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Thursday, July 26, 2012

Flying and Soaring Watson Pharmaceuticals

I estimated and you beat it. That is what Watson Pharmaceuticals (NYSE: WPI) has done to me! WPI has always been my favorite healthcare pick alongside Novo Nordisk for a year. Strong fundamentals, eye-catching financials, robust pipeline and stupendous expansion- this is what WPI stands for to me. Today Watson released their 2Q 2012 earnings and they beat all estimates. Whether you give credit to generic Lipitor(r) or to generic Lovenox(r) or any of the above qualities I mentioned, Watson has been delivering.

Watson is one of the biggest and fastest growing generics manufacturing company in the world. As per above figure, its global brands business complements its rapidly expanding global generics and anda distribution businesses. 2Q 2012 results do not reflect the effects of recently passed Healthcare Reform Bill which provides rosy outlook for generics. Moreover, it does not reflect the recent acquisition of Actavis. If WPI gains the expected synergy from Actavis acquisition during 4Q 2012, it will prepare WPI to set 2012 annual revenues to beat the street estimates.

When I ran the valuation model few months ago, I got the price target of approximately $73. And WPI is above that right now. It was and it is a "strong buy" to me.

Thursday, May 10, 2012

Business Cycle Transparency

Developed economies are more transparent than emerging economies are. We all have heard about this, haven't we? If that is the fact, then I need to make myself work harder to believe it.

After the great recession hit the world in the year 2008, I could never understand clearly in what phase of the business cycle the US was and has been. Is it early upswing or late upswing or is it slowdown? Only thing I am sure about is that it is certainly neither initial recovery nor recession (please correct me if I am wrong). Recent healthy economic growth and relatively low inflation in the US suggests that we are in early upswing. There are no restrictive policies in the place as of now and that does not put us in the late upswing phase. But nervous investors have begun to think that equities are volatile and stock market is near its all-time peak in the 2007. Isn't that favoring late upswing? It is dilemma to me since I am not an economist! Capital market expectations are always critical to judge after prolonged recessions and a depression. If we observe emerging economies, they are believed to bounce back from shocks faster than developed nations do. This was true even after the great recession. For example, India is clearly in late upswing phase where it is feeling tremendous inflationary pressure. Equity markets in India have shown considerable volatility. Monetary policies have become restrictive and short rates are rising to curb boom mentality. India is showing business cycle transparency which I want to observe here in the US. But I may be asking too much from $14 trillion economy. Perhaps that transparency has partly been offset by the great recession.

Monday, March 19, 2012

As I heard and expected, Apple has delivered finally...

$40, $50, $60, $70, $80, $90, $100 billion and counting. This is how the world's most valuable company has increased its cash over the last 3 years. Whenever companies sit on huge cash piles, there are always 2 possibilities. First, companies become conservative, especially post-recession years, in capital investments and hiring, and reports plethora of cash to combat another economic stress. Second, companies face controversial times from the investors. We strongly believe that Apple falls in to second choice.

When do companies pay dividends and when do they repurchase shares? Simple answers and simple signals. When a company believes that there are no more opportunities to invest money, acquire assets or there is a shrinking room for current above average growth, they pay dividends to reward investors. And when a company believes that their equity is undervalued, they repurchase some shares in the market. I have not performed any equity fundamentals on $AAPL and this is why I cannot say if its equity market value is undervalued or overvalued. But I can somehow convince myself that there is some decrease in growth is forecast by the management after a dream post-recession run and paying dividends is the best way to keep investors tagged along.

As I heard and expected over the last few months, Apple has finally announced to pay dividends and $10 billion worth of share repurchase today. Though its dividend yield is less than its peers, it is going to be interesting new chapter for Apple, being considered mature in the market.

Wednesday, January 4, 2012

Circuit City, you are not alone- said Best Buy

It was Forbes magazine's "Company of the Year 2004" and then it made in to the Fortune's List of Most Admired Companies in 2006. It survived the financial catastrophe after 2007 unlike its rival Circuit City, but seemingly it does not want to leave its pal- Circuit City alone.

Consumer spending has been above the levels businesses saw in 2008-2009. As per reliable sources, Black Friday and Cyber Monday sales of the year 2011 were up by 26% as compared to the year 2010. These all favor the prosperity of the retailers like Best Buy. But that is not the fact. Financial statements and stock performance of Best Buy deliver the different and dubious story.

Source: Yahoo! Finance

Best Buy is losing their support in the equity markets."Going out of the business" is a probability after 2-3 years and no one is able to put that out of the question. But why only Best Buy? My only explicable answer is:  "the fierce competition" from diversified retailers who have many other things to offer unlike Best Buy. Free shipping, heavy discounts and extended season of the deals cause only one thing and that is shrinking Best Buy's margins. I have no specific thing in my mind which Best Buy can do to come out of this misery, but if they are not able to do anything revolutionary, those shrinking margins will eventually burn all cash.

Few days ago, I read an article on Amazon, which was considered to be "Online store of Best Buy". I could not deny with that, could you? Because that sums up everything here...