Thailand Industrial Production Drops Most in 10 Years on Flooding

November 28, 2011

thailand flood








  • Thailand’s October industrial production index was released last night and fell 35.8% from a year earlier.
  • Consensus estimates were for a 15% drop.
  • The Office of Industrial Economics, in Thailand, said that the drop was the largest since at least 2000.
  • The Bank of Thailand has signaled additional rate cuts but interest rates will only help so much with normalizing the economic environment.
  • GDP growth for Thailand has been cut meaningfully.
  • It will be very important to watch the supply chain impact on the Japanese auto industry, disk drive production, and overall technology.
  • The flooding in Thailand is a humanitarian disaster and will also have a material impact on production for firms which manufacture in the flooded regions. Hopefully the crisis will abate quickly but some estimates are emerging that the impact could be as large as the Japanese tsunami and nuclear disaster’s impact.



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Risk Off – Europe Fears Grow!

November 23, 2011














  • US markets close bang on the lows
  • DOW down 236
  • S&P 500 down 2.2%
  • Russell down 3.2%
  • S&P Financials down 2.9%
  • Homebuilders down 4.2%
  • VIX up 6% to 34
  • Brazil ETF down 4%

Happy Thanksgiving!!







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E-Trade Baby has a Rough Day in the Market

November 18, 2011

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Richemont Business Booms in Asia – Cartier and Piaget Growing in China

November 11, 2011



  • Richemont SA (CFR VX) is the second largest maker of luxury goods in the world.
  • The company owns a number of luxury brands including; Cartier, Piaget, IWC, Alfred Dunhill, Van Cleef, Montblanc, Chloe, and many others
  • Richemont reported that first half net income hit plan and boosted sales assumptions for the second half of the year.
  • First half sales growth was up 29% and in the month of October, sales are up 28% – so essentially no slowdown.
  • The Asia-Pacific region was up 48% and distribution expansion related to China is driving growth
  • Cartier and Piaget have been particularly strong brands (from a growth rate standpoint)
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Italian Rates Hit 7.25% – The Key For Tomorrow

November 9, 2011

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Republic Airways (RJET) Returns to Profitability – The Airlines Aren’t All Disappearing

November 8, 2011

Republic Airways is an airline holding company based in Indianapolis which owns a number of regional airlines, including; Chatauqua Air, Frontier, Lynx Aviation, Midwest Airlines, Republic Airlines, and Shuttle America. The company also operated fixed-fee flights operated under airline partners such as Delta Connection, United Express and US Air Express. Republic Airways operates in a number of cities which aren’t major airport hubs such as Columbus, Indianapolis, Philadelphia, Pittsburgh and St Louis.

  • Republic reported EPS of $0.40 (ex-special items) which was well ahead of consensus estimates of $0.24.
  • The current quarter marked a return to profitability after two quarters of losses.
  • The market was concerned with near-term liquidity just last month sending the share price to the $2s.
  • The return to profitability today has led to a 56% rally in the shares which now trade at $4.25.
  • Republic’s restructuring programs are making progress as operating margins improved while sale grew 8%.

Based on the current run-rate in earnings, the company will earn over $1 per share and could be set to rally back towards $8 (which is on the low end of many street price targets).

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Groupon Inc (GRPN) IPO Opens 50% Higher

November 4, 2011

Groupon was able to push through its IPO despite a more risk-averse market environment and recent concerns about the quality of the accounting. The IPO price of $20 was 11% above targets which were recently revised lower. The company sold shares at a valuation of $12.7B and today, on the first day of trading, the shares opened around $30 up 50%. Shares have quickly pulled back to $27, which is still up 35%. The deal was led by Morgan Stanley, Goldman Sachs, and CSFB. One important item of note is that Groupon only offered 4.7% of the outstanding shares to the public. Keeping the float extremely thin has been a strategy for recent technology IPOs in order to create scarcity value for the stock and a high valuation. Linked-In (LNKD) utilized the same strategy and saw the IPO price shoot from $45 to over $90 on the first-day. Linked-In is priced at $77 today. With such a low percentage of the shares trading a future risk will be additional issuance from the company which will provide insiders a chance to liquidate more of their holdings. Be careful extrapolating anything from today’s stock price for GRPN.







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Employment Report – October

November 4, 2011

Employment Report Details:

  • Unemployment rate stable at 9.0% (down from 9.1%)
  • Solid private sector job creation: 80k jobs in October
  •  September revised up from 137k to 191k
  • Government sector still contracting: 24k net job losses
  • Professional services, which are forward looking: +32k
  • Household Survey job creations: +277k (though this includes part time)
  • Growth in average hourly earnings: +1.8%
  • Employment-Population ratio: improved by one tenth to 58.4
  • Hours worked stable: 34.3 hours per week

No evidence we are in a recession

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It’s Getting Real with Whole Foods (WFM) – results are fine but the stock is still very expensive

November 2, 2011

Whole Foods is a tremendous retail concept and the company is a pioneer in terms of promoting a healthier lifestyle. Whole Foods is also able to do this profitably, much more so than other retailers. It was historically unheard of for a food retailer to achieve a 35% gross margin. Whole Foods earns high margins (for a food retailer) while also growing very fast. The investment community is fully aware of this though (many analysts, the ones that do their own shopping anyway, likely shop at Whole Foods) and the stock has been bid up to a valuation that leaves little room for imperfection.

