HP not saucy
"HP is expecting fewer employees in the years ahead, fewer products, they are not going to compete head on in the smartphone business just yet and don't expect a tablet either, at least not for retail, a business tablet running Windows 8 is expected. Gee, without sounding like a cynic, I have seen tablets come and go, only the Samsung Galaxy and Apple iPad have really stuck. This sounds awfully gloomy for the PC industry."
Jozi, Jozi 26o 12' 16" S, 28o 2' 44" E. Not so good for some of the local miners again on a day where the same old concerns continued to be aired on our screens. Platinum stocks fell one and three quarters of a percent. Resources stocks as a whole fell nearly one and a half percent! Sasol took a beating as the oil price fell the most in a year, for a session that is. The BusinessDay also had this headline this morning: Investors shed shares on SA mine pay turmoil. Eish. Not good. That question that I threw out there yesterday, are you looking to hire more people came back as negative, people are NOT looking to do that. The fewer the better. Sad face. Meanwhile Moody's, fresh off their cutting South African government bonds rating and Paratatal credit ratings have downgraded South African banks currency deposit ratings. Yeah. Thanks for that.
I sometimes say that the longer the talking heads are concerned, the better it is for buying stocks. Because if everyone was gloomy or everyone was optimistic, that wouldn't constitute a market right, you need both sides of the equation to make sure that you have a balance? I read something last night, in the book I started reading from a fellow on twitter known as the Reformed Broker, a fellow called Josh Brown that struck me. He said something along these lines, how is it possible that both parties, the one buying and the one selling think they are both right? I suddenly thought to myself, that is a pretty good insight. But then again, both the buyer and the seller might have different time frames, they might both have different objectives and they might well only agree on price.
For instance, if you owned a lot of one specific stock and you thought that it was only right that you cut back your exposure to that one company, it might be for rebalancing purposes. The same buyer of the stock might be inclined to think that they would like to add that company to their portfolio, to give themselves a bit more of a spread and reduce the risks. That is portfolio rebalancing, something that you can do a little slower by using the dividend flows. Think about this. You want to add a new position that eventually you need to be around ten percent of the portfolio, because currently you have nine stocks and you would feel more comfortable with ten. It takes you just three years with a dividend yield of just over three percent to do that. Dividends, one of the wonders of the financial world. And my point always about keeping costs low makes even more sense here, when your retirement plan eats your dividends up every year because the fee burden is three percent or so, the impact over 25 years is amazing. I shall work it out.
- Byron's beats
This morning we received the following trading update from high flyer Mr Price.
- "Basic earnings per share ("EPS") and headline earnings per share ("HEPS") of Mr Price for the 26 weeks ended 29 September 2012 are likely to be higher than the previous corresponding period by more than 20%. A range cannot be accurately estimated at this stage and shareholders are advised that a further trading statement will be issued in due course to provide earnings forecast ranges for EPS and HEPS as required by the JSE Listings Requirements."
With Mr Price we have to ask the same question that we asked about Famous Brands. We know it's a good business, they have successfully brought value for money clothing made in low cost Asian countries into South Africa for over a decade. But are they a good investment based on what you pay for them? The share price has been a great performer. In fact I just asked the boys in the office who they thought outperformed between Mr Price and Famous Brands? The answer, Mr Price who have grown 392% over the last 5 years compared to Famous Brands who have grown 301%. Neither of them slouches. (I'll say! – Sasha)
Let's look at the multiples. Last year for the first 6 months the company made 187.3c which had grown 22% from the year before. Add 20% to that (the update suggests that the number will be more than 20% so this is conservative) and we should expect nothing less than 224c. Remember that the second half includes the festive season and is usually better than the first. In fact last year the second half was 69% better than the first.
On that note I'd expect at least a 20% increase on last year's full year earnings of 503c. Let's call it 603c. Trading at R133 this stock is not cheap at 22 times forward earnings. The stock now has a market cap of R30bn which is 5 times as big as Famous Brands, the law of numbers will make it harder and harder to maintain this growth.
But people have been calling this stock expensive for years now and with the South African consumer still looking strong I would back them to maintain this growth in the years to come. They are also rolling out this very successful brand further North which should prove just as successful, I mean who doesn't like cheap, nice clothes. I wouldn't be flying into the stock but I would call it a solid hold, buying into any weakness.
Digest these links.
Important. Last night's debate between Obama and Romney was disappointing for the presidents camp. I have seen quite a nice recap, including some moving gif's so you can get a sense that you were watching this live: Debate Recap: Romney Brought It. My favourite part by a country mile: "Donald Trump is a small business. And I know Donald Trump doesn't like to think of himself as small anything." I had to laugh hard. Later in the debate Mitt Romney also talked about "the Donald" but this time called him rich. I must let that go, but I can't. Anyhow, the consensus is that Romney won and the president looked tired.
How Does a Currency Drop 60% in 8 Days? Just Ask Iran It is looking not so good for Iranians on the ground. It is looking awful. A run on the currency. Yech. The last paragraph is quite funny: "There's an irony. The rial wouldn't be such a worthless piece of paper now if Iran had some of what their president Mahmoud Ahmadinejad called a "worthless piece of paper" back in 2007 -- the dollar. Funny how that works." The politics of Iran "dictates" that the president only ever serves one term. I am not too sure what to expect next, but I cannot say that I am too hopeful.
