Daily Archives: January 3, 2008

Cramer’s Sell Block on Legg Mason Redemptions (LM, AIG, CFC, COF, EK, GOOG, UNH, S)

On CNBC’s MAD MONEY tonight, Jim Cramer did his SELL BLOCK where he makes calls for selling winners or losers.  Tonight he focused on legendary portfolio manager Bill Miller of Legg Mason (NYSE: LM).  Miller had outperformed for many years but 2007 was another year of underperformance after an underperforming 2006.  With mutual fund redemptions rising (investors withdrawing cash from stock funds) Cramer believes that this will hit Legg Mason (NYSE: LM) fairly hard and he thinks that is resembling a sell here.

Legg Mason shares closed up almost 2% today at $73.43, but the 52-week trading range is $68.35 to $110.17. More importantly, Cramer gave some of Legg Mason’s top holdings that could get hit hard if the redemptions come flying in:

  • Out of the financial sector, Cramer thinks that AIG (AIG), Capital One (COF) and Countrywide (CFC) are all large holdings of Miller and they could see added liquidations from Legg Mason.
  • Eastman Kodak (EK) is also vulnerable to Miller selling to meet redemptions as it is 19% held by Legg Mason, although it sounded like Cramer was positive if it pulled back too much.
  • Google (GOOG) could also see some selling as Legg Mason holds a 1.5% stake there, although we all know Cramer would like to assign a $1000 target on GOOG.
  • UnitedHealth (UNH) is one that Cramer also noted because Legg Mason is the largest holder with more than a 7% stake.  Cramer has been positive on this one lately.
  • Lastly was Sprint Nextel (NYSE:S) with Legg Mason holding a 5.3% stake there, although he said it has gotten oversold and cheap enough that he is inclined to buy hat stock now with a manager that still might be able to acquire it.

Backward & Forward, Cramer In 2007 To 2008 is a full list of our top Cramer summaries with his 2007 calls that are pertinent or due for updates in 2008.

Jon C. Ogg
January 3, 2008

Posted on: January 3, 2008 – 7:13 pm in Cramer, , , , , , , ,

Cramer’s Natural Gas Stock For 2008 Production Increases (UPL, HAL)

Tonight on CNBC’s MAD MONEY, Jim Cramer said he’s been expecting natural gas to catch on for years, particularly since natural gas is the same price as two years ago while oil has doubled. 

Ultra Petroleum (NYSE: UPL) is his winner for the sector.  There are energy companies focused on production growth, and they raised quarterly production growth by over 30% for 2007 and by 12.1% for 2008.  The company is awaiting some government decision that may allow an eightfold increase in the number of wells in the area it operates in with year-round drilling.  He thinks this was great before but with the Bureau of Land Management decision coming, it could be much higher.

Last night Jim Cramer said that Halliburton (NYSE:HAL) was still one of his picks in the sector too that he wants to stick with, and that  was one of 2007’s top value stocks he gave.

If you want the full summary of our key Cramer picks from 2007 that still are active or that will be built upon in 2008, you can access "Cramer backward and forward 2007 into 2008" here.

Jon C. Ogg
January 3, 2008

Posted on: January 3, 2008 – 6:14 pm in Cramer, Oil & Gas, ,

Apple (AAPL) The Record Company, With Jay-Z As Chief

More than one media source claims that Apple (AAPL) will team up with Jay-Z, former president of Def Jam Records, to start its own record label. It seems the "Beatles" once recorded on Apple Records. No?

Based on information from "The Boy Genius Report" and "Ars Technica" the new label will be announced as early as Macworld Expo.

The move would be double-edged for Apple. Right now its iTunes store represents a total of 70% of music downloads.The industry figure hit 844 million in 2007 That means iTune revenues dwarf the sales of most music store chains.

Music artists are fully aware that CD unit volume is falling. Nielsen SoundScan puts last year’s drop at 15%. The contrast between download and CD revenue is a powerful incentive for performers to cut deals with a record company with a direct affiliation with Apple.

