May 2008 Archives (don barrett)

May 2008 Archives

Ford-Fix Or Repair Daily

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Mr. Kerkorian in my view didn't make a very wise investment. While I'm giving my view I'm going to clarify why the Mr. Bernake has continued to lower rates and with the tick down in unemployment to 5% this a.m. he is done with the rate cuts.
Mr. Kerkorian and Vid who was criticizing the cut of a quarter of a point a couple of days ago.don't understand why the Fed was cutting rates. And if the Fed hadn't cut rates do you know what we would have had? A recession! Are we in a recession? No. By the most commonly used definition of a recession,two negative quarters of growth,we are not in a recession. How many quarters of negative growth have we had? Zero Zip Nada. Are we going to have a negative quarter in this business cycle? I had thought maybe one but with this mornings news I don't think we will have one.
Now to Mr. Kekorian and his investment in Ford. Let me backtrack a little to the rate cuts and the falling dollar. Why did the Fed keep cutting rates and in effect let the dollar drop? Exports! What is holding the economy up and keeping us out of a recession? Exports! Why are exports at record levels each month? The weak dollar! So,in my view the Fed has made the best out of a bad situation. If the U.S. hadn't had the right policy to encourage other countrys to import our products ,we would be in a deep whole and it would have taken years to dig out of it. Look at Dupont,GE, Ford and all the other major companys doing the vast majority of the exporting and cut their exports in half and what would be the most likely senario? Higher unemployment and most likely a "recession"!
One other point on the present economic situation. A lot of Americans have paid higher prices on just about everything and inflation is a problem. But,if you look at the other side of the coin,where would we be without the jobs created by the weaker dollar and rate cuts. I would postulate much worse conditions than we currently have.
Mr.Kerkorian is buying into a company that had a good quarter recently but if you look at sales most of Fords improvements were where? Exports! Will this trend in auto exports continue. Maybe. The dollar is strengthening and it will slow exports of Ford eventually. With the pick up in the U.S. economy and dropping unemployment,will Fords domestic sales pick up. Maybe. While Ford and GM reported last week of rising exports,they also had slowing domestic sales due to the "recession". But,if you caught this weeks auto sales Toyota and the other two major Japanese auto makers had "increasing" U.S. auto sales. Ford and Gm sales dropping in the US due to the "recession" and Japanese auto makers had "increasing' sales in the US. Whats the deal? U.S. auto makers domestic sales have been shrinking as the Japenese US sales are increasing. Why? The Japenese are building a better product and they are building automobiles the American public wants. Ford and Gm cant seem to get away from the dual cabs and gas guzzlers they make and they are completely out of touch with the American publics needs. How many years has the Toyota Camery(built about a 2 hour drive from where I live) been the top selling automobile in the U.S.?
I wish Mr. Kerkorian the best and I hope he can have some input on the course Ford takes the next few years. If you think back Ford and GM have been in trouble for years and their problems didn't just begin. Make a better vehicle. And they will come!

Crocs-Gaining Traction or Full of Holes

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Crocs was originally manufactured by a company called Western Brands based in Minot,Colorado. The name was changed to Crocs as Western Brands just didn't seem to fit the little plastic shoes that are full of holes. Crocs are sold at 29 company owned stores,174 kiosks and 6 retail outlets. Crocs are also marketed at a large selection of customer owned retail outlets. Crocs at the beginning was shoes,but after research and development have developed an array of athletic equitment including knee pads,gloves.backpacks and many other products all made out of resin.
Crocs issued their 1st quarter 2008 results today and we'll try and decide if Crocs is gaining traction or just full of holes. Revenues for 1st quarter 2008 increased by 39.8% when compared to 1st quarter 2007. Crocs sales increased by over 11% domestically and international sales increased by over 79%. Sales for the first quarter 2008 increased to $198 million from sales of $142 million for 1st quarter 2007. Yet for the 1st quarter 2008 Crocs reported a loss of $ 4.5 million compared to a net income of over $ 29 million for 1st quarter 2007. Crocs reports the results were affected by a $ 20 million charge related to a plant closing in Canada. Crocs reports they took a $ 12 million charge this quarter related to the Canadian plant closing and if they disregarded "part" of the $ 12 they would have netted over $ 7 million on a non-gap basis.
Crocs 1st quarter 2008 sales increased by $ 56 million for the quarter and cost of sales increased by $ 56 million. The major cost increase for the quarter was an increase of $ 29 million for SG&A expenses. Crocs also paid no income taxes for the 1st quarter 2008 due to the reported loss and they paid $ 12 million in taxes for the first quarter 2007.
Crocs issued guidance for 2008 saying they expect revenue growth of 10 to 15% over 2007 and diluted earnings of $ 1.54 to $ 1.64 per share. If you look at all the variables and Crocs has already reported a loss for the 1st quarter I think they will fall short of projections and I think Crocs is full of holes.

