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Uncle Sam to the Rescue ...... Finally

When the US Federal Government finally gets past its partisan politics and self perpetuating gridlock it can finally get something done. That is evident with Fannie Mae (FNM), Freddie Mac (FRE) and Indy Mac (IMB) today. The frustration with many investors and market commentators is the lack of action for many months. However, remember that is just the way that the government works. It is a bureaucratic / political organization. If the state, federal and local governments had to issue financial statements and stocks then they would conduct themselves in a more efficient, expedient and optimal way. But they don't. Hence the longer it takes them to solve a problem, the longer uncertainty reigns and markets sour. However, at the end of the day when Uncle Sam takes decisive action, it is without a doubt the strongest force in the market, enough so that Adam Smith would likely say that it is the predominant power behind his "invisible hand."



Posted By Scott Rothbort at July 14, 2008

My Opinion On Short Selling

Let me be perfectly clear about my opinion on short selling. It is a necessary part of the financial system. I short sell. The market needs short sellers like Doug Kass (of whom I am proud to know) and Bill Ackman. What we do not need are rogue short sellers who abuse the rules and manipulate markets.

This is akin to the insider traders that were prevalent in the 1980s. They were criminal, they abused the financial markets and profited at the expense of other market participants. We needed to separate the Ivan Boeskys from the Warren Buffetts. That came with criminal prosecution. Thankfully Boesky is gone from the markets and Buffett remained all of those years.

Now we need to separate the abusive short sellers from the Kasses and Ackmans, the later being the good guys. Those short sellers that use exchange traded funds to get around married put rules or spread false rumors or violate Regulation SHO have got to go. I predict that within the next few weeks we will see the criminal indictment of an abusive short seller. This will have a dramatic impact on the markets.

In conclusion, keep short selling and those short sellers that play by the rules. Throw out the bums that act like the short version of insider traders.



Posted By Scott Rothbort at July 15, 2008

Yum Brands Earnings Review

Yum Brands (YUM) reported their quarterly results after the market closed. The company generated earnings per share of 45 cents on revenues of $2.653 billion and in the process handily beat analysts’ estimates of 42 cents in EPS and $2.55 billion of revenues. This was quite deceptive as restaurant level operating margins declined across the board in all regions: China -1.1%; Yum International -1.3%; and, US -2.9%. Increasing commodity costs – food and energy –are eroding the company’s margins. I fully expected this to occur and pointed it out on Bloomberg Asia TV when YUM reported last quarter. On Bloomberg Asia today I said that these increased costs are finally getting factored into the stock’s price. I have been patient with YUM and would look to buy the stock as it slips into the low $30s after selling it in the low $40s.

As for YUM in the US there are two interesting points worth noting which I also mentioned on Bloomberg Asia. First, the same store sales increase of 2% in the US was one of the silver linings in the quarterly report. Second, I was very impressed with the new Taco Bell ads that were played throughout last evening's 15 inning Major League Baseball All-Star Game held in Yankee Stadium.



Posted By Scott Rothbort at July 16, 2008

Apple's Groundhog Day Once Again

The response to the Apple Computer (AAPL) earnings was just like the Bill Murray movie Groundhog Day. It seems that every time AAPL reports the company: beats analysts’ consensus estimates; guides to lower expectations for the next quarter; and, then trades lower. Then once again the next quarter we hit the replay button and the same happens all over again.

If you want to find fault with the lowered margin numbers then OK sell the stock. Just realize that even with Mac sales on the rise, an increasing product mix including iPhones and iPod will lower margins. Does anyone care that Mac is stealing market share from Microsoft (MSFT) every single quarter? I do.

My guess is that the Steve Jobs health issue was cause for about 5 to 8 points of after hours’ selling. Just ask yourself this question – Is Steve Jobs solely responsible for the success at APPL? Think about it – he may have set the direction of the company a few years back and was the force behind the company’s turnaround. However, the team that Jobs has assembled is what is driving the APPL machine these days and not Jobs himself. APPL big mistake this quarter was making the Jobs story a personal one and not a company one. APPL needs better communication skills not better business execution. Expect that iTune to change soon.

At the time of this Blog entry Scott Rothbort, his family and or clients of LakeView Asset Management, LLC were long shares of AAPL --- although positions can change at any time. 

 



Posted By Scott Rothbort at July 21, 2008

Not All Consumer Staple Stocks Are Safe Haven Investments

Three consumer staple stocks reported earnings today. Typically, these types of stocks are sought out as safe haven investments during slowing economic conditions.

