Bill Cara’s Blog for March 22, 2010 [See post-close report]

BA - PT Raised from $76 to $100 @ Broadpoint. Buy

BA - target, estimate boosted at Barclays. BA price target lifted to $87 from $65 on better than expected traffic, increases in production. 2011 EPS raised to $5.25, 2010 held at $4.40. Maintain Overweight rating.

DIS - PT Raised from $36 to $38 @ Credit Suisse. Outperform

MA - Argus Initiates Coverage with a Buy. PT = $300

MCD - target boosted at UBS to $78. Industry leaders should continue to grow stronger, as casual dining traffic recovers. Buy rating.

SNDK - estimates, target raised at ThinkEquity. Shares of SNDK now seen reaching $40. Estimates also upped, as NAND channel inventory appears low. Buy rating.

-------

Why ObamaCare Won't Work:

I haven't read the bill (I have a life), but if this guy has his facts straight, I nominate the authors of the Health Care Bill into lifetime membership in DENSA :

http://tinyurl.com/yzu5ohc

The reason you are on my ignore list. Thanks to this feature I can focus on comments that actually have something to say about financial markets.

"The reason you are on my ignore list. Thanks to this feature I can focus on comments that actually have something to say about financial markets"
Most liberals need to ignore facts in order to keep believing their fantasies.

Ok, this is a really out of favor idea which is one of the many reasons why I like it. Gannett is a newspaper publisher. They make the USA Today amongst many other newspapers. About 30% of their business (and growing) is online and includes CareerBuilder.com, amongst other things.

The company has gotten tremendously beaten down. They are now trading at a market cap of $3.8 Billion, a far cry from the $20 Billion market cap it had a few years ago.

In terms of earnings power and cash flow generation, this is one of the more undervalued companies I have found, even after it has run up from the low single digits to $16. In the past 12 months the company has generated over $800 Million in FCF. They paid down $700 Million in debt last year, which now stands at around $3.1 Billion. Just last week they projected that debt will be $2.8 Billion at the end of the last quarter and they felt very comfortable with earnings estimates of $0.40/share. They have beaten earnings estimates the past few quarters and their CapEx has continued to go down as the company transitions from an old print media company to a more online focused media company, which requires less capital to keep the business going.

As the company continues to pay down debt, the interest expense on that debt will fall, increasing earnings and ultimately allowing the company to raise its dividend.

As a result of the recession, old print media revenues shrunk quite a bit. I think its assumed by investors that the company (and industry) is a dying one. However, I think people have failed to consider that maybe the company's revenues shrank in large part because of the recession rather than what is perceived to be an instantly dying print media industry.

Over the past 10 years the company has traded at an average of 12 times FCF. The company generated about $220 Million in Free Cash Flow or a run rate of about $900 Million. The company is now trading at about 4 times that rate. Even if the company trades at 6 times FCF or half their historical run rate, that translates into a stock price that is 50% higher than it's current price.

FD:
Long GCI at $16.03.

Yeah, your consistency has given youa special place in my heart too

n2son,

this was (once again) very personal and totally uncalled for. What is so offensive to you, or so wrong for that matter, in remark "Never confuse optimum political solutions with optimum operational solutions...the two are diametrically opposed and the former almost always wins"?

The rest in the post you replied to is a quote from previous poster.

I totally agree but there are clearly people still buying their products. I can't ignore the massive amount of cash this business continues to generate and the valuable online properties they own.

easy Vad...it's just the fable of the Scorpion and the Frog. A tiger never changes his stripes, and pots often call the kettle black. :)

I just don't appreciate conversation becoming personal. having different point of view does not automatically mean being an idiot - I suggest all participants of this and any other discussion to remember that.

Whole world is not going to adopt the same point of view; no one has monopoly on truth; everyone has a right to have and to express different point of view without being insulted; matters as complex as this particular one will require a lot of time to be proven one way or another - if this all is not the reason to discuss without attacking, I don't know what is.

Not disagreeing on the persistence of bias nemo - agree actually. However, the time I start to take notice is when a "news organization" comes up with talking points, and manages to implant these talking points almost directly in the brains of their viewers/followers. When smart people start to parrot vs holding a viewpoint, I start to wonder if a particular organization is especially effective at mind control.

