>Global Partners: Still Recommended
January 27, 2011
>GLP is still recommended by one of our presenters (NYSE: GLP, $29.48). The presenter has just added to his position. This distributor of refined petroleum products and natural gas stands to gain from ongoing divestitures of non-core midstream assets by majors.
>GSI Commerce: Very Overvalued at This Level
January 27, 2011
>A Boston presenter recommends a short on GSI Commerce (NASDAQ: GSIC, $23.50). This provider of e-commerce solutions is facing a serious threat from Amazon, Digital River and some larger rivals in a fiercely competitive market for outsourced online services. The company has been able to grow its top line very consistently, but profitability has remained elusive. Five largest accounts generate close to 40% of the total revenue, and there is a real possibility some of these customers may take their e-commerce operation in-house. The stock is trading at approximately 100 times projected 2012 earnings. The share count has been diluted significantly in the last several years to help finance a string of acquisitions.
>Famous Dave’s of America: Stable Growth in a Niche Market
January 26, 2011
>A Boston presenter likes Famous Dave’s of America (NASDAQ: DAVE, $10.56). This casual-dining chain specializes in BBQ dishes served in a unique, live-music accompanied setting. Over 70% of all stores are franchised, with 90 more units projected in the next 5 years. The company is rolling out a number of initiatives to boost same store sales. DAVE generates healthy cash flow. The stock is trading at multiples below its historical averages and versus the peer group. The company has been buying back shares and just last December announced another authorization for more than 10% of all shares outstanding. The Street’s coverage is very limited.
>Magnum Hunter: Well-Positioned in Three Largest Resource Plays
January 25, 2011
>A Boston presenter recommends Magnum Hunter Resources (NYSE: MHR, $7.02)as a buy at this level. The company has been adding to its assets in Bakken, Marcellus, and Eagle Ford Shale, three of the top five most prolific domestic unconventioanl resource plays. MHR’s old management returned to lead restructuring in 2009 and has been successfully pursuing a balanced acquisition strategy, buying up orphaned properties in MHR’s core areas of operation. Production is forecasted to ramp up four-fold this year. The presenter is targeting a 50% upside, base on his NAV calculations.
>Blackboard: Losing Market Share
January 24, 2011
>A Boston presenter recommends shorting Blackboard at this level (NASDAQ: BBBB, $39.11). This provider of learning management software for the education industry still dominates the space, but it has been losing share lately to open-source competition. Schools hit by budget constraints are increasingly turning to much cheaper options. The company has just lowered earnings guidance for Q1 and full 2011.
>The Tale of Two Economies
January 19, 2011
>As we close the book on 2010, we can’t help but sense a growing frustration politically, economically and socially. Yes the market had a good year, as we continued to see a rebound in consumer spending and business profitability off its trough of 2008-2009. But the housing bubble and subsequent monetary and fiscal response has itself created new issues. Worldwide debt has now become a focal point. We see a ten year plus period of government-induced growth combined with fiscal and monetary irresponsibility can create. Now we have to see if this realization can lead to some soundness in responsibility.
What so many businesses are realizing is just how bad it got and many have still not forgotten their experiences from the last (technology) bubble of 2001. This has caused businesses to hoard cash and protect balance sheets. Over two trillion dollars are on the sidelines frozen by fear of domestic tax policy and government regulation and general lack of incentive to spend. Without clarity, much of this money lies in overseas accounts of multi national companies unwilling to repatriate the asset in the U.S. due to inefficient tax and regulatory policy.
The consumer (70% of the economy) dipped its collective toe back into the spending marketplace in late 2010. But increasingly this sector is reflecting the two tiers of those who have it and those who don’t. Not only do we maintain a high unemployment rate but clearly 20% of the labor force today is unemployed or underemployed. This is a great weight, unlike past recoveries which have tended to see unemployment trend lower much quicker. This is reflective of companies not spending and hiring and not certain of how to allocate assets to grow.
Add to this the economic reality now facing government. Around the world we see the hangover of politicians who have not taken responsibility for funding social programs and spending over the last few decades. It is catching up with them. Starting with Europe where social spending has been the most aggressive the debt burden is the harshest. Without the ability to print money the way the U.S. Federal Reserve can produce, the sovereign debt of many in the European Union is going to be under pressure for years until spending can be right sized to revenue. It remains to be seen how this can be done ,but in the U.S.A. we have a similar issue with our states and municipalities. They also can not print themselves the cash to pay for the benefits and programs promised to public employees and retirees as well as to fund programs currently planned.
Domestically, the focus has been on the federal debt and although this will be a large concern the more immediate problem is our state and municipal spending issues. We will be watching closely as this is we believe the biggest risk looming in the next 12 months and how our government spending and revenues trend. Government has to start spending on infrastructure and job creation. Spending on social stimulus and tax creativity does not create jobs. The most important measurements to watch on this front are household formations and business formations. This will affect unemployment on a more permanent basis.
In 2011 the consumer is not going to grow enough to bailout the government. Key indicators to watch for the consumer are disposable income and savings rates. As long as these two can maintain the current high levels relative to the past few years, we should see stability. The overwhelming issue to the consumer is housing. With regional exceptions, primarily in affluent areas, housing has changed the landscape for a generation. No longer is real estate the sanctum of growth so many had based their retirement and savings plans upon.