An Apple record label would alienate music publishing companies like Warner Music (WMG). But, its shares are down about 75% over the last year and the firm’s market cap is only $790 million. Apple’s is $171 billion.

The balance of power in music distribution belongs to Apple now. Jay-Z knows that, and so does every major recording artist in the world.

Douglas A. McIntyre 

Posted on: January 3, 2008 – 5:24 pm in Consumer Electronics, ,

Bed Bath & Beyond An Ill Omen Of Retail (BBBY)

Bed Bath & Beyond (NASDAQ: BBBY) has posted $0.52 EPS on $1.795 Billion in revenues, while First Call had estimates pegged at $0.52 EPS on revenues of $1.77 Billion.  This would be OK on its own if it hadn’t issued a warning of this magnitude:

  • For the fiscal fourth quarter ending March 1, 2008, the Company estimates it will earn approximately $0.64 to $0.67 EPS, although First Call has estimates at $0.78 and it earned $0.79 for the fourth quarter last year.

The company did note that the coming quarter has one less retail week than last year, but that doesn’t come close to making up for this shortfall.

The sad part of this is that Bed Bath & Beyond has been thought of as a nearly immune company in the past over economic softness.  If the gals aren’t out buying their goodies for home at Bed Bath & Beyond, then it means the rest of us are cutting back left, right and center.  We have been teetering between calls for a recession and calls for a major slowing with limited to nil growth.  This is more indicative of a recession than a slowdown, at least if we can still use the BBBY as the safety port of call in past storms analogy. 

BBBY shares closed down over 3% at $27.40, under the 52-week low of $27.96.  Because of the warning it is seeing shares down another 8% to $25.25 in after-hours.  When you look at retail stocks hitting 52-week low after 52-week low, now you know why.  Chances are that a bottom hasn’t been found yet.  This is when some value stocks become value traps.

Jon C. Ogg
January 3, 2008

Posted on: January 3, 2008 – 4:47 pm in Earnings Warning, Retail,

Tata-Ford, Will They Kill Jaguar & Rover Brands? (F, TTM)

If you have followed the US auto industry you will know about the trials and tribulations of the US auto brands, the US autos themselves, the workers, and the plants and cities they operate in.  The Big Three are sizing down to operate on a leaner and more favorable employment environment with the unions.  Ford (NYSE: F) has been in the process of looking for a buyer for its Jaguar and its Rover units, and Tata Motors (NYSE: TTM) out of India has been labeled as the front runner for some time.  Multiple reports today put Tata in the catbird seat.

But there is something that Tata must consider.  Will it keep the same standards and the the same sort of companies behind the Rover brand and behind the Jaguar brand?  Rovers are premium SUV’s up to super-premium SUV’s.  Jaguar is a high-end luxury brand auto.  Neither one of these brands just has a ring of "Made in India" as a desired trait by the auto buyers who own these brands.  More importantly, it might be a real change in the brands in the coming years. 

Luxury car and SUV buyers haven’t migrated over to a new desire to have "Made in India" stamped on their car.  The truth is that the cars won’t be made in India, but that doesn’t mean there won’t be any perceived brand dilution.  Neiman Marcus isn’t going to start selling Old Navy clothes.  LVMH probably isn’t interested in selling Keystone beer or MD 20/20 wine.  You can see the Tata line of cars here to see what we are talking about.

We don’t know if Tata wants to use these European brand factories as a base to produce more Tata-esque cars or if it wants to keep the operations the same.  There are still more questions than answers, but luxury and more high-end car buyers might be thinking twice about buying a Jaguar or a Rover if they perceive a "Made in India" stigma.  Luxury buyers often don’t want to cut corners to save cash, and Tata needs to consider this.

We have previously pondered about Tata being a longer-term threat to U.S. auto makers, and perhaps that may be true sooner rather than later.