I'm against mind control, even in a good cause.

And I would argue that although there was a pretty consistent liberal bias to the press in times past, my sense is that the current batch of "news organizations" are much more focused on constant editorializing. And I'm just not a fan.

I think the partisan drumbeat has become more blatant, which leads to more bitter partisanship. And that can only benefit "the money party" at the expense of the taxpayers and democracy. JMO.

One thing that pisses me about this blog, that if one asks a financial or trading question, one can count that it will never be answered (most of the time).
On the other hand, any political statement elicits endless heated discussions.

OK, I'm sucked in this discussion too. On the same theme, there was a very stiff resistance to Medicare, especially from medical establishment. Somehow the conservative members of this blog say nothing against medicare. I have a feeling that the most vocal conservative members of this blog are receiving the benefits of those social programs (medicare and SS), yet selfishly are unwilling to spread the benefits to other people (in this case uninsured).
I'm not saying that I agree with the Obama bill 100%, but the uninsured problem in US is disgrace and social injustice.

BTW, doctors made fortunes on medicare and learned from the experience and thus support new bill. It's all about money.

agree...it's always about the money

The community had a robust debate on FCF the other day. Here is an article about Epoch who adheres to a FCF model. May not add more clarity to your guys excellent debate.

http://tinyurl.com/yzvq9rr

Edit: the link only gave the free preview, you will need to do the Google dance to open full article

Thanks Vad and Les on Friday for the info and real life examples. As this downward spiral unfolds if you can share how you set tight stops that would be great. I can see the logical choice for $4.1 breakdown but why go to 4.02 precisely to cover?
Is that gut or formula in determining the scalp amount?

It is pure speculation but I do expect dead cat bounces along the way for this "downward" trend in PALM.

Last year I did a simple check on PALM when they released in Canada. They gave 2 to one large store in a metro city (ie flagship store) - unbelievable.
The short trade thesis was not profitable until the trend reversal in Sept/Oct 09.

Look to continuing the small nibbles until the trend reverses. Seems like much safer way to play the markets these days than owning something LT.

This article seems to sum up the scenarios that can play out for PALM.
http://tinyurl.com/yj3fx9s

Thanks for the link to the article...I was able to find a free version here:

http://online.barrons.com/article/SB12690392358026...

I completely agree with this guy. If you can see a company clearly using FCF to pay down debt, pay dividends, and/or do share buybacks, then its obvious as to how the company is providing benefits to shareholders. If it is investing internally it becomes a little bit cloudier and there is more risk with holding the stock.

In my example, GCI is clearly focused on paying down debt. Less debt equals more earnings over time (and ultimately higher dividends) because of lower interest expenses. Its easy to see the value being created by the company's free cash flow.

EDIT:
Oops...link didn't work...just google the headline of the article.

Exactly. If the industry goes from 70 to 1, 50 to 1, or 40 to 1 and than adopts a more rational model of 20 to 1 or 10 to 1, volume has to fall. Sometimes it pays not to over think things and employ the KISS method.

I was hoping to see some discussion about the linked article's contention that it will be cheaper to pay the fine and only purchase health insurance when one gets sick.

I'm sorry that this deteriorated into political mashing. This was not my intention.

Love all you folks, be kind to each other.

BH

Bull, I never thought of that angle and will give it strong consideration. For the two of us we pay over around $11,400 in premiums per year. We may just as well wait for the need and buy when needed.

Ron, it must be very frustrating to know that you can save the system millions of dollars and nobody cares. Strange times indeed.

I work in health care and can find numerous examples of waste on daily basis. Furthermore, my experience is if one questions these unnecessary orders (often invasive and potentially harmful), doctors feel invariably insulted, defensive, and demand them at all cost. I agree we will see whole lot more waste and fraud before money ran out and people will demand cheap but effective treatments, as opposed to today's expensive and not always effective.

I like the smell of nitro in the morning... Mos ... reverse split on high shorts could be on go over at little bio..

Seeker,

in that particular case stop was above $4.15 - that was the closest resistance on the chart. For details on how stops are being placed, have a look at http://blog.realitytrader.com/2007/04/stops-why-an...

