Family Dollar Are They Merchants?

Family Dollar (FDO) reported improved results and the stock flirted with its 52 week highs. Howard R. Levine, Chairman and Chief Executive Officer made a general comment about adding locations and product mix. But he did not talk like a real merchant about product offerings, price points or value propositions. I know these guys just sell cheap and hope for the best.

So the stock is a macro play and it is hard to find true long-term value. They announced a stock buy back which will shrink the float and allow favourable EPS comparisons. They will boost the store count but it just sounds like more of the same.

Disclosure: No position in stocks mentioned in this post.

BP Deja Vu

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BP (BP) incoming CEO Bob Dudley made some sweeping changes, fired some very senior executives and established a new safety division with supposed sweeping powers. Didn’t we hear and see the same stuff the last go around. There are some very long and complicated reports which the public does not understand.

Here is the fundamental question. “Why did the blow out preventers not work?”

Everyone in exploration knows the dangers and risks. Every exploratory well has blow out preventers. This one did not. You can change executives all you want. It usually boils down to some simple fundamental issue. Is Bob Dudley just re-arranging the deck chairs on the Titanic’s next voyage.

Disclosure: No position in stocks mentioned in this post.

Walgreen’s Trojan Horse

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Walgreen (WAG) told shareholders they returned $2 Billion by way of share buy backs. The corporate narrative would have been much stronger if Walgreens had paid down its long-term debt which currently sits at $2.3 billion. Imagine being debt free. The market cap is just under $30 Billion. A financial engineering project of $2 Billion does nothing for the long-term story. 

President and CEO Greg Wasson went on record by claiming both a dividend increase and a huge share repurchase as way to reward investors. Greg a dividend increase is considered permanent reward. Share buy backs that drive debt loads up are short-term tricks. 

Disclosure: No position in stocks mentioned in this post. 

Zales Fundamentally Flawed

Zales (ZLC) announced less of a loss than last year and wants you to think that it is improving. The earnings release is tainted with red ink and this breeds investor skepticism.   Theo Killion, Chief Executive Officer needs you to think that they are executing well on a multi-year turn around. They throw a few details out about changes on their term loan and long-term financing including the payment of a very tough $12.5 million amendment fee. Sounds like they are dealing with a loan shark who knows corporate lingo. Theo that’s about half of your operating loss. But you do not want to point this out.

The good news is on the margin front. In Q4, margins improved by approximately 6.4% and SG&A decreased by about 1%. If you cannot turn this into black ink the business model is fundamentally flawed.

Disclosure: No position in stocks mentioned in this post.

Google CEO Eric Schmidt Guilty of Defamation

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Google (GOOG) CEO Eric Schmidt has been found guilty of defamation by French Court. In an article written by Seth Weintrab on he reveals that earlier this month the French courts found both Google and CEO Eric Schmuidt responsible for the algorithms automatic linking of a French national convicted of corrupting a minor with the words “Rapist” and “Satanist”

Lets see if Google considers this to be a material fact and issues a press release. Eric Schmidt is probably wondering about the all powerful algorithm and how to control it.

Diclosure: No position in any stocks mentioned in this post.

Facebook Pre-IPO Hype

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Facebook and 26-year-old boy wonder Mark Zuckerberg gained PR top dog status by announcing a $100 million gift to the Newark School system. Some cynically point to timing and a new movie called “The Social Network” coming to a theatre near you. I think we should be cynical about the donation but for other reasons.

The Wall Street Journal has confirmed that the gift will be in the form of stock. Newark needs to pay its bills in cash. The stock can be sold on private exchanges. Facebook buzz keeps mentioning a huge IPO and $20 Billion valuations. Lots of people want to get their hand on the stock. Limit supply and force the valuation up. So as Newark sells the stock greedy suckers will swarm around and drive the price up. By the way it’s not nice to screw a school so everyone will want to buy.

There is some talk that the gift will be spread out over five years in twenty million dollar tranches. So as the price goes up Mark Zuckerberg sells less shares but still hits his $20 million commitment. so if you want more stock can someone try to force the price down. just how do these private exchanges work. Is the SEC watching this one or do they also need an educational grant.

Newark is still the big winner and they really needed the money. But Zuckerberg has put the Facebook stock into play in a most ingenious manner. Watch for others to copy this pre-IPO technique.

Taking it one step further how does the Newark school system know it can sell and recoup $100 million. What has been salted into the system and how? Then again if the stock will be worth so much more in the future does Newark have the fiduciary obligation to keep the stock well into the future? buckle up this will be an interesting ride. Wonder if Oprah will buy some for herself.

Disclosure: No position in stocks mentioned in this post.

Red Hat Transparency Issues

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Red Hat (RHT) issued a bare bones earnings release one PR quote from Jim Whitehurst, President and Chief Executive Officer and just bare bones attempts at MD&A. The stock jumps to its 52 week high. Read the conference call transcript on (just click on the transcript center) The analysts managed to have a substantial conversation with management and drilled down to a depth level well below the earnings release.

 Was the earnings release mis-leading through its lack of information? Where the analysts trust worthy or are they just cheer leaders catering to specific clients and communities?

Red Hat which is known for open source is not reaching levels of transparency which most investors would appreciate.

Disclosure: No position in stocks mentioned in this post.

Warren Buffett’s Thinking Tour

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Warren Buffett watchers (BRK.A; BRK.B) are reading the tea leaves as a much publicized visit to BYD (1211.HK) of China has been announced.  BYD shares jumped some 850% by some accounts since Buffett’s original investment. Hype was naturally a big factor.

Warren Buffett is the ultimate value investor which means long-term holds of assets that looked ugly at first. BYD which has its roots in batteries made a major transition into cars and has now stubbed its toe. Wonder if Warren knew about that going in?

Warren has often said he does not understand technology. Going to a factory to look at product will not clear up that issue. BYD exhibited some characteristics that do not fit a normal value investor’s portfolio. They compete in a hyper competitive market. Where is the famous moat that value investors look for? Batteries and cheap energy make sense. Selling cheap cars at small margins will not create shareholder wealth.

Warren Buffett has some thinking to do. When he decided to sell Moody’s it was a realization of a mistake. Watch for announcements of new structures and reorganization. I do not see Warren Buffett as an automotive investor.  

Disclosure: No position in stocks mentioned in this post.

Sinclair Soft Shoes Debt & Guidance

Sinclair Broadcasting (SBGI) attempted to lower market expectations on earnings while at the same time they wanted investors to believe that revenues are robust. They also announced they are raising $250 million to repay some $280 million in debt. When you read the four different press releases issued today that’s the arithmetic.  By diffusing the news over multiple press releases Sinclair is hoping that the dots are not connected in the market place. Are the debt holders the smartest guy’s in the room.

Disclosure: No position in stocks mentioned in this post.

ITW Lacks Transparency

ITW (ITW) Illinois Tool Works released summary results for the last three months ending Aug 31, 2010. The company has a habit of releasing three-month rolling numbers and placing them top of mind with the investor. This allows you to bleed in and bleed out problems in small bits without the investing public becoming aware of them. A more transparent process would be to announce monthly information on a stand alone basis. Clearly the information is available. Why not put it up on a pedestal for all to see?

The press release does not quote executives and does not even provide contact information to the investor relations department.

Disclosure: No position in stocks mentioned in this post.