a single major storm (or even several) wouldn't represent a devastating economic loss to the company. Still, by the time the "all clear" has sounded, it may be too late. So investors willing to absorb a little risk might just want to look at these shares now and trust that management's underwriting standards will continue to make this a top idea in the insurance space.

Saturday, April 24, 2010

BB&T - Patience Will Pay Off

I have been pretty outspoken in my appreciation of BB&T (BBT) management and the stock. During the credit crisis, BBT held up a fair bit better than most banking stocks, even though there was a steady drumbeat from analysts worrying about the company's commercial loan portfolio. With this week's earnings, it looks like things are slowly getting better at BBT, though the process of full recovery may take a little longer here than at other banks.

Results for the first quarter were alright. The company beat by $0.04 on an as-reported basis ($0.27 versus $0.23), though reported earnings were about a penny higher than the real earnings. Net charge-offs were 1.84% and the rate of increase has slowed down. For the full year, the company said it expects NCOs to average about 1.8%.

Provisions for the quarter were $575M, about 2.65% (versus 2.55% in December), while gross charge-offs were $509M. Deposits were up about 5% excluding the Colonial deal, while loans were down 4.3%. Some of this loan decline was seasonal, but management did say they were pulling back on deposit growth because they didn't see the loan demand to justify it. Non-interest income was down because of lower gains from securities and lower mortgage banking.

The real debate about BBT is going to center around the credit situation. Past due loans seem to have flattened, and that could be a sign that things have stabilized. I expect some analysts and buy-siders to be worried about the company's big jump in troubled debt restructurings (TDR). These climbed 60% sequentially to $1.7B. The bear case is going to be that the company is being too slow in recognizing loan losses and this is going to slow down the return to "normal" by at least a few quarters.

The company would counter by saying that they applied a separate underwriting process to these TDRs and they didn't restructure any loans that they didn't think would be repaid. So, in short, BBT is relying upon their underwriting standards. Given that the company has done quite well relative to its peers in terms of loan losses and underwriting, I'd be inclined to go along with management on this one. Maybe the TDRs do push out "normal" by a quarter or two, but you haven't made much money over time by betting against BBT management.

Much as I like BBT, and am happy to own the shares, I'm not sure that I'd be pounding the table right now. By my calculations, the stock is about 5 - 10% undervalued, and that's not much of a margin of safety. USBancorp (USB) and Wells Fargo (WFC) both seem relatively cheaper, as does JPMorgan (JPM), PNC (PNC) and a host of smaller, riskier banks. By the same token, BBT rarely ever gets cheap and you could do a lot worse than buy-and-hold this one.

(Disclosure - I own BBT and JPMorgan shares)

Thursday, April 22, 2010

Putting On My Tin Foil Hat

Okay, this is a wild conspiracy, but just hear me out.

The administration wanted to fight against rising medical device and drug prices (and get health care reform passed over industry objections). Suddenly there are antitrust investigations in a couple sectors of the med-tech market (immunohematology, plasma-derived drugs) and rumors of sniffing around for more (hospitals, drug companies, ICDs). The administration has also talked about revoking the antitrust exemptions for the health care insurance industry.

The administration is going after seed companies (specifically Monsanto), is rumored to be looking very carefully at the transport sector, and has publicly warned the petroleum industry that investigations could come.

And now we have the Goldman Sachs suit. Now I don't know whether or not Goldman committed fraud, but having worked on the buy-side in fixed income during the credit crisis, I'm not the least bit surprised that there was self-dealing. I mean, it was basically accepted as fact that some of the brokers were shorting mortgage-backed securities (and related derivatives) while simultaneously creating, packaging, and selling them to investors.

This shouldn't be a big surprise to anybody; these are the same companies that cheerfully banked miserable tech companies in the late 90's, sold them to investors with glowing research reports, and made sure they didn't get caught long on their trading desks because they knew they were crap.

So, anyways, is it fair to wonder whether the Goldman suit is a blunt instrument of policy aimed at telling Wall St. "back off on opposing reform, or we'll nail you and embarrass you even further"? I mean, really, who is going to leap to the defense of those "damn greedy bankers"?

Like I said at the beginning, this is just mostly gonzo conspiratorial theorizing on my part. After all, the Bush administration was uncommonly lax when it came to antitrust investigations and enforcements (in terms of the number of cases pursued compared to past administrations). So maybe we just have aggressive new people in place, and maybe they're making up for lost time and overlooked sins.

Or ... maybe not. Maybe this is how business is going to be done for a few years -- we'll ask you to cooperate, then we'll send a shot across your bow.

Time will tell...

Disclosure - I own shares of Monsanto.

Regional Bank Round-Up

Here's a piece that went up on Investopedia today. It was written a few days ago, so it does not include the major bank earnings that were announced since then.

It seems that banks got us into this mess, but are they finally getting themselves out? If you look at the performance of the stocks, at least as measured by the SPDR KBW Regional Banking ETF (NYSE:KRE), it is tempting to say "yes". After all, regional banks have done well so far this year relative to the S&P 500; up about 25% versus a roughly 7% gain in the broader market index.