Now, with exit it's less straightforward - the problem is, breakdown (or breakout) like this takes a stock in uncharted territory for the day. So, you don't have a benefit of a range, nearest support or resistance to judge the likely size of the movement. Determining targets in this kind of cases is fairly arbitrary, and can involve different methods. My personal favorite approach is a combination of risk/reward ratios (stocks are likely to pause or reverse around 1:1, 1:2 etc), sharp movements which signal the reversal, round numbers which tend to produce natural support/resistance levels and average movements for the particular day before stock reverses. Looking at all these factors, I saw 4 as nearest round number, many moves around 8-10 cents in one bar for that day (then temporary reversals), and having 4 cents risk I wanted to try for 1:2 risk/reward, plus a little to cover commissions - that and placing exit closer to 4 took me to 4.02. If it reversed a little higher, I would have hit the offer, not letting it to turn my trade into loss. Long red bar though hit 4 before bouncing, taking out my bid in the process.

Hope it helps

Absolutely....do you see indexing on the income levels? Social Security never used to be taxed, watch the taxation or income levels change in this bill as they realize in a few years...oops...it's going to cost much more than we thought.

Nemo said, "Social Security never used to be taxed."

That is the result of the Clinton administration and a damm confusing formula, so Bull man you may be right on in your assessment. Tax and spenders here by masking health care for all.

What I would not give for our founding fathers to come back to life and see what our country has become. They for sure would revolt on just our level of current taxation.

ptf, I certainly am. Has good ratios (quick and current), price to book of 1.35, RSIs in Bill's RSI generator are all below 30, even though they may be still catching up from when CVE was split off from the original ECA. Current PE in the 12s.

Small position.

Hi ptf,

I've been looking into some purchases in NatGas stocks as well. I just sold a few $23 Apr-10 puts for 0.73. If put to me my cost will be right at the lows put in late 2009. I'm never good at picking entries, so this only represents a half position. I'd sell more puts if CHK gets into the high teens. The RSI scan for CHK shows it's not as oversold as ECA though.

Somewhat related, I've also sold some Jun-10 puts on NE today at $41. NE sports a nice PE and strong cash flow.

I'll be glad to oblige with a criticism of Medicare.

The the 1970s and 1980s I handled the Medicare records for my dad. Now my wife and I are on Medicare. It is a help and seems almost like a gift to us since I never thought it would be around when I got to 65. After paying out of pocket for all medical costs for a family of four (I had $10,000 deductible.) and as a self employed business man, it is nice to see a good portion being picked up by someone else for a change.

On the other hand, it is quite apparent the benefits are substantially less than what my dad got. My kids will work at least another five years before eligibility rolls around.

Medicare and Social Security are doomed buy demographics.

We are going to see the same effect as we did with the tech bubble, the housing bubble or any other pyramid scheme.

It is coming soon and there is no way to avoid it. Watch Japan and then France — they are in worse shape than we are in regard to this situation. We are gaining on them now that we make so little to sell to others and are far less self-sustaining than we historically have been.

XRT today is making a huge relative move vs SPX, opening slightly down to once again move to the top of the relative performance chart. It is only 6% (2.5 points) from its all time high of 44 set in June 2007. XRT has outperformed SPY by a factor of 2 off XRT's Nov 08 low. Looks like no MACD rollover for XRT.

Pun enjoyed and I concur. Wow! Quite a site!

As an avid shooter, I will avoid a tangent thought in response to your final comment ;-)

Great for GOOG for having a backbone, think I'm going to buy some soon.

I agree with you.

I am quite sure Google knows about nefarious activities spying in the US and has deep links into the wormhole. Google's CEO is extremely disturbing when he says "if there is something you don't want them to know maybe you shouldn't be doing it in the first place.. " (ie don't expect privacy). Then he says, we are all subject to the Patriot act and it is possible that that information will be made available to the authorities." Google is deep-linked, the decision to leave China is a tell-tale sign of their affiliations, and perhaps on where our relations with China are headed.

