Tuesday, July 20, 2010

July 20, 2010 Christmas in July and other crazy stuff


July 20, 2010 Christmas in July and other crazy stuff

We had a busy first half of the year and never made up to our place in Utah to take down our Christmas decorations. Devin and her good friend up here decided to have Christmas in July. Today we made a full trimmed out 19 pound bird. I had the pleasure of chopping onions and celery at 7 am this morning. The event went off marvelously. It culminated in a non gag gift under 10 dollars. I scored some really cool wine glass trinkets that I can also wear as earrings or fishing lures. They are cool.

If that sounds crazy, did you see the market today. I am almost embarrassed to tell you how badly I did on my guestimates for earnings. Before we get to earnings estimates, let’s see how we did on the economic prognostications.

We had some really bad news on housing starts which kicked the market in the synthetic derivatives. The consensus was 583,000 units and we suggested a scary number of 579,000. Well we got a really ugly 549,000 number which should have been a triple digit whammo for the market. Again, this is a goofy market to figure out, but on this stat, what kept the house of cards from collapsing? If you looked at the single family new permits number is came back kind of strong. This could be, (I am a glass half full kinda guy), an indication that all of the stimulus hang overs are over and these are real people buying new homes. If we can see this trend for two more months, it will be a trend worth reacting to.

Oh yeah, as we suggested Canada bumped its rate .25%, it did. No big deal.

Last night we suggested that GS Goldman would beat estimates of 2.07 a share and we threw out a 2.15 number. That was a huge miss on my part as they came in at 78 cents a share. Top line revenue was down 36%. They did have quite a few unordinary charges related to the fraud settlement and UK bonus taxes, but it was a big miss by the company and huge miss for our guess.

As suggested last night, JNJ Johnson & Johnson did beat and even with the beat, concerns over a recall and a downward adjustment to 2010 annual earnings forced the stock down a dollar. Their magic number was 1.21 a share, and they hit 1,23 without too much accounting shenanigans. That made my January Calls easy to pick up at 2.25, so we will be in the money at 62.25.

Pepsico did beat which was contrary to my guess from last night. In looking at the numbers, there was an 11 cent a share adjustment to the upside for foreign currency exchange. If that change had not been executed, their quarter would have been 98 cents a share. They do about 40% of their revenue outside the US.

AAPL surprised many of us with a huge beat. Most analysts and this blog were thinking 3.11 a share or 3.12 a share. They blew everyone away and came in at 3.51 a share. The stock was up in after hours trading. As I mentioned, everyone was watching their gross margin whish did slide just a hair. (From 40% to 39.1%) This makes for some very healthy growth. Target prices are in the 300-320 range. We are even on the stock at the moment. (Remember we took a nice profit in the May Flash Crash and generated some much needed tax revenue for the Firm of ORP. (Obama, Reid, and Pelosi).

As a reminder, please keep an eye on your stop orders. I am liking what we are seeing in the earnings report, but only about 62% of the companies reporting so far this quarter are hitting top line numbers. That is not the type of growth we need.

There is a long list of companies reporting tomorrow, but only two I am focused on. KO, Coke is expected to hit 1.03 in profit for the quarter. Look for some similar action as in PepsiCo regarding foreign currency exchange issues. They should be so look for 1.07. Their P/E ratio is a fair 14 and target prices are in the 61-65 range. They have manageable debt but their yield is a weak 1.7%. Keep in mind that the 10 year treasury was below 3% today so my benchmark return is just this side of 6%. We need a better yield or a POP on KO to make this sexy again.

Wells Fargo reports tomorrow and they are looking for 48 cents a share. They already announced some layoffs due to the banking finance reform bill and other reorganization changes. These are already worked into the price of the shares, so any new surprises tomorrow could make this equity a wobbler. We own it and it is part of our banking troika of C, BAC, and WFC. I like a beat here to the tune of 52 cents a share. I hope.

We have yet another reader for the Salve Lucrum Blog. My wife’s and my good friend Elizabeth will be joining us making her reader 36. Welcome aboard Elizabeth.

Salve Lucrum


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