Research in Motion Turtle Like Moves? $RIMM

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Research in Motion (Nasdaq:RIMM) announced drastically reduced earnings for Q4. Market reaction has taken a page or two from chicken little “the sky is falling” and then again for emphatic emphasis “the sky is falling”. Lets take a rationale look at some of the major issues.

  1. The new CEO just arrived 10 weeks ago. By the way he is looking for a new COO and the good news is he thinks he is close to hiring a new Chief Marketing Officer. Not to mention Jim Balsillie has just resigned from the board. The generals are still changing out. The guys that are leaving probably were not pushing at the wheel. Actually this was a good thing as most would agree they were not the winning team.
  2. Hey they only lost $128 million.  That ain’t nothing but a chicken wing in the technology space. This only begs the question. Big change holds hands with big write-offs. The year-end was just closed off. That means this year will see more pain and financial agony. The new guys will be hired not to protect the status quo. By the way inventories are up clocking in at $1 Billion. Can you see some write-offs coming.
  3. The only good thing is the large increase in their cash position moving some $610 million to $2.1 Billion. This is the necessary set up move for solution. The new whatever will cost big bucks. Watch for continued cash hoarding over the next few quarters. When they start drawing down cash will signal the back field is in motion. The earnings release led with this point. Subliminal advertising designed to encourage the deep value investor.
  4. The cash position is roughly equal to 30% of RIM‘s market cap.
  5. No discussion about the value of patents and intellectual property. Of course if management starts hammering in this point it would confirm they are holding themselves up for sale.

So given the cash position would you pay approximately $4 Billion for the operating assets with substantial cash flow and all the intellectual property.

George Gutowski writes from a caveat emptor perspective

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Obituary for Common Sense #commonsense

An Obituary printed in the London Times…..Absolutely Dead Brilliant !!
Today we mourn the passing of a beloved old friend, Common Sense , who has been with us for many years. No one knows for sure how old he was, since his birth records were long ago lost in bureaucratic red … … tape. He will be remembered as having cultivated such valuable lessons as: – Knowing when to come in out of the rain; – Why the early bird gets the worm; – Life isn’t always fair; – And maybe it was my fault. Common Sense lived by simple, sound financial policies (don’t spend more than you can earn) and reliable strategies (adults, not children, are in charge).
His health began to deteriorate rapidly when well-intentioned but overbearing regulations were set in place. Reports of a 6-year-old boy charged with sexual harassment for kissing a classmate; teens suspended from school for using mouthwash after lunch; and a teacher fired for reprimanding an unruly student, only worsened his condition.
Common Sense lost ground when parents attacked teachers for doing the job that they themselves had failed to do in disciplining their unruly children. It declined even further when schools were required to get parental consent to administer sun lotion or an aspirin to a student; but could not inform parents when a student became pregnant and wanted to have an abortion.
Common Sense lost the will to live as the churches became businesses; and criminals received better treatment than their victims. Common Sense took a beating when you couldn’t defend yourself from a burglar in your own home and the burglar could sue you for assault. Common Sense finally gave up the will to live, after a woman failed to realize that a steaming cup of coffee was hot. She spilled a little in her lap, and was promptly awarded a huge settlement.
Common Sense was preceded in death, -by his parents, Truth and Trust, -by his wife, Discretion, -by his daughter, Responsibility, -and by his son, Reason. He is survived by his 5 stepbrothers; – I Know My Rights – I Want It Now – Someone Else Is To Blame – I’m A Victim – Pay me for Doing Nothing
Not many attended his funeral because so few realized he was gone. If you remember him, pass this on. If not, join the majority and do nothing.
George Gutowski writes from a caveat emptor perspective.

Facebook May IPO. Sell in May and Go Away with Record Wall St Fees $FB $AAPL $YHOO

Image representing Facebook as depicted in Cru...

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Facebook maybe (NYSE:FB) maybe (Nasdaq:FB) looks like it will go public in May. This will be the biggest internet offering yet. OMG does that mean the biggest Wall Street Fees ever. Well given an anticipated $5 Billion offering with a 1.1% fee yeah the fee is gonna be huge. Given that we have arrived at the end of March it comes as no surprise the go day will be some time in May. Probably early May as the market will not want to have the really big deal come down around Memorial Day. Can you imagine getting some Facebook shares as a Mother’s day present?

Facebook does not seem to know about sell in May and go away. Facebook seems to forget that the six month lockup would expire in late Oct. If the stock has taken a dive, creating more selling pressure in the last two months is not wise. While underwriters insist interest and demand for Facebook is high what they cannot ascertain is how the market will pay for the shares. Will investors use unallocated cash reserves or will they trim positions in other technology stocks to make way for the new kid. As the inevitable flipping occurs the johnny come lately types will try to load up and need to finance the purchase. So maybe no definitely more selling especially from the smaller retail accounts.