Jon C. Ogg
January 3, 2008

Posted on: January 3, 2008 – 4:22 pm in Autos, ,

The 52-Week Low Club (AMD)(CC)(RAD)

Georgia Gulf  (GGC) No news. Homebuilder exposure? Down to $4.90 from 52-week high of $21.90.

Rite Aid (RAD) Bad same-store sales. Down to $2.26 from 52-week high of $6.74.

AMD (AMD) Goes down almost every day now. Falls to $6.75 from 52-week high of $20.63.

Circuit City Stores (CC) Part of the retailer meltdown. Fall to $3.84 from 52-week high of $22.02.

YRC Worldwide (YRCW) Going to book big impairment charge on acquisition. Drops to $13.77 from 52-week high of $47.09.

Douglas A. McIntyre

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Posted on: January 3, 2008 – 3:54 pm in HI/LOW, , , , ,

The General (GM) Does OK In December

Sales of GM (GM) cars and light trucks fell 4.4% to 319,837 in December.

In December, GM’s light-vehicle sales fell 4.4% to 319,837 units. Car sales moved down 10% to 116,583 vehicles. Light-truck sales, meanwhile, fell 0.8% to 203,254 trucks.

For the full year 2007, GM recorded a 6% drop in U.S. sales to 3.82 million vehicles.

GM’s shares are off about 2% on the news and hit a 52-week low of $23.24.

Douglas A. McIntyre

Posted on: January 3, 2008 – 2:45 pm in Autos,

Toyota (TM): Tough December But Passes Ford

December sales of Toyota (TM) cars and light trucks fell 1.7% to 224,399 in the US.

Numbers for the entire year were up 2.7% to 2.62 million.

According to the AP Toyota has overtaken Ford (F) to become the No. 2 automaker by U.S. sales in 2007, breaking Ford’s 75-year lock on the position.

Douglas A. McIntyre

Posted on: January 3, 2008 – 1:28 pm in Autos

Africa: The Final Emerging Market Frontier (GAF, EZA, TRAMX)

As investors look for emerging markets in 2008 and beyond, they may start to look for emerging markets that have yet to emerge from that deep emerging market status.  The last spot on the planet that has yet to be turned into a series of countries with something resembling stable market economies and somewhat stable governments is AFRICA.  Africa is perhaps the hardest place in the world to invest in, although there are a whole host of US-listed companies which generate much of their operations in Africa.  The problem is that these often appear on investor boycott lists and are hard for an investor to get direct information on.  Africa is a bad neighborhood when you consider strife around the entire continent.  Even staunch humanitarians would say so. 

The good news is that there are actually some ETF’s and funds that investors can purchase to invest directly into African markets and US or Foreign companies that operate in African markets.  Below are some of the ETF’s and funds:

  • SPDR S&P Emerging Middle East & Africa (AMEX: GAF) yesterday closed $70.72; 52-week trading range $57.55 to $80.19. $50.5 million in assets.
  • iShares MSCI South Africa Index (NYSE: EZA) yesterday close $131.75; 52-week trading range $103.38 to $153.79. $839 million in assets.
  • T. Rowe Price Africa & Middle East (TRAMX) $13.05 yesterday NAV; recent low $10.01 Sept. 10, 2007 and high $13.05. $120.8 million assets.

So why don’t investors just buy direct stocks on exchanges of more established countries to get direct exposure?  Once again, Africa is a very dangerous neighborhood.  Crime and corruption is rampant in many African nations, political turmoil may be the understatement of the decade, they have things called civil wars there, many markets do not even have legitimate stock exchanges, many countries are mere regions recognized only by map-makers, and many companies only benefit from oil, gold and metals, or diamonds.  Mark Mobius of Templeton Funds used to say "invest when there is blood in the streets."  In Africa, blood in the streets seems to still be the norm.

