Charts and Commentary
Today: Let's have a Reality Check ...
Imagine that you are a loan officer at a bank. A customer comes in and says, "My hours got cut back, and my weekly paycheck just went from $395.40 a week to $190.20 per week. My boss also said, that he expects that his earnings to be less this quarter ... so there may be more trouble ahead. Anyways, what I wanted to ask is ... will you give me a loan for $10,000?"
As the loan officer, which do you say?
1. Sure Joe, are you sure that's enough ... can I give you more?
2. Sorry Joe, I can't give you the loan because the bank would be worried that you couldn't pay it back.
That takes us to the Pulte Homes story ...
This is Wednesday's news for Pulte Homes:
Pulte Homes Profit Falls as Demand for Homes Drops.
Pulte Homes Inc., the largest U.S. homebuilder by market value, said third-quarter earnings fell 52 % as a flood of unsold homes showed no signs of abating. Their net income declined to $190.2 million, or 74 cents a share, from $395.4 million, or $1.50 per share. In addition, Pulte forecasted that they expected their fourth-quarter earnings will come in below analysts' expectations.
So, what does the banker in you do with this news? Do you sell the stock, or think that "this is a stock I should buy right now?"
Here is what happened:
On Tuesday, Pulte Homes (Symbol: PHM) closed at $31.76.
The bad news came out on Wednesday. Investors bought and the stock went to $32.20.
Yesterday (Thursday) ... investors must have liked the fact that Pulte said, "the flood of unsold homes shows no sign of abating", because they bought more and drove the price to $32.66.
From Tuesday to Thursday, they registered a stock price gain of $2.83%. Pretty good for announcing that your net income fell 52%. With this kind of investor reaction, one wonders if there must be some kind of brain virus in our drinking water.
And that takes us to the GM story ...
Have you noticed that General Motor's stock did pretty good this month?
On October 6th., GM's stock price was $31.05. Yesterday, it closed at $34.36 for a gain of 10.6% in about 3 weeks.
What's their news? ...
"General Motors said its losses for last quarter fell to $115 million, or $0.20 per share, from $1.7 billion, or $2.94 per share, in the year-ago quarter. Excluding special charges related to General Motor's restructuring plan, the company earned $529 million, or $0.93 per share, in the latest quarter. The special items include a write-down of assets at General Motors Acceptance Corp and funds set aside for handling possible costs at the company's former subsidiary Delphi Corp (DPH).
General Motor said its revenues rose to $48.8 billion in the latest quarter, from $47.1 billion in the same period a year earlier. The company cited reduced losses at its global automotive operations as the reason for a decline in its losses. General Motors said it was optimistic about resolving the various issues with troubled auto-parts supplier Delphi in the near future. The quarterly losses at General Motors' global automotive operations declined to $62 million in the latest quarter, from $2.5 billion a year earlier. The company reported losses of $374 million for its North American operations, down from $2.2 billion posted in the year-ago quarter.
What's coming next for GM?
Have you ever heard of AutoNation? AutoNation is the 115th largest company in the U.S. S&P 500, and about #332 largest in the world. They own and operate almost 300 new and used car dealerships in 18 states. They are the largest U.S. retailer of new and used cars
Today's news for AutoNation:
AP - AutoNation to Slash Detroit Orders
... AutoNation plans to cut orders to the Big Three automakers, which also include Germany-based DaimlerChrysler AG, by 30 percent because of a backlog of unsold vehicles.
This means that GM and others will have to cut production. When they cut production, their overhead cost-per-vehicle will be higher because it will be distributed over fewer vehicles. That will reduce the profit on each vehicle.
And yet, GM's stock went up 10% as vehicle orders were already slowing down.
Oh ... by the way, below is AutoNation's monthly stock chart from 2001 to now.
Pretty good for a company that is cutting their new car purchasing orders by 30% because they have just too many cars in inventory that aren't selling.
*** Now, we are back to you being the banker. Investors are investing more money in situations that look pretty scary at best ... and the DOW is making new highs. Question: Do you now run out and buy these stocks?
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