So who is ripe for selling. Apple (NASDAQ: AAPL) has been in nose bleed country for a long time. Yahoo (NASDAQ: YHOO) probably not. Disenchanted investors have already bailed. You can just see the trim that may be called a rotation. Then again Facebook will become included in a lot of index funds and those portfolios that mimic them. But once that demand is covered money flow will taper off.

In the meantime buckle up.

George Gutowski writes from a caveat emptor perspective.

Walgreens Wobbly Narrative $WAG $ESRX

Walgreens

Walgreens (Photo credit: Wikipedia)

Walgreen (NYSE:WAG) reported top line growth for Q2. Stock pops a little. But lets take a look at some of the fundamentals that should be driving the narrative.

Firstly they lost their hook up with Express Scripts. Oh well everyone else will just have to work harder. Hmm tough to execute

Secondly they are complaining that this years cold and flu season was unseasonably mild. In this context they are posturing themselves according to  President and CEO Greg Wasson with a ‘Well at Walgreens’  strategy to become America’s first choice for health and daily living. From a marketing point of view the strategy may not be resonating as deeply as management may want. Flu shots are off by about 700,000. You take the flu shot in advance. Once you get sick it’s too late. Yes public anxiety does drive flu shots but Walgreen cannot sit back and passively wait for public anxiety. That is not congruent with becoming the first choice for health and daily living.

Thirdly prescription sales are down 4.2% yoy. Sure the front of the store picked it up. No information on any specific product line was provided. But you cannot rely on non pharma products driving record sales when prescription sales are tanking.  The wild card is Express Scripts (Nasdaq:ESRX) ability to take more customers out of the Medco transaction. Management was upbeat on the conference call but that could just be whistling through the graveyard.

Fourthly cash and equivalents has decreased from $2.2 Billion to $1 Billion. Debt levels have remaining relatively unchanged, which is not necessarily a good thing. Here is some of what they have done with the cash.  Dividend payments and stock repurchase account for about $1.4 Billion. Accounts payable have been reduced by $700 million so Walgreen must be very popular with the trades. Quite simply the business is using more cash than it is generating. The primary culprit is the repurchase of shares which of course is the financial engineering tool of choice to manage earnings per share.

Bottom line: Decreasing prescription sales cannot be masked by share re-purchases forever.

George Gutowski writes from a caveat emptor perspective.

Peabody Energy Drowns Q1 Forecast $BTU $BHP

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Peabody Body Energy (NYSE:BTU) the world’s single largest coal company announced their Q1 guidance would probably come in at the very low-end of the guidance range. Peabody which provides 10% of US coal supplies and 2% of global coal supplies is citing torrential rains and later flooding in Queensland Australia. The extreme weather events are negatively impacting everything. Port and rail operations, surface mines and underground mines.

OK so when everyone is swimming around operations are not a smooth as anticipated. Not good news but investors get that. One quarter due to weather, hmm! At the same time  Peabody Energy Chairman and Chief Executive Officer Gregory H. Boyce said  “Peabody continues to target significant increases in its Australia coal exports in 2012 to serve rising global demand for both metallurgical and thermal coal products.” So that means in the next three-quarters Peabody will make up the shortfall? Yes no. Just what did that macro strategic comment really mean? But if you cannot get existing operations to run smoothly just what is it that you are targeting that will create a positive impact in the next nine months. Baby its got to be Big to even out the numbers.

Oh by the way the stock is trading at 52 week lows. Interesting to note that the guidance adjustment came after the stock dropped about 10% in the past few days. Just saying. But the weather in Queensland is not just one little cloud burst. Three days before the guidance adjustment Queensland did have some extreme weather. So why did it take Peabody three days to adjust guidance? The press release threw out a nice round number of $50 million for early estimates of impacts. We all know that early estimates tend to be underestimates.

CEO  Gregory H. Boyce. did comment about the supply disruption saying it  all points to the tight supply demand balance  for seaborne metallurgical and thermal coal. So is this a set up comment? Will Peabody continue to have reduced earnings as Queensland tries to dry itself up? Is the weather event causing the spot price of coal to increase? Has Peabody which claims to have trading capability been able to capitalize and mitigate some of the earnings losses.

Last but not least what disruption to client deliveries are anticipated. If your rail and harbour facilities are completely shut more than one boat load has been interrupted.

Assessing impacts after an extreme weather event are always difficult. But management should not take three days to realize they are flooded and facilities are inoperable. The next earnings call should prove to be very interesting. They have set the tone for negative earnings consequences.

In the mean time other mega commodity companies show no particular impact. BHP Billiton (NYSE:BHP) admittedly a very diversified commodities player possessing significant coal interests seems to be unaffected or at least is keeping quiet like a church mouse. Anglo-American which has five mines in Queensland also is not reporting any substantive problems. Anglo-America trades in London, Johannesburg as well as pink sheets. While their facilities may not have experienced the same extreme weather event/consequences if supply balance is being affected their share prices would have been affected. So far it seems like a pure Peabody problem.