This has changed confidence and shaken our banking system. The hangover is by no means over. Without government policy to change the overhang of inventory and the approximately 20% of homes in America in foreclosure or default the banking system will teeter on this issue indefinitely. This risk is real and creates a logjam for further spending, bank lending and overall consumer confidence. Unemployment will remain frustratingly influenced by this issue. Bank lending reluctance is in large part directly influenced by the housing and commercial real estate portfolios of the financial system locked up by underwater valuations. The impact to mark to market assets that make up a crippling percentage of bank balance sheets must be addressed for any significant change in consumer growth or bank credit availability. Banks are only aggressive now to the good credit customers. To others the doors are and will remain closed. The tale of two economies.
For the markets we are watching for guidance of these indicators we mention above. In general, the institutional invest has been bullish but the individual investor remains in large part on the sidelines. Although in the past this has been a positive indicator, we believe today it is more indicative of the uncertainty of consumers and their confidence in their government leadership. The recent elections created some short term stimulus if in nothing else but hope. The results remain to be seen. Clearly many bonds have become an unattractive alternative to stocks except in the municipal and higher corporate risk sectors, but only for those who understand these markets. We believe the fixed income market today is best exposed if done through hedging and more aggressive asset management. We believe this lowers risk and volatility.
In equities we see a two tier market reflecting the two tiered economy. As we have seen value outperform growth in general over the last decade, it is quite revealing of the tech bubble in the early part of the decade and the financial bubble more recently. It helps explain the impact of compounding to those who monitor performance closely. International exposure has helped earnings and performance in particular in the last few years, and we believe that will continue to be the case. Sectors with higher international exposure include Technology (54%), Materials (43%), Industrials (35%), Consumer Staples (33%) and Energy (29%). It is interesting to note these sectors are all doing relatively well. Despite the fact that Health Care also has (29%) international exposure, its performance among groups, strong return is noticeably absent. This is very reflective of the government regulatory uncertainty we mentioned earlier continuing to drag on the economy.
The economy is split. Those industries exposed to international customers, commodities and industrial growth are excelling. The U.S. farmer and miner as well as the trucker and locomotive engineer are busy. Factories in capital goods (especially overseas) are chugging along well. China is continuing to be the engine of growth as do some of the other emerging economies. We don’t see this changing without a significantly greater debt problem either in sovereign debt or the U.S. banking system, which does still create the potential of significant volatility. We like the general valuations in the market. At the same time, diversification and hedging are key ingredients to deal with the uncertainty that any of these unknowns might influence.
The world markets have become more volatile. Faster flows of information and media hyperbole have been discussed many times by us as having significant impact to the markets and not all good. But the reality is right now that in large part the individual investor fled the equity markets in the last few years and now has watched the appreciation of the last cycle mostly from the sidelines. A lot of cash is in money markets and low yielding savings. Mutual fund flows have moved out of domestic equities (reflecting mostly individuals) for over 18 months. We will watch the measurements we discuss here very closely in 2011, as well as the government and investor response. An asset advisor needs to be rotating to respond to this environment and we intend to be engaged.
>See Roulston Research Consultant Today on CNBC
January 10, 2011
>Paul Ingrassia, Former President, Dow Jones Newswires, and member of Roulston Research’s Consulting Team will be on CNBC today at 1:20 PM ET to talk about the Detroit Auto Show.
>Tatum/Roulston Report
January 10, 2011
>This months Tatum Survey clearly reflects the improvement in outlook. From all of our discussions with managements one thing is clear. The election didn’t actually change much, but it sure changed business attitudes. The results of outlook are substantial over the last two months in expectations especially for hiring and backlog growth. In addition capital spending looks to be another area of optimism.
On the other hand multiple conversations this week with bankers are not heartening. The Tatum Survey reflects that access to bank lending is showing little improvement and the banks are confirming that they have real estate problems that are not going away anytime soon. This is a heavy weight on capital access. Though many companies are flush with cash, the reality is that business formations, household formations and unemployment reflect a two year period of few options for those not established. This trend is stubbornly reflecting a two tier economy. Mining, farming, transportation, manufacturing, energy and many downstream channels in these industries are improving and some at record levels. With personal savings at still relatively high levels and disposable income higher the consumer is in recovery but their balance sheet just does not seem pretty.
We believe there is relative strength and good momentum fed by some optimism of Washington movement. In the past the hope usually does not necessarily lead to reality. That having been said there is improved growth, there is optimism and those two factors should never be underestimated.
Tatum LLC is a nationwide firm specializing in the providing financial and information technology services and executive fulfillment to companies across the country. This joint effort with Tatum is a unique partnership that will provide a differentiated view of business trends – The Tatum/ Roulston Report.
To read the full survey click here.
>Roulston Research Consultant to Appear on CNBC
January 6, 2011
>Tune in to see Paul Ingrassia, Former President, Dow Jones Newswires, and member of Roulston Research’s Consulting Team, on CNBC Wednesday, January 12 at 10:00 AM. Don’t forget about our roundtable with Paul on January 27 at 2:00 PM in New York. If you want to attend or dial in contact Tom Roulston at 216-780-9581
The Collaborator 