Evil Exxon-Mobil.

Some politician [I am supposed to know his name, but this is a stock blog and not politico.com] immediately pounced on Evil Exxon-Mobil's $11.68 Billion in profits, and deemed that they needed to be taxed to the fullest extent. So, I had to investigate.

This is what I found. Exxon-Mobil had a pre-tax income of $22.2 Billion. They paid $10.5 Billion in taxes on the pre-tax income - for after tax profits of 11.7 Billion. Yes, $11.7 Billion is a lot of money. So, I dug in further. What about sales based taxes ? They paid $9.5 Billion [in addition to the $10.5 Billion on income]. What about excise taxes - they paid $12.3 Billion in excise taxes. In total, the $11.68 Billion was 8.5% of their revenues of $138 Billion for the quarter. Nice numbers, but let's see - the tax man got $10.5+12.3+9.5 = $32.3 Billion.

Since I am not rich [enough] yet, I want to eat the rich too - yeah tax the SOB's. But in the case of Exxon-Mobil, that would be tantamount to killing the goose that laid the golden egg. Flog the goose dear politician - do not kill it please. Not yet. You might think you don't need them, but $32.3 Billion says you do.

Bapcha

TomTom vs. Garmin.

The highlight of today was the tanking of Garmin. GRMN lost some 21% in value. It now trades at $35 and change. A lot lower than $125 that it hit in Nov 2007, and financially, their numbers were better than ever! So, what is it that caused GRMN to be worth 21% less today than it was yesterday ? In a word, NuviPhone - their fancy gizmo phone with GPS built in. In my opinion, it is not a good idea - why? It is because most phones can do some form of GPS already - be it using a proper SIRF chip to receive GPS coordinates from satellites, or whether the phone just "triangulates" from the Cell towers it can "talk" to. The iPhone has GPS built-in [the software will get better in a hurry].

Let's compare GRMN and TMOAF [Q2 2008 only] vs Q2 2007.
a. Gross margins. Tom2 had gross margins of 46%. Garmin, 45%. Add TeleAtlas, and Tom2 actually had gross margins of 50%. As TeleAtlas' market penetration improves, Tom2's margins will improve. Garmin's gross margins were 50% in 2007 and Tom2's were 54% [pro-forma including TeleAtlas]. From now on, all numbers will include TeleAtlas.
b. Sales. GRMN had sales of 912M and Tom2's sales were 485M Euros = $776M. Garmin's PND sales were $751M [I included auto and personal/fitness and excluded marine/aviation].

Conclusions:
1. TomTom's profit margins on PND's [85% of sales] is far superior to Garmin's gross margins on PND's. Tom2's gross margins on PND's was 42%, and for GRMN, it is 23.3% [I calculated the 23.3% from GRMN's earnings report [175M/751M].
2. TomTom owns TeleAtlas which has 85% gross margins, a heady growth rate, and an agreement to sell maps to Google for at least 5 more years.
3. Garmin looks cheaper on a PE basis alone, but that is mostly due to the fact that Tom2 has to amortize their purchase of TeleAtlas.

Bottom-line: I prefer TomTom for the simple reason that they own TeleAtlas, and that gives them an economic moat that Garmin will never have.

Bapcha
References: TomTom, Garmin, Published earnings reports.

The next ISRG.

Everyone wants to find the next Cisco, the next Microsoft, the next ISRG. ISRG has carved out a niche in the prostate surgery market - with the key buzzwords being POTENCY and CONTINENCE - enough to scare any self-respecting man to cower at the thought of near-castration [yeah, that includes me]. Forget the robotic arms, the $1.3M price tag, the cost of disposables, blah, blah. I am convinced that without these magic words in the marketing material, ISRG will be languishing today, with surgeons and surgees [what do you call a person who is going under the knife - I want a better word than patient], not clamoring for time under the robotic knives.

Yeah, there will be hysterectomies, and mitral valve repairs - but it was the old Freudian scare that vaulted ISRG into the S&P 500. OK - so I am looking for the next ISRG. I think I have found it, but irrigated catheters pale in comparison to increased potency and decreased incontinence.

So the search continues........

Bapcha

Merrill Lynch - smart or stupid ?

Merrill Lynch unloaded some $30.6 Billion in distressed CDO's for 22c/$ to Lone Star, and issued $8.5 Billion in equity. The biggest buyer was Singapore's Sovereign wealth fund - to the tune of $3.4 Billion. I think that while John Thain wanted to get Merrill on track as quickly as possible, twenty two cents a dollar is a dismal number - in tune with what collection agencies sometimes pay for unsecured debt. There is no way that the real estate that backed these CDO's will tank by 78%. Even assuming loan to equity values as ridiculous as 125%, the numbers do not make sense. Citibank's 56c/$ makes more sense to me.

Anyway, Thain has fast tracked Merrill Lynch's recovery by biting not a bullet, but by swallowing a grenade and hoping that it does not explode. Merrill will recover - like they always have when they go through hard times, but I think that Thain needs to be second guessed this time around..... While he did work miracles at Goldman Sachs and Archipelago/NYSE, I am not a believer this time around [I am willing to eat crow a few years down the road - not if MER re-emerges from the ashes - but if the sale of the CDO's turn out to be a good decision].

