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Christopher Atayan |
| 2008 Acquistion Outlook: Expect a Foreign Invasion |
12/31/2007 7:30 AM EST
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I am expecting foreign acquirors to accelerate the pace of their U.S. investment activity in the coming year. Valuations are becoming quite attractive when you factor in the currency implications. The holiday season is now ending, and the more aggressive entities will be looking to book some activity in the first quarter. My view is that most U.S. boards are very nervous right now and are likely to embrace any reasonable overtures.
Some may question the ability of the financial system to support much activity. My experience is that quality corporate-to-corporate transactions will have no difficulty in financing.
Position: none
Even on the final days of the year, your intrepid media stock commentator can find something to talk about. I could have also written, "Thank goodness for the box office. It provides something to discuss every Monday!"
The domestic box office kept up its strong finishing kick to the year, with the final weekend up 17.5% for the top 12 films. This brings the quarter-to-date decline to just 3.6% vs. a drop of 9.3% as recently as Dec. 13. In absolute numbers, through that date the box office was off $158 million vs. the year-ago quarter, a deficit that has been cut to $84 million in just 17 days.
With a few days left in the year (I'll measure through Thursday Jan. 3, vs. Thursday, Jan. 4 last year), it looks like the quarter will end up down around 3%. I think that makes Regal Entertainment an excellent candidate for a January effect rebound. The stock closed Friday just off its 52-week low (not as bad as it sounds -- the company paid $3.20 in cash dividends in 2007), while a quick review of analyst estimates shows the consensus calling for a decline of more than 4% in total revenue for the quarter.
In other words, estimate cuts driven by the very weak start to the fourth-quarter box office may have gone too far, setting up either a positive surprise in earnings or a period of estimate increases. Either should be good for the oversold shares. Also helping is easy comps to start the year with a large number of films currently in theaters that are showing legs. Through the first two months of 2007, the box office rose just 1.1%.
2007 looks like it will finish up around 5%, the second consecutive year of solid growth following the down year in 2005 that still colors the theater business with darkly negative sentiment. I'll have a complete wrap-up of the domestic box office in 2007 and a look ahead to 2008 in a column later this week.
Besides following box-office stats, I also track my RealMoney.com stats. This year, I wrote a Columnist Conversation post all but two days the market was open. I also covered about 60 earnings calls and wrote more than 30 weekly Media Madness columns. Add in another 100 plus midday comments to Columnist Conversation, and conservatively, I wrote over 200,000 words in 2007. That makes three years in a row at that level as I approach the one million word level!
Lots of folks on this site write as much or more than me, and to all of them and all of you who read (or skipped) my writings, I wish you happy New Year and great things in 2008. If you are counting, this column is 469 words.
Position: RGC is widely held across my client base. RGC is held in my personal accounts.
It is time to sign off for the year. This means that our performances are forever going to be written in stone as of the close of business today. I have to say that 2007 was one of the more challenging years that I can recall. While the major indices advanced, there was plenty of opportunity for bulls and bears to both make money. There was also ample opportunity for bulls and bears to be losers. In other words, 2007 was a year in which quality managers (whether bullish or bearish) would emerge from the rest of the crowd.
My Seton Hall students know me as a grader with high standards. And as a professional investment adviser, I don't turn the machines off until I know how I performed -- for the day, the month and the year. The following is my grading system for investment performance. Please note: Performance should be calculated after subtracting all fees and expenses.
A: Your rate of return substantially outperformed your benchmark, by more than 5.00%.
B: Return performance beat your benchmark by at least 0.25%, but less than 5.00%.
C: Performance met your benchmark (or within a reasonable margin thereof, say, +/-0.25
D: Performance was below your benchmark by at least 0.25% but less than 5.00%.
F: Performance was substantially below your benchmark, by more than 5.00%
To those letter grades you can add a plus (+) if you were profitable or a minus (-) if you lost money. The grading system is relative, but it also takes a little absolute performance into account.
For example, let's look at 2007. If you were up 10% or more this year and your benchmark was the S&P 500 (SPX), which returned about 4 to 5%, then you would get an A+, because your performance substantially outperformed your benchmark while making money. However, let's say you earned 2% this year when your benchmark was up 10%, then that would earn you a D+, because your performance was below your benchmark while still generating a positive absolute return.