These incursions of state power are increasingly regular. It is very likely that state power will dominate the public, make alliances with the most powerful (corporations), and put into law the ability for full suspension of democracy (for example: see executive orders 12148 - suspend Constitution, 12656 National Security council has emergency powers, 10990 seize all transport 10995 seize all communications media 10997 seize all fuels 11921 control all energy, seize all wages, credit and flow of money. No review power to Congress for at least 6 months if emergency is declared).

Here are a few more details, on the spying aspect of this:

Information control

Project Echelon - launched by NSA after WWII Anglo American project to intercept every message transmitted by any means. US, UK, Canada, Australia, New Zealand. Israel particpates Unit 8200 - UK covers middle east, UK Eastern Europe and Russia, NZ covers Pacific. Use embassies for the purpose of echelon. NSA spies would setup radio and microwave dishes on roofs of embassy disguised as AC and heating pipes.
The member nations cooperate in such a way that none of them is spying on the communciations of citizens from its own nation. By monitoring the private communications of other nations, they avoid legal prohibitions against a democratic govt's spying on its own citizens.Covers virtually every telephone call, fax, email message. ...analyzed by NSA supercomputers at Fort Meade, Maryland. NSA intercepts are processed using voice recognition and translation from 70 languages, and OCR. At Menwith Hill site in Britain, a voice recognition program called Voicecast can identify and target and voice pattern among 6 billion humans through the globe. Justification is western society must be protected against the so called Four Horsemen of Infocalypse; terrorists, drug dealers, sexual predators, and organized crime.

Reference: Shadow Government: How the Global...

Loannetter, or anyone

How important is the MOVE index for interest rates and bond action. I just learned of it today, guess I am really dense!!. Also, if you would, please comment on the current level. Is it really a concern.

http://pragcap.com/the-canary-in-the-coal-mine

http://www.bloomberg.com/apps/cbuilder?ticker1=MOV...

Thanks

Always take anything GS says with a grain of salt.

Not a Sell, but a Conviction Sell

GS announced a Conviction Sell last week on KMB. The stock soon dipped below 60 and ended around there. Noticed today, about a week later, KMB closed at 63.

Then there was this in today’s Barron’s Tech Week column print edition:

“Advanced Micro Devices (AMD) shares have rallied 34% from early February through the middle of last week. That's been frustrating for Goldman Sachs analyst James Covello, who added AMD to the firm's Conviction Sell List right around the time the stock took off. Covello pulled AMD from the list last week, but he's sticking to his Sell rating and $5.50 target price, a long way down from the recent mid-9s.”

Wonder how big the bonus will be this year?

I agree that the some republicans supported Social Security, Medicare and Civil Rights. BUT that was at a time when we had liberal and moderate republicans. Most of the congressional republicans I have seen appear to want the United States to return to earlier times. Probably around 1860.

Thnx, Navid, for the info on executive orders.

When GOOG CEO says, "if there is something you don't want them to know maybe you shouldn't be doing it in the first place.. "

Upstanding citizens say "I don't do anything wrong, and I guess they need to spy to catch the bad guys."

BOTH miss the point. Today, every kid will do things online they later regret. The key question is:

Do we want every again to have bold leadership on tough national issues in the future? If so, we need to stop the spying.

Imagine a future Martin Luther King facing a future J Edgar Hoover. With today's tools, "future J Edgar" will destroy "future Martin" before Martin gets onto the national stage !!!

THAT's the key issue, IMO!

The SEC is being sued for negligence by a charity and 2 investors of Bernard Madoff. They are being sued for failure to act on 8 complaints and 4 investigations which turned up the evidence according to the whistleblower.

Jock you are right , that is the key issue. On the other hand the s.e.c. , even with 10 years of warnings about Madoff could not be bothered to investigate . Bob

Any smart American must move at least half of their liquid assets offshore. Keep only enough to pay the monthly bills if you need to continue to live here.

The next stage of this comedia will be an exit tax. "So comrade, you want me to PAY to leave?" Konescha DA, stupid kulok! There is no free pass.

Run Forrest, RUN!!!!!!!!!!!!!!

jammin "it" down your throat....

good one for John Stewart pulling up the blonde Fox reader and her "poll numbers are everything/nothing"

ALOHA!!

