Daily Archives: January 18, 2008

Cramer Talks Microsoft As Oversold & Value Tech (MSFT)

On tonight’s MAD MONEY on CNBC, Jim Cramer said he is sticking with his "buy cheap and oversold tech stocks" theme.  The one he likes the best right now is Microsoft (NASDAQ: MSFT).  This is being ignored right now but it will work in this crazy environment.  He loves the steady business, balance sheet, and the $21 Billion in cash.

We just noted how Microsoft was added to the CONVICTION BUY LIST at Goldman Sachs yesterday.  We just noted this today as one of the seven DJIA components with their earnings targets for next week.

This week Cramer has made several value calls on oversold technology companies that will still do well in the current environment: 

Jon C. Ogg
January 18, 2008

Posted on: January 18, 2008 – 6:28 pm in Cramer, Software, Technology Companies,

The 52-Week Low Club (S)(UA)(STX)(C)(WFC)(BAC)(MBI)(WB)(SYMC)(YHOO)

Sprint (S) Lay-offs and weak subscriber numbers. Falls to $8.15 from 52-week high of $23.42.

Under Armour (UA) Weak forecast kills shares. Drops to $26.52 from 52-week high of $73.40.

Seagate (STX) Wall St. just not happy enough with quarterly numbers. Trades down to $19.44 from 52-week high of $28.91.

Citigroup (C) Down to $23.92 from 52-week high of $55.55.

Wells Fargo (WFC) Falls to $25.02 from 52-week high of $37.99.

Bank of America (BAC) Drops to $35.12 from 52-week high of $54.21.

MBIA (MBI) Trades off to $6.75 from 52-week high of $76.02.

Wachovia (WB) Falls to $30.39 from 52-week high of $58.80.

Symantec (SYMC) CEO concerned about business outside the US. Falls to $15 from 52-week high of $21.32.

Yahoo! (YHOO) concerns about internet ad slowdown. Falls to $20.07 from 52-week high of $34.08.

Douglas A. McIntyre

Posted on: January 18, 2008 – 4:01 pm in HI/LOW, , , , , , , , ,

7 Dow Components Report Earnings Next Week (JNJ, PFE, UTX, T, MSFT, CAT, HON)

Monday is a market holiday in observance of Martin Luther King Day in the U.S.  But after that we have an earnings deluge with hundreds of companies issuing their earnings.  For the bulk of the earnings this will also mark the fiscal year-end.  We actually have 7 of the 30 Dow Jones Industrial Average components reporting next week and many of these are the Dogs of the Dow we have covered.

On Tuesday, January 22, 2008 Johnson & Johnson (NYSE: JNJ) will show us how its drug, medical products, and consumer products are doing.  Estimates are $0.86 EPS on $15.4 Billion in revenues for its Q4 2007.

On Wednesday January 23, 2008 We have two components of the Dow posting earnings.  We’ll get to see earnings from drug-giant Pfizer (NYSE: PFE) with its fiscal Q4 earnings projected at $0.47 EPS on $12.19 Billion in revenues.  United Technologies (NYSE: UTX) will show us how its Otis, Carrier, UTC Fire and Security, Pratt and Whitney, Hamilton Sundstrand, and Sikorsky units are performing; and its Q4 2007 earnings are projected to be $1.06 EPS on almost $14.1 Billion.

On Thursday, January 24, 2008 we have its Q4 results from AT&T Inc. (NYSE: T), and Ma-Bell and her re-rolled break-ups are expected to post $0.71 EPS on $30.55 Billion in revenues.  We’ll also see what Microsoft (NASDAQ: MSFT) can show us what it earned in its Q2, 2008 earnings in software sales with its estimates pegged at $0.46 EPS on revenues of $15.95 Billion.  Goldman Sachs just added it to its CONVICTION BUY LIST.

On Friday, January 25, 2008 we have two components reporting, and this is actually a light day for an earnings season with it being Friday.  Caterpillar (NYSE: CAT) is expected to post earnings of $1.50 EPS on revenues of $11.77 Billion and this giant machinery beast has performed horribly of late.  If CAT guides poorly ahead then it will put that "global building growth trade" for 2008 in even more jeopardy than it already is.  Honeywell (NYSE: HON) is also reporting its Q4 2007 earnings and estimates are $0.91 EPS on revenues of $8.94 Billion from the diversified tech and manufacturing conglomerate.

