Friday, April 30, 2010

Penske Desperate To Avoid Dilution

Penske (PAG) engineered it’s balance sheet with this comment “The Company repurchased $71.1 million principal amount of its 3.5% Senior Subordinated Convertible Notes due 2026 in open market transactions for $71.7 million in cash during the first quarter, leaving approximately $235 million principal amount of these securities outstanding.”

This is over 300% of net income available for shareholders. Penske is a capital intensive business. Trucks and cars not to mention the parts inventory need financing. They have a 48% debt to equity ratio. Buying the sub notes at par is preplexing. They claim an open market transaction. The market in a $300 million issue is thin. I think someone had lunch with someone , went back to the office and made phone calls.

Sure there is a small avoidance of dilution. But overall cash is being deployed for desperate reasons not shrewd and savvy reasons.

Disclosure: No position in this stock

Thursday, April 29, 2010

Baidu -- Sexy Financials -- Impotent R&D

Baidu (BIDU) lays out some growth numbers and continues to make Yahoo (YHOO) look good. 60% increase on the top line and 165% increase in net income. Applause please.

Google (GOOG) in China looks confused but they were savvy enough to ignore that one.

Google has a monster algorithm. Baidu has next to nothing in R&D spending. They are only up some $18 million because they hired a few guys. The R&D spend seems to track revenues by 10%. They may be big now but someone can beat that. Baidu does not even brag about R&D or claim its a strength.

Given the level of innovation within China, Baidu is vulnerable.

Then Yahoo hits another air pocket.

Disclosure: No position in this stock

Wednesday, April 28, 2010

AOL Dream State Disclosure

AOL (AOL) seems to be in a dream state when reporting Q1 results. Tim Armstrong, Chairman and Chief Executive Officer was quoted as saying AOL continues to make progress against our long-term objective of becoming an internet growth company.

What is an internet growth company? What services do you provide? Why does someone use you? The terminology is a throw back to the dot com bubble. Investors should worry about the Tim Armstrong mindset.

Speaking of growth, revenue is down 23%, net income down 58% and free cash down 55%. Internet growth story? Well the cash burn looks familiar. But we all know how that turns out.

If a lot of AOL costs are restructuring why was this not done before the IPO? Time to review disclosure from TimeWarner. Where are the lawyers on this one?

Disclosure: No position in this stock

Tuesday, April 27, 2010

Goldman Sachs -- Creative Suicide Next?

Goldman Sachs (GS) got a political beating today. The politicians know when to kick Wall Street and get votes from Main Street. Goldman clearly does not know how to manage image or public relations. The vilification is instant and causes even the most loyal client to pause for thought. Many would think Goldman is upping the life boat drills.

The issues will be vexatious and absorb much valuable time at Goldman which could be better used in making money.

So why stay on a slow or stopped boat. There are probably lots of individuals considering non Goldman career options. Goldman will want to re-invent itself and get back to Wall Street.

Go to the Fed Reserve and just give them the keys. Here you go it’s yours. The Senate has prejudiced our life. We’re outta here. Then you walk down the street, find some office space this time in Manhattan and start over.

Creative suicide intersects with structured finance.

Leave behind the political issues and start fresh. If the Federales disapprove how Goldman conducts itself then they can take it over. Goldman will have to engineer the financial structure of the century through a pre-negotiated bankruptcy. This will blow off the liabilities and force them into the Fed’s hands. The American tax payer suffers yet again.

Someone will pay. Someone will hang.

Disclosure: No position in this stock

Monday, April 26, 2010

Citigroup Tax Payers Cheated Again

Citigroup (C) Uncle Sam is starting to exit its position. Morgan Stanley was hired to auction off some shares. The stock still floats below the psychological $5 @ share point. The Fed will probably realize well over $30 Billion upon full disposition. That’s a few brand new aircraft carriers.

The trade is a political one and does not bear any relationship to any investment logic that may exist out there. If the Fed were a true long term investor and really wanted to maximize its wealth then hang on. When they finish fixing Citi it will be worth more than $5 @ share.

Risk assets were transferred from private hands at a key inflection point that could not look any worse. Now that Citi is showing true signs of recovery the tax payer gets shafted. Again. As the tax payer is not being compensated for the risk it took. In the meantime senators debate financial reform but do not realize they have been taken for another ride.

Disclosure: No position in this stock