I'd like to second Jason Raznick's recommendation of Liberty Global. The company offers an excellent growth profile and most importantly a superior financial strategy for rewarding shareholders. Jason's column did not mention that the company consistently conducts small dutch tender offers at a premium to the then current stock price. This approach shows management confidence in the business outlook while also shrinking the share base and enhancing value for selling and holding shareholders. I have owned LBTYA in my own account for several years.
I have never tendered any of my shares although I did trim my position recently to help pay college expenses (NYU is pretty damn expensive!!!). The primary risk I see in the shares is the collapse in valuation multiples of US cable stocks. This makes LBTYA look relatively expensive and limits upside and sentiment toward cable stocks all around the world.
As an aside, Brian Roberts and the Board of Comcast should take a hard look at Liberty's Dutch tender strategy. If Mr. Roberts is as confident of Comcast's future growth as he has been claiming in a number of recent press interviews, he ought to put his company's money where his mouth is. Sentiment toward Comcast would improve markedly if the company tendered for $3 billion of shares at $22-24. All you would be spending is next year's free cash flow, Brian.
Position: Long LBTYA personal accounts only. Long Comcast personal and client accounts.
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Position: na
For some time now I have been forwarding the notion that the large banks and brokers need to bite the bullet and raise equity. Citigroup has now taken the plunge and done the right thing by issuing shares unilaterally. By unilaterally I mean no reciprocal investment like the Bear Stearns deal that was previously announced with China. By no means is Citigroup out of the woods. However this is a good first step toward getting their house in order. My experience is that taking the dilution step is always the hardest in these turnarounds. Once that is done, operations can be focused on with clarity.
Position: none
The CFO is giving a presentation at the CS Conf. Responding to questions about Q4 demand so far he indicated they haven't seen anything that has caused them to change their outlook.
Position: The Telecom Connection Model Portfolio is long EBAY
This morning, THQ (THQI) announced the surprise departure of its CFO. I have not liked the stock because its product lineup has significant risks from a competitive standpoing, and while I have no reason to suspect financial improprieties at the company, they don't need any distractions right now.
On the positive side, I think there is potential for the stock to get to $35 - $40 or even higher next if things go right. The big positive driver could be the Ultimate Fighting Championship franchise, though I remain concerned about the fate of new first-person shooter franchise Frontlines: Fuel of War. For now I don't think the stock has bottomed.
Position: none
It's worth noting that the "positive" data released this morning by Osiris Therapeutics (OSIR) on its stem-cell knee repair therapy isn't so great when you learn that the analysis came from just over half the patients enrolled in the study.
That's something Osiris didn't disclose, but I confirmed it with a phone call to the company's spokesperson.
Remember what I've said in the past about the reliability of retrospective sub-group analyses. (Hint: Not so good.)
Position: none
A bad chart is a bad chart, until it gets so oversold, it becomes a good chart. At least to a deep value, fundamental portfolio manager. Now I know that most financial sites/television stations are overwhelmingly dominated by technicians and momentum investors. So for the most part, all you hear is buy if they're going up and sell em if they are going down. But that's never been my style. And after remaining cautious for most of the year, I think it's time to bottom fish. And with technically challenged, but compellingly cheap stocks. I am buying hard drives, EMS, specialty retail, footwear, toy, integrated oil, steel, insurance, and material stocks. I am buynig aggressively.What do all my purchases have in common? They are down a ton and cheap with decent fundamentals. For the most part they are second tier companies, very good at what they do, but not best of breed. Many of these stocks are down 25-50% from their highs despite strong revenue and profit growth. If the market psychology turns, they have large catch-upside. It might not be too popular to delve into fundamentals, but they trade at 9x's earnings as a group with 10-15% revenue and earnings growth forecast for 2008. I understand that the economy is dicey. I get it that investor psychology is negative. But it's times like these that big profits can be made. I am hardly all in-bullish, but the individual stocks I am buying are too cheap not to own. If fundamentals change, I will change my exposure. If the economy implodes, I will retreat, just like I did with the homebuilders. But now, even the perma-bulls are running scared. It's time to add risk to your portfolio, precisely because it's so hard to hit that buy button! If this thing doesn't implode, there's a big trade in many economically sensitive sectors of the market. A very big trade.