Estimates are from First Call.  Please be advised that earnings dates can change and many of these estimates may be higher or lower by the time they actually report earnings.  There are frequently last minute changes made to estimates.

Jon C. Ogg
January 18, 2008

Posted on: January 18, 2008 – 3:54 pm in Earnings, Index, , , , , , ,

Are Video Games Really Recession Proof? (GME, ERTS, ATVI, THQI, TTWO)

NPD released its monthly video game data showing that December video game spending increased 30.9% from December 2006. What is interesting is that software sales of game titles were up 36%, while hardware in game console sales was up 17%.  These are strong numbers and while that strength is irrefutable, 2008 will be a tough repeat because of comparable sales to 2007 over 2006 levels from late 2006 console launches.  The question is, "Are video games recession-proof?" 

Video game sales are in the home and frankly video games are perhaps one of the cheapest forms of entertainment on a dollar per hour basis there is.  Recession-proof might be a stretch.  Sales will be strong and there will still be money made by the game publishers.  But the holy grail of ‘comparable sales’ is going to be a tough one on the console makers in 2008.  Here are just some of the articles today on the bet that game sales will or won’t hold up:

In hardware sales saw a 63% gain for the Sony PlayStation 3, a 123% rise in the Nintendo Wii, and up 15% in Xbox 360 sales. Hand-held device sales rose 54% for the Nintendo DS and 11% for the Sony PSP.

The next assured mega-hit title coming out is Take-Two’s (NASDAQ: TTWO) Grand Theft Auto IV.  But at some point (and likely some point soon) these console sales aren’t going show the same gains like in 2007.  This notion that World of Warcraft may potentially be coming to video game consoles might add literally millions of gamers to the MMORPG craze.  All of this would be good for video games.  Electronic Arts (NASDAQ: ERTS) has its waves of upcoming releases in the year and Activision (NASDAQ: ATVI) is looking interesting in the upcoming Activision-Blizzard merger.  Microsoft’s (NASDAQ: MSFT) Bungie Studios may soon be its own public company too. Interestingly enough, we expect another merger in this sector although maybe not in the classic scenario and that has been under review for our Special Situation Investing Newsletter. 

We think that GameStop (NYSE: GME) will actually hold up better thanoverall stores like Best Buy or Circuit City based on game title salesin 2008, but there just aren’t any new major platform launches on thehorizon for maybe another two years.  That varies from person toperson, but some feel we’ll have the same gaming systems until 2011.  Our notion is that video games might actually be somewhat recession-proof.  But with $1.76 as the high part of the guidance out of GameStop, at $50.00 this still leaves its P/E at 28.4.  If the economy gets any worse than we think can then investors might not be wanting to pay that multiple after a 400% stock rise since the start of 2005.  We have been very positive on this on for some time and we don’t think it will go to hell in a hand basket.  But it will take the U.S. not falling into a recession for us to stay very positive on GameStop today and this stock has been peaking since November.  GameStop also a competitor coming on strong as well.

GameStop shares have fallen from $60+ at the start of 2008 before it gave raised guidance that the street panned and shares now sit right at $50.00 (with a $49.72 close).  An 18% slide is significant, even if it is still up 100% from the 52-week lows.

Jon C. Ogg
January 18, 2008

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Posted on: January 18, 2008 – 1:38 pm in Video Games, , , , , , , , , ,

Sprint’s (S) 50% Sale

Sprint’s (S) shares are now down by more than half from their 52-week high, trading at $9.35 compared to $23.42. The company’s market cap has fallen to under $27 billion, less than one time revenue.

It may be time for Comcast (CMCSA) to have another look at owning a large wireless company. With telecom operators like AT&T (T) and Verizon (VZ) coming after the cable base with their fiber broadband and TV products, Comcast lacks a cellular offering. Sprint is the No.3 operator in terms of total subscribers behind T and VZ with 54 million customers.

Comcast has said it will upgrade its infrastructure to increase broadband speeds and add hundreds of films to its VOD cable library. It will even deliver premium content through a web portal. But, all of that it not enough. It lacks the ability to bundle wireless products with it other offerings.

As wireless connection speeds get faster through WiMax and 4G networks, cable may lose some more customers who will turn to over-the-air broadband. Sprint is a substantial hedge against that.

With $700 million in annual costs being cut out, Sprint may actually start to do modestly well if it can improve subscriber retention. Bundling with cable TV and broadband services would help.

