Tuesday, March 31, 2009

CAT - French Executives Held Hostage

In response to Caterpillar's plan to lay off 700 workers without room for negotiation, hundreds of workers at a Caterpillar plant in Grenoble, France are holding five executives, included the head of operations, hostage and protesting outside the facility. A spokesperson for the workers has commented that violence is not a motive and that the workers are trying to convince the executives to negotiate.

A statement by Caterpillar issued in response to the situation claims that the executives in Grenoble are communicating with the French Works Council and that their "... utmost priority is to find a solution that guarantees the sustainability of our presence in Grenoble."

Despite this news, CAT is up 3.12% as of 2:54 PM.

Monday, March 30, 2009

CAT - Down close to 10% Mid Day

CAT, along with others in the heavy machinery manufactures, were hit hard Monday as crane maker Manitowoc Co. cut its full-year guidance 50% below current Street estimates. Analyst within the industry also lowered Deere & Co. 2009 and 2010 estimates on "more cautious view of farm equipment demand globally." Crane making and farming equipment are not CAT's main lines of business and therefore I see today's events as an industry hit, not CAT specific.

Wednesday, March 25, 2009

IP down +10% on 3/25

I believe today's sell-off of IP reflected investor discontent with IP's CEO John Faraci's 2008 compensation, which although down 4%, topped $10mm. I do not think he should have earned that much as well, seeing as IP was down 64% in 08 against an S&P 500 down 39% in 08. The late rally helped a little bit, bringing losses to 10% on the day from 15-16% as it was during the day. We'll see what happens going forward...I still like the stock

Tuesday, March 24, 2009

IP Closes up 12%

"International Paper Co., which registered with the federal government as an alternative fuel mixer in the fourth quarter of 2008, has received a $71.6 million refund check from the Internal Revenue Service.The payment was related to the use of alternative fuels at 15 of the company’s mills from Nov. 14-Dec. 14, 2008. International Paper plans to continue submitting refund claims based on its production and use of fuel mixtures. The U.S. Internal Revenue Code allows a $0.50 per gallon excise tax credit for alternative fuel mixtures used by taxpayers for sale or trade in the taxpayer’s business.Investors responded positively to the news Tuesday, as IP’s stock price closed up 12%, to $9.15."

Taken from Memphis Business Journal...
See full story at

This stock has been rallying recently. While today represented a significant event that investors cheered, I believe the market is beginning to realize that this stock has been trading at a huge discount. Also, as a result of a lot of positive developments relating to the company, I think it will continue to be traded up to around the $10-12 level in the coming days/weeks. Our average cost is $8.36 and we've gone from being down 67% to a gain of 9.5% as of today (about a 2-3 week period).

Thursday, March 19, 2009

ORCL Q3 earnings-RM

Oracle's profits were slightly down to $1.33 billion (26 cents a share) from $1.34 billion. Excluding special items earnings would have been 35 cents a share compared to a 31 cent consensus estimate. A strong dollar hurt earnings by 5 cents per share as a considerable amount of Oracle's business takes place overseas. New software licenses decline of 6% was anticipated due to the weak economy. Cutting costs, increasing margins, and preexisting service contracts allowed Oracle to beat estimates. ORCL also announced a 5 cent/share dividend approximately 3.25% of yesterdays close.

ORCL was up 14% as of 1:30PM and it is reasonable to believe these gains with hold. New software licenses will continue to decrease into Q4. But a weakening dollar and service contracts should help their bottom line.

Wednesday, March 18, 2009

Nike 3rd Quarter Earnings

Nike reported earnings today for its fiscal third quarter. Net Income fell to $243.8m with an EPS of 50 cents a share down from 92 cents a share in the prior year’s third quarter for a year over year decrease of 47%. The reason for the significant decrease in EPS was due to a goodwill impairment charge from the Umbro acquisition of $241m. The reasons for the write down were a decrease in expected cash flows and the overall value of the company’s investment in Umbro declining largely due the fact that it is being hurt by the European recession. Excluding the write down Nike would have posted an EPS of 99 cents a share which would have been an 8% year over year growth rate. Revenues for the company declined 2% and on a currency neutral basis would have increased 2%. Gross Margin declined 120bp due primarily to higher input costs, the strengthening of the dollar and an increase in the amount of discounted items in an attempt to clear inventory due to current economic conditions.

