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Early Movers for Tuesday February 5, 2013
Posted by: mfinvestor (IP Logged)
Date: February 5, 2013 09:56AM

The markets look to rebound today after yesterday’s pullback as the S&P 500 had its biggest decline since November. In my opinion, market valuations are a bit rich with the Shiller P/E, a ratio to measure the markets current valuation, trading well above its mean. To bring this measure closer to the mean, corporate profits would have to increase or the market would have to decline. Earnings season will give us a better picture of the former.

Several companies reported earnings yesterday after hours and today before the bell that should impact several Gurus portfolios.

Yum Brands (YUM) stock is facing some downward pressure after the company reported a fourth quarter profit of $0.83 per share, beatings the Street’s consensus by a penny, but same store sales in China, its fastest growing market, fell 6%. At the same time, the company mentioned it does not expect to achieve any earnings growth in 2013 as it deals with food safety concerns in China. For the most part, Gurus have been sellers of YUM with Robert Karr recently doubling his position so that YUM now represents 3% of the Joho Capital portfolio.

Becton Dickinson & Co. (BDX) reported earnings of $1.35 per share versus the Street’s estimate of $1.24 as revenue and margins increased in all segments. At the same time, Becton raised its revenue guidance and is now expecting per-share earnings from continuing operations between $5.69 and $5.72, up from its prior view of earnings between $5.58 and $5.64. Gurus who have recently purchased shares of BDX include John Hussman and Richard Pzena, but neither Guru’s stake in BDX can be considered significant.

BP PLC (BP) is reporting a 80% drop in profit which is mainly due to payouts resulting from the 2010 Gulf of Mexico oil spill. The oil giant took another $4.1 billion in write-offs bringing the total provisions to $42.2 billion. CEO Bob Dudley expects the oil spill to impact BP’s operations in 2013 as the energy giant seeks to raise cash by selling assets such as a 50% stake in its Russian affiliate, worth about $27.5 billion, to Russian giant Rosneft. Gurus for the most part are avoiding BP due to the legal issues the company is facing. Keep in mind, the $42 billion or more is being used to settle criminal charges by the Department of Justice. BP is still facing a civil trial in New Orleans that is coming up later this month. Some analysts are estimating fines of up to $20 billion. John Hussman recently added to his very small stake in BP, but his 2,600 shares have no significant impact to his portfolio.

Shares of J.C Penney (JCP) are down as the retailer has asked a judge to block bondholders from declaring default on an estimated $3 billion in debt. J.C. Penney received a letter earlier on Monday from the Brown Rudnick law firm which said the retailer had breached a covenant of a bond indenture agreement by granting a lien on its inventory, according to the complaint filed in the Delaware Court of Chancery (source). Gurus holding shares of J.C.Penney include:
Under current CEO Ron Johnson, J.C. Penney is hoping to transform itself from a price-driven retailer to a retailer offering competitive pricing (fair and square) with a better shopping experience. Although the lawsuit has to do with its inventory, some analysts believe Johnson is pushing the limits on how much cash the company can spend on renovating its stores. The transformation story is compelling, but bulls of J.C. Penney will have to face ups and downs and more importantly, be patient as Johnson works his magic. Johnson is set to appear on CNBC at 11:30 a.m. to discuss the transformation.

Disclosure: None

Guru Discussed: John Hussman: Current Portfolio, Stock Picks
Dodge & Cox: Current Portfolio, Stock Picks
Stocks Discussed: YUM, BDX, BP, JCP,
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