Is Target on target?

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Target is a seller of general merchandise through a network of 1381 Target stores and 210 SuperTarget stores. Target is headquartered in Minneapolis,Minnesota and has been in business since 1902. Target operates on site pharmacies,vision centers and grocery centers throughout the U.S.
Target stock is currently trading at $54 dollars,a current PE of 16.4 and currently pays a dividend of 1% per share. Target is currently trading at a deep discount to its 52 week high of
nearly $71 dollars and the question we're going to try and answer is whether Target is a good buy now and will it ever get back to $70 range. I want to look at annual results for 2007 rather than quarterly results as annual results will take us through an entire business cycle.
Targets 2007 total sales increased by 6.5% to $63.367 billion from $59.4 billion for 2006. Target credited the increase in sales revenue to new store expansion, a 3% increase in same store sales and their credit card business(Which they sold a portion of for over $3billion recently). Earnings before EBIT( before interest and income taxes paid) increased by 4.0% to $5.3 billion for 2007. And heres where things get a little murky. EBIT earnings increased an anemic 1.3% and credit card operation EBIT grew by 18.9%. Another way to look at this report is EBT(Earnings before taxes) for 2007. EBT for 2007 was $4.6billion or an increase of $128 million over 2006. Targets credit card business,net of the allocated interest expense,netted Target $600 million,an increase of $106 million over 2006. So,if you deduct the $600 million attributed to the credit card business( Remember they sold at least part of this) Targets 2007 results would have been significantly lower.
If the economic slow down gets worse or even stays the same for 2008,Target may be under a cloud.Also,as their main competitor,Walmart,expands Target may be facing pressure there too. Walmart seems to be weathering the storm much better as WMTs stock is very near its 52 week high. If you look out a couple of years Target may regain some lost ground. but,as things stand today i think Walmart may be the better current investment!

Healthcare Insurers

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Unitedhealth Group is involved in what I would consider one of the more complex industries in the country and what has to be one of the more essential products we all need-health insurance. With the ballooning costs of health care services,goverment regulation and a moral duty to decide if a procedure or treatment is necessary and bottom line to the health insurers-is it worth the cost. As an example of this dilema,I saw a premature baby born with a host of medical problems.recently and in a short time the $ 1 million dollar cap on the insurance policy had been exhausted and the child was still in the hospital. So,the parents can't pay and the insurance policy limit is tapped out and won't pay anymore and the child is still sick and in the hospital. What now?
This is going to be the problem if and when we have a national health care program. When do you make the decision to stop the care for an individual and in effect pull the plug. The government now has almost no limit on what they will spend on each individual person. Is someone in a coma for years worthy of the cost to keep them alive when there is no hope they will ever come out of the coma. Is a premature baby worth millions of dollars in treatment when they may pass on anyway. Does anyone want some fat cat deciding whether their child is worth the cost that may be incurred. It's just a bad situation.
A national health care program will be a disaster in my opinion. The medicare and medicaid programs have to be one of the most abused programs the government ever came up with. I know in Kentucky where I live almost daily some doctor is charged with over billing the government Our LT. Governor was charged a few years back,while in office,for over billing Medicare.
I have drifted from my original intention here. Is UNH a good investment? With all the above points I wouldn't recommend any of the health care insurers at this time. If Obama wins the election,what happens to these company's? Obama will push for a national health care program,if elected,and it looks tp me like these private insurers will be history. Then we will have that fat cat I mentioned up in Washington deciding if that surgery or treatment is needed or moral. Morality seems to be in short supply in Washington and I can't think of anyone up in Washington I want making decisions on my health care.

Green is Good!

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A-Power Energy Generation System is a "green" company located in the Peoples Republic of China. APWR is a company that will become more important as time goes buy. In layman's terms APWR makes systems to take different types of refuse and converting it into power. APWRs latest project is a $150 million dollar energy conversion plant in Thailand. APWR will design and build a 300 MW power distribution system for a large paper mill in Thailand. Half the system will be a conventional system fueled by coal and the other half will be a biomass distributed power generation system which will be fueled by the mills refuse.Any paper mill is going to have sawdust and other wood waste and this system will convert the waste into energy for electricity for various uses at the mill. Thailand is an emerging country and the infrastructure is not very reliable ans this system will be more reliable and cost saving too.
APWR was founded in 2003 and in my view this is a company on the rise. APWRS annual report was issued in March 2008 and the results are very impressive. For 2007 APWRS comprehensive income increased 119%. Their 2007 revenue increased by 54.5% to $152.5 million.Finished 2007 with about $100 million for future projects.Backlog orders of $550 million dollars on the table.Issued guidance for 2008 of net income of $35 to $45 million or about $1.05 to $1.35 for the year.
APWR is branching off into other alternative energy sources. APWR is planning on being a major supplier of wind turbines in China as they have a very aggressive plan to produce vast amounts of electricity with wind turbines. The wind turbines will produce from 2.5 MW to 750 kWs of electricity. APWR has signed an agreement with 2 companies to begin producing and installing the turbines in 2008.
APWR and the other Chinese companies have a couple of things that will benefit them in the future. APWR paid only $200,000 in taxes in China. APWR will have a tax exemption from the PRC for 2008 and 50% exemption for 2009-2012. APWR has the blessing of the PRC and thus will have 2 major university's th develop and help APWR market any other renewable energy technology they design.APWR is a young company that has set some high goals for the future in renewable energy systems and as they are starting various projects around the world the future looks bright,