Position: no stocks mentioned
Verizon issued a press release that I think says that it is opening its wireless network to any device and any developed application starting next year. I guess the idea is that you can use an locked phone bought from a different service provider. Furthermore, anyone can write applications to be delivered over the network.
Tero and Bob know more about this than me but this strikes me as an important development. I think it would put the US much closer the European model. It clearly continues the trend toward user control that Apple is advocating with the iPhone. I'd love to hear some thoughts on this.
Position: Long AAPL client and personal accounts.
Comprising roughly 3% - 5% of the S&P 500, utilities have held in remarkably well during this market correction that started mid-summer, thus we cut our neutral-to-overweight position in the utility sector in half this morning. The rally in "ute's" has gotten very little press and attention, considering that as of today the Dow Jones Utility average is up about 14.5% year-to-date, not including the dividend. The DJ Utility average peaked in May '07 near 535, and then got close to that level again in late October '07, but we haven't punched through it, and the sector now has the feel of a potential double-top in the making. Finally, I think a big reason for the sector's relative strength of late has been the underlying bid in Treasuries, even though I long ago thought that ute's had lost their close correlation to interest rates.
Position: long XLU, UTH
Yesterday the Dow fell 237 and the S&P 500 fell 33. Today so far, the Dow is up 221 and the S&P is up just 18. Looks like energy might be the culprit today?
Position: No positions mentioned.
Steve,Haven't had a lot of time to think it through but it's actually funny. Here they are patting themselves on the back in their press release for "listening" to their customers yet a month ago they were suing the FCC to force a change in the "open" rules for the January spectrum auction.That said, I've advocated that all of them will be forced to open or will suffer the consequences. I think VZ believes it will gain share by being first but just how "open" they are will be highly dependent upon their technical requirements. That should be more of an issue from the app software perspective than the actual handset. Much will depend upon pricing and the flexibility of that pricing, all of which are unknown. At this point, VZ or any of the carriers doesn't need to subsidize handsets (and lock you in for two-years) to spur interest in cellular service. Let the consumer supply the harware and shop of the best price the same way we do with our PC & Internet connection. What they (VZ) are going to have to do is come up with the best network money can buy because that will have to be their competitive advantage. As an existing VZ Wireless subscriber, I'd certainly be interested in that!
Position: The Telecom Connection Model Portfolio is long VZ
A frequent guest on The Network just pondered whether the Abu Dhabi cash infusion might lead to a bottom in the sub-prime episode.
It seems to me that bottoms come from big negative news, like a large company failing, not positive news. But maybe I have that wrong.
Oh, by the way, is this even positive news? Is Citi's creditworthiness really such that they need to pay 11%?
Obviously questioning how much they have to pay is not an original thought but still? 11%? Really?
Position: underweight financials for a couple of years now.
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Gary Morrow |
| Waiting on Microsoft |
11/27/2007 1:59 PM EST
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Microsoft (MSFT) exploded four weeks ago following its second-quarter earnings report. The company's strong report propelled the stock to a huge gap-higher open and a 10% gain by the close.
Volume on the breakout was the heaviest positive day for the stock in over 10 years. Continued heavy buying helped push MSFT up another 6% over the following week to an eventual high of $37.50 on Nov. 1.
The stock began to stumble as November wore on, and as of yesterday had given back nearly half of its gains off the August market lows. This weakness has brought the stock down to its breakout area and is setting up as a very low-risk buy. Downside volume has been declining consistently as the stock approaches this important support area. A further drop down to the $32.25 level would fill the breakaway gap left after the Oct. 26 open. This action could develop into an excellent low-risk buying opportunity for Microsoft bulls.
A rally back to the current '07 highs would be a logical target once this area is successfully tested and volume begins a significant recovery. I am not long the stock at this time, but will be a buyer on weakness in the short term.
Position: none
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Scott Rothbort |
| BHP Billiton Trades Like Arbs Are Loading Up |
11/27/2007 2:00 PM EST
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I closely follow my ADR positions in the local markets. You need to if you own ADRs. BHP Billiton ORD (BHP/AX) shares closed at AUD 41.95. At 1 AUD = .876 USD and 1 ADR = 2 ORD, the BHP Billiton ADR (BHP) equivalent price is about $73.50. Yet, BHP is trading nearly 2.5% discount to that value. My guess is that the arbs are at work. Maybe the risk arbs are loading up BHP short expecting a pending deal for Rio Tinto (RTP) or Freeport McMoran (FCX) or Alcoa (AA) or something else. Otherwise, the international cross borders arbs plan on selling down the ORD shares when Sydney opens for trading.