The current quarter was operationally pretty good. Identical store sales grew by 8.4% which represents the strongest rate of 2-year ident growth post the financial crisis. Gross margins were healthy and increased excluding the LIFO-charge swing, and operating profit grew by over 16%. Whole Foods has paid back all its debt and grew pre-tax profit by 25% as a result. The tax rate was down on the quarter though which along with relatively high general administrative and pre-opening expenses makes the quarter imperfect. Along with the imperfections in the current quarter, Whole Foods also left next year EPS guidance unchanged at a range of: $2.21-$2.26. Priced at over 31x earnings perfection in the current quarter and a guide higher for next year’s earnings were needed to drive the stock higher. Whole Foods shares are down almost 6% in the after-market.

The sell-off in the aftermarket simply reflects some of the premium or luster coming off Whole Foods shares. There will be bidders down below at certain multiples. For perspective, at this time last year, Whole Foods guided to EPS of $1.66-$1.71. The company ultimately earned $1.93 and beat their own guidance by 13%. Perhaps this should be factored in to a certain extent when thinking about what they will actually earn in the next fiscal year relative to the guidance of $2.26.


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American Tower (AMT) – Strong Results and REIT coming

November 1, 2011

American Tower Corp (AMT) owns and operates wireless communication broadcast towers here in the United States. The towers service a number of industries including cellular, paging, and network services. American Tower has been a controversial stock with a high valuation – but enormous potential.  The company is rather leveraged at 4.5x debt-to-ebitda so small swings in results can lead to very big swings in the stock price.

The company had very strong site leasing revenues and relatively balanced growth. AMT  had strong revenues across carriers and conversion towards a REIT looks on trade for early 2012. There will be a shareholder vote on November 11th to approve the REIT status which will come with a large dividend in December 2011. The company has also been buying back shares aggressively. Given all the uncertainty around technology and carrier wars the tower operators provide exposure to the growth in cellular and smart phones while also providing financial leverage to growth in the industry. American Tower’s technicals are also quite good hitting a new high in a tough market.

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Interpublic Group (IPG) – Advertising Spend Growing

October 28, 2011

Interpublic Group (IPG) is an integrated advertising agency that serves clients of many different type around the world. The company delivers customized advertising and marketing solutions for a variety of different types of advertising campaigns. The company released a very strong quarter and apparently many aspects of traditional media are not dead yet.

Inerpublic’s organic revenues were up 8.7% which was well above Wall Street estimates. One of the big drivers of sales growth was growth in the Asia-Pacific region which was up 15.3%. Margins were higher and the operating margin expanded to 10%. Interpublic was confident on their conference call which is a positive signal as the advertising markets are certainly geared to GDP growth around the world. This is an all-around positive signal for the economy. IPG’s stock price is up 10% today but is till 25% below recent highs earlier in the year.

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Volatility Collapse

October 27, 2011
  • The VIX peaked in early August at 47.
  • For three months the VIX has been range bound between 30-47.
  • With yesterday’s announcements in from Europe, the volatility index is down 15% to 25.5.
  • The market is back to the higher-end of what was “normal” all through September 2010 – July 2011.
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Coach’s Lew Frankfort: “No Hard Landing In China”

October 25, 2011

Coach results were strong this morning coming in $0.03 ahead of the Wall Street consensus ($0.73 vs. $0.70 expectations). The drivers of the strong results are North American comp sales of +9.2% coupled with tremendous international growth. Coach is a global brand which is in the early stages of its growth cycle as distribution across Asia is hitting high gear. Over the past decade, Coach built a very strong business in Japan and has surpassed all the European luxury brands save Louis Vuitton (but this shouldn’t count as a brand in Japan it is really the Japanese women’s uniform).

Coach has one of the strongest business models in the world with 72% gross margins and very high operating margins (above 30%) as inexpensive handbags are made in China and sold around the world due to the tremendous brand equity in the “affordable luxury” space. Coach has no debt, and generates enough operating cash flows to self-fund all its own capital expenditure requirements, pay a dividend, buy back shares, and still generate excess cash for the balance sheet to boot. Coach’s growth is very high visibility as long as you believe that consumers in China, Asia Ex-Japan, Brazil, India, and Russia will want the product. The growth of the internet and global pop-culture is doing wonders for the growth rates of authentic global brands.