Bapcha

Apple's market share gains from the PC market will evaporate....

http://sanjose.bizjournals.com/sanjose/stories/2008/07/28/daily18.html?ana=yfcpc

The real reason that I bought an iMac and a Macbook is because they were PC Compatible and had a transparent UNIX based architecture. If AAPL goes back to their proprietary architecture, I guarantee that their market share gains from the PC market will erode. In the world of computers, perception translates into sales [and profit margins[, and hence, the bottom-line, and AAPL has been doing very well indeed.

My take: If AAPL's highly popular Macs move back to a proprietary architecture, their market share gains will be gone. In other words, AAPL's stock will languish like it did for two decades before it took off with the iPod. Note that AAPL will still use Intel's CPU. It is the chipset [the chips that allow the CPU to talk to the peripherals] that they are altering......

Bapcha

The flash market.

Everybody is buying flash - but as usual, the manufacturers got too greedy and built too many NAND-capable Fabs. Even Intel got into the business with an inferior partner in order to get a piece of the action. The best thing that Andy Grove did for Intel was to get them out of the memory market. Barrett/Ottellini got them back into it. I wonder who will get Intel out of the memory market again..... probably NOT the big O.

Anyway, even SanDisk is not doing too well. They might actually LOSE money this quarter - or make very little. I fully expect Eli to have a fit and get rid of a significant number of people..... sooner rather than later. In fact, every time the stock drops $5, SNDK has a mini-layoff..... great for the bottom-line, but bad for employee morale.

The equipment makers (who lead the semiconductor cycle) are indicating that a significant downturn is imminent..... I concur.

Bapcha

Fannie and Freddie.

I researched Fannie Mae, Freddie Mac, and Wells Fargo today, and my take is that all of the "accounting changes" that FNM, FRE and WFC have instituted in the last three months, makes their numbers fuzzier than ever before - leading to more uncertainty in the market.

In the case of Freddie Mac, it was the March earnings report - which should have been a negative $2.150 Billion - which was reported as 150 Million [kewl, the 2 Billion was dropped]. In the case of Wells Fargo, they deemed that accounts were delinquent only after 180 days. Maybe I should draw down my HELOC down, and run away with my money, - except, WFC still wins - 'cause they get the bloody house. Why do the banks never give me free money, but they get my tax dollars to bail out people who were speculating on real estate ?

My take is that most of the Alt-A loans were taken out by speculators - sure there were legitimate hardworking poor who stretched themselves to get into some of these loans - but the banks bloody well have an idea of what % was speculative.

ANyway, after a significant amount of research, I determined that FNM and FRE are definitely in the DO NOT BUY NOW category. WFC is a lot fuzzier. I really would like to know what % of their HELOCs are behind by 90 days - especially in CA. If the magic number is below a billion, it is a screaming buy. Below 2 billion, it is a buy. Anything over 3 is a "stay away".....

Bapcha

My Graduate Student Advisor - a felon [really] !!!

Henry Samueli - who founded Broadcom [BRCM] was my Graduate Student advisor at UCLA back in the early 1990's. He was an honourable man [still is]. I can now use the tag-line that is the header for this post.

Bapcha

Stockblogs.com

I will be listed as a Fundamental Analyst on http://www.stockblogs.com in the near future.

Bapcha

ISRG - irrational exuberance ?

Here's a quiz question - anyone remembers the day when Greenspan said the magic words "Irrational Exuberance" ? Answer: The day was December 5th 1996. Yes it was almost a dozen years ago.....

Back to ISRG - a very well run company, and local [off Kifer in Sunnyvale]. Nice profit margins, explosive growth, etc. etc. What is to not like here ?

Valuation. When a stock like ISRG is valued at 15x sales and 75x TTM earnings, there is little room for mistakes. Plus, the usual suspects are working on similar operating robots [though daVinci has the edge of being first, and being excellent]. While I have thoughts of robots going berserk - when a person is anesthetized and being operated on, daVinci has redundant circuits that will allow it to work even if the primary circuits fail.

Back to valuation. Even Cisco stumbled during their historic run in the 1990's. I guarantee that ISRG will stumble. While in ISRG investors' eyes, it will be a minor miss of heck, say 10% below the 50% projected growth rate, it will be enough to kill the stock to a TTM PE of 25.... while I do not sport a beard and wear Italian Suits, I GUARANTEE IT.

Google and MSFT kill the market.....

Google failed to please the market with a mere 30% increase in earnings. All said, GOOG's revenues actually came in a dollar below analyst guesstimates, and the stock tanked 10% in the aftermath of the report.

This economic downturn will be GOOG's first test - for the so far untouchable Larry and Sergei, this will be a huge test to see how well GOOG can do in a marketplace that does not want to spend money on the net, and instead wants to pump their dollars down a gas tank.....

More, and real stock analysis soon.

Euphoric Day in the market today.

July 16th 2008 will go down in history as one of the best day ever for bank stocks. Wells Fargo did well - though there were some troubling details in the earnings report - like WFC will deem an account delinquent if it is more than 180 days past due [as opposed to 120 that they used to use as a standard]. This will mean that over $300M in accounts that are actually over 120 days delinquent - will not be deemed as being so - as they are in the sweet spot - between 120 and 180 days.

More soon.....