While these results represented the obvious difficulties any consumer goods company will face due to the economic environment I still have confidence in Nikes opinion of themselves as a growth company and its ability to position its self in the current environment to become more competitive than ever. The company is making conscious efforts to cut costs and become more efficient as represented by its decline in SG&A expense. While Nike is suffering due to the current consumer environment it is still fairing better than its competitors and has been able to grow its market share in multiple business segments. I am still comfortable that the company can weather the economic downturn and continue to gain market share especially with its large cash position and manageable levels of debt and due to its brand innovation and aggressive marketing will be well positioned to benefit when the economy begins to recover and consumers are once again willing to spend a larger percentage of their income on discretionary items.

CAT - cut another 2,454 workers

On Tuesday, CAT announced plans to lay off more than 2,400 employees at five U.S. plants as the heavy equipment maker continues to cut costs amid the global economic downturn. In January, CAT announced job cuts that will ultimately eliminate 20,000 positions. It also said it would slash executive compensation by up to 50 percent and offer buyouts to about 25,000 U.S.-based employees

Among the affected workers are 1,726 people at plants in Illinois. They include 911 workers at a plant in East Peoria that makes track-type tractors and pipe layers and 815 at a factory in Aurora that produces hydraulic excavators and wheel loaders. Caterpillar notified the employees Tuesday of the layoffs expected to last at least six months starting in June.

This layoff was expected and already reflected in the stock price. During our pitch, we said that we believe CAT would mostly likely cut more jobs by the end of the quarter so this did not come as a surprise to us and still feel confident in holding our full position in CAT. On the day, CAT rose 41 cents.

Tuesday, March 17, 2009

International Paper Rallies almost 15%

International paper rallied 14.69% on 3/17. It rallied on monday as well, however the american express report brought about a massive selloff in the afternoon, erasing those gains. Management's refinancing of some of IP's debt has basically turned the sentiment on the stock positive and investors are betting on the stock appreciating in value. April and July 7.50 calls were heavily trafficked with investors taking on bullish positions. Closing at 7.26, our average cost for this stock is 8.36, and so our unrealized loss is a little more than 13%, compared to an unrealized loss of almost 65% when we doubled down when it was at the $4 level (2 weeks ago). The fundamentals of this stock have changed...for the better. I firmly believe this stock will be a tremendous gainer for us in the coming weeks/months.

Monday, March 16, 2009

SOLD Full Stake in NVDA for 23% Gain

On Friday, March 13, the portfolio's stake in Nvidia Corp. was sold off for a gain of 23%. The major factors influencing this decision were the increasing competition within the GPU market, leading to a continuation of the steep price cuts and inventory build up experienced when Nvidia was purchased for the portfolio. Combined with the market rally, this was a good opportunity to take some gains and potentially buy back at a later date under more favorable conditions.

Wednesday, March 11, 2009

GLW 12% Move to the upside

GLW was up over 12% yesterday mostly due to the general strength of the Nasdaq and retailers which this company follows very closely. Because GLW is held heavily by institutions it is often subject to more volatility than the general market. A possible justification of the large swing is the talk of reimplementation of the uptick rule which could have led to institutions closing short positions. Since GLW is a major institutional holding, both on the long and short end, the stock price would benefit positively from this; more so then the general market.

Tuesday, March 10, 2009

Brown Forman- 3rd quarter/management forecasts

Brown Forman reported an increase in sales of 1 percent but they were hit on the strengthening dollar and weak economy. The company reported sales of $784 million for the quarter down from $877 million although the company would have had an increase in sales of 1% if it weren’t for fluctuations in currency. The company reported an EPS of $.81 3rd quarter up 9 percent compared to the same quarter in the prior year. The street was expecting an EPS of $.80.

