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SBUX Analyst Day 12.3.2012

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SBUX is working to gain consumer confidence in Asia in an effort to stimulate growth.  SBUX has announced that it has plans to open an additional 1500 stores in China by 2015. SBUX intends to develop a program called Starbucks China University.  This program is aimed to enhance the overall performance of the SBUX employees that will be working in China. The Chinese coffee market is estimated to become the second largest in the world within the next two years.

The company’s problem with sales in Europe may also be part of the discussion at the analyst meeting on Wednesday.  SBUX has closed several stores in Europe, which has had a negative impact on SBUXs share value.  SBUX opened on Monday December 3, 2012, at $52.14.

Investors can anticipate these three topics to be addressed at the analyst meeting on Wednesday.

 

Author: Tyler Sciortino

Current Student at Roosevelt University, Majoring in Finance.

Contact for questions or inquiries at tsciortino@mail.roosevelt.edu 

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Toll Brothers Earnings Preview 12.3.2012

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Earnings are expected to come in at 23 cents per shares, up from 9 cents a year ago. Revenue is projected to be $566.5 million for the quarter, 32.4% above the year-earlier total of $427.8 million. Revenue grew in the last two quarters. In the most recent quarter, revenue rose 40.6% year-over-year to $554.3 million. The quarter before that, it rose 16.9%.  

=The underlying theme for all companies this quarter has been beats on the bottom line but misses on revenue as companies show they are cost cutting due to the uncertainty with the fiscal cliff. When this happens traders have been very unforgiving hitting equities hard.

2012 has treated Toll Brothers and its other housing counterparts very nicely with the stock up about 56% for the year. Although it has recently been in somewhat of a downtrend, it has shown support at its 200 day simple moving average.

The options market has indicated that TOL should move anywhere from $2-$2.50 after the announcement.

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Corporate America's Dividend Parade Off the Cliff! (COST, LVS, HCA, SPY) 12.3.2012

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According to  many sources, there were over $100 billion dollars worth of bonds snapped up in November. Companies are trying to front run the dividend tax increase. Issuing one-time dividends now will allow shareholders to pay 15% in tax, as opposed to the near 40% after the cliff.  Some of the firms jumping on this trend include LVS (announced a $2.75/share or about 6% dividend), DDS (announced a $5/share or about 5.6% dividend), WLK (announced a $3.75/share or about 6% dividend), COST (announced a $7/share or about 6.7% dividend) and ABT announced that they will issue cash as opposed to fractional shares…a form of a special dividend for shareholders on record as of Dec 12th 2012.

What can be implied from this action? Regardless of political opinion, it is clear that corporate America has their shareholder interests in mind. Pushing through these dividends will keep cash in the hands of consumers as opposed to inefficient government.

Perhaps it will be prudent to keep an eye on cash rich companies to maybe front run these announcements. There is also the REIT trade to keep an eye on…AGNC and NLY, for these stocks may have valuation changes when taxes change. These stocks yield 15.8% and 14% annually respectively.

Political positions are dynamic, and considering the ‘closed door’ negotiations that go on, one should stay skeptical and nimble in the market.  The market’s ATR (average true range) is up 60% from September 2012…from $1 in the SPY to nearly $1.6 now, over a 14-day period. The market is perpetually trying to find its true value and this increase in range indicates that the market is swinging more due to events that are constantly changing valuations.

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

Author

mark@keeneonthemarket.com

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Is The Steel Sector A Steal: Industry Analysis (NUE, AKS, X) 11.30.2012

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The steel sector is a function of economic activity and tall operating leverage. Traditional steel is also a capital-intensive sector, given the former one can expect to not pay up for EBITDA. Furthermore, United States steel mills usually have lower cost curves. This is indicative of NUE. Nucor has historically been the producer of low cost with their mini mills and prime acquisition of scrap; this has set them apart from the competition for many years. To that point, NUE has as paid out lots of cash to shareholders via, dividends, special dividends, and buy-backs. Other capital allocation has gone into many acquisitions of smaller firms, or to vertically integrate NUE, so it is run well, no matter the environment.

NUE has been doing the best out of its peers, in terms of price performance, which can be attributed to the above. The environment is not easy however, Chinese froth is difficult to cut through, the economy is stagnant regardless of the zero interest rate policy, and the whole market seems to be gunning for NUE’s margins. NUE is arguably the best-run steel stock.

Jefferies and Bank of America both point out that NUE is the target of short-term traders as a hedge against more aggressive longs. This confirms the quality investment thesis, because NUE has conservative balance sheet, high credit rating, product diversification, and lower implied volatility.

While still on the topic of quality fundamentals leading to outperformance, under the leadership of CEO Dan DiMicco, NUE is up a cool 370% since he took over in September of 2000, while the SPX is unchanged to lower. Dan DiMicco plans to leave NUE at the end of 2012.

Contrary to all of the positives…management and overall executives, own less than 1% of the shares, which is disappointing and not a good indicator. Furthermore NUE has not paid a major special dividend since 2008, the risk is that they continue not generate enough cash in order to be comfortable to do said programs again. A risk to being conservative is being left behind, or the opportunity cost to being more leveraged, however their current position seems to be better than everyone else as of now.

As indicated in the below graph when NUE is compared to the SPX(grey) AKS(blue), X(pink), SLX steel ETF(purple). The chart indicated that NUE(green and red) outperforms their peers, market, and sector ETF. NUE would be up more but dividend returns are not included.

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

Author

mark@keeneonthemarket.com

Steel