In its last quarter, Sprint has just shy of $400 million in operating income on revenue of $10 billion. The topline is not growing. The company’s $21 billion in debt is primarily notes due between now and 2032.

Comcast can afford Sprint, and it may need it more than it will admit.

Douglas A. McIntyre

Posted on: January 18, 2008 – 10:10 am in Telecom, , , ,

Analysts Taking AMD Higher (AMD)

Advanced Micro Devices (NYSE: AMD) showed an earnings report yesterday that wasn’t full of any great news, but the good side of it was that it wasn’t as bad as many would have guessed.  In fact, its margins were ahead of plan and the non-GAAP results were almost acceptable.

This morning, Doug Freedman, Managing Director of Research at American Technology Research issued an alert that the firm is Upgrading AMD shares to BUY from Hold and the new target price is $10.00 for the stock. The note says the stock has finally washed out and everything has a price.  Here is a brief quote from the note:

  • "We believe AMD’s current stock price finally reflects as pessimistic an outlook as possible barring a liquidity crunch, which we do not foresee happening.  While we believe AMD’s debt also represents a compelling opportunity for investors at current yields, as equity analysts we believe AMD’s stock also offers a cheap ‘call option’ on a potential restructuring.  We view risk/reward as favorable with a 1-down, 4-up scenario in the stock price."

This does note that the quarter was far from perfect but says that AMD is finally showing some expense discipline and appears focused on extracting value for shareholders. 

Goldman Sachs still has a Sell rating on the stock and it lowered estimates for 2008 and 2009 earnings from the processor and graphics card  maker.  That’s what makes a ball game.   Hector Ruiz is still our #1 Pick out of CEO’s that need to leave tech companies.  We recently noted that a recession might actually save some bad CEO’s but AMD would be far better if Ruiz would go see "Do The Right Thing."

We also noted yesterday a huge short interest had built up in this stock, so some short covering is expected today.  AMD stock is up 10% to $7.00 in early trading.  Its recent 52-week low was $5.31.

Jon C. Ogg
January 18, 2008

Posted on: January 18, 2008 – 9:46 am in Analyst Calls, Semiconductor, Technology Companies,

Symantec Trying To Change Its Stripes (SYMC)

There was one small bit of good news last night out of Symatec (NASDAQ: SYMC).  The data security and storage leader announced that it was actually selling a unit.  San Francisco-based private equity firm Vector Capital is acquiring its Application Performance Management unit and this will operate as a new company under the name Precise Software Solutions Inc., and the deal is expected to close this current quarter.

Greg Butterfield, interim group president of Storage and Server Management Group at Symantec: "Selling the APM business will allow the Storage and Server management team to focus on securing and managing information." 

It is no secret that Wall Street wasn’t impressed with the Veritas acquisition that killed the stock.   We even noted that Chairman & CEO John Thompson may be up against the ropes in 2008 and may have to relinquish his CEO title for some new inertia there at Symantec.  It is too bad because we actually like this CEO and even liked the strategy, and there is nothing wrong with Thompson’s qualifications or street credibility. 

The strategy just isn’t working and the culture needs a shakeup.  Wall Street is a "show me" demanding beast that must be fed.  The company suffers from low growth, no real cost cutting initiatives, buybacks that failed to bolster share prices, and more.

But this may be an interesting ploy from Symantec.  We dug around to see what this would result in since terms weren’t spelled out.  Precise Software was acquired in 2003 and it looks like it became a non-core operation faster than it was bought after an integration between Symantec and Veritas.  This looks like it will trim approximately 300 employees out of Symantec and because this is non-core may incrementally add to margins this year.

This may attract attention after the stock has been battered and after numerous traders have constantly discussed a somewhat bloated structure that needs a shakeup.  Without knowing the brains behind the machines there, it is hard to know if this will mean that more sub-units are up for review.  But that is what some on Wall Street will be hoping for.

Thompson has also made some recent additions to his immediate staff.  Earlier this month the company also promoted Enrique T. Salem as its new chief operating officer who will be responsible for product development, sales, services, marketing and Information Technology (IT) activities.  Salem came to Symantec from a 2004 acquisition of Brightmail, where he was president & CEO.  Gregory W. Hughes, who had been group president of Symantec Global Services, was named chief strategy officer.  Hughes is now responsible for corporate development and strategy and will focus on new business incubation, such as the Symantec Protection Network, the company’s software-as-a-service (SaaS) platform, and other areas of internal investment.

