Wednesday, February 11, 2009

Notable News 2/11/2009:GXP, AMAT, STI, SBGI, IR/ Geithner needs to Learn Some Bedside Manners/

I watched Geithner give his speech on TARP II yesterday.  He impressed me as an intelligent man who has  an innate constitutional inability to inspire confidence.   He also impressed me as a college professor who had just hatched the rescue plan by writing the outline of the program on the back of an envelope.  Having said all of that, I was equally unimpressed with the temper tantrum thrown by the market yesterday, consistent with a spoiled child, when all of the details were not forthcoming from a treasury secretary that had been in office for a couple of weeks.  There is no easy solution to the pricing problem of toxic assets, and there is certainly no resolution to this pricing issue which would not draw fire from numerous directions.

 Geithner is also not very good at sugar coating dire news.MarketWatch      Maybe Geithner needs to work on his bedside manner some when talking to his shell shocked patients.
However, given the scope of the plan as outlined,Bailout Plan: $2.5 Trillion and a Strong U.S. Hand I would not so quickly dismiss its potential to resolve the problems at hand. 

 I recently liquidated my IRA position in Great Plains Energy (GXP) and kept my shares in the main account. Sale of GXP in IRA at 19.8/MET, DIS, BAC, ADP & UNUM After the close yesterday, GXP cut its dividend in half, reported a lower than expected earnings per share number for the fourth quarter and lowered its guidance significantly for 2009.  Great Plains Energy Reports Full-Year and Fourth Quarter Results for 2008: Financial News - Yahoo! Finance The earnings miss was 16 cents for the 4th quarter.   I mentioned in an earlier post that the dividend could be in danger since the company was paying out close to 100% in its earnings.  Late Friday Buys: LNC and GXPWith the huge earnings miss for the 4th quarter, and a downbeat 2009 forecast, management had no choice but to cut the dividend.  Still, this seems to be an extremely poor performance even under the current conditions.  So I will vote against the Board as an expression of my displeasure with these recent disclosures.   I will keep the position in the main account and continue to reinvest the dividends.   But I expect the stock to trade down to 15 today.  When you have 300 positions, then I have to expect at least a few negative events like I had with CXW yesterday and GXP today.  But my exposure is small on both of those names with only 50 shares in CXW and 100 in GXP plus reinvested dividends.   Nonetheless, it still leaves a bitter taste in my mouth since I do not like losing very much. 

Last week, I also sold at 40 my 30 shares in Progress Energy bought in my IRA and kept the ones in my main account.  This was part of my effort to eliminate some of the duplication of positions in accounts, as well as to raise some cash in the retirement accounts, where I have taken the cash allocation from close to zero to about 10%.  Both retirement accounts have at least 40% exposure to bonds, mostly individual senior bonds in TC form. 

I was surprised by the magnitude of the decline in Corrections Corporation (CXW) yesterday.  I decided to wait to add that other 50 until I sort a few issues out.   I saw a story the other day on the news about how California was stiffing its vendors.  I had a small concern that CXW's business with that state might be adversely impacted by California's inability to deal with its budget and fiscal problems.    The company has 6500 beds filled in California and the state is supposed to ramp up to 8132 by May.  I also wanted to review the earnings transcript which I did yesterday evening.  Seeking Alpha
I received the impression from reading that transcript that the company is concerned about state funding problems and pressure being placed on it by several states to reduce rates.  It seems far too amenable to buckle under pressure to reduce rates to help out the states who want a price break.   It is also suspending construction of a 2040 bed facility in Trousdale County in Tennessee, which it calls temporary.  The company has 11 thousand beds in inventory or under development.  I have not decided when and if to round my position up to 100 shares.

Applied Materials (AMAT), a small position of mine, reported a 10 cent loss for its last quarter on revenues of 1.33 billion compared to 2.09 billion a year, and a sequential decline from 2.04 billion in the prior quarter. Applied Materials Announces First Fiscal Quarter 2009 Results: Financial News - Yahoo! Finance  There is nothing positive to say about it.  The company expects a 50% drop in spending for semiconductor equipment in 2009.
There is certainly no reason to add to my small position at anytime during the first half of this year. 

Lionsgate (LGF) had a particularly bad quarter and fell yesterday almost 27% to close at $3.9Reuters  This stock was previously sold north of 10 and is being monitored for a possible re-entry point.  This last quarter was sufficiently bad that I have no current interest in buying shares, which I will reconsider on a fall below 3.  

SunTrust (STI) became the latest bank to slash its dividend reducing it to 10 cents from 54 cents, consistent with its previous announcement. SunTrust Yahoo! FinanceThe stock closed at $9.06 yesterday.  That is a December 1990 price for STI.  Wow isn't that just awful! I am just staying away from banks.  But I do kick myself once a day, and I would use a whip if that would do any good, for believing that Ken Lewis was not a fool. 

Ingersoll-Rand (IR), a very small position, reported earnings before items of 53 cents versus expectations of only 28 cents.  The company had a large impairment charge connected with its recent acquisition of TraneIngersoll Rand Announces 2008 Fourth-Quarter Adjusted Earnings of $0.53 per Share from Continuing Operations: Financial News - Yahoo! Finance     Yahoo! Finance
Its outlook for 2009 also topped analysts estimates.  Reuters

Sinclair Broadcast (SBGI), as expected by me, suspended its cash dividend.  After falling to a $1.38 handle, the dividend yield had expanded to almost 55% which indicates a high degree of certainty by investors of an imminent elimination or a substantial cut.  SBGI: Summary for Sinclair Broadcast Group, Inc. - Yahoo! Finance  The company did report a better than expected quarter, however, with earnings of $.24  versus $.15 a year ago.  The company benefited from political advertising last quarter.  Revenues were flat at 164.4 million.  The company expects a decline in revenue for the next quarter in the low to mid 20%. 

One of the small tech companies that I am monitoring, as previously noted, is Nuance Communications (NUAN).  I thought its earnings report was okay. Nuance Announces First Fiscal Quarter 2009 Results: Financial News - Yahoo! Finance  The company did lower its revenue range for 2009, but  does anyone expect anything any different for the current year?Reuters

The Bank of England says the UK is in deep recession. BYahoo! Finance The entire world is in a deep recession.  China's exports and imports plunged last month. Yahoo! Finance

MMM did lift its dividend by 2 cents, and this is news these days. MarketWatch

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