Investors are always looking for the next new hot emerging market, or at better yet a hot new region to invest their money into for the long-haul to outperform developed nations.  If you have been around Asia you know a lot of the growth has already happened.  Eastern Europe already has countries in or in the process of joining the E.U.  Russia has grown enough that Czar Putin was just named Time’s Man of the Year.  The Middle East is boom town right now with development and with near-$100 oil.  South America is chugging right along.  Unless Greenland or Antarctica suddenly get waves of human population in need of infrastructure, Africa appears to be one of the last frontiers.

These are not at all the only ways to invest in Africa and there are other vehicles out there.  But these are the more easy ways for American investors to try to participate in what through time should end up being the last major emerging market frontier.

Jon C. Ogg
January 3, 2008

Posted on: January 3, 2008 – 1:17 pm in ADR, ETF, International Markets, Mutual Funds, , ,

Ford (F): Bad End To 2007, Little Hope For 2008

Ford’s (F) December sales totaled 212,094, down 9 percent compared with a year ago.

Ford’s full-year 2007 sales totaled 2.57 million, down 12 percent compared with a year ago. More than two thirds of Ford’s sales decline reflected discontinued products.

Ford expects the economic environment to remain challenging in 2008. Ford has said it expects the first half U.S. auto sales rate to be in the range of 15.5 to 16.0 million in the first half.

"We are restructuring our business to be profitable at lower demand and changed mix and accelerating the development of new products people want to buy," a Ford spokesman said.

Douglas A. McIntyre

Posted on: January 3, 2008 – 12:25 pm in Autos,

Will AMD (AMD) CEO Hector Ruiz Leave This Month?

Last year AMD (AMD) issued its 2006 full-year results on January 23. It is probably a good guess that 2007 calender numbers will come out at the end of the third week this month. That does not leave much time. Management and the board probably have most of the figures for Q4.

AMD shares hit another low of $6.75. Wall St. obviously has extremely low expectations about the figures the company will post.

If the figures are below what the company has indicated, the members of the board have a big problem. The rapid sell-off in AMD shares speaks volumes about the desire for new leadership.

CEOs often leave just before or the day of earnings. Look for Mr. Ruiz to be gone in the next three weeks.  He was recently named one of our own 5 TECHNOLOGY CEO’s THAT NEED TO GO FOR 2008.

Douglas A. McIntyre

Posted on: January 3, 2008 – 11:39 am in Management Change,

Nothing At Sun (JAVA) Has Worked

Shares in Sun Microsystems (JAVA) have sputtered to a 52-week low of $17.25 down from a period high of $27.12. It would be hard to find a company that has worked harder to get its shares up.

Sun reverse split its stock on the theory that being over $10 would attract more institutional investors. That does not appear to have worked. The company also changed its symbol from SUNW to JAVA. No heartbeat there.

Sun said that it would buy-back as much as 16% of its shares. Lower float, higher EPS. No takers.

According to The AP, one of Sun’s problems is that it is in an industry which is not growing very fast:  "Factory revenue in the worldwide server market grew just half a percent in the third quarter to $13.1 billion — the slowest rate since the first quarter of 2006, according to research firm IDC."

The markets have hoped that Sun’s move toward marketing more open source software would pay off with customers. Right now, there is little evidence of that. In the last quarter, Sun’s revenue was flat and operating income showed a modest improvement, mostly due to cost cutting.

Sun is a press release machine. It issues about ten PRs a month. Perhaps it should relieve its investors of having to read all of those and just make them some money.

Douglas A. McIntyre

Posted on: January 3, 2008 – 9:54 am in Technology Companies,

Can Bed Bath & Beyond Buck A Weak Consumer? (BBBY)

After today’s close we’ll get to see earnings numbers out of Bed Bath & Beyond (NASDAQ: BBBY).  First Call has estimates pegged at $0.52 EPS on revenues of $1.77 Billion, and this next quarter expectations are $0.78 EPS on $2.08 Billion in revenues.

