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Allied Capital Drops Under $5 After Earnings Miss

Allied Capital


shares fell 40% in early trading Monday, in response to its third quarter earnings report that indicated net losses of $318.3 million, or $1.78 per share.

Excluding special items, the private equity firm reported earnings, of $45.6 million, or 26 cents per share. Analysts had been expecting net income of 35 cents per share.

Allied Capital also said that it anticipates cutting its 2009 dividend payouts to a level more in line with its net investment income.

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Due to the anticipated dividend cut, and the fact that Allied Capital has dropped under $5 per share today, we are urging investors to avoid this name for now. The private equity space is becoming increasingly difficult to navigate, and, similar to our stance on its peers at American Capital, we are apprehensive about the company's business model in the current economic climate.

Allied Capital is not recommended at this time, holding a Rating of 2.4 out of 5 stars.

Berkshire Hathaway Earnings Not Immune to Economic Climate

Warren Buffett's

Berkshire Hathaway


reported late Friday, a 77% drop in third-quarter income to $1.06 billion, or $682 per Class A share, in the quarter ending Sept. 30. That's down sharply from year-ago profit of $4.55 billion, or $2,942 per share, which included a $2 billion gain aided by the sale of PetroChina stock.

The company is blaming losses on price competition and losses of $1.05 billion on Gulf Coast Hurricanes Gustav and Ike. The company reported its derivative contracts pretax value fell by $1.26 billion, leaving a pretax loss of $2.21 billion through the first nine months of the year. The company has no plans to sell the long-term derivative contracts before they mature, and Buffett has predicted they will ultimately be profitable.

One bright spot for the company was that it finished the third quarter with $33.4 billion cash on hand. That is up from the end of the second quarter when the company had $31.2 billion cash on hand.

It is surprising that Warren Buffett's company would take a big hit from the derivative contract area at all, considering he had correctly predicted they would eventually be time bombs. The company does not pay a dividend at this time. We will be watching the company to see if they will snap up any competitors as share prices continue to drop for many of them.

Sotheby's Auctions Losing Some Wealthy Buyers


(BID) - Get Free Report

reported late Friday that its third-quarter loss came in worse-than-expected to $46.2 million, or 71 cents per share. That compares with a year-ago loss of $20.9 million, or 33 cents per share.

Part of the losses can be blamed on the declining high-end art market, which is stumbling as turmoil in global markets is affecting the customer base of high-end clients. The company has also lost money on commissions and on auction guarantees, which are set prices it promises to art sellers who agree to offer collections and items through the company's sale rooms.

We have avoided shares of Sotheby's since our early June coverage began, and the stock was trading at $26.15. The company has a dividend yield of 6.82%, based on Friday's closing stock price of $8.80. We are not sure if the company's dividend may need to get cut, but we would still avoid the shares until we see them stabilize. The company may have some temporary support at September 2002 levels in the $7 area, but again, we would hold off trying to catch a bottom here.

Sotheby's is not recommended at this time, holding a Rating of 2.9 out of 5 stars.

One-Time Telecom Giant Nortel Sinks to the $1 Level

Nortel Networks


just announced a third-quarter loss of $3.41 billion, or $6.85 per share, down from a profit of $27 million, or 5 cents per share, in the same period a year earlier.

Shares of Nortel are down 90% this year and are trading at 1980s levels. The company also announced more job cuts, saying it plans to eliminate about 1,300 positions starting this year and ending in 2009.

The company still has over 30,000 employees, but it is losing three key executives, as its chief marketing officer, chief technology officer and global services president will all be leaving the company.

Here is a clear example as to why "value" stocks can be just as dangerous as any other stocks. As Nortel came down in stock price, we heard the "value" label being applied to the stock. This is also another example of employees that should not invest too much of one's retirement in their own company's stock. The company does not pay a dividend, and we would avoid the shares at this time.

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At the time of publication, the author had no positions in stocks mentioned, although positions may change at any time.

Tom Reese and Paul Rubillo are senior editors of Visit for more dividend stock ratings, picks, news, and analysis for long-term and income-seeking investors.