2008 will offer its own unique set of challenges, uncertainties and surprises. As always I believe that complacency and dogma should be avoided. In other words, stay flexible and invest in research before making decisions. I expect 2008 to be volatile like 2007, with some upside bias after we get past the elections. The election will create both uncertainty and investor angst particularly regarding taxes. I believe that we will avoid a full-scale recession, but there will continue to be some data points which will give potential recessionary signals. For the S&P 500 I expect about 4%-5% earnings growth with an upside target of 1600. However, for the bulk of the year I expect the SPX to trade around 1500, much like in 2007. As a result, I plan on raising some cash early in 2008 and then using that cash to trade and/or hedge.
To all, have a happy and healthy new year.
Position: none
Happy New Year to all! I'm feeling a bit stuck between years -- 2007 is all but done, and 2008 hasn't quite started. I was off for Christmas, and now I'm back, getting ready for next week's closely watched (and well attended) JPMorgan Healthcare Conference in San Francisco. The holiday lull in biotech news flow will surely end Monday, so stay tuned. My schedule for the "H&Q" conference is booked solid, so look for a lot of writing from me.
Taking a quick look back, the top-performing biotech/drug/diagnostic stock of 2007 was Onyx Pharmaceuticals (ONXX), up 440%. The rest of the top 10, in order: QSC, CPHD, APPY, PHRM, CORT, XNPT, IDRA, RGEN and SVA. (Today's trading is not included in these calculations.)
The worst-performing biotech/drug/diagnostic stock in 2007 was Atherogenics (AGIX), which fell 96.4%. Rounding out the top 10 loser's list: NRM, SNUS, AMRN, PTN, MHA, VIR, NVD, GPC and POTP.
Gilead Sciences (GILD) topped the list of big-cap biotechs, with a 2007 return of 43%. Genzyme (GENZ) was second with a 23% return, followed by Biogen Idec (BIIB), up 18%. Amgen (AMGN) lost 31% this year, Genentech (DNA) was down 17%, and Celgene (CELG) fell 18%.
Thanks to all for a great 2007, and best wishes for an even better 2008.
Position: none
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Jay Somaney |
| Goodbye 2007, and Good Riddance To... |
12/31/2007 10:00 AM EST
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1. The insane volatility we have seen pretty much all year long. With almost daily swings of 1% or more, trading has become increasingly treacherous.
2. The incessant and obsessive focus on subprime. Although I believe we have not seen the worst of the housing and subprime thievery as yet, if I don't have to hear about those two 50 times a day, I will be a happy camper.
3. All the dire predictions about the falling dollar. Deal with it, people. The dollar was battered in 2007 but more than likely is at or close to the bottom here.
4. The baseball steroid scandal. I mean who out there saw these baseball players suddenly bulk themselves up to look like The Incredible Hulk in one off-season and thought it was just hard work in the training room? Everyone knew that these guys were doping but chose to stay quiet. The issue has been put to bed and I could not be happier if we hear no more about it.
5. A totally clueless and inept Fed. Although they will still be at the forefront in 2008, here's hoping that we have a smarter and more proactive Fed by a factor of a million. Otherwise, our economy that is teetering and on the brink of massive recession will have to learn how to cliff-dive. How a central bank that has massive gobs of economic data does not "see" how bad things really are is totally beyond me.
6.The incessant and totally incorrect trashing of the BRIC countries' stock markets. When you have almost double-digit GDP growth in those four horsemen, a good stock market performance is normal. Get used to it. You do not have to be a rocket scientist to figure out that when money sees an economy that is in rapid growth mode, it automatically flows there. Simple as that.
7. The obsession with celebrity bimbos like Paris Hilton, Jessica Simpson and all the other fringe-type starlets who have not made any real contributions but are obsessed over due to their outrageous behavior.
8. The unbelievable greed at OPEC. Oil has hovered in the $90's for the better part of the year and yet these guys feel that there is no need to raise production. There is almost $20 to $25 worth of risk premium at current prices, and although I do not think for a second the risks go away in 2008, I am hoping that these guys come to their senses, because what they are doing is forcing the West to go after alternative fuel sources at warp speed. I for once can not wait till the OPEC nations become irrelevant to the world as viable alternatives are found and successfully and economically deployed.