We don’t like having to call CEO’s out on the street, particularly when we like them.  These efforts are probably hard to ignore and it is looking like Thompson is now making some positive moves in the right direction.  The stock market and its stock chart may be the stock’s biggest problem now, but that is no fault of management and bad times never last forever. 

Symantec shares were up almost 2% to $15.55 in thin volume pre-market trading   The 52-week trading range is $15.15 to $21.32, and it had reached $30.00 before the Veritas giant acquisition.  It looks like at the last minute  before the market open there were sell orders so we’ll have to look around to see if the stock took a downgrade. 

Jon C. Ogg
January 18, 2008

Posted on: January 18, 2008 – 9:31 am in Management Change, Mergers and Buy Outs, Software,

Sprint (S) To Slash

Sprint (S) is the latest company to say it will show a number of its employees the door. The firm’s business is not doing very well either.

For the fourth quarter Sprint reported a net gain of 500,000 subscribers through wholesale channels, growth of 256,000 These gains were offset by net losses of 683,000 post-paid subscribers and 202,000 traditional pre-paid users.

Anticipating continued downward pressure on subscriber trends, revenues, and profitability in 2008, Sprint  announced  plans to streamline the business in coming months. These plans call for job reductions across the company including approximately 4,000 internal positions.

Sprint currently expects these actions to reduce its internal and external labor costs by an annualized rate of $700-$800 million by the end of 2008.

Douglas A. McIntyre

Posted on: January 18, 2008 – 8:25 am in Wireless,

Qantas Wants Money Back From Boeing (BA)

Late delivery of the Dreamliner is catching up with Boeing (BA). According to the FT "Qantas’s contractual arrangements with Boeing provided for the ability to claim damages in certain circumstances."

Geoff Dixon, Qantas chief executive said: “We will be discussing the issue of liquidated damages with Boeing in the coming weeks.”

Good luck collecting.

Douglas A. McIntyre

Posted on: January 18, 2008 – 8:00 am in Airlines,

Goldman Sachs Lists Tech Picks & Pans (HPQ, IBM, STX, IM, EMC, AAPL, DELL, LXK, IVAC, MSFT)

Goldman Sachs has issued a broader snapshot of what to expect from Q4 earnings now that we have seen some of the companies report.  This is also ahead of the earning deluge next week.  The bulge bracket firm believes that results will be mostly in-line with expectation from year end seasonality and a weak US Dollar.  But Goldman Sachs is maintaining its defensive stance for enterprise-facing hardware stocks in early 2008 as CIO’s underspend on budgets in early 2008.

This actually outlines some of its favorite tech names that have double-digit earnings growth and P/E ratios under the S&P 500.  Here are some of the picks below:

  • Hewlett-Packard (NYSE:HPQ) remains its number one pick.
  • IBM (NYSE:IBM), Seagate Tech (NYSE: STX), and Ingram Micro (NYSE: IM) are also listed.
  • Apple (NASDAQ: AAPL) is noted as one that investors should continue to own for its upcoming catalysts.
  • EMC Corp. (NYSE: EMC) is noted as another standout stock.
  • Dell Inc. (NASDAQ: DELL) is also noted positively here as one to own because of its long-term turnaround potential.

While it is positive on these names above, Goldman Sachs is negative on two companies that it doesn’t believe benefited from any spending.  The two negative stocks noted are:

  • Lexmark (NYSE: LXK) was noted as likely to post weak numbers, and it is less than $1.00 above the 52-week lows;
  • Intevac Inc. (NASDAQ: IVAC), which is trading only about 1% above its 52-week low.

This also follows its raise yesterday where Microsoft (NASDAQ:MSFT) was raised to the Americas Conviction Buy List.

Jon C. Ogg
January 18, 2008

Posted on: January 18, 2008 – 7:59 am in Analyst Calls, Technology Companies, , , , , , , , , ,

Top 10 Pre-Market Analyst Calls (ABK, MBI, SCA, BBBY, BAM, DHT, GFIG, PHG, PCLN, RIMM, SPLS, WWY)

These are not the only analyst calls out there, but these are the top calls that 247WallSt.com is focusing on today:

  • Ambac (ABK), M B I A Inc. (MBI), and Security Capital Assurance (SCA) were downgraded to Neutral from Buy at Banc of America (that was real timely).
  • Bed Bath & Beyond (BBBY) raised to Buy from Neutral at UBS.
  • Brookfield Asset Management (BAM) raised to Outperform from Neutral at Credit Suisse.
  • Double Hull Tankers (DHT) raised to Buy from Hold at Citigroup.
  • GFI Group (GFIG) raised to Buy at Goldman Sachs.
  • Philps Electronics (PHG) downgraded to Underweight from Overweight at Lehman.
  • Priceline.com (PCLN) raised to Buy from Hold at Citigroup.
  • Research in Motion (RIMM) raised to Outperform at Oppenheimer.
  • Staples (SPLS) raised to Buy from Neutral at UBS.
  • Wrigley (WWY) raised to Overweight from Neutral at JPMorgan.

