Friday, June 11, 2010

June 11, 2010 Glad I was wrong, but was I?


June 11, 2010 Glad I was wrong, but was I?

Sunday night we predicted a 3% drop in the DOW this week. (I say we because of all the voices in my head.) That prediction was based upon the lack of influential economic news being released this week as well as no Bellwether earnings report this week. That left us at the mercy of the negative tones coming from Europe and watching oily pelicans being picked up off the beaches of the Gulf of Oil. So we were supposed to suffer another week down.

Again keep in mind we were at the mercy of news mostly outside the US. Three pieces of international news did keep our market from falling 3%. (The market was actually up.3% for the week also known as FLAT). This week we had a good positive surprise about GDP growth in Japan followed by some great export news out of China, and some reassuring words out of China about their support for the Euro. All three were basically surprises and drove the market off its probable negative course. So I was wrong and I was right.

Today we did start out with some negative news about retail sales. I found it interesting that all of the media called it “The Largest Drop In Retail Since September”, in fact it is the only decrease since September. If you boil down the retail figures, it was not all that bad. By mid day people were figuring that out and the market started to comeback. Then we had some positive consumer sentiment news which helped up finish up for the day and flat on the week.

If you were reading this blog in early June, I did something I don’t normally do. We bought into a Cramer Pick called Accenture ACN. They had a conference call today unveiling their new strategy for cloud computing. (Credit Suisse had a great white paper report in mid May about virtualization and cloud reporting. If you can get it’s a great read.) Anyway ACN has a very aggressive growth expectation for their cloud computing software. They announced a 30% coumpounded annual growth factor for next 4-5 years. They are also partnering with the likes of CRM, They also expect to improve margins for their software and consulting business.

They are a 50 dollar stock selling for 37.50. Now I know a few of you would buy a 50 dollar bottle of wine for 37.50 so do your homework and take a good look at this one. Credit Suisse has a target price of 55 dollars. If you look at the average analysts estimates profit per share number next year times the current and conservative P/E of 19 you to can arrive at a 55 dollar value. I will be adding to the position Monday morning in the 37.50 neighborhood.

SBUX, which I stopped out of at a profit during the flash crash, got an upgrade today. We might want to revisit that stock. If you remember from the blog here back in March and we got into the stock because they had pulled the trifecta of shareholder’s yield. They issued their first dividend, they eliminated their long term debt, and they bough back shares. Let’s look at the stock again this weekend and I’ll post whether we are back in again.

MCD’s got it’s TP adjusted down by BofA/Merrill because of its Euro exposure. They are still a buy for most analysts but BofA dropped the target price from 80 to 79. They closed today at 69 and change.

Ok I saw a really cool video yesterday about new video gaming system called Project Natal from company called Microsoft. You remember them don’t you. They are based in Seattle and, OK you know who they are. I’m looking at getting into the MSFT pool. I am not sure why other than they are cheap cheap cheap. Here are all the reasons not to buy MSFT. Cloud computing will challenge and possible cripple MSFT if their cloud computing soft ware format AZURE does not take hold. Cloud computing could make Windows operating system obsolete. Google's suite of products can eat more of MSFTs lunch.  So why am I talking about MSFT? I don’t think Balmer can screw things up that badly and this Project Natal gaming system made me do some homework on this ancient giant. They still have 40 billion in cash and virtually no debt.

I think that any company considering going to cloud computing platform cannot do it without taking into consideration their existing computer networks which are 78% MS based. MS will have a great product and will quickly figure out the need to shift from software in a box to software in the clouds and discover software consultancy as a service revenue stream.

Windows 7 is doing quite well and getting good reports and should provide significant revenue and profits to the company for years to come.

Also, cloud computing on the scale that will develop over the next couple years can only be serviced by a handful of companies. (Think Amazon, Google, CRM, ACN, to name a few.) MS can and will be a player in this market if for no other reason than the IT infrastructure support they can and will deliver. A key benefit of cloud computing is virtualization or virtual networks. Windows has a server software which is one of the best if not the best in the industry called Windows Server R2. It will be a good and profitable product for the company in the next few years.

Many analysts value MSFT at 32-34 a share. It is currently selling at 26 a share. We will be looking to start a position on Monday around 26 and change with a stop at 23 and change. We (who are these poeple anyway?) will be looking for a slow and gradual growth to the 40s in 24 months.

Now despite the bullish tone of the market today, please remember this blog was explaining that there are a lot of special interest factors who do not want you feeling good about the market. Work hard to look for the true data. Here is some good data; Rail carload volumes has been tracking positive all of this year and year over year volume was up 6.9%. If you look behind the news you will see the data. “The Largest Drop In Retail Since September” really meant it was the first month in 9 not to show an increase. In closing I will now end the longest post of this blog, since yesterday.

Salve lucrum

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