Archive for April, 2008
Filed under: Industry, Apple Inc (AAPL), Market matters, Goldman Sachs Group (GS), Eaton Corp (ETN), Delta Air Lines (DAL), Stocks to Buy, Stocks to Sell, Cramer on BloggingStocks
 TheStreet.com’s Jim Cramer states they can’t be profitable with this big cost - it’s time to move on.
Here’s a revelation. The airline industry is disappearing right before our eyes. And it doesn’t even matter. They can merge all they want, they can try to cut costs through synergy, but the business can’t survive $120 oil. The variable cost is 35% of their expense. That’s not tenable and it is going higher. Fares have to double to make it up. That’s just not tenable. The Dreamliner’s a nice savings, but this American industry won’t get there in time to be saved by it.
Last week we saw the massive give-up, the departure of even the longest-term investors. The stocks are signaling that most of them will have to restructure through bankruptcy. They’ve done it before, but this time it doesn’t matter. The fare increases have to occur, and they’re such that the airline structures can’t be profitable. It is one of those industries that can’t stay afloat without large federal subsidies, and that can’t happen.
I’ve hated the airline stocks ever since 1985 when I recommended Delta (NYSE: DAL) (Cramer’s Take) and my clients promptly dropped 50%. I reiterate that after the tremendous declines these stocks have, they’re still worth avoiding. Don’t be tempted to pick up these stocks if oil “swoons” down to $115. The airlines will rally, but they’ll need to do each bit of financing possible if a rally occurs.
This group has held an endless fascination on Wall Street from the first days it traded, yet the industry itself has done nothing but accumulated losses since it started. Find another industry to invest in! This one isn’t investible!
Random musings: I continue to believe that Apple (NASDAQ: AAPL) (Cramer’s Take) can go MUCH higher. It is a very strong story in a group without many good stories. … I like industrial “techs” like Eaton (NYSE: ETN) (Cramer’s Take) to any of these techs. … I firmly believe that Goldman’s (NYSE: GS) (Cramer’s Take) having a moment where it might be taking massive share and that’s why it is up nicely. … People really are buying retail off the tax rebate checks. … The McMahons got the bum rush in yesterday’s New York Times. It stated that the CEO and chairman of World Wrestling Entertainment (NYSE: WWE) (Cramer’s Take) enriched themselves with a massive dividend boost. WRONG! They boosted the dividend for the other shareholders only, not themselves. That’s why I stated they are so pro shareholder on the show! Ouch!
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Jim Cramer is a director and co-founder of TheStreet.com. He contributes daily market commentary for TheStreet.com’s sites and serves as an adviser to the company’s CEO. At the time of publication, Cramer was long Goldman Sachs.
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Filed under: Microsoft (MSFT), Sony Corp ADR (SNE), Blockbuster Inc ‘A’ (BBI), Circuit City Stores (CC)
I’m not a huge fan of Blockbuster (NYSE: BBI), but I do concede that I think the movie renter is on to something with its latest move. According to this brief AP piece, Blockbuster wants to leverage the current video game console cycle to add value for its shareholders. Management intends to increase its presence in this sector by adding more hardware, software and accessories dedicated to consoles from Sony (NYSE: SNE), Microsoft (NASDAQ: MSFT) and Nintendo (OTC: NTDOY) to its locations.
This would be wise. I think all retailers should have a comprehensive and well-defined strategy when it comes to video games — why let GameStop (NYSE: GME) have all the fun? Blockbuster should really go all out on this form of leisure entertainment and aggressively pursue this potential area of growth. Kids — and teenagers and adults, for that matter — love to try before they purchase when it comes to game software.
Management has to realize, however, that it’s not enough to just expand its video game sections; oh no. Indeed, some heavy branding and promotional initiatives are definitely required to convince consumers that Blockbuster is a go-to place for rental/buying needs related to PlayStation 3, Xbox 360, Wii and the Nintendo DS. I haven’t thought of Blockbuster as a place to rent video games for a long time now (I also haven’t thought about Blockbuster in general, since there aren’t any close to me anymore).
So, yes, Blockbuster should do what it can to hitch onto the hot video game growth curve. This is a much, much better idea than buying Circuit City (NYSE: CC), I have the ability to tell you that. (For more on that debacle, check out Zac Bissonnette’s current post on the subject.)
Disclosure: I don’t own shares in any of the companies mentioned here; positions can change at any time.
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Filed under: Financials and analyticals, Raising money, Texas Pacific Group, Investments, Value and lack thereof
There was an interesting report that surfaced over the weekend that took greater hold on Monday morning, yet nothing official has been released.
