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Leadership Matters 10.23.2012

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Yahoo vs. Hewlett Packard

Comparing these two examples is a perfect example.  The differences couldn’t be starker. While their challenges are somewhat different, how they are responding to them shouldn’t be.  Hewlett is facing a secular change in their business.  The desktop is being eclipsed by a more mobile tablet.  Yahoo on the other hand has had difficulty determining how to monetize their business.  Yahoo is one of the most visited sites on the web.

Meg Whitman vs. Marissa Mayer

Whitman and Hewlett have responded to their challenges with no real vision or strategy.  Cost cutting and layoffs often need to happen in a company that needs to reinvent itself but it can’t be the only plan.  Whitman has really not laid forth any vision for the future of HPQ.  Neither has she been overly optimistic about a quick turnaround leaving shareholders and analysts in the lurk. Mayer on the other hand has shown some real moxie.  When most new CEO’s come into a new situation they try to set expectations low and buy themselves time for a turnaround.  A honeymoon period so to speak. Mayer has not done this. 

She has been aggressive in going after key talent in order to try to build a management team capable of reinvigorating Yahoo.  The recent conference call was amazing in the fact that she did not back down from sharing a vision for Yahoo.  Rather than punt and say they are evaluating alternatives, she grabbed the bull by the horns and laid out her vision. She wants to focus the company on the user experience.  She talked about the daily habits of users with regards to news, finance, email, and search.  The company must focus on these in order to grow the company.

Vision Matters

Whether or not Yahoo can take on Google for search or figure out how to better monetize their users remains to be seen.  But after the conference call you have a lot better feeling about Yahoo than the day before.  Mayer instilled confidence.  Whitman has done nothing like this. A company in a turnaround must have a plan and a vision that is articulated to investors and analysts.  Yahoo and Mayer have done this.  Whitman and HPQ have not.  You will continue to see this reflected in their share prices going forward.

 

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Caterpillar Inching Lower? (CAT, XLI, SPY) 10.23.2012

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China, according to CAT, has continued to be weak…FXI. CAT went on to say that their finished inventory could have been lower if China was not slowing so fast. In the communist Chinese 5yr plan, they propose to accelerate some infrastructure spending and this has been compounded by monetary policy easing, anf for these reasons CAT expects a little bit of a pick-up here in the fourth quarter. “The sentiment on the ground from the dealers is a bit better, but in terms of translating it into sales, I’d say it hasn’t happened yet, so the selling season is sort of mid-February on, so probably not going to see much till then.” Mike DeWalt –Director of CAT IR

CAT CEO Douglas R. Oberhelman commented, “Well, we’ve had the easing expected to open almost all year. We are seeing increased levels of building permitting this year over last year. We’ve also seen in the last six weeks or so have major infrastructure effort announced. I suspect all of that is aimed after Presidential – leadership transition and most of that’s aimed towards spring of next year which is kind of a confluence of when is it around Chinese New Year, but if it happens it is going to happen then if it doesn’t we are in for another kind of slow year in 2013. But right now the cards in the hand are looking better than they have for a while. But I would emphasize nothing concrete from (water’s edge) yet.”

The muddling along thesis seems to be playing out, for CAT and XLI have been flat to lower. Oberhelman said, “We’re not expecting rapid growth, and we’re not predicting a global recession.” However, there is also the fiscal cliff and Europe to worry about

Feel free to e-mail any comments, feedback, suggestions, or general inquiries to…

mark@keeneonthemarket.com

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Earnings Play of the Day TXN 10.22.2012

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TXN has an earnings report due out after the close today. Analysts are expecting mediocre returns as net income is expected to fall 24% from $711 million to $541.3. Revenue is expected to fall 2% to $3.39 billion. Texas Instrument chips, which were used in old iPads, will likely be replaced as Apple will design and manufacture their own in Taiwan. 

My Trade: Sell the OctWeekly 28-29 Call Spread for $0.50

Risk: $50 per one lot

Reward: $50 per one lot

Break even: $28.50