Talking of crazy presidents and leaders (there are four that stand out for me) on the wires I have been reading more and more of this: Venezuelan President Faces First Real Threat. That is right. The skinny challenger who is a marathon runner is making inroads into the traditional Chavez areas. I hope this is the case for all ordinary Venezuelans who have had to put up with 25 percent odd inflation rates as a result of an economic strategy that did not work. How do I know this did not work? Venezuelan oil production has decreased over the last decade. Just later today there is an inflation read for Venezuela, the estimate is 18.6 percent. That is just nuts.
What is also nuts is this: Study Shows Baldness Can Be a Business Advantage. Not because bald folks get respect but because of human nature. This is the most emailed and most read story on the WSJ today. Baldness. Because men get anxious that somehow they will lose their "Samson allure". I for one am losing hair daily, I can see it. My grandfather was always bald for as long as I knew him. My father still has enough hair! But I suspect from what I have read, it skips a generation. So I am going to suggest that the sooner I go bald the better it will be for me from people agreeing with me, is that plausible? Tell me about your own perspectives.
Continuing along the lines of inflation, this is possibly some of the best analysis I have read of the ECB actions and their standoff with the German Bundesbank. It is unfortunately subscription only, but I really don't mind paying for quality journalism like this: How ECB Chief Outflanked German Foe in Fight for Euro. There was that part about inflation, tomato sauce and pasta that I really liked, but the observations of a little boy on holiday in Northern Italy was also quite fun. We all know why the Germans are so keen on price stability. Wheelbarrows to buy a loaf of bread, remember those pictures? They stick in the throats of so many German economists and politicians. And as such, the "do whatever it takes" approach does not always sit well with the ordinary German. Either way, the Italian is charming and getting the job done. Italian job done?
Is the US housing market still recovering? Yes is the answer. MBA: Mortgage Refinance Applications increases sharply, Highest. This remains to be good news for ordinary Americans. Here is another one: Real estate news: Mortgage applications, refinancing activity are rising, rental vacancy rates fell to a 10-year low in Q3. I guess it is fair to say that what the Fed are trying to achieve with QE3 is working already. At least that is the conclusion that I come to.
This is newish news about BHP Billiton: BHP Pursuing Bid for Petrobras Gulf Stake. But of course the story suggests that there are just people familiar with the talks between the parties. And there are others involved. But I know that BHP Billiton are keen on North American energy assets. Just yesterday I was reading that they are keen on North America full stop, with their focus on the potash project in Jansen not going to be cut from expansion plans. Energy and fertilizer, I like it, and that is what separates BHP Billiton from their mining peers.
New York, New York. 40o 43' 0" N, 74o 0' 0" W The ADP employment report helped give the market a boost at the beginning of the session, for the full release, follow the link: September 2012 ADP National Employment Report. If you read further down the report you can specifically see that small businesses, those businesses with less than 50 folks. The overall number clocked 162 thousand, which beat expectations by around 20 thousand. What does this mean? Well, it sets up the non-farm payrolls number nicely. Excuse me for using the word *nice*.
If you want to use that word again, then this release which was also a beat fell into that category of nice: September 2012 Non-Manufacturing ISM Report On Business. I took a side swipe at Bill Gross, suggesting that in the commodities in short supply, the only noticeable one was helium, and that was why Gross (of Pimco fame) had been so noticeable lately. Services increasing? Sounds like a good thing to me. But back to Pimco and Gross, this is what I mean: 'Budgetary Crystal Meth' Risks U.S. Haven Status, Gross Says.
HP. What happened? Well, I just guess that HP is not the same cool company that they were years ago, when printing was all the rage. Now we try and do the responsible thing and print as little as possible. Now, for home use instead of a desktop, which migrated to a laptop, you are getting a tablet instead. A tablet is easier to carry around and is almost perfect for home use. Plus, everyone can pick it up. In my family, everyone except the dog knows how to use a tablet and the youngest is four. OK, she will be five in January and I guess that makes a big difference, but the point is that tablets with their touch functionality are exceptionally easy to use.
The stock turned tail after the worse than anticipated results. In fact the stock touched a decade low. WHAT? Yes, check this article out: Whitman's HP Turnaround Plan Sends Shares to 10-Year Low. Meg Whitman is right. Six CEO's in seven years (including interim ones) did not help the company with regards to either leadership OR a clear strategy. She is asking the market to be patient with her vision. Next year is going to look uglier than the market anticipated. The year after that, not much better. But if she is right, the year after that is going to be much, much better for HP. And 2016, well, that will be the year!
HP is expecting fewer employees in the years ahead, fewer products, they are not going to compete head on in the smartphone business just yet and don't expect a tablet either, at least not for retail, a business tablet running Windows 8 is expected. Gee, without sounding like a cynic, I have seen tablets come and go, only the Samsung Galaxy and Apple iPad have really stuck. This sounds awfully gloomy for the PC industry. Sales are not expected to grow at all this year, 2012 is expected to be the worst year for PC's since 2001. And the short term does not look any better. Oh dear. Poor HP.
Currencies and commodities corner. Dr. Copper is marginally higher at 376 US cents per pound. The gold price is also better at 1785 Dollars per fine ounce. The platinum is last at 1697 Dollars per fine ounce. The oil price is last at 88.52 Dollars per barrel. We are marginally better on stocks here this morning as the currency takes quite a pasting. The ECB are doing their thing today again, folks are going to be excited about what Mr. Draghi has to say!
Sasha Naryshkine and Byron Lotter
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