George Gutowski writes from a caveat emptor perspective.

Morgan Stanley Vengeance Move Against Former Employee – Actions Speak Louder Than Words $MS $C $JPM $GS

Invitation to join the Morgan Stanley Alumni n...

Invitation to join the Morgan Stanley Alumni network (Photo credit: Lars Plougmann)

Morgan Stanley (NYSE:MS) recently won a court case against a former employee and has judgement for about $10 million. Maybe paper judgement but the judge has ruled in favour of Morgan Stanley. Whats this all about? $10 million at Morgan Stanley is a rounding error. Well usually it is but in this specific case Morgan Stanley is building corporate culture and drawing lines in the sand.

It seems that a former employee Joseph F. Skowron, the onetime star hedge fund manager is serving jail time for insider trading, and now needs to pay $10.2 million to his former employer Morgan Stanley. Not a rounding error for Joseph F Skowron. But wait the $10 million is still not enough for Morgan Stanley they are seeking $45 million in civil court.  The case becomes a lawyers delight.

The entire case may not seem strategic but as reported by NYT Dealbook the stakes are high. Morgan Stanley is taking the opportunity to show other employees who may consider some form of malfeasance that they will be subject to both civil and criminal proceedings. You can make rules but for some people it’s not about the rule it’s about the consequences. So while Morgan Stanley could have relied on its insurance policies or just written a cheque and hoped to keep it quiet it now is embedding into its corporate culture that if you are found guilty of securities infractions you will be prosecuted. You will be persecuted. You will be hounded. And if you are married and have children we will not be taking care of them. jail time will not be an embarrassment.

Usually I write negatively about publicly traded companies and I have not been a big fan of the bulge bracket firms. But in this case I appreciate what Morgan Stanley is doing to protect investors and themselves.

Just by way of quick summary if you are not aware of the timeline:

  1. Joseph F. Skowron is a former star hedge fund manager for  Morgan Stanley-owned FrontPoint Partners.
  2. Joseph F. Skowron  is a Yale educated doctor who was lured into the hedge fund world.
  3. FrontPoint partners was acquired by Morgan Stanley in 2006.
  4. Skowron tried to bribe another French  doctor to reveal the results of confidential clinical trials.
  5. Skowron who was also called “Chip” was caught, sent to prison for five years and was ordered to pay $5 million.
  6. No evidence if he has been able to write this cheque or others from his prison cell.

So note to employees who are thinking about it. Don’t do it. especially if you work for those bastards at Morgan Stanley. They’ll come after you.

A short news search of Goldman Sachs (NYSE:GS), Citigroup  (NYSE:C) and JPMorgan (NYSE:JPM) failed to identify a similar situation. Or perhaps it failed to identify a vigorous defence of corporate culture and therefore mitigation of future and embarrassing losses.

George Gutowski writes from a caveat emptor perspective.

 

Markets are Manic-Depressive Just Contrast Tiffany and Jeffries Group $JEF $TIF

727 Fifth Ave, New York City - Tiffany Flagshi...

727 Fifth Ave, New York City - Tiffany Flagship store (Photo credit: Wikipedia)

Both Tiffany & CO (NYSE:TIF) and Jefferies Group (NYSE:JEF) announced results and when read together give investors pause for concern. Tiffany the long-established purveyor of expensive but useless baubles reported increased revenues of 18%. Thats good considering the economy is supposedly shaky and high paying Wall Street jobs are shrinking. Somehow wealthy men continue to spend large on both wife and mistress. The blue box has turned many a women’s anger into well something else for now.

The Jefferies Group which is touted as a mid level investment bank dealing with interesting middle market clients is not doing as well as they would like. The markets continue to rise as measured by Nasdaq and S&P indices. So how come the returns are worsening. If Jeffries is beating expectations but not making more money than the last comparable quarter than you have to wonder how much money the Jefferies Group producers can afford to drop at Tiffany.

Here is the kicker. Everyone agrees that unemployment will drop and stay low when small and mid size businesses start to hire. If Jefferies is losing ground; they are either not finding the mid market opportunities or they are not able to convince their clients to invest in the mid market narrative. In any event Jefferies is not feeding Tiffany. But Tiffany is thriving without Jefferies.

The macro-economic question for Tiffany becomes is Jefferies the canary in the coal mine. What is the real health of the financial sector. As you stand at the jewelry counter and ask to see that just perfect necklace how much anxiety are you experiencing. No not about will she like it. She has been signalling you long enough on the necklace. No the anxiety question becomes will you have the bonus to cover the American Express bill.

This has been an open book exam. Please correct your own test papers and continue forward into the unknown future.

George Gutowski writes from a caveat emptor perspective.