We’d be really cautious on this one ahead of earnings because of a weak retail environment and a soft consumer in anything tied to the home, although with a $28.36 close it is at the bottom of its $27.96 to $43.32 trading range over the last 52-weeks.  Even after losing one-third of its value it still has a $7.5 Billion market cap.

Analysts still have a price target average of roughly $36.00 from a mixed grouping of opinions.  This will be the first chance to see how much of the $1 Billion share buyback plan announced in September 2007 that was really used.

Because this is retail, and tied to items used in the home, it is really hard to get very excited about.  The good news is that after losing one-third of its value you might expect that a large part of a dull quarter was already priced in.

It is important to draw the line on this earnings date though as being the end of November 2007, so the holiday sales will only be seen in this next quarter’s guidance.

Jon C. Ogg
January 3, 2008

Posted on: January 3, 2008 – 9:32 am in Retail,

OPEC Claims It Is Not At Fault For $100 Oil

OPEC ministers are saying that $100 oil is not their fault and that raising supply will do nothing to bring down price. "I think the main problem is outside the oil market. Too much liquidity is available," on OPEC member told Reuters. "A big part of it is in the paper market of crude oil."

Why not try announcing a modest increase in production and watch crude drop below $90. It would be a good experiment and would drive speculators out of the market.

Douglas A. McIntyre

Posted on: January 3, 2008 – 8:24 am in Oil & Gas

Top 10 Pre-Market Analyst Calls (DRIV, ISIL, MUR, NAPS, BTU, RNWK, SINA, URI, VVUS, YRCW)

These are not the only impacting analyst calls this morning, but these are most of the initial calls being focused on by 247WallSt.com:

  • Digital River (DRIV) raised to Outperform from Neutral at Credit Suisse.
  • Intersil (ISIL) raised to Buy from Neutral at UBS.
  • Murphy Oil (MUR) downgraded to Peer Perform from Outperform at Bear Stearns.
  • Napster (NAPS) started as an "Underperform" at Bear Stearns.
  • Peabody Energy (BTU) downgraded to Neutral from Buy at Merrill Lynch.
  • Real Networks (RNWK) started as Outperform at Bear Stearns.
  • Sina (SINA) raised to Buy from Neutral at Piper Jaffray.
  • United Rentals (URI)  raised to Buy from Neutral at UBS.
  • Vivus (VVUS) started as Overweight at J.P.Morgan.
  • YRC Worldwide (YRCW) downgraded to Underperform from Market Perform at Wachovia.

Jon C. Ogg
January 3, 2008

Posted on: January 3, 2008 – 7:45 am in Analyst Calls, , , , , , , , , ,

Ingram Micro Catches A Goldman Sachs Upgrade (IM, TECD)

Ingram Micro Inc. (NYSE: IM) is seeing a valuation upgrade from Goldman Sachs this morning.  It is being added to the Americas Buy List (after a neutral) after recent weakness is showing an opportunity to build positions at what it is referring to as "trough valuation levels."

Goldman Sachs also noted that it expects fundamental strength across all geographies here to drive strong revenue and earnings growth in the December quarter and in 2008.  The research notes that Ingram Micro is down some 16% since early November on no real fundamental news, leaving the distributor at 9-times the Goldman Sachs calendar EPS target of $1.97.

Goldman Sachs sees this stock at $24 over the next 12 months.  This closed at $17.80 Wednesday and the 52-week trading range is $17.67 to $22.50.

We perused through First Call data and it appears that Wall Street analysts have a consensus target closer to $25 and a 2008 EPS target of $1.96, so this upgrade isn’t calling for anything that would be outlandish for a crowd of analysts.  Wall Street uses Tech Data (NASDAQ:TECD) as the comparison stock here and the valuations at Tech Data are much higher, although we would caution that there are more overlaps in more areas of the companies than a head to head comparison.