Management cut their estimates going forward with an EPS of $2.7-$2.9 compared to $3-$3.2 which would represent a decline in growth of 5% compared to an increase of 2%. Going forward management expects currency to negatively effect the quarter over quarter comparisons in the range of $.08-$.10 per share. Management is also concerned of the weak economy and consumers attitudes over the past 15 months. Distributors have also started to decrease their inventory levels, which will hurt sales going forward.

Tuesday, March 3, 2009

HUM down 15% to $20.00


"Managed-care stocks sank even deeper than the broader market Monday, as President Barack Obama introduced his choice for health chief and talked about his view of the need to change the system."

This massive selloff in the sector will eventually be prime for long term investors looking for deep discounts. The "Barak is worse than the bite" as most analyst believe the market is overreacting to the talks of reform.

CHK down 13.7% after cutting production

The energy sector as a whole sold off huge on the day while CHK suffered even more so due to news that the company will further curtail daily production by 240 million cubic feet equivalent/day. The company is also debating a further 10% reduction in drilling activity from their already reduced 110 rig count. These events are to be expected as the economic condition is contributing to reduced commercial demand for natural gas. I maintain my belief in this investment over the long term.

Monday, March 2, 2009

IP down 10% 3/2/09-Ed Warner


See above for full story of press releases from IP.

In addition to cutting their dividend, IP also said it would sell a large chunk of land assets in order help pay down debt and maintain their credit rating.

This news, coupled with an almost 5% drop in the S&P 500 today, contributed to this 10% drop.

IP Cuts Dividend to 2.5 cents/sh

"International Paper said Monday that its board of directors has reduced the company's quarterly dividend to 2.5 cents a share from 25 cents. International Paper said it will preserve $100 million every quarter. "While our cash balances and cash flows remain solid, we believe it is prudent to manage cash conservatively in this uncertain economic environment," said Chairman and Chief Executive John Faraci."

When I pitched this stock, the large dividend yield at the time was a plus, but not a primary reason wanting to purchase it. IP further noted in their press release: "This decision, which reflects our strong commitment to maintaining our current credit ratings, is a proactive step to maximize our financial flexibility, along with our earlier decisions to reduce capital investment, decrease overhead spending and headcount, and freeze salaries." I still believe that we should hold on to IP despite having to stare at it so deep in the red. This is undoubtedly a position that might take our full investment-horizon of 1.5-2 years to come to fruition. It was historically low at 12.49 when we bought it. The company will be well-positioned when demand picks back up and when the market comes back.

Sunday, March 1, 2009

ESV 4Q08 Earnings 2/26/09-James Fowler

Ensco International reported net income of $299M on revenues of $662M for the 4Q08. Revenues were up 12.8% Y/Y for the fourth quarter while net income was up 25.6% Y/Y for the same quarter. For FY08, ESV reported net income of $1.15B, up 16% Y/Y, on revenues of $2.45B, up 14.3% Y/Y. The average day rate for the jackup fleet increased 14% to $160,000 as compared to $140,000 in the prior year. Utilization was 95% in 4Q08 as compared to 88% for the 4Q07. The balance sheet continues to remain strong with $790M in cash and $292M of debt. Dan Rabun, President and CEO, said that ESV is beginning to be impacted by lower oil and gas prices, tight credit markets and the global recession. He said that some of their jackup rigs will be without contracts for a portion of 2009. Management remains optimistic and said that despite the challenging outlook, they believe their strong balance sheet, favorable contract backlog, conservative approach to internally finding new rigs and the growing contribution from the deepwater fleet will provide ESV a competitive advantage over the next several years.

At this point, I still remain bullish on oil and feel that oil prices are going to stabilize between $60 and $80 per barrel. ESV is a well run company with excellent management. ESV has a very strong balance sheet, which is essential in this environment. I have updated the model but still have some work to do seeing they changed the way they report their segments now. I still feel ESV is a hold and will blog again once I come up with a price target.