Washington Mutual (NYSE: WM) shares are rising sharply today on “weekend talk” that they will be supported by an investment from private-equity group led by TPG Inc, also known as Texas Pacific Group. The company has been forced to write-down billions on home-mortgages and loan losses since the credit crisis, and WaMu is also one of the large quasi-money-center banks that is at-risk of being in jeopardy on its own. According to Reuters, it said “a source” says the deal could be announced as soon as today
It could be a substantial investment of some $5 billion, although once you get into details the number mysteriously changes wildly among sources as far as terms and as far as dollars. Whatever it is, it’s working for the banking giant whose stock has been battered. Shares are up $2.70, over 26%, to $12.87 on the speculation. The 52-week range is $8.72 to $44.66.
What is perhaps more interesting than anything, is that this doesn’t necessarily include Wells Fargo (NYSE: WFC). That company has been listed as one of several companies in a position to be a savior for distressed financial companies. This would also lend credibility to a bank or private equity saving grace for National City Corp. (NYSE: NCC), which has also been in the soup.
If private equity ends up being a savior for the banks, even if it is an iconic trend it would be nothing short of ironic if you have been reading about all the private equity deals that have failed.
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Filed under: Google (GOOG), Microsoft (MSFT), Yahoo! (YHOO), Apple Inc (AAPL), Hewlett-Packard (HPQ), eBay (EBAY), Wal-Mart (WMT), Coca-Cola (KO), Walt Disney (DIS), International Business Machines (IBM), Halliburton (HAL), Johnson and Johnson (JNJ), Money and Finance Today, Bank of America (BAC), Boeing Co (BA), Federal Natl Mtge (FNM), Procter and Gamble (PG), Mattel, Inc (MAT), Oracle Corp (ORCL), Merck and Co (MRK), Lilly (Eli) (LLY), EMC Corp (EMC)
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Filed under: Deals
The Oracle of Omaha and Mars, the massive privately-held chocolate company, will purchase gum concern Wrigley (NYSE:WWY) for $22 billion. The price is a 27% premium over where Wrigley traded in the last session.
On a per-share basis, Wrigley would be going for nearly $80. The company’s stock has not been that high, ever.
The deal is hard to fathom. Costs savings are not really evident. The Wall Street Jounal points out “A deal would expand Mars’s already considerable global reach. Wrigley generates the majority of its sales outside of the U.S.” But, each company appears to have adequate distribution networks in the US and abroad.
Read the rest at 24/7 Wall St.
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Filed under: International markets, Google (GOOG), Marketing and advertising, News Corp’B’ (NWS)
News Corp. (NYSE: NWS) has not had its fill of the revenue failure of MySpace in the U.S., so it wants to try to address that problem overseas.
According to The Wall Street Journal, “Every single market we’re going [into], we’re seeing significant growth in revenues across the board,” stated Travis Katz, senior vice president in charge of MySpace’s international business.
Maybe the MySpace model of trying to sell advertising to marketers who want to reach social network users who have no interest in looking at ads won’t be such a failure outside the U.S.
MySpace might actually be doing worse, but in late 2006, Google (NASDAQ: GOOG) signed at three-year deal making it the exclusive search engine for the social network and guaranteeing News Corp. $900 million in shared ad revenue. Without that, it is safe to state that MySpace’s revenue would be quite a bit lower.
The economic argument for making money on social networks posits that the tens of millions of people who go to MySpace and rival Facebook are good targets for marketing messages. It appears that this is not true. Trying to arrange social network consumers based on interests is nearly impossible because they often disclose little about their activities or habits.
Getting more users outside the US won’t help MySpace. It will go further in proving that marketers are superior off sticking to vertical sites and portals where at least the content interests of users is known.
Douglas A. McIntyre is an editor at 247wallst.com.
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Filed under: Launches, Consumer experience, Wal-Mart (WMT), Housing, Recession
It is old news, very old, that the last time Wal-Mart (NYSE: WMT) tried to sell brand-name clothes, things did not go well. But if at first you don’t succeed try, try again.
The largest retailer has good reason to want to be in the fashion clothes business. According to The Wall Street Journal “Higher fashion apparel and bedding have higher profit margins than other merchandise — about 31%, a full 10 percentage points higher than almost every other category the discounter sells.” The company intends to sell brands that are not terribly expensive from designers including Norma Kamali and Mark Eisen.
The Wal-Mart move is a bad one for two reasons. It has yet to prove that people who want discount merchandise like food and blue jeans want to come to Wal-Mart for nice clothing. These shoppers can go to clothing stores and get good deals and probably a larger selection.
Another, perhaps more important consideration, is that the country is in a recession. A typical Wal-Mart shopper is probably struggling to make mortgage payments, buy gas, groceries and new shoes. That does not put fancy clothing very high on the list.