Jon C. Ogg
January 3, 2008

Posted on: January 3, 2008 – 7:31 am in Analyst Calls, Technology Companies, ,

Dell (DELL) Troubled By Slow Move To Retail, Lenovo

Dell (DELL) is trying to pick which products it wants to give to retailers like Best Buy (BBY) and Wal-Mart (WMT) and which it wants to sell on the internet. Maybe it thinks it can make more money that way, but it won’t

According to The Wall Street Journal "Best Buy began offering Dell’s desktop computers, its more expensive 14-inch Inspiron laptops, and its high-end XPS branded notebooks this week. But Best Buy isn’t offering Dell’s printers or its lower-end notebooks."

Rivals like Hewlett-Packard (HPQ), Acer, and even Apple (AAPL) are not being so selective. They just want to sell computers. Perhaps that is why Dell is losing market share in the US while most other manufacturers are gaining.

Dell also has to worry that the PCs being built by its competition are getting much better. Lenovo is introducing a slick new line of consumers machines that have the look and feel of a Mac.

Dell needs to get in gear.

Douglas A. McIntyre

Posted on: January 3, 2008 – 7:12 am in PC Companies, , , , ,

The Weather Channel Is For Sale

According to The New York Times, The Weather Channel is for sale by owner Landmark. The price is estimated to be about $5 billion. That number seems low.

The cable operation has reaches more than 87 million homes, or about 95% of all cable households.

Programming costs are probably low. It is safe to assume that anchors get only modest pay and that access to National Weather Service data is cheap, if not free.

comScore puts weather.com’s audience at over 34.1 million unique visitors in November. That ranks in No.16 in the US and ahead of the audiences of the CBS (CBS) online properties, Comcast’s (CMCSA) online operations, Disney (DIS), and ESPN.

The sale of a property like this only comes around every few years.

Douglas A. McIntyre

Posted on: January 3, 2008 – 6:54 am in Media, , ,

State Street, Not Immune To Subprime (STT)

State Street Corporation (NYSE:STT) has announced that it will record a net after-tax charge in the fourth quarter of 2007 of $279 million, or $0.71 per share. The charge is to establish a reserve to address legal exposure and other costs associated with the underperformance of certain active fixed-income strategies managed by State Street Global Advisors, the company’s investment management arm, and customer concerns as to whether the execution of these strategies was consistent with the customers’ investment intent.

Can you say "fiduciary responsibility" issues? 

In aggregate, the reserve will be $618 million on a pre-tax basis. The impact to earnings of the net charge, after taking into account the tax effect of the reserve and associated lower incentive compensation cost, will be $279 million.

State Street also announced that James Phalen, executive vice president and head of international operations for investment servicing and investment research and trading, is returning to SSgA as interim president and chief executive officer. Phalen succeeds William W. Hunt who has resigned from State Street.

Earnings per share for 2007 are expected to be between $3.42 and $3.45 per share, and return on equity is expected to be approximately 13%, all on a GAAP basis.  On an operating basis 2007 earnings per share is expected to be between $4.54 and $4.57 per share and return on equity is expected to be approximately 17.5%.  We have a First Call estimate of $4.19, although we’d caution that these charges will make any direct comparison ‘cloudy.’

Jon C. Ogg
January 3, 2008

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Posted on: January 3, 2008 – 6:48 am in Accounting, Banking, Earnings Warning, Financial Stocks, Restatements, , ,

Europe Markets 1/3/2008

Markets in Europe were lower at 6.40 AM New York time.

The FTSE was off .2% to 6,403. BP (BP) was up 2.2% to 630. Intercontinental Hotels was off 4.5% to 820.

The DAXX was off .8% to 7,885. Daimler was down 3.5% to 62.41. Siemens (SI) was off 2% to 105.17.

The CAC 40 fell .5% to 5,521. France Telecom (FTE) was off 1.3% to 24.14. ST Micro (STM) was down 2.3% to 9.42.

Douglas A. McIntyre

Posted on: January 3, 2008 – 6:46 am in International Markets, , , ,