If only it were that simple. We have all seen that the market is a measure of what people think is going to happen, and not necessarily an accurate measure of what is happening on the ground. Luckily for all us, a recent batch of big regional bank earnings does suggest that business is looking up.

The rest can be read at:

Wednesday, April 21, 2010

First Cash Financial - The Real Pawn Star

Another quarter in the books for First Cash Financial Services (Nasdaq: FCFS), and another reminder to me of why I've held on to this stock for so many years.

Revenue this quarter was up 21% and income from continuing operations was up another 20%. Pawn receivables (which you can think about as something of a preview of future revenue) were up 29%, with over 46% growth in pawn receivables in Mexico. Inventory turns improved pretty significantly, and overall same-store sales were up about 14%.

Mexico has been a big part of this company's growth plans for a while, and that doesn't look to be slowing down. The company opened 14 stores this quarter, and all of those were in Mexico. In fact, about half of this company's revenue comes from Mexico. Given the relatively easier regulatory climate in Mexico, I can't see any good reason for the company to do otherwise -- there's plenty of room to expand in the U.S. (the company operates in just 8 states), but advocacy groups have aggressively targeted payday lending (a small part of FCFS's business) and have periodically gone after pawn operators as well.

Said differently, if you can get nearly 30% revenue growth from Mexico, why bother with the hassles in the U.S.?

Like most companies I own, FCFS continues to generate some pretty prodigious cash flow, and management has been building up cash. Hopefully they're not about to do another dumb deal (buying a buy-here/pay-here auto sales business a couple of years ago was a disaster), and that they'll apply the funds either to share buybacks or further expansion into new markets. Who knows, maybe it's time for them to start investigating Brazil (though there's plenty of room left to grow in Mexico).

This stock has always been relatively volatile and I'm not sure I'd rush to buy today, but I'm not looking to sell any shares and I'm quite content to sit tight as an owner.

(disclosure - I own shares of FCFS)

Tuesday, April 20, 2010

ICU Medical - The Roller Coaster Ride Continues

ICU Medical (ICUI) has always been an unusually volatile stock, mostly due to the company's reliance/relationship with Hospira (HSP). I had hoped that with ICUI's acquisition of HSP's critical care business and the company's expansion of domestic distribution, that volatility would ease up.

Silly wabbit.

ICUI missed on the top and bottom lines, and is taking a spanking in the market today. 

To some extent, this quarter was a "ghost of Hospira" situation, as the critical care business once again under-delivered the goods. Sales were softer than I had been hoping and yet the influence of these sales was still sufficient to lower the gross margin more than I had expected.

On the plus side, the company's core CLAVE business was quite strong, even as the custom tubing business was a little weak. What's more, the company saw great growth in domestic distribution and overseas sales, and Hospira was about 37% of the company's sales. On top of that, the company is apparently making great progress with its plant (under construction) in Slovakia. This plant could be a key catalyst for improving overseas growth; a very under-penetrated market for ICUI.

I still think that this year will be something of a kitchen sink for the company, as management tries to repair the badly neglected critical care business that it bought from Hospira and as the company faces various costs in opening that plant in Slovakia. Longer term, though, I think the company can get a lot of leverage out of both -- critical care is a decent market with only one real competitor (Edwards (EW)) and a little attention and focus here could reap some meaningful cash flow and growth. With the Slovakia plant on line, the company could look to several years of strong (25%+) revenue growth with even better margins and more predictability.

And hey, let's not forget that management basically maintained its guidance -- suggesting that the first half of the year may be a little worse than I'd hoped, but that the second half could be meaningfully better. 

ICUI is a stock that will drive you crazy, but I think you can buy it here and make decent money on it. It's not going to be a go-go grower like Intuitive Surgical (ISRG) or a darling like Illumina (ILMN). What it is, though, is a proven generator of ample cash flow and a management team that does not waste shareholders' time or money.

At this price, I have to admit that I'm thinking of adding it to my own PA.

Monday, April 19, 2010

The Shape of Dry Bulk Shipping

Here is today's Investopedia piece.

Those huge panamax and capesize freighters may look peaceful as they sail slowly across the oceans, but the stocks behind them are anything but. Betas in the dry bulk space are exceptionally high, with many companies sporting betas above three. Pick the right stock at the right time, and it is easy to see how shipping built the fortunes of many a magnate. Of course, picking the wrong stocks can be like tying your money to an anchor and tossing it over the side. 

You can read the rest at:

Friday, April 16, 2010

The Delicate Dance of the Banks

So now we have Bank of America's (BAC) earnings in hand as well. Like JPMorgan (JPM), they were better than expected, though not as strong on a relative basis. Like Morgan, BAC saw weak loan growth, good i-banking revenue, and very good trading revenue. There were also continued large reserves taken for the mortgage business.

This is a very delicate little dance we have going on here.

Trading is a fickle business and that revenue could go away fairly quickly; whether from rising interest rates, a federally-imposed restriction on proprietary trading, less volume, or what have you. The recovery in credit cards could also go away quickly if the economy takes another leg down. Last and not least, commercial lending has held up despite everybody's expectation and while that's not as large a business for the JPM/BAC size of bank (relative to the big regional banks), it could mushroom into a big problem.

