satyr

How to Play Buffett's Big Bet on America

Value Added, you make a salient point. Not to say that Warren has no heart. But he is a capitialist and is looking for ROI wherever he can find it. He is also as inside government as Goldman Sachs at this juncture (and also inside Goldman Sachs). I would not make the mistake of viewing anything he says or does as altruistic.

CVS Is in Good Health - Barron's

Looks like something rose to the surface for CVS, and it wasn't cream.

CVS Caremark Tumbles on Lost Business

You fail to mention that CVS is also being investigated. The details are not known, but there have been various allegations made with respect to anti-trust, information sharing between the two sides of the business, and other related issues that are perceived to be harmful to the consumer.

I have followed pharmacy rather closely since 2003 and have observed CVS/Tom Ryan and their approach to growth. On the one hand, I give him credit for being very aggressive and able to drive a hard bargain. They stole the Eckerd chain and also Caremark. On the other hand, he is just the kind of figure that you find embroiled in the ugliest of scenarios, whereby hubris causes one to lose sight of integrity and legal doctrine.

By chance, I have had the unwelcome opportunity to watch how CVS/Caremark operates from a customer's perspective over the past year as I have been assisting a family member who has coverage through an employer medical plan. Their inability to communicate internally is mind boggling. You can call them about an issue and if you talk to 5 people you will get 5 distinct answers, all of them in conflict. It is no wonder that they have lost clients.

All of this is not to say that the stock is a bad buy (or a good one). Ryan will pump hard to bring the stock price back. But, he'd better be careful. He made some fairly big promises that he now can't deliver. It would be interesting to know when it became apparent that these contracts would be lost. This company has been a Wall Street darling for a while, which is always a bad sign. Caveat emptor.

The Hartford: Only Paper Profits

Mark-to-market changes gave everyone in the financial industry a boost, so HIG is not alone in seeing profits from balance sheet revaluations. While I agree that the quarter was not exciting in of itself, I think that investors are comfortable seeing some stabilization. Perhaps the more important interpretation is that the company is on solid ground and in a reasonable place from which to repair and grow. The current valuation certainly does not suggest that investors somehow think that HIG is currently going gangbusters and there are no blemishes.

Why Apple Is Worth $80

I actually enjoyed reading this piece and recognize that there is a certain amount of showmanship that shrouds the message. I don't imagine that AAPL is going to $80 any time soon. But, I don't see $300, either. Nobody really knows what will happen, right? What I do notice is that a lot of Apple zealots posted here in vehement protest of everything that was said. And, in a way, that phenomenon was part of the message. Loving the product, Jobs, or the cult is not the same as an investment providing a particular return. And, while it may seem like people will never buy another phone but the iPhone or another computer than a Mac, the same has seemed true about all sorts of brands and products.... until it wasn't.

Three Small Cap Stocks on the Verge of Breakouts

S&P upgraded ARM today to "buy", with a target of $11 on anticipated improved earnings for FY10. However, against a backdrop of today's falling market in last inning, the stock was only able to eke out a 1 cent gain. It did hit a new 52-week intraday high and I think the case can be made for further gains.

Readers Ask: Rite-Aid, Somaxon Pharmaceuticals

davidbdc, I can't agree with you about Rite Aid's management team. John Standley is a very good operator and is the CFO that he brought along from Pathmark. They patched that company up in a relatively short period of time and sold it to A&P, so I would not sell them short.

Mary Sammons is another matter, and if she were running the company I would short it into oblivion. However, she is more of a figurehead at this stage.

I tend to agree with Citizen Chin on this one. Rite Aid has market share on the East Coast and is rationalizing their store base. It will still be some time before they turn a profit. But, they are due to begin debt paydown in the next quarter and have enough cash flow to keep up the fight for a very long time. Eventually, they will turn earnings positive, or sell off a significant piece of the store base (i.e.: West Coast) in order to get enough cash to wipe out a large amount of debt. The question is timing, and that is highly dependent upon the economy.

Cramer's Mad Money - It's All about Apple (10/16/09)

I don't know a thing about ARM Holdings. But, I do know that the symbol "ARM" is not theirs at all. It belongs to Arvinmeritor.

Cash for Clunkers: The Hangover

FYI, Walgreens always makes available the breakdown of sales between front-end and prescriptions. It's provided in all of their press releases for monthly sales, if you are interested in looking it up. In the last month, prescriptions sales were up, while front-end sales were down. This trend was shared by all major drugstore chains in North America.

Retail Firms at Risk for Bankruptcy

As has been noted in many other places and on various blogs, Audit Integrity's approach to analysis appears to lack... integrity. Nobody knows quite for sure how they arrived at their list, other than some reference to "fundamental analysis". Uh huh. What investors would do well to do is to take the time to look at individual financial statements for these companies and draw their own conclusions.

One company on the list that I follow closely is RAD. They have no major debt coming due this or next year, and have net positive cash flow. In fact, they have announced that they will begin reducing debt beginning February 2010. How that translates to BK is beyond comprehension. As Chris Rodriquez notes, they do have real estate on the market. But, when you have around 5,000 locations, it is not unusual to be shifting footprint, as well as closing under performing stores while newer, better located stores are opened. This is part of an ongoing and well-documented effort by RAD management.

