Archive for May, 2007
Sunday, May 27th, 2007
Probably the most comprehensive snapshot of a public company, the balance sheet provides a summary of company assets, liabilities, and stockholder’s equity. A good way to understand this is to think of an individual instead of a company. Your assets are what you “have” (e.g., money in the bank, your 401k, etc.) while liabilities are what you “owe” (outstanding loans, credit card debt, etc.). If you subtract the value of your liabilities from the value of your assets you (hopefully) have an amount leftover. This represents your “Net Worth”, and is essentially the same as “Stockholders’ Equity” on the balance sheet. The equation is:
Assets - Liabilities = Stockholders’ Equity
or, equivalently:
Assets = Liabilities + Stockholders’ Equity
(more…)
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Monday, May 21st, 2007
With the exception of monthly housing data due out later this week, it looks to be a slow week for economic data. Futures are indicating a positive market open, adding further evidence that liquidity is driving the market. Mergers and acquisitions continue to add support as well, as TPG Capital and Goldman Sachs (private equity arm) agree to take Alltel private. However, no tree, however strong, grows to the sky - so we’ll be looking at some of our valuation models closely over the next week or so. Given the recent strength in the market, and the fact that we will soon be entering June, it may be time to do some rebalancing of the portfolio.
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Thursday, May 17th, 2007
The major indexes are down this morning after data on weekly jobless claims came in lower than expected (293,000 vs. consensus of around 310,000). This may put some on the street on edge, as the Fed has been watching the labor market as an indicator of inflationary pressure. According to Econoday, lower jobless claims mean that more workers are employed, making it harder for businesses to find workers. As a result, businesses may have to raise wages to attract employees or pay overtime to existing workers. Both result in wage inflation - and any inflation from the Fed’s perspective is bad inflation. Therefore, this lowers the chances of a rate cut in the near future.
However, Fed Chairman Ben Bernanke did announce this morning that he does not believe the ever growing number of mortgage delinquencies will cause a serious negative impact to the economy. While he believes defaults will likely continue into next year, he doesn’t think problems in sub-prime mortgage lending are severe enough to create a “spillover” effect that will sink the market.
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Wednesday, May 16th, 2007
A 2.5% increase in April housing starts caught analysts by surprise today, as most had expected a decrease of about 2% (following tepid March numbers). However, building permits plunged about 9% (the most significant decline since 1990) according to the Wall Street Journal. The private-equity buying spree continued as well, as news of a buyout of Bausch & Lomb by Warburg Pincus was announced ahead of Wednesday trading. The stock price of Bausch & Lomb jumped about 10% (pre-market trading) on the news. In addition, the chair of Sears Holdings announced a purchase of 15 million shares of Citigroup, sending shares up about 2%. Based on futures data, the markets look to open higher today as we wait for the opening bell.
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Tuesday, May 15th, 2007
Home Depot (stock ticker HD) posted a 30% decrease in net income for the first quarter of 2007, underscoring the current weakness of the housing market. Revenue at same-store sales fell about 8%, while total revenue fell about 1% year over year.
A quick look at stock fundamentals shows that, at a Price / Earnings ratio of around 14x and a Price / Book of 3x, Home Depot trades at a relative price which is 95% higher than other stocks in the retail home improvement industry. However, it is currently still cheaper than its chief competitor Lowe’s (LOW) which trades at a P/E of almost 16x. Both have showed declines in stock prices over the last year in the 7 - 8% range. As a component of the Dow, HD may weigh on the index as the market opens today.
However, Wal-Mart posted an 8% gain in Q1 profit as a result of double digit growth in international margins (19%) and a strong turnout by Sam’s Club stores (a 20% increase in first quarter earnings). DaimlerChrysler also posted a whopping 152% increase in Q / Q net income (1,972 MM Euros in Q1 07 vs. 781 MM Euros in Q1 06). Both will help offset fears caused by Home Depot’s weak performance. In addition, positive CPI numbers should also boost the market, as overall CPI and core CPI numbers (CPI net of volatile energy and food) were in line with expectations.
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