Ironic Headline of the day: GMAC's Here we go again

Today's Ironic Headline of the day comes via the New York Times and their humorous and insightful take on GMAC. Granted this is the first 'headline of the day' post ever written for WC Power Tech Fund Investment Blog but reading the NYT article (Link) the irony was too pronounced to ignore.

Here's the New York Times Headline: "With Needed Cash, GMAC Will Ease Lending Rules"

Seriously?? GMAC, whose automobile financing business has been in utterly dire straits as the credit crisis unfolded in the 2nd half of 2008 in step with domestic auto maker General Motors (GM) own struggles on its way to the brink of bankruptcy, now starts back on the same path? Let's hope these firms learned a few lessons along the way.

It was the ease of lending restrictions that got infamous mortgage houses Fannie Mae (FNM) and Freddie Mac (FRE) into such a mess in the first place. Armed with $5Billion of Government Bailout money the auto lending business can get back into full swing, or so thinks GMAC. According to the New York Times, the company is lowering its credit score from 700 to 621 for Americans to qualify for financing in order to stimulate business and expand the current potential customer base.

Credit scores of 620 or below are considered by the credit bureau to be "higher risk transactions" so at the very least GMAC is steering clear of those for the time being. It has been a tumultuous few days for the financing company, which is jointly owned by GM and private Cerberus Capital Management, its last second win or approval to become a bank opened the possibility for bailout funds in order to keep the company afloat. The Federal Reserve gave tentative approval for GMAC to become a bank holding company and thus allowed it to tap into a portion of the $700Billion bailout passed by US Lawmakers those months ago.

Clearly the infusion of cash gives GMAC invaluable time and monetary room in which to conduct and grow a broken business, but for investor sake, the company had better not be on a path of 'Here we go again'.

Disclosure: Author holds no position in above mentioned companies.

Happy Holidays from WC Power Tech Fund

Wishing everyone a Merry Christmas and a Happy Holidays 2008!

Apple says 2009 MacWorld to be its last, Keynote sans Steve Jobs

Spin the panic wheels and beat the panic drums, Apple (AAPL) is pulling out of MacWorld. For years the marquee event for most Apple faithful, 2009 will unfortunately be the company's last hurrah.  On top of that, stock holders should feel some momentum pain as Steve Jobs will not be giving the Keynote speech at the final circling of the wagons.

The reasons given by the company were clear. Apple's too big now and too global to succumb to the whims of trade shows. Granted the corporate speak was a little more amiable.  With iPhone sweeping the globe, the AppStore a certified hit and Mac's selling in record numbers in a multitude of demographic and geographic segments, the company is actually right on the money.

The rumor-mills and press brigades will be sad to see the company go from the spotlight of MacWorld, but if this year has been any indication Apple continues to innovate and send out their darling press invites for more intimate Q&A sessions to show off new products or services. There's nothing in today's announcements to suggest these will not continue either.

While this announcement will cause a bit of a sell-off, likely led by the lingering questions of Steve Jobs health, it is clear Apple is shifting the power structure, or more so the perception of the power-structure of the company. The last press events have seen Jobs take a much smaller role in presenting and explaining. Even though I feel Apple is a much stronger stock and company than say Microsoft, I do see Apple taking a similar approach in moving Jobs into a "Chief Apple something" role in the future so that the company can be eventually transitioned with someone else as CEO.

Yes Jobs is a huge part of Apple's uprising and a huge part of the vision of the company, however with its market position, its small (albeit growing push and need for the enterprise) and its multiple product platform (iPods, computers, phones, music distribution, application distribution etc.) and its massive cash horde the prudent thing to do would be to position this "flier-momentum" company into its next phase of growth on a more even plane.  And that's shifting away from shows, doing product releases and showcases on their own terms and moving along with other potential acquisitions.

All Apple faithful love Jobs for everything he has done for the company and I don't think this is directly related to his health at all, but rather a move to begin to transition the spotlight to others at Apple. The sheer shock from "change" is enough to send Apple lowered, but investors should stay confident for a stronger than expected 2009 and beyond for the stock and the company as a whole.

Disclosure: Author is long AAPL

Electronics a tough sell yet Best Buy stands by forecast

Oh to be a Electronics Retailer during a recession, roughly as sought-after a profession as 'Big 3 personal flight crew', after that first trip to Washington. But Best Buy (BBY) is holding on in the midst of turbulence while its main competitor has all but bowed out. With Circuit City Stores (CCTYQ) trading OTC and trying to stay afloat, BBY would seem to be serving for the match. If only customers would come to the stores and buy that is.

With profits down 77% year over year in the latest quarter it appears on the surface Best Buy is facing some troubles of its own. But the company is being run effectively despite consumer spending reports that are on record as the worst since the early 30s.

So to the numbers: Quarterly profits of $0.13/share ($0.35/share excluding special items) were better than expected. Analysts had the numbers pinned at $0.24/share excluding special items. Revenue also topped expectations at $11.5Billion vs. $11Billion estimated. For retailers the all important same-store-sales metric was watched closely and Best Buy numbers fell about 6% for stores open longer than 1 year. Now in this environment, a 6% drop has to be put in perspective and seen as a slight positive. Overseas sales rose slightly, fueled by growth in mobile phones. So, somewhere, somethings, have people buying. Nonetheless Best Buy is taking a cