Apple Can “Amazon” Pandora
June 5, 2013
Over the past year, the idea of Apple (click ticker for report: ) launching an internet streaming radio has been in the back of our minds. In fact, we think it’s the one of the few interesting features that could make the Apple ecosystem even stickier. According to reports, iRadio could be introduced next week. Pandora (click ticker for report: ) shareholders are clearly worried, sending shares tumbling over the past few days, and we believe they should be. While Apple has (wisely) been unwilling to sell its phones or hardware at lower prices in order to win market share, we do not think this logic necessarily applies to iAds/iRadio. For one, Apple’s hardware presents advertisers with an enormous installed
House Defense Appropriators Ignore Sequestration
June 5, 2013
To download the 155+ page fiscal 2014 Defense Appropriations bill, please click here. On Tuesday, the House Appropriations Committee released the subcommittee draft of the fiscal year 2014 Defense Appropriations bill. The bill provides for $512.5 billion in non-war funding, an amount that completely ignores the level that would be caused by automatic sequestration spending cuts (to the tune of over $28 billion). The House’s proposal is also $5.1 billion below fiscal 2013 levels and $3.4 billion below President Obama’s request. In any case (whether the bill in current form is implemented or if sequestration takes hold and further spending cuts are put in place), the trajectory of defense spending for fiscal 2014 relative to fiscal 2013 is down. The
The US Auto Recovery Is Unshakeable
June 4, 2013
As the housing market recovery in the US appears more sustainable, US auto sales continue to gain steam. Low-end luxury is performing exceptionally well, as is the pickup segment—a likely result of the housing recovery. Let’s take a look at results from the industry. Ford Best Ideas Newsletter holding Ford (click ticker for report: ) posted a spectacular May, exceeding consensus estimates with unit sales surging 14% year-over-year to 246,585. As we hit home in our recent piece about the US housing recovery, pickup sales are driving a large portion of Ford’s gains. In fact, F-Series unit sales grew 31% year-over-year to 71,604 units! Other cars posting large sales included the Escape, up 26% year-over-year, the Fusion, up 10% year-over-year, and
Evaluating the Industry Structure of Managed Care Organizations
June 4, 2013
Structure of the Managed Care Industry The managed care organization (MCO) and health insurance/benefits industry is concentrated, competitive, and still consolidating. The largest publicly-traded MCO by members is WellPoint (WLP), which serves more than 66.5 million individuals through its health plans, but UnitedHealth (UNH), Aetna (AET), Humana (HUM), Cigna (CI), Centene (CNC), Health Net (HNT), and WellCare (WCG) are other key players in the industry. Revenues are generated primarily from insurance premiums and, to a lesser extent, from administrative fees and net investment income. Expenses are dominated by benefit expense (the cost of health care services), though overhead (selling, general and administrative expense) is also a material portion of the cost structure of the group. Operating margins for some constituents have hit
ASCO Reveals That Big Pharma Is Alive
June 4, 2013
This weekend, the annual American Society of Clinical Oncology (ASCO) kicked off in Chicago. The theme this year? Immunotherapy. The conference is traditionally littered with news from biotech companies revealing results from clinical studies, but this year’s event also included some news from big phama companies that haven’t been bursting with pipeline breakthroughs in years. Let’s take a look at some of the news out of the event. Firms Highlighted: Bristol-Myers Squibb, Merck, GlaxoSmithKline, Amgen, Galena Biopharma, BioMarin, Celgene. Bristol-Myers Squibb Source: BMY ASOC 2013 Presentation Bristol-Myers Squibb (click ticker for report: ) isn’t exactly what we’d call an under-appreciated company. Over the past year, shares are up 43%. However, this year’s ASCO only further ignited the fire. The company
The IATA Boosts 2013 Forecast for Airline Industry Profits; Investors Should Not Be Tempted
June 3, 2013
The airline industry is among the worst we’ve ever seen. Investors should steer clear of this terrible group.
Look Out Below: Iron Ore Prices Keep Falling
June 3, 2013
With China’s economy “struggling,” iron ore prices will remain weak. Let’s take a look at how the miners intend to handle the situation.
Revisiting the Real Risks of Linn Energy
June 3, 2013
In recent months, energy producer Linn Energy (click ticker for report: ) has come under fire from the likes of Barron’s and hedge fund managers. The biggest issue for Linn bears, prior to the merger agreement with Berry Petroleum (BRY) was that the company issued unrealistic measures for distributable cash flow per share and for adjusted EBITDA. Both metrics are non-GAAP figures, which can sometimes raise a red flag—especially when a firm’s management team comes under pressure. Let’s take a look at Linn’s metrics and the issues swirling around the stock. Linn’s Metrics After the attacks on its metrics, Linn went on the offensive, providing a supplemental presentation elaborating on the company’s non-GAAP metrics. Source: Linn “Short Seller Response” The
What Did We Learn About Apple from the All Things D Conference?
June 3, 2013
During the past few weeks, Apple (click ticker for report: ) has re-entered the market’s collective psyche in a big way. First, CEO Tim Cook was grilled by congress over how the company skirts US income taxes. While Apple broke no laws, the company still got targeted for its complex tax avoidance structure. We think this news couldn’t be any less material, especially since literally thousands of other companies use similar tactics. In our view, Apple was singled out because it’s one of the largest companies in the world. The hearing is nothing more than a silly sideshow, and we doubt it will amount to anything more than a few weeks of headlines. On the other hand, Cook spoke on
Market Swoons in Late Trading Friday
June 1, 2013
All data in this article is as of the published date, May 31, 2013. Reiterating Our View As we had outlined in our May 23 piece, “The Market Doesn’t Go Straight Up,” we identified a number of reasons why the risk-reward ratio had tilted against the investor: increased market volatility, the significant imbalance in the Valuentum Buying Index rankings (click here), and unfavorable relative/comparable market value comparisons versus historical trends. As such, we opened a put option on the broader market ETF, the SPDR S&P 500 Trust (SPY), in our Best Ideas portfolio for added downward protection ($160 strike, Dec 2013 expiration) well in advance of the sell-off Friday (we already have roughly a 30%+ cash position in our Best