Jon C. Ogg
January 18, 2008

Posted on: January 18, 2008 – 7:41 am in Analyst Calls, , , , , , , , , , , ,

Europe Markets 1/18/2008 (BHP)(SAP)(ALU)

Markets in Europe were up modestly at 7.10 AM.

The FTSE rose 1.4% to 5,982. BT (BT) was up 2% to 280.75. BHP Billiton (BHP) rose 1.9% to 1375.

The DAXX was up a fraction to 7,416. Infineon was up 1.3% to 6.86. SAP (SAP) was up 1.6% to 34.18.

The CAC 40 rose .5% to 5,185. Alcatel-Lucent (ALU) was up 4.3% to 4.84.

Data from Reuters.

Douglas A. McIntyre

Posted on: January 18, 2008 – 7:17 am in International Markets, , , ,

Schlumberger Grows, But Maybe Not Enough To Please (SLB, OIH)

Schlumberger Ltd. (NYSE: SLB) has posted diluted earnings-per-share of $1.11 versus $1.09 in the previous quarter, and $0.92 in the fourth quarter of 2006.  Revenues were $6.2477 Billion, up from $5.349 Billion in Q4 2006.  First Call had estimates at $1.13 EPS and $6.14 Billion in revenues.

The company is describing a strong current environment and outlines the trends it is seeing:

  • "current levels of drilling are insufficient to meaningfully slow decline rates, improve reservoir recovery or add sufficient new production capacity. The explosion in exploration licenses awarded in the last three years, the continual expansion of the number of new offshore rigs being ordered for delivery through and beyond the end of the decade, and the industry-wide, as well as our own plans to increase both capex and research and development spend are clear indicators of future growth. It is our view that only a global economic recession that lowers demand can flatten this trend."

The oil services giant closed down about 4% yesterday to $82.51, and the 52-week trading range is $57.41 to $114.84.  Despite its positive tone ahead, shares are indicated lower by 2% or 3% in early pre-market activity. 

As this is the largest component of the Oil Services HOLDRs (AMEX: OIH), that ETF is one to watch today as this ETF closed down more than $20 over this week at $162.70.

Jon C. Ogg
January 18, 2008

Posted on: January 18, 2008 – 7:09 am in Earnings, Oil & Gas, ,

Despite Current Market, No Real Slowdown Out Of General Electric (GE)

General Electric (NYSE: GE) has just posted earnings with EPS up 17% to $0.68, in-line with $0.68 First call estimates.  Revenues were up 18% with organic revenue growth of 10% to $48.6 Billion, above the $47.25 Billion estimates.

Total orders in the fourth quarter were $27 billion, up 18%; major equipment orders of $14.1 billion, up 33%; services orders of $9.7 billion, up 5%

GE’s full-year 2007 EPS was $2.20, up 18% on earnings of $22.5 billion; and fiscal year revenues of $173 billion, up 14%; organic revenue growth of 9%.

GE is also reaffirming total year 2008 guidance with EPS baseline at $2.42+ up 10%+ and compared to consensus of $2.43.  Based on the trailing 12-months GE now has a P/E ratio of roughly 15.1 and based on its guidance its forward P/E ratio for 2008 of roughly 13.7.

CEO Jeff Immelt has noted that more than 50% of orders now come from outside the U.S..  Infrastructure showed 26% profit growth, and 20% or higher growth in aviation, energy, oil & gas, transportation, and water. Even its NBC Universal unit showed 10% earnings growth.  Healthcare was down about 4% but it exp[ects a better 2008 in that segemnt.

GE’s full-year consolidated effective tax rate was 16%, which was slightly below the company’s full-year 2007 expectations of 17% due to the higher proportion of lower taxed, global earnings in financial services. The full-year industrial effective tax rate was 22%, in line with the company’s expectations.