9. The Fed's obsession with inflation. Inflation is directly due to one thing and one thing alone: Oil. If we can find a way to twist the arms of OPEC and plead with them or strong-arm them to raise production, inflation will come in almost immediately. Given high oil costs, I am actually surprised how CPI and PPI have still remained relatively within control.
10. The last thing I will absolutely not miss about 2007 is our market's tendency to completely overreact to the slightest bad news or good news. It's almost like our markets are completely and totally manic-depressive, going from absolute and pure nirvana one day to abject despair and melancholy the next on the smallest piece of good news or bad news.
On Wednesday, I will share my Top 10 predictions for 2008.
Wishing all of you a fantastic New Year. If you are going to be celebrating the New Year tonight, be careful out there. Until the next time, happy investing.
Position: none
I did a basic screen (NYSE/Nasdaq primary exchange, market cap above $500 million at start of year) using Capital IQ to assess stock market performance in 2007. Looks like the average stock was up just 1.3% for the year, lending some credence to the bears' narrowing leadership theme.
However, we saw excellent performance out of many growth stocks like First Solar (FSLR), Intuitive Surgical ISRG, SunPower SPWR, Research In Motion RIMM, Priceline (PCLN), Deckers (DECK) and Apple (AAPL) as the market continued to reward companies that delivered the numbers while punishing financials with declining fundamentals like Citigroup (C) and Bear Stearns (BSC).
I see 2008 as being an exceedingly volatile year and would not be surprised to see the major indices in negative territory for the year, but there will be many big individual stock winners. After years of being dead wrong on the broader markets' direction, the bears just may come out on top.
Position: none
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Hal Uy |
| Shorting More PZE |
12/31/2007 10:36 AM EST
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I am adding to my short in shares of Petrobas Energia (PZE:NYSE). I think thatPZE hasn't sold off more on the mistake by CNBC from Friday afternoon because Argentina's stock market is closed for the New Year holiday. When the markets are open in both the U.S. and Buenos Aries on Wednesday, I think that arbs will take care of the price discrepancy.
Position: Short PZE
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Bob Faulkner |
| Telecom: More of the Same |
12/31/2007 10:56 AM EST
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Greetings from Naples, Fla.!
When it comes to the tech and telecom sectors in 2008, expect much of the same as in 2007 -- a stock picker's market. You'll need to ride names that have a unique technology and/or product position rather than simply something that's "not financial services."
Look for wireless in all its forms to continue to be the overall driver of demand, particularly from emerging markets. I expect it will be another year in which the mobile experience continues to evolve. WiMAX will exit its gestation period and should commence its growth ramp. Semis will continue to gag on excess capacity within the memory space and a lot of "me too" products within other areas. Software spending will largely be constrained by economic fears within most enterprises.
As I exit my cocoon from the northeast, I'm surprised by the negativity about the economy that permeates everyday conversations with the locals. Granted, much is driven by the conditions of the local housing markets. While it's only anecdotal, it does bring home many of the concerns voiced by Brother Kass.
Last, to our readers, subscribers and contributors, have a safe New Year's celebration.
Position: none
Transmeridian Exploration (TMY) said this morning that a British Virgin Islands-based company formed by CEO Lorrie T. Olivier has made a tender offer of $3 a share in a deal that would take the oil and natural gas company private.
The offer is more than double Transmeridian's closing share price of $1.40 on Friday and implies a total value of $825 million.
Despite this bid of $3 a share, TMY is currently trading at $1.93. This seems like an interesting arbitrage play.
Position: None
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Jordan Kahn |
| 2008 Should Be a Better Year |
12/31/2007 11:57 AM EST
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I am not big on doing predictions, because most of them fail to come to fruition. But I will offer one:
I think the market will break out from this trading range sometime next year and the SPX will finish with a double-digit gain, confounding the bears again.
Speaking of bears, I do have to give props to Dougie for nailing the prediction of where the 10-year yield would finish for 2007.
