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Mid-Week Update 01-13-09

It’s obviously still very early, but earnings season has not gotten off to a good start. Aluminum giant Alcoa kicked off the fourth quarter reporting period on Monday after the market close and got it off on the wrong foot. Revenues were up together with higher metals prices, but profits failed to meet expectations. The Street had expected a profit of six cents per share, but Alcoa earned just one cent per share, excluding one-time charges, thanks to higher energy costs that cut into margins. Including the charges, Alcoa lost twenty-seven cents per share. Alcoa shares dropped sharply on the news, but we’re more concerned for what the report will mean for other companies.
 
As we noted on Monday, energy costs have climbed rapidly and have put our long-term key in the negative-to-neutral range, and edging closer to a sell signal. Copper and other major materials are well off their lows too, and as we’ve written extensively rising energy and commodity costs act as a brake on any economy, let alone one that just may be starting to recover.
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Mid-Week Update 12-16-09

The world’s largest computer-chip maker and Growth Portfolio holding, Intel (INTC) is once again making headlines thanks to its market dominance. Fresh off the latest agreement with the European Union to pay almost $1.5 billion to Advanced Micro Devices to settle a four-year dispute, Intel is once again facing anti-competitive charges. Now the U.S. Federal Trade Commission has joined party, alleging that the company has illegally used its dominant market position to suppress competition and strengthen its monopoly.
 
To be fair, the company is utterly dominant. Intel commands more than 80 percent of the world’s market for computer chips, completely dwarfing its competition. We don’t condone unfair practices that limit competition, but given its market share, we’re not surprised by the investigations facing the company. Neither is the company, who tried to settle with the FTC before the agency filed its complaint.
 
In terms of implications arising from the complaint, the most likely scenario is that the company pays hefty fines – like it has in the past to settle similar claims.
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Mid-Week Update 10-21-09

Earnings season is well underway with about a quarter of S&P 500 companies having already reported. The results, helped by favorable year-on-year comparisons, have been largely impressive so far, with over three quarters of announcements coming above expectations and less than 15 percent falling short.
 
We have only had a few of our holdings report thus far – but we haven’t suffered from any disappointments. As we discussed last week, Intel (INTC) had a blowout quarter – beating its own revised expectations, as well as consensus estimates. The semiconductor giant’s quarter was helped by strong back-to-school revenues – the same type of sales that helped push consumer technology powerhouse, Apple Inc. (AAPL), to another record-setting quarter.
 
In its earnings announcement after the market’s close on Monday, Apple reported its most profitable quarter ever with net income totaling $1.67 billion – a 47 percent increase over last year. The record profit translated to $1.82 earnings per share, obliterating the company’s own guidance of $1.20 a share (which is admittedly always conservative), and easily beating consensus estimates of $1.43 (the highest estimate, at $1.66 was actually well short too).
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Mid-Week Update 09-02-09

After a big sell-off yesterday, today’s market action didn’t look much better. News flow has not been positive enough to sustain the rally, even with yesterday’s ISM Manufacturing Index showing expansion (and beating estimates) for the first time in 19 months – the market took a tumble. And while we see more downside to the market as a whole, there are some bright spots – notably those companies that are accessing markets outside US borders.
 
Case in point is one of our favorite tech stocks, Intel (INTC). Some six weeks ago, we profiled the semi-conductor giant’s earnings report which blew out expectations and demonstrated true fundamental strength within an environment of many companies beating profit expectations by simply cutting costs. The company reported stronger sales and margins in the completed quarter, while guiding for more improvements in the current quarter. The company said it expected to collect at least $8.1 billion in revenues in the 3rd quarter – outpacing consensus estimates of $7.86 billion. Late last week, Intel once again surprised analysts.
 
Crediting consumers in Asia, who were also responsible for the company’s strength in the second quarter, Intel raised its third quarter projections. The company now expects to get at least $8.8 billion in sales during the quarter, once again higher than analysts expected.
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Market Update 07-27-09

Wall Street pundits are currently debating whether we will segue into a period of inflation or deflation. Both of these have their challenges for investors, although (as we have said many times) inflation would be the lesser of the two evils. Fortunately, the argument for deflation has some serious flaws.
 
We understand why some argue for deflation. Capacity utilization is at a record low, while the American consumer faces a tough situation. His income has either fallen or stagnated. Certainly his wages are not rising. He pays higher gasoline prices which cramp his lifestyle. He may also face new taxes if President Obama's healthcare scheme gets traction. The best case scenario for U.S. growth may be 1-2% a year. Maybe 3% for a quarter or two. But the days of sustainable 3.5% growth are long gone. So far we agree with the deflationists.
 
But deflation isn't the whole story. The deflation argument depends on the false belief that what happens in the U.S. will spread to the entire world economy. That in turn only seems reasonable if your perspective is firmly lodged in the 20th century – a time when the U.S.
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Mid-Week Update 07-15-09

Finally, some positive news. The world’s largest semiconductor company, Intel (INTC), which we profiled here just two weeks ago, reported blow-out earnings last night – and the stock reacted very positively today. During the second quarter, the company collected just over $8 billion in revenue, better than the $7.3 billion analysts were expecting. And they did this as they drew down their own inventories by $420 million.

Further, the company’s gross margins expanded from 46 percent last quarter to 51 percent in the one just completed. The company reported a net loss for the quarter of $398, or 7 cents a share due to a $1.45 billion antitrust fine levied by the European Union. Excluding this one-time item, which may even reverse itself if Intel wins its appeal, the company earned 18 cents a share – more than double expectations of 8 cents.Read more...

Mid-Week Update 07-01-09

An impressive quarter is now in the books. The second quarter of 2009 saw the S&P 500 rally almost 16 percent, its best quarterly return since 1998. Of course, this is on the heels of the sharpest market downturn in 80 years. Despite the rally, which took stocks deserving and undeserving alike from cheap valuations, there are still some bargains to be had.
 
Case in point is one of the most dominant companies on the planet – Intel (INTC). Intel is the leading semiconductor chip maker, with a global market share of approximately 80 percent. The company manufactures microprocessors, chipsets, flash memory and motherboards for computing and communications products under two business segments: the Digital Enterprise Group and the Mobility Group.
 
In Fiscal 2008, the Digital Enterprise Group accounted for 56 percent of the company’s $37.6 billion in total sales. With chips for desktop computers, servers, and enterprise applications, the group boasts high margins, and account for nearly three quarters of Intel’s annual profit of $5.2 billion. Meanwhile, the Mobility Group, with products for notebook computers and netbooks accounted for most of the remainder.
 
The Mobility Group is also an area in which Intel is concentrating on growth – centered on its new Atom processor.
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Mid-Week Update 06-10-09

Try as we might, the timing of our stock purchases isn’t always the best. Case in point was our addition of Hewlett-Packard (HPQ) to The Complete Investor Growth Portfolio last October. We added the stock just as the market was embarking on another downleg in the worst bear market in most investors’ lifetime. But while the market’s outlook plays a role in our stock selections, every bit as important, if not more so, is a given company’s long-term prospects and its stock valuation.

Since our initial recommendation, Hewlett-Packard has only slightly outperformed the overall market. But while this is somewhat of a disappointment, our view of the company is in no way diminished. In fact, we like it every bit as much today as we did eight months ago.

Along with Intel (INTC) and Apple (AAPL), also in the Growth Portfolio, Hewlett is one of the few true franchises in the technology space. The company is frequently pigeonholed as being just another computer company. But HPQ is much deeper than that.Read more...

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