Position: Long stock - BHP, FCX
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Dan Fitzpatrick |
| Three Stocks I Saw on TV -- Deckers, MasterCard and Garmin |
11/27/2007 2:28 PM EST
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Good afternoon. Today's
3 Stocks I Saw on TV video features Deckers (DECK), MasterCard (MA) and Garmin (GRMN). Also, today's Fitz Bits article covers several reader requests: Hewlett Packard (HPQ), Chicago Bridge & Iron (CBI), Mobile Telesystems (MBT), Force Protection (FRPT), Ceradyne (CRDN), Companhia Vale do Rio Doce (RIO) and Yamana Gold (AUY).
Now more than ever...Be careful out there.
Position: none
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Tom Au |
| You've Got to Be Kidding |
11/27/2007 2:39 PM EST
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Mark de Cambre on Street Insight hit the nail on the head when he pointed out that Citigroup's (C) $7.5 billion cash infusion was nothing to write home about. The only thing noteworthy was the 11% rate of return to the Abu Dhabi investors. So much (interest) for so little (cash).
To put this in perspective, Citigroup supposedly earned some $21.5 billion in 2006. That would make it about the second most profitable company in the U.S. last year, behind ExxonMobil (XOM), and neck and neck with Bank of America (BAC) and General Electric (GE), neither of which I consider sterling credits either. As much is it might mean to you or me, $7.5 billion is "chump change" to an institution of Citigroup's size. This can't be the "right amount" for Citigroup (as it might be for some smaller concern). Either it doesn't need this amount of money, or it needs a lot more. My guess is the latter.
The only thing useful that has come out of this so far is the 11% "hurdle rate," supposedly negotiated in an arm's length transaction. Plugging this into my "royalty trust" model (and using a 2% annual decline rate for the bank), my new downside price target for Citigroup is in the $16-$18 range, down from the $24 used in a earlier post. I "shorted" the stock in an online demonstration paper portfolio (but have a "no short" mandate for my real money).
Position: No longer long Citigroup.
I would think that opening up the network would be a positive for wireless-data equipment makers, as it should have the effect of spurring growth in the use of those networks, and in growth of the equipment necessary to use those networks.
Position: Long QCOM
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Aaron Task |
| Fed Heads in the Sand? Reprise |
11/27/2007 3:00 PM EST
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I haven't heard much discussion but wondering if these comments from Philadelphia Fed Prez Plosser contributed to the afternoon retreat:
"In the current environment, providing insurance through a reduction in the fed funds rate creates its own set of additional risks," Plosser said in a speech at the University of Rochester. "It may exacerbate moral hazard problems as I suggested earlier. Moreover, a lower funds rate creates a risk that inflation may be exacerbated and inflationary expectations may begin to rise. So far, inflation expectations have remained stable. Yet I consider those expectations more fragile now than I did four to six months ago. The rise in oil prices and the simultaneous increases in a broader basket of commodity prices suggest that significant inflationary pressures exist in the economy and thus the Fed must be very vigilant. If inflationary expectations rise, it could prove very costly to put the genie back in the bottle. Should that scenario come to pass, the insurance policy may turn out to be a very expensive one."
Position: going to ask Tony C about this (and more) on my podcast tonight
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Doug Kass |
| A Better Close |
11/27/2007 3:07 PM EST
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Gun to my head -- we break the pattern and close better today.
My tells are breadth and the general view that a fade is inevitable.
Position: na
It may Adam, but that will primarily be a result of pricing. Most of us pay a flat rate to the cable company or phone company for a broadband connection to our homes and offices. Consequently, we use a lot of it because the meter's not running with every click of the mouse. If VZ pushes a time or volume-based pricing scheme that isn't looked upon as "dirt cheap," it could be a tough road.
Position: The Telecom Connection Model Portfolio is long VZ
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Jordan Kahn |
| Fed's Heads Are Buried Deep In The Sand |
11/27/2007 3:13 PM EST
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I read Plosser's comments below in Aaron's post and have to say that I firmly believe they have their heads in the sand. And that is putting it nicely.