Wal-Mart should stick to its knitting.
Douglas A. McIntyre is an editor at 247wallst.com.
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Filed under: Industry, Ford Motor (F), General Motors (GM)
 When General Motors Corp. (NYSE: GM) reports quarterly earnings tomorrow, the Detroit automaker is expected to post a steep loss in profit due to sales of SUVs and huge trucks dropping off a cliff. Gas prices have increased sharply and have caught GM off-guard as its margin-heavy SUV segment has been hit hard. The automaker has not shifted its product mix fast enough to compensate.
Curiously though, investor Kirk Kerkorian planted more seeds in the auto industry yesterday by increasing his stake in rival Ford Motor Co. (NYSE: F), upping his ownership of the company to 5.7% after Ford reported a surprising $100 million profit late last week. Kerkorian invested in GM a few years ago, but dumped his shares after GM rebuffed efforts to become a partner with France’s Renault SA. Why would Kerkorian re-enter the auto market after years of turbulence and the highest gas prices in a generation, even with Ford’s current profit?
Kerkorian might like what he sees in Ford CEO Alan Mulally. Mulally has stated that Ford is re-sizing its capacity output to fit market conditions in terms of demand. This includes production capacity as well as product mix, which is the flexible golden ticket any automaker needs in a world of constantly changing variables. GM just hasn’t gotten there, and it’s hard to see if it will. GM lost $39 billion, although that amount was mostly due to tax changes not bad decision making. Will Kerkorian have success with Ford as his renewed interest in the auto sector picks back up? Ford will need it, as one quarter doesn’t make a turnaround.
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Filed under: Hewlett-Packard (HPQ), General Electric (GE), Walt Disney (DIS), Citigroup Inc. (C), Money and Finance This day, Boeing Co (BA), Boston Scientific (BSX), Circuit City Stores (CC), duPont(E.I.)deNemours (DD), United Parcel’B’ (UPS), Electronic Arts (ERTS), AMR Corp (AMR), Dow Chemical (DOW), EMC Corp (EMC), Delta Air Lines (DAL), Burlington Northern Santa Fe (BNI)
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Filed under: Google (GOOG), Microsoft (MSFT), Apple Inc (AAPL), General Electric (GE), Indices, AT and T (T), Citigroup Inc. (C), DJIA, Housing, Recession, NASDAQ
In the stock market, there are the indexes of consequence.
Certainly, the closely-watched Dow Jones Industrial Average is perhaps the world’s best-known stock market index, as it serves as an indicator of both U.S. economic conditions, and the nation’s economic prospects, 6-9 months ahead.
Market participants also closely monitor the S&P 500, Nasdaq Composite, and the Russell 2000, among other averages.
For those who are advocates of technical analysis, including yours truly, the DJIA’s 50-day moving average and 200-day moving average, also are important, among other technical measures.
Stocks, as barometers
But let’s say you want a quick-read on the market, besides looking at the DJIA. Are there any shorthand reads on the market, any stocks that serve as a snapshot of the market and general economic conditions? That can vary by era. Historically, General Electric Company (NYSE: GE) has served as a rough barometer of industrial strength, and AT&T, Inc. (NYSE: T) of utilities/telecom strength. More recently, Microsoft Corporation (Nasdaq: MSFT), Apple, Inc. (Nasdaq: AAPL), and Google, Inc. (Nasdaq: GOOG), have served as quick-reads on software, innovation, and the economic transformations driven by the Internet, respectively.
Still, this era in the land of the free has been characterized recently by the housing slump, mortgage and related asset-backed securities problems, and financial services/credit market stress. A quick read for the health (or lack thereof) in those markets, and by extension, in the U.S. economy? Citigroup Inc. (NYSE: C).
Keep an eye on C
Keep an eye on good old C. If Citigroup is falling, chances are there’s trouble ahead for the market, and for the U.S. economy, among others. If C has bottomed and is rising, chances are, better days are ahead. For the record, C closed Friday, April 25, 2008 up 84 cents to $26.60, and the stock appears to have formed a bottom in the $18-21 range.
With operations nearly everywhere in world, and with involvement in seemingly every financial services revenue stream possible, giant (and now recently much-maligned) Citibank is considered ‘too big to fail.’ Actually, it’s too interconnected to fail: very bad news for C would mean there’s very unpleasant news up ahead for the market, and for the U.S. economy, among others. Hence, in addition to the aforementioned indexes and stocks, keep an eye on C.
Disclosure: Lazzaro has no positions in stocks. In addition to private real estate holdings, he owns corporate and municipal bonds, and cash certificates of deposit.
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