Immelt also said, "We want investors to see GE as a reliable growth company even in tough times. We will sustain our growth in 2008 led by Infrastructure and focus on hitting our financial goals of at least 10% EPS growth, 20% ROTC and organic revenue growth of 2-3 times GDP…. Our portfolio is strong, our initiatives are delivering and we are positioned to win in the mega themes of this era."

GE shares were spanked hard yesterday in a brutal market with shares closing down $1.35 at $33.21, which is almost a 52-week low.  With about 3 hours to the open it appears that shares are indicated slightly higher, although this far ahead is hard to tell a real price.

Jon C. Ogg
January 18, 2008

Posted on: January 18, 2008 – 6:51 am in Conglomerates, Earnings,

GE’s (GE) 52-Week Low: The Global Economy In A Bottle

GE’s (GE) numbers were OK. There was no real difference between expectations and what really happened. GE hit a 52-week low yesterday, so the company’s world does not look so good to Wall St. At $32.92 the stock is down from a multi-year high of $42.15 hit last Fall.

GE has the second largest market cap of any company in the US. At $325 billion, only Exxon (XOM) is ahead of it. Exxon’s rise could be attributed to the run-up in oil prices.

GE is as close as any company to being the global economy under one corporate roof. Its businesses range from infrastructure to medical to finance to entertainment to industrial products.

GE is a proxy for all that goes on in the business world from Zanzibar to India to the US.

The fact that GE’s stock is so low is a bad sign for the global economy, It is a measure of the pessimism Wall St. has not just about the US GDP but the GDP of the wider world.

There was nothing terribly bad about the GE numbers. The healthcare unit did poorly. So did NBC Universal. Infrastructure did well. Commercial finance did not.

But, the market invests based on tomorrow. Tomorrow is the rest of 2008. Wall St.’s GE vote says that there are not going to be any big pockets of strength overseas to rescue multinationals. The world economy will fall apart one piece after the next.

GE is the entire business world in one place and that place has lost its luster.

Douglas A. McIntyre

Posted on: January 18, 2008 – 6:47 am in Conglomerates, ,

AMD (AMD): A Sucker Born Every Minute

In any market, fools probably outnumber smart investor by a wide margin. Shareholders in dead pool tech firms like Sun (JAVA) and AMD (AMD) are not at the "high intelligence" end of the spectrum.

AMD yesterday announced that its revenue was flat in the last quarter compared to the same period last year. The company took a $1.6 billion write-off for its wrong-headed purchase of graphics chip company ATI. After that was taken into account, the company still lost money.

AMD would like investors to believe that, if PC sales and server purchases pick up, it can do fine. Its gross margins did improve from 36% last year to 44%, but that is still far shy of Intel’s (INTC) 58% in the most recently reported quarter.

AMD has one disadvantage compared to a company like Sun. It has over $5 billion in debt and almost $100 million in debt service each quarter.

There are some companies in the tech sector backwater that are not likely to come back. They face larger competitors with better R&D, bigger budgets, larger sales forces, and humongous market shares. AMD has a 20% piece of its market. Sun has less and fights IBM (IBM), HP (HPQ), and a host of other companies marketing servers to enterprises.

The two companies share one other thing in common. Both stocks have been pounded relentlessly. AMD has managed to trade down from over $40 less than two years ago to just over $6. Sun’s shares are down over 10% in the last two years while HP is up about 40%.

AMD is not likely to go out of business. Intel needs a small competitor to keep from being a monopoly. But, being in business and being successful are not the same thing.

Douglas A. McIntyre

Posted on: January 18, 2008 – 6:31 am in Semiconductor, ,

Comcast (CMCSA): A CEO Who Can’t Be Fired

Chieftain Capital Management owns over 60 million Comcast (CMCSA) shares, which is  2% of share outstanding. The investing firms want CEO Brian Roberts to leave. The problem is that his father founded the company and the family has voting control. In other words, Chieftain is fighting an uphill battle against an entrenched enemy.

What Chieftain really wants is its money back Comcast traded above $30 last year and now sits around $17. Perhaps, the investor says, Comcast would borrow money and pay a "meaningful" dividend; revise its executive compensation and dismantle its dual-class voting structure as The Wall Street Journal writes.

Comcast is not going to do any of those things. For good or ill, the Roberts family owns Comcast. As 24/7 Wall St. has pointed out, he is not leaving. The other shareholders are along for the ride. Cable made many investors a lot of money. CMCSA stock went from $17 in late 2006 to over $30 early last year. It is hard to debate that the return there is fairly good.