Les-A bit on the ASX juniors. Compared to the AXGD(gold) and the AXMM(metals)indexes as well as AXJO, which I follow, it seems over the past six months the AXGD has advanced 55%, the AXMM gained 65% and SLR has gained 80%(the divergence came in Feb), so I like to see SLR breaking out higher than the ASX indexes. Unlike some of the other juniors I follow that has not been the case and some of the bigger producers like DOM have not fared as well either. Then the Aussie gold price is still stuck in the low $1200 range, so that needs to improve otherwise share prices for the goldies will be in the doldrums.

In my case I bought a lot of my ASX listed companies during the global financial crisis(GFC) when everyone was running for cover over at the US Treasury grabbing those negative returns. It is doubtful I will be able to buy SLR for $0.17AUD($0.11USD) any time soon, but I would buy any significant dips. Then again each company has its own fundamentals to watch and so far most of SLR fundamentals have been improving, lower cost, higher grades, higher production rates and expanding exploration to increase reserves. On the ASX SLR is my #1 100% gold small gold producer. My other ASX shares are not 100% gold producers as some are base metals and energy companies mixed in with gold and/or silver. The two ASX gold explorers I own are SAU and IGR, then I also own RMS(producer). I have been disappointed with CTO and would still classify them as a gold explorer(even though they have some production)but management has not met production goals. Two others I own are PEM which is silver, zinc, lead, copper and SRL which has some gold but mainly coal with a PTT partnership, a large Thailand energy conglomerate looking to expand its coal exposure. Also another company I own coming onto the ASX via the TSXV is PMV(TSXV), 100% gold explorer in Ghana.

When I look at a USD chart on a ten year basis I track the "higher low rallies"(instead of tracking the highs)and so far in that time period I have not seen such a rally last longer than 4(+-) months before breaking down again. In April the four month period on this rally ends. We will see if this ten year track record is intact or not. So many global solvency factors come into play and some we may not even know yet in terms of depth.

I made some commitments a long time ago whereby I would rather put my funds into monetary plays not debt plays, hard asset not paper based. I have never known a time in human history when oil and gas and metals and gold were not sought by the masses and not valued. Ultimately these US FED banks that shuffle rules on the COMEX and issue CDS like there is no tomorrow have no value if the US Taxpayer is their sole source of risk insurance. What we have over at the ObamaCare is more "liabilities" being created not less and who is it that backs "high risk" ventures in America now? Ultimately these liabilities, both new and old, will translate into more debt for an already over-extended USD debt derivative. Fiscal deficits abound at the US Treasury and not only the ones that involve trade with China.

"A policy of deficit spending saps the very foundation of all interpersonal relations and contracts. It frustrates all kinds of savings, social security benefits and pensions."-Ludwig Von Mises, Planning For Freedom(1952)

Jack, don't forget Bush passed a prescription drug bill ("get the bill on my desk so I can sign it"). He did it to get the senior vote. He did it with fake numbers, similar to the way he rammed the Iraq war down our throats with fake intelligence. The drug bill process was less transparent than the process leading up to this legislation. How many conservatives decried the Bush prescription program? Completely unfunded. Pass the bill to children. Oh and you have to love that provision that Bush put into the bill: Medicare can't negotiate for lower prices. It is both incredible and disgusting.

fjd10595,

We have seen many disappointing and disgusting policies from all branches of government — for sure!

What we need to do is demand change to the system itself to prevent then==m in the future.

We have allowed an elite class to gradually develop in our government. Congress is a good place to start, but perhaps the most difficult — they make the rules and they get the gold.

They control (or should be) those non-elected entities which allowed the meltdown we are experiencing. They respond to and, when voted out, join the tens of thousands of lobbyists writing our bills. They did away with "encumbrances" and made this scam "legal". They are the ones "ramming" and "cramming" against the will of We the People". They vote themselves far better conditions by far than average Americans.

They count on us being distracted with the "Yeah, but the other party did something as bad or worse," examples while the two parties go on special interest paid junkets and dodge the taxes they impose on us.

If we want "Change we can believe in," it must come from us not some slick talking wanna-be.