Quickly, regarding LilBob's comments about RAD pricing - while I can believe that they are selling items for 10% or 20% more than other stores, you do have to remember to compare apples to apples. 7-11 gets a lot for a can of tuna when compared to Wal-mart. But, when you want to stop make a quick purchase, it is still worth it. Most of the front-end product in drugstores is more about impulse and convenience than trying to compete with large grocers and discounters. If you compare RAD prices to Walgreen or CVS, I think you will find them to be similar. But don't take my word for it. Independent research has proven this out. In an individual market this may or may not be true. However, none of us can visit 15,000 stores to determine the true mean, so we rely on independent samples to tell us the story.

As for the rest of the list, I have no specific opinion, other than to say that the outfit that produced it does not have a good track record.

A Big Investor's Betting on Safeway

Thanks for the information. Most recently, Kroger missed earnings and all of the grocers took a hit. From that, some analysts downgraded the entire group (as usual, too late to be of any use to anyone).

I think the reaction was too strong, as the fundamentals for SWY are reasonably good. Much of their scheduled capital outlays are flexible, given that they have already made the lion's share of their Lifestyle store update push. Also, they have modified their mix to be more competitive with the top end players (e.g.: WFMI) and invested in pricing in order to give some grief to KR and at least some of the discounters. This last move is what is shaving both margin and putting a small crimp in the top line. Eventually, the price wars will reach a stalemate, but I don't see that happening for a while - certainly not by January.

What I do imagine is that the strike threats from Colorado will subside, which is something hanging over SWY at the moment. Not that the unions have always refrained from shooting themselves in the foot (look at the SoCal strike earlier in the decade that nearly bankrupt the UFCW), but I think they may take a queue from the CAW and others, and decide to be satified that they have jobs and benefits. There are already more people signed up to replace them than there are jobs to fill. 10% unemployment has a funny way of doing that.

Don't Bet Against King Kroger

"So why then did earnings fall short? Put simply, food costs came down during the quarter leading to lower ticket prices and squeezed profit margins."

When costs decrease, profit margins actually increase, provided that prices are not lowered by more than that incremental change. In fact, what happened is that Kroger lowered prices by more than the deflation cost of goods. The reason is competition from other major grocers and big box discounters.

This is not to say that things will not go well for Kroger. But let's not misunderstand the mechanics of how margin works. Furthermore, it is important to understand cause and effect. Decreasing cost of sales did not lead to lower ticket prices. Kroger, as well as all other grocers, make decisions about pricing every day of the week. They set prices according to what the market will bear (i.e.: attracting customers). The exception to this is Costco, which operates on a cost-plus model.

20 Companies Most Likely to Go Bankrupt in Next Year

I am noting a few things about this list:

1) They only looked at companies with market caps > $1 billion. That leaves a good many off the list due to having severely impaired financial conditions and hence low market valuations. My strong suspicion is that a good many of these companies are in far greater trouble than those that this company chose to examine and list.

2) Some of these same companies were listed several months ago by Moody's as likely to go bankrupt in 2009. Many of those stocks proceeded to increase in price 5 to 10 fold. At the time, I analyzed a few of them and noted that there was virtually no chance of bankruptcy - due to the fact that they had net positive cash flow and no significant debt maturities during 2009. Fast forward 6 months, and it is Moody's whose lifespan ought to be questions.

3) Pardon me for asking, but who is Audit Integrity, where do they get their funding to operate, and who is auditing them?

Trash Is King: Beware Being Late to the Party

All interesting. Of course, all of the "experts" have been telling us that the market is due for a tumble for about 6 months. Eventually, they will be right, and not one will mention how wrong they were leading up to that moment.

There is no doubt that there are some headwinds that should not be ignored, and no matter what the long term holds in store, there will be some down days in the markets. Maybe there will be a lot of them. But, keep in mind that there is still a lot of money sitting in cash accounts accumulating close to zero interest, and it appears that it is gradually being deployed into equities. Reasonable or not, this creates upward pressure on the markets.

Finally, if we are going to be intellectually honest about valuing equities, let's not talk in terms of percentages. How many stocks went up how many percent during what period of time is not relevant to anything other than historians. I don't remember this (or virtually) any self-appointed expert mentioning how many percent the market or individual stocks had lost heading into March of this year and posturing it as a reason why stocks absolutely had to go up. The idea 6 months ago was that stocks would go down, because that is what they had already done. Now, we are hearing that stocks will go down because that is not what they have done.

I do happen to know that most mutual funds have been lagging the S&P over the past 1/2 year. Why? Because they were betting against the individual investor. Now, they are hoping for a tumble so that they can save face, and many are trying to jawbone their way there. It's a tug of war, because the US government wants it quite the opposite, as do the governments of the G-20. If equity markets, currencies, and real estate values cannot be sustained at some reasonable level, no amount of stimulus or any other kind of intervention can salvage the world economies. Look for Ben, Tim, Barack, Govt. Sachs, and Warren to keep the messages positive until at least December.

Trading the Economic Recovery: Potential Opportunities Are Staggering

Mad hedge fund trader, your post got a smile out of me. Still, let's be clear. The definition of recession is in fact technical, so extending the definition to joblessness or homelessness is a straw man. As for the 50%+ increase in the S&P, don't forget that we are currently about 30% below the previous all-time high. In other words, yes we've come a long way off the bottom - but the figures don't necessarily suggest that we have returned to the euphoria of 2007. For my time and money, it makes a lot more sense to look at fundamentals, particularly of individual stocks, rather than toss about percentages as a measure of anything. Speaking of percentages, I'd like to know where you got the 18% figure for unemployment rate in California. You're off by quite a lot on that one.