Chieftain also does not mention that all cable stocks are down. Comcast is up against the same forces that plague Cablevision (CVC), Time Warner Cable (TWC), and Charter (CHTR). Because of its size and balance sheet Comcast may be better off than the rest.

As for sending Chieftain and other shareholders a big dividend check, that money is likely to be used to upgrade current infrastructure to better compete with fiber-to-the-home offerings from telephone companies. That new technology is a real threat to cable’s franchise in broadband and TV. Comcast has already said it will increase high definition channels and move thousands of movies onto its VOD service.

Chieftain can sit outside the Comcast headquarters and cry all it wants to. The tears would be better shed elsewhere.

Douglas A. McIntyre

Posted on: January 18, 2008 – 6:14 am in Cable Companies, , , ,

GM (GM): The Exhaustion Of Cutting

GM chief Rick Wagoner is prepared to work 24 hours a day to continue cutting costs in the US. Even if he has to take them to zero, he will get the firm’s North American operations to a profit.

According to The New York Times "in a presentation to analysts, G.M. said that it planned to reduce its annual labor costs in the United States by about $5 billion by 2011."

The General is betting on two things to get back to full strength. The first is that falling costs in the US will meet better sales in 2009 and beyond. That makes for leverage against revenue and that makes for big operating margins. It does not take into account what happens of car sales in the US stay at or below 16 million vehicles a year. It also begs the question of what happens if Toyota (TM), Honda (HMC) & Company keep taking market share from the group formerly known at the Big Three.

Wagoner is also assuming that overseas sales will lift his company overall. He looks to a day, not so many years from now, when 75% of GM’s revenue comes from outside the US. That may work, but the company will have to contend with the rush of Ford (F), the Japanese, and big European car companies who all want to breath the same oxygen in the developing markets of China, India, and Russia. There are local car companies in those regions as well. They may not be willing to show the white flag and surrender their sales willingly.

Wagoner has done a great deal to help GM. But, he is only holding a pair of twos. That may not keep his rivals out of the game.

Douglas A. McIntyre

Posted on: January 18, 2008 – 5:59 am in Autos, , , ,

Bernanke’s Late Rescue

Ben Benanke joined a line of politicians from both sides of the aisle in suggesting massive infusions of capital and incentives to save the US economy. The total value of these is pegged as high as $150 billion.

The Fed chief said that he could see these packages helping the economy regain its footing in 2009.

Perhaps the reason the market did not rally on Bernanke’s comments is that investors are worried about the "lost year" of 2008. Between now and the beginning of next year, bleeding in certain sectors like housing, auto, and retail could wipe out hundreds of thousands of jobs. Businesses that close over that period will probably not re-open. People who lose their houses by the hundreds of thousand will not get them back.

The trouble with all of this is that a $150 billion package of caffeine may be much too little if the hole that gets dug over the next four quarters is deeper and wider than Washington and the Fed can imagine, or at least admit imagining. If a slowdown turns into a deep recession, it could last for two years or more.

Tax cuts won’t help people without jobs. Lower mortgage rates won’t aid the homeless. A stimulation package will not bring back industries which are on the brink of disaster.

If the Federal government wants to do something, it will have to be much more dramatic than debating an aide package and putting it to a vote. A cut of one full point by the Fed would be a nice start,

Posted on: January 18, 2008 – 5:46 am in Uncategorized

IBM: International Bragging Machines

There is a rule against taunting in football along with penalties. That has not moved to big business yet.

International Business Machines Corp. told Wall Street to raise its 2008 according to the AP.

IBM has the advantage of having large businesses in Eastern Europe and Asia. Smaller companies which did not move into those markets will likely suffer as the US economy falls apart this year. IBM’s adroit balancing act will probably save it from that.

But, that is short-term thinking. The genius behind the IBM numbers is what the company has done over the last decade by moving from hardware to software and services. Services revenue rose 17 percent to $14.9 billion in the last quarter of 2007.

Firm’s like Dell (DELL) and Hewlett-Packard (HPQ) are still largely at the mercy of hardware spending. Those expenses are easier to delay at many large companies than the software upgrades of the current IT structures.

The financial fruits of IBM’s success rest much more with a decision made in the last century than they do with geographic diversification.

Douglas A. McIntyre

Posted on: January 18, 2008 – 5:31 am in Earnings, , ,