Plosser says that inflation expectatins could rise? Since when are a bunch of central bankers smarter than the collective wisdom of the US bond market? Don't they see what the bond market is telling them? Don't they care that they are being mocked?
I have always held that the US Treasury market is the best predictor of inflation expectations. If so, what is the 2-yr, 5-yr, or 10-yr yield telling us about inflation expectations? The bond market is not at all worried about inflation right now. They are far more worried about recession. But maybe the Fed's game plan is to let us slip into recession. I mean, that would kill inflation, right?
To be honest, I think they are just trying to save face. I think behind the scenes they know more cuts are coming, sure as night follows day.
Position: long bond mkt wisdom
I would prefer a modest grind higher than a major, one-day-wonder spike. I believe that my rally call has very little support from professional investors because the negative news is so pervasive. The best outcome would be consistent, moderate share price gains that bring buyers back into stocks. Only then, would the current sell-the-rally psychology change.
Position: no stocks mentioned
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Jim Cramer |
| BHP, RTP -- and FCX? |
11/27/2007 3:25 PM EST
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Scott Rothbort commented on this earlier, and I told Action Alerts PLUS people earlier today and I'm telling you now: Rumors are circulating that BHP is going to drop its bid for Rio Tinto and go after Freeport-McMoRan. I have no idea if it's true but it sure makes a lot of sense. And it's part of why I'm so bullish on Freeport-McMoRan, even though copper's down. (Scott Rothbort noticed what
Position: long FCX
Aaron - we have many Fed Heads speaking this week so let's expect lots of spillover in both directions from their talks. The chairman of the Finance Dept. at Seton Hall and I spoke at length this morning. As an academnics, not investors, we concluded that Bernanke needs to be less academic and more practical and proactive. Stop focusing on models and manage reality. We also agreed, most of all, that Bernanke lacks the crisis management and organization skills that Greenspan exercised.
Position: none
Jordan: I hear you. I have long been of the belief that what the Fed-heads DO is a lot more important than what they say; i.e. that they are talking the hawkish talk but will be inclined to act like doves.
That certainly was the case if you compare the rhetoric before/during/after the "surprise" 50 bp rate cut on Sept. 18.
The risk is that IF the Fed sees the bond market mocking them, they might feel inclined to back up their tough talk with action, though I wouldn't bet on it...
Position: seeing more rate cuts a'comin
Bob, isn't the open network also an attempt for Verizon to move away form subsidized handsets? That is a huge expense for them in terms of acquiring and retaining customers. Assuming that subsidies abate and handset prices rise (probably an unrealistic assumption), it seems that this move could shift the costs of handset marketing to the device manufacturers. It should also spur the device makers to be more innovative as they will have to win market share with the best product not the best deal to the network operator. Does this make sense?
Position: No positions mentioned.
At least near-term, they seem to be saying they'll offer "full service" solutions (i.e. sell-subsidized phones w/ multi-year contracts) in addition to opening to others. How long that lasts is anyone's guess, but I have to think that other sources (like the OEM) may provide better pricing. Yes, it may put more pressure on the OEMs to market their own devices directly, but for the most part, that will probably just be existing marketing $$$ that won't be sent to the carrier.
Position: The Telecom Connection Model Portfolio is long VZ
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Joe Capone |
| Citi is Mandatory Convert |
11/27/2007 6:32 PM EST
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Maybe 100 people on CNBC have mentioned the 11% yield on the Citi paper purchased by Abu Dhabi, but they may not have checked the fine print. While the $7.5 billion will earn 11% payments during the life of the security, which after all possible extensions will expire no later than September 2012, the maximum number of shares to be issued will be 235,627,500 shares if Citi's price is below $31.83 on the expiration dates. So if say, Citi's price declines, Abu Dhabi's return could be negative. Abu Dhabi can not hedge this position (that is they can not short stock against this convert) for 2 years. The 11% is not reflective of increased credit risk at Citi but it is the amount over the current div yield (7.25% when this was priced) that Abu Dhabi needs to be compensated to be short the 31.83 put (although they are also long the 37.24 call). Bottom line this is NOT like a junk bond where as long as the issuer does not default the purchaser is guaranteed at least the principal back. The issues here are complex and I would be happy to talk in CC about this tomorrow with contributors.
Position: Long C
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