First was Philip Morris International (PM). PM reported 2q08 EPS of 86 cents which bettered consensus estimates by 3 cents. Furthermore, PM raised their FY08 guidance by 14 cents on each end of the estimate range to $3.32 - $3.38. During the quarter PM declared its initial quarterly dividend of 46 cents which implies a yield of about 3.5%. I own PM together with Altria (MO) which I received as part of the old Altria split-up. I like the international growth in PM core Marlboro brand.

Next was PepsiCo (PEP). PEP reported a 9% year over year rise in profits to $1.05 per share. Excluding commodity mark to market gains PE earned $1.03 which was 1 penny better than analysts’ consensus. Revenues rose 14% of which 4.5% was from volume growth.  Revenues of $10.945 billion beat consensus estimates of $10.55 billion. Last year I started to put some money into PEP dividend reinvestment plan for a charitable trust that I control. PE is well managed and I like its mix of soft drinks and snacks in its product line.

Finally there was Hershey (HSY). HSY beat analysts’ consensus EPS estimates by 1 penny as it earned 29 cents. In the year ago quarter HSY earned 35 cents. Revenues were $1.11 billion versus estimates of $1.08 billion and year ago sales of $1.05 billion. The sales figures are deceptive since HSY is passing on its commodity costs increases to the consumer. However as we see, earnings declined as the company has had to absorb more costs than it is passing on. HSY is one of those stocks that are traditionally safe haven investments but due to food and energy prices in the current environment have turned out to be disasters. This goes to show you that you have to analyze stocks independent of their general Wall Street sector designation. What is safe may not be safe and what is not thought to be safe may indeed be safe as well.

At the time of this Blog entry Scott Rothbort, his family and or clients of LakeView Asset Management, LLC were long shares of PEP --- although positions can change at any time. 

 



Posted By Scott Rothbort at July 23, 2008

It Is Time To Get Back Into Restaurant Stocks

Buffalo Wild Wings (BWLD) just reported a great quarter. EPS of 31 cents on same store sales of 8.3%. The stock is surging and trading higher than the level at which I sold the first half of my position after the company last reported.

The restaurants are back. Yum Brands (YUM) is too cheap to ignore here. I added some to my personal account today on top of my already full sized position for client accounts that I accumulated last week at lower prices.

McDonald’s (MCD) my favorite name in the sector had a big move today as well. It recouped its losses after selling off after the company reported stellar earnings last week.

YUM and MCD both got kicked in the crotch because of higher commodity costs. However, I firmly believe that that food commodity inflation is already in the numbers and we can see relief once we annualize some of those numbers as we enter next year. I expect the MCD board will raise its dividend next month.

YUM and MCD are both growing like wild rice over in China. I have kept out of this sector for a while but the time is right to allocate more assets to restaurants as investments. Stay away from the fixer-uppers like Starbucks (SBUX) and Denny’s (DENN) except for quick trades. Note that DENN also reported earnings after hours and is getting a bid on raised guidance despite missing estimates by a penny. DENN has way too much debt for my appetite.

At the time of this Blog entry Scott Rothbort, his family and or clients of LakeView Asset Management, LLC were long shares of BWLD, MCD, YUM --- although positions can change at any time.

  



Posted By Scott Rothbort at July 29, 2008

Scott Rothbort

About Me :

SCOTT ROTHBORT

THE FINANCE PROFESSOR

 

Scott Rothbort has over 20 years of experience in the financial services industry. In 2002, Rothbort founded LakeView Asset Management, LLC, a registered investment advisor based in Millburn, N.J., which offers customized individually managed separate accounts, including proprietary long/short strategies to its high net worth clientele. He also is the founder and manager of the social networking educational website TheFinanceProfessor.com and a frequent contributor the TheStreet.com where he also writes a weekly article as The Finance Professor

Immediately prior to that, Rothbort worked at Merrill Lynch for 10 years, where he was instrumental in building the global equity derivative business and managed the global equity swap business from its inception. Rothbort previously held international assignments in Tokyo, Hong Kong and London while working for Morgan Stanley and County NatWest Securities.

Rothbort holds an MBA in finance and international business from the Stern School of Business of New York University and a BS in economics and accounting from the Wharton School of Business of the University of Pennsylvania. He is a Term Professor of Finance and the Chief Market Strategist for the Stillman School of Business of Seton Hall University.

For more information about Scott Rothbort and LakeView Asset Management, LLC, visit the company's Web site at www.lakeviewasset.com.

 


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