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From The Back Page…The Greatest Stories Never Told
Author: James Brumley (info)
Website: http://bluegrassportfolio.com
Posted: February 18th, 2008 at 1:09 pm EST
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It’s easy to spot which newspaper stories were dug back up from the ditches of obscurity (i.e. the trash can). They’re usually found on the back page of their relevant section, often wedged in between the ad for a lost puppy and a last-minute obituary. The thing is, I can find more gold nuggets from the back page than I can in the headlines.
Anyway, I found these nuggets as I was pan-handling today.
Could You Please Pass the Jelly?
Maybe if J.M. Smuckers (SJM) shoved a micro chip into each jar of their jelly they’d be able to able to glom onto the media’s love for all-things-tech. However, that would turn their jelly into the ‘crunchy’ variety…a choice that really only works for peanut butter.
What you may have missed in all of Friday’s hype was J.M. Smuckers’ Q3 earnings. Quarterly net income was up by 5% while sales were higher by 27%, on a qoq basis. Rising commodity prices took the biggest bite out of the bigger piece of top-line pie…no pun intended. (OK, the pun was intended.)
Not bad. Not great, but not bad. I’m just surprised we didn’t see more coverage of the announcement. That’s a pretty sweet revenue increase, which is usually the hard part of the business. I look for similar growth results in the future.
On a side note, I actually like Smuckers here….not the jelly - the stock (though I’ve got nothing against the jelly). If we’re in the recession I already think we’re in, and consumer staples get pushed to the head of the class, Smuckers could prove to be tasty.
(Why do I have a sudden craving for a PB&J?)
Just Crazy Enough to Work
Another news bullet largely skipped by the media was Illinois Tool Works’ (ITW) 15.8% improvement in revenues. Next quarter isn’t expected to be quite as good…only an 8% to 11% increase in sales. It wasn’t an official (SEC filed) report though - maybe that’s why barely anybody touched it.
Regardless, I think the forecast is encouraging. See, Illinois Tool Works is one of those crazy companies that thinks it can get by on real results, like higher revenues and higher earnings. What an old-school relic! Remembering the glory days of my own ‘old school’ phase, I probably would have liked those reliable sales increases and increasing earnings (sigh).
My only issue with ITW is macro-economic based. A machinery company has nowhere to hide in a recession. If the gathering of the bears turns into full-blown riot, real results may not be enough.
Fewer Choices, With a Side of Higher Prices
This wasn’t actually gleaned from a specific back page story, but rather a healthy smattering of related stories over the last few days. It grabbed my attention because of that overused, math teacher’s nightmarish cliche “the whole is greater than the sum of its parts”. When it comes to airlines, I think the whole is actually less than the sum of its parts - which is why all this merger chatter has me nervous.
The big ones most of us know about…Continental & AMR, Continental & United, Delta & Northwest, AMR & British Airways. American and Jet Airways have already teamed up with a reciprocal frequent flyer agreement.
It’s the quantity of smaller merger rumors that leads me to think we’ll have a choice of about three carriers by this time next year. Check it out…
* Air France is jockeying to get in on the potential Delta/NorthWestern deal
* Air Canada reports they’ve been approached by potential suitors
* China Eastern and China Southern are partnering up as far as ground support goes, though haven’t merged per se. (Verifying that airline’s woes are not unique to the U.S.)
* TAM & Lufthansa are reciprocating each other’s frequent flyer miles.
And these are just the ones I could readily get my hands on. I suspect there are more out there, with the smallest of the small being eyed as take-over targets rather than rather than partners.
So what? There are two things I feel investors need to take away from this.
The first is, a tiny, off the radar online with decent numbers could be a take-over target. Don’t just look domestically though; if you have access to foreign stocks (or even ADRs), you may have a short-term opportunity.
The second item? This terrifies me, for many reasons. Could all of this turn into a two (or three) horse race? If so, good-bye choice, hello higher prices. The irony is that deregulation ultimately worked against the average consumer, even if on a delayed basis.
As far as investors are concerned, I don’t think bigger is better. Airlines are run lean already, so how are the shared costs going to make a difference? I just don’t see it happening. The only thing I see is a less competitive environment.
That’s not good for travelers, and in the long run really not even great for these stocks.
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Economics, Investing, James Brumley, Sectors, Stock Market
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