I do a yearly poll on my blog asking for forecasts for the S&P 500 and 10-year yield for the year ahead. The average 10-year forecast was 4.80%. Doug said it would finish at 3.99%, which looks like it will be spot on. Nice call.
If you want to participate in my 2008 poll, e-mail me at jordan.kahn@thestreet.com
And Happy New Year to everyone.
Position: none
This year was difficult for many investors. It was a year with many different bull and bear markets. If you owned consumer/housing/finance, you were in the house of pain. However, defensive names as well as global infrastructure/commodity/energy stocks were in the house of pleasure. In general, momentum and high valuation worked. And, no-mentum and low valuation shares suffered. Large-cap growth worked much better than small-cap value. The average stock, as represented by the Value Line Arithmetic Index, was up around 1%. So, if you struggled, welcome to the club. Many investors generated modest returns because the market did. Good riddance to 2007. Happy New Year to all. May 2008 bring much more success.
Position: none mentioned
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Tom Au |
| Time for "Pumpkins" |
12/31/2007 1:11 PM EST
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The "coach" of this "one-year bull" is about to turn into a pumpkin, meaning that I'm about to revert to my bearish posture. In a year-end 2006 piece titled "Bulls on Serve" (to use a tennis analogy), this secular bear was bullish for 2007 because it was the year before a presidential election, and such years have always been up since 1931 and 1939, even during the secular bear market of 1966 to 1982.
The bulls are also "on serve" in 2008, an election year, but the advantage conferred in such a year is a quite a bit smaller. And it's worth noting that while the bulls won while "on serve" in 2007, it was a narrow victory, one analogous to a 7-6 score (one decided by the "tiebreaker" game). In fact, the bears most recently prevailed in an election year in 2000. (The previous occurrence was in 1960, with a "lame duck" Republican administration. Sound familiar?)
Given my concerns about the ongoing debt implosion, including but not limited to the subprime housing bubble, hedge fund leverage, and the trade deficit, my belief is that 2000 to 2002 will have been a "dress rehearsal" for 2008 to 2010. I'm particularly concerned about 2009 and 2010, the two post-election years. It's possible that the market may escape major damage in 2008 (although I don't expect the rise in the indices to exceed inflation that year). On the other hand, "2009" may start early (sometime in 2008).
Position: None
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Gary Dvorchak |
| The Power of Economic Growth |
12/31/2007 1:19 PM EST
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As we watch the day-to-day wiggles of the stock market and the economy, we can often lose sight of the massively powerful forces driving our economy forward. Today I stumbled on a set of statistics that illustrates the progress we've made in the last 100 years ... and foreshadows the gains we are likely to make in the next 100. A Google search shows this circulating in a number of blogs with no citations, so I can't precisely source it ... if anyone knows the originator, please email me so we can credit them. As such, I can't guarantee the veracity of the stats, but they seem reasonable as "order of magnitude" based on my knowledge of economic history.
The lesson here: we can all try to play the ups and downs in our trading accounts, but in my long-term accounts (retirement, kids college, etc) I am long and bullish on America. It's also the reason I am happy to be a growth manager, investing in the names that are creating the future. Of course, the reason I've beaten 95% of the other growth managers for 9 years running is I don't overpay for those names! Go ahead and enjoy the exuberance of creating new industries ... just keep your head in calculating what that future is worth.
The United States roughly one hundred years ago ... what a difference 3 generations can make.
The average life expectancy in the U.S. was 47 years old.
Only 14% of U.S. homes had a bathtub.
Only 8% of homes had a telephone.
A three-minute call from Denver to New York City cost $11.
There were only 8,000 cars in the U.S., and only 144 miles of paved roads.
The maximum speed limit in most cities was 10 mph.
The tallest structure in the world was the Eiffel Tower.
The average wage in the U.S. was 22 cents per hour.
The average U.S. worker made between $200 and $400 per year.
A competent accountant could expect to earn $2000 per year, a dentist made $2,500 per year, a veterinarian $1,500 per year, and a mechanical engineer about $5,000 per year.
More than 95% of all births in the U.S. took place at home.
Ninety percent of all U.S. doctors had NO COLLEGE EDUCATION! (Instead, they attended so-called medical schools, many of which were condemned in the press and the government as "substandard.")