What it all boils down to for me is this - the easy money in American bank stocks has been made. The economy will get better, bank earnings will improve, and bank stocks have room to go up. But whereas buying bank stocks 18, 12, or even 6 months ago was a decision where you were exploiting excessive fear in the market, that cushion is gone.

On the flip side, the insurance industry hasn't been getting all that much love, but that's a topic for another day...

(disclosure: I own JPMorgan shares)

Thursday, April 15, 2010

Small Med-Tech Names You Should Know

A quirk of timing led to me having two articles posted today on Investopedia.

Here is the second one.

Small Med-Tech Names You Should Know

Healthcare is a huge space, and for every Medtronic (NYSE:MDT) or Pfizer (NYSE:PFE), there are dozens of quality names that go unnoticed by the investing public. A little time and effort, though, can uncover some intriguing names that may deserve a place in investors' portfolios. Today we highlight three ideas.

If You Can't Beat 'Em, Buy 'Em

Here is today's piece from Investopedia.

Interesting coincidence that the APA-ME deal was announced this morning as well, given the theme in this piece.

Although a couple of deals does not necessarily make a trend, investors should get ready for a wave of M&A in the energy sector. We saw the Exxon Mobil (NYSE:XOM) - XTO Energy (NYSE:XTO) deal a few months ago, the deal between Arena Resources (NYSE:ARD) and SandRidge Energy (NYSE:SD)about a week ago and now the announced transaction between Haliburton (NYSE:HAL) and Boots & Coots (AMEX:WEL).

I believe these are just the first moves in a larger trend. With the credit and equity markets a little closer to normal, rising energy prices and increasing pressures on large energy company executives to "do something," merger and acquisition activity is going to look like an increasingly attractive option to many CEOs

The rest of the story at: 

I Want To Cry ... No, Wait ... I Want To Scream

This morning I wake up a little late, look through the news ... and suddenly feel quite depressed. Apache (APA) has announced that it's buying Mariner Energy (ME) for about $26 a share in stock and cash.

Why do I care?

Because ME was sitting right at the top of my to-buy list ... Hell, I was expecting to place the order later today or early tomorrow.

If there's good news here, it's that APA is paying almost exactly what I think ME is worth. So, I'm not happy to be missing a 50% gainer, but at least I know my methodologies for valuing E&P companies isn't totally off-base (or if it is, at least APA is just as wrong as I am).

Back to the drawing board.

Wednesday, April 14, 2010

Jamie Dimon, You Magnificent Bastard

With JPMorgan reporting earnings this morning, and beating estimates, I'm a happy owner who is once again reminded of the virtues of having top-notch management at the head of the companies they own.

JPM beat bottom-line estimates by $0.10 this morning ($0.74 v. $0.64), and the details in the release were quite sound. Credit provisions were pretty sound, and Dimon was damn-near ebullient when talking about the business and it's near-term prospects. Dimon, like most bankers, is not a guy given to blowing sunshine, so for him to get excited means something to me.

I-banking was really, really strong this period. I don't have a great sense of their marketshare yet, but my sense of it is that they're definitely making some gains.

Retail banking and credit cards were both soft. Is anybody surprised? I thought it was interesting to see the provisioning in both businesses to be roughly equal, even though the banking business is quite a lot bigger. Of course, most people will save their house before they'll save their plastic, so it's not a huge shock.

The one thing I'm not thrilled about was the ROE. I mean, ROE comes down to math and I'm not shocked that this metric didn't pick up, but it's the one issue I'm worried about. As a matter of fact, I would not be surprised to see Dimon over-provisioning the company and seeing a sizable jump in that ROE in a couple year's time. In the meantime, this company is quickly starting to leave some of its would-be competitors in the dust.

I'm a happy owner here and I'll continue to be an owner. And these results should make anybody holding shares of banks like BB&T, USBancorp, Bank of America, et. al feel a lot more comfortable.

Disclosure - I own shares of BBT and JPM

Monday, April 12, 2010

Investors Could Reap Profits From Monsanto

Here's the latest article of mine on Investopedia:

One of the classic clich├ęs of the investment world is that "trees don't grow to the sky"; sooner or later, the mightiest of stocks stumbles. Investors who have been around a few years can no doubt recall plenty of examples ranging from Dell to Amgen, to even mighty Microsoft.

Now it is Monsanto's (NYSE:MON) turn.

How Monsanto Lost its Groove
This agribusiness giant has been a stellar performer in the stock market for most of its history, but performance stalled out in 2008 and has not come back since. With Wednesday's earning release, and a significant adjustment both to guidance and the company's operating philosophy, it seems that many of the analysts and professional investors who were not already souring on Monsanto are heading to the sidelines.

The rest can be found at:

Wednesday, April 7, 2010

And we're back...

After more than a year in sleep mode, I'm bringing this blog back to life.
Not sure what it's going to be ... maybe just a listing of articles I do for Investopedia, or maybe something a little more comprehensive and involved. Time will tell...