The Other Black Gold

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While oil prices are exploding and getting all the headlines,the other black gold is moving up rather nicely too. Coal is something we apparently have an abundance of in America and as new technology makes coal a cleaner burning energy source,it will make us less dependent on foreign oil in the future.
Arch Coal is a major supplier of coal in the U.S. and their latest quarter shows how much coal costs have escalated recently. Arch Coal mines steam and metallurgical coal from surface and shaft mines for power,steel and manufacturing uses. Arch Coal has estimated reserves of 2.9 billion tons. Arch owns or leases about 500,000 acres of coal land and are currently operating 18 mines. Arch mined 34.3 million tons of coal in the 1st quarter 2008,so you can see this is a huge operation and share holders are being rewarded.
Arch Coals ist quarter 2008 revenue were $699.4 million which was a 22% increase over 1st quarter 2007.Arch Coal had net earnings of $81 million or .56cents per diluted share for 1st quarter 2008 compared to $28.7 million or .21 cents for 1st quarter 2007. Arch has issued forward guidance for the rest of 2008 and are expecting to net between $2.40 to $2.80 per diluted share.
Arch coal is looking for better results for 2009. One region of operation for Arch coal is the Powder River Region and Arch has already signed sale commitments for several hundred tons for 2008 and 2009 at an increase price increase of 50% over the 1st quarter 2008 prices! Arch also has contracts to supply coal to several new coal-fired plants over the next 5 years and are expecting these contracts to amount to about 79 million tons per year. Coal prices are growing at a fantastic rates and Arch seems to be in position to reap the rewards.
coal is know as the dirty power source but great strides are being made in getting coal to burn more cleanly and also to be used as power for more uses. The technology is being developed to convert coal into diesel fuel. Coal can play a huge part in breaking our oil dependence and Arch Coal will grow as the more uses for coal are developed.

The Borders Group

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You may not have heard of the Borders Group,but I think you may have heard of one of the other retail outlets they operate. BGP operates book,music and movie stores in several different countries. BGP also operate gift shops at airports and outlet malls. The Border Group has a chain of 567 superstores under the Borders name of which 499 are in the U.S. and the rest are in U.K.,Australia,Singapore,Puerto Rico,New Zealand and Ireland. BGP also operates 564 mall-based bookstores mainly under the Waldenbooks name.BGP also owns 99 stationary stores operated under the Paperchase Products name.
BGP recently filed 1st quarter 2008 earnings and they followed the lead of most companies recently.Domestic store sales dropped and international stores paticularly Australia saw modest improvement.Domestic stores had a 4.1% decrease in sales and Walden book stores in Australia actually had an increase of 3.1% increase in same store sales. One very big problem for BGP is their music sales which dropped by a dramatic 25.8%. BGP is phasing out their music sales and opting for other merchandise.As 2008 is going to be a transition year for BGP the reduced debt by $132 million,reduced inventory by $188 million and are planning on reducing business expenses by $120 million in 2008.
The major change for the Border Group in 2008 is the severance from Amazon,their partner for seven years. BGP is heading in a new direction in which they will operate their own ecommerce
site and will open 14 new concept stores. BGP is expecting to break even in 2008 and to be profitable by 2009. By eliminating Amazon and associated costs,$120 million reduction in expenditures and the reduced interest paid on debt,BGP thinks they can turn everything around.
BGP is at least very ambitious. They are dropping their music sales as it wasn't very profitable.
They are opening 14 concept stores which they say have been very well received,but I think offer the same merchandise. They are trying to replace Amazon as the operator of their ecommerce sight,which only time will tell how well they succeed.
In my opinion I don't think Borders Group has made any changes that will have any lasting effect nor do I think they can make the ecommerce sight anymore appealing or anymore profitable. Without a major product change or something to create some excitement,I can't see any reason to own Borders Group.

don barrett

don barrett

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