Most women only washed their hair once a month, and used Borax or egg yolks for shampoo.
Canada passed a law that prohibited poor people from entering into their country for any reason.
Five leading causes of death in the U.S. were:
1. Pneumonia and influenza
2. Tuberculosis
3. Diarrhea
4. Heart disease
5. Stroke
The American flag had 45 stars.
(Arizona, Oklahoma, New Mexico, Hawaii, and Alaska hadn't been admitted to the Union yet.)
The population of Las Vegas, Nev., was only 30!!!!
Crossword puzzles, canned beer, and ice tea hadn't been invented yet.
There was no Mother's Day or Father's Day.
Two out of every 10 U.S. adults couldn't read or write.
Only 6% of all Americans had graduated from high school.
Marijuana, heroin, and morphine were all available over the counter at the local corner drugstores. Back then, pharmacists said, "Heroin clears the complexion, gives buoyancy to the mind regulates the stomach and bowels, and is, in fact, a perfect guardian of health."
There were about 230 reported murders in the ENTIRE U.S.!
Happy New Year!
Position: None
I only have one prediction for the new year: the days of sub-10 VIX are gone, maybe forever in our lifetimes.
The computer traders, hedge fund crazies, and squandering of the cash dividend we got after the Iron Curtain will yield years or decades of unsettled financial markets.
Great news for the trading community and bad news for the investment community, unless active market timing is hard-wired into their by-laws.
Happy holidays.
Position: n/m
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Gary Dvorchak |
| Back To Thinking About Trading |
12/31/2007 4:05 PM EST
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A few days ago Russell released its monthly investment manager survey, in which they reveal the prevailing zeitgeist among institutional money managers. I was surprised to see little commentary about it on Real Money Silver, considering the implications.
Russell's highlights:
Money managers are bullish for 2008, with 76% expecting the markets to rise and only 15% foreseeing a decline.
75% of managers are bullish on large-cap growth, and they now see opportunity in midcap and small-cap growth as well.
Manager bullishness for tech stocks reached a new all-time high of 78%. Health care was a close second at 73%.
Being in a contrarian frame of mind after reading Humphrey Neill's classic, The Art of Contrary Thinking, I'm nervous about the level of bullishness by managers in the face of an unrelenting stream of bad news. Perhaps they are all keying on Fed rate cuts...or perhaps they all read the same book and are feeling contrary. Nonetheless, that level of bullishness lead to downside vol in January, especially in the tech names in which everyone appears to be loaded to the gills.
One other contrary point: I do believe we are going to have a rip-roaring bounce-back rally in small cap names. My small cap portfolio has been decimated this month, as great names with good fundamentals get sold off for tax-loss purposes. The lack of liquidity exacerbates the declines. I see opportunities in Granite City Food and Brewery (GCFB), Cryptologic (CRYP), and Crox (CROX-- not so small cap but under tax loss pressure nonetheless). Get ready for a at least a couple good weeks in January as these little guys get some relief from the selling pressure.
Perhaps-- this is the last post of 2007. Have a peacful holiday tomorrow.
Position: Long: GCFB, CRYP, CROX
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Howard Simons |
| Sinners in the Hands of an Angry Bogle |
12/31/2007 4:18 PM EST
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Anyone with a pulse and a checkbook in the 1990s could have beaten nearly all active managers simply by buying an index fund. As the titular Mr. Bogle lectured, it was financial spinach: Do it because it is good for you.
What about this decade, whatever we actually call "this decade?" The closing print on December 31, 1999 was 1469.25. Today's close looks to be 1468.36. That means a holder of an S&P 500 index fund has earned a total return almost identical to the dividend yield for eight long years.
The average dividend yield on the S&P 500 over this decade has been approximately 1.576%; the average rate of consumer inflation approximately 2.777%. The index not only failed to keep up with inflation as reported, it underperformed by almost 120 basis points a year before tax.
This is not an argument against indexation per se; mid-cap indices, foreign stock indices and others have given investors solid low-cost returns since 1999. But it does raise the question, "OK, which index?" And once you start making relative judgments, are you really a passive investor?
Position: None; wishing everyone a great 2008
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