Coach is poised to earn well above Wall Street estimates this year. I forecast that the consensus $3.38 in earnings can easily exceed $3.50 and next year’s estimates of $3.89 are likely to be more like $4.10. Within 12 months time, if Coach can get back to its historical multiple range the shares have potential to trade to $75. Despite the recent rally from crisis lows, the shares look to have another 20% to go over the next year with a 1.5% dividend paid out along the way.

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Confidence – A long-term trend lower

October 25, 2011
  • One can’t help but notice the continual disappointments in all of the consumer confidence prints
  • The disappointment du jour was from the conference board which came in at 39.8 vs. and expectation of 46.
  • Fortunately this data doesn’t correlate or generally matter with regard to actual economic activity, GDP growth, and corporate earnings.
  • Aside from the economic impact, it is interesting that consumer confidence continues to trend lower over time. An interesting philosophical question about why we are simply less confident in the future here in the US?

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Charlie Rose Interview with Ray Dalio of Bridgewater Associates

October 23, 2011

Ray Dalio rarely gives half hour interviews with the media. He discusses the state of his de-leveraging process thesis, potential fixes, and the corporate philosophy of how Bridgewater Associates is run. This is a must watch for finance aficionados like CJ:

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Chipotle (CMG) – Best Restaurant Growth Stock

October 21, 2011



  • Chipotle beat the earnings consensus by $0.05 posting $1.90 vs. consensus of $1.85
  • Chipotle (CMG) is worth keeping an eye on because it is the fastest growth and highest valuation restaurant stock in the world.
  • Same store sales were 11.3% which is a tremendous result. Chipotle has been adept at continuing to move the lines in the stores quicker.
  • Chipotle likes its restaurant base so much it owns all of them – which is a very different model relative to McDonald’s and Yum Brands. Owning the restaurants requires more capital but enables Chipotle to capture all the profit from each unit and leverage corporate expenses easily when sales are robust.
  • Chipotle is accelerating their new restaurant openings. Growth still has a long runway in the US and has only begun in Europe and around the world
  • Next year earnings will likely be between $10-$12 per share
  • 2013 earnings will like be $14-$15 per share
  • While the valuation of the stock is very high, investors really believe in the growth of the CMG restaurant base so that every dip gets bought quickly.
  • The stock price is $330 but appears sustainable with the potential to move higher as overseas results demonstrate more growth avenues.
  • The Chipotle market capitalization is now above $10B.
  • The short interest is 10.5% of the float
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Wynn Resorts (WYNN) – Chinese Gamblers Have a Good Run at Baccarat

October 19, 2011

Wynn Resorts (WYNN) reported results which missed expectations as earnings came in at $1.05 per share vs. street estimates of $1.19. Steve Wynn reported that the “hold” percentage was abnormally low which impacted gaming take by about $15M. When pressed on this he mentioned that Chinese gamblers had a good run at baccarat and had some good days of winning $5M, $6M, $7M (would have been fun to be part of that crew). Normalized hold rates would have amounted to another $0.12 in EPS or earnings of $1.17 which would have been essentially in-line. Nonetheless, Wynn has a high valuation and the stock is off over 5% in the after-hours from $130 to $123.

In terms of the read per current trends – it sounds like Vegas business is solid in October. Convention bookings are robust. ADR is improving by over 20%.

With regard to Macau, Steve was asked numerous time if credit is drying up or if business is slowing. He simply answered “No it isn’t”. Macau EBITDA year-to-date is up 46.7%. The Cotai property sounds like it will be grandiose and impactful.

When asked about the potential for US resort development in Massachusetts or Florida, Steve mentioned that both are looking promising. He proclaimed that he is: “feeling very positive in a preliminary way”. It appears Wynn may hold off on a special dividend this year in order to keep capital available for a new project if the politics work out. Last year WYNN paid an $8 special dividend.

Finally, no Wynn Resorts conference call would be the same without an excellent political tirade from Steve. Here is today’s – fast forward to the final question:

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Apple (AAPL) – Quarterly Earnings Preview

October 18, 2011

I expect a monster quarter out of Apple. I believe that Steve Job’s unfortunate death has led to a surge in support for Apple products. The beat is largely expected so the key will be do they beat by “enough” relative to Wall-Street consensus. Here are the past 8 quarters earnings beats relative to the Street:

  • Q3 11 (last quarter):   33%
  • Q2 11:   18%
  • Q1 11:   19%
  • Q4 10:   13%
  • Q3 10:   13%
  • Q2 10:   35%
  • Q1 10:   77%
  • Q4 09:   28%

Probably they need to beat by over 30% for the stock to march higher unabated.

Price targets generally range from $450-$550 for the stock

  • Sales consensus is $29.6B
  • EPS consensus is $7.31
  • EPS estimate range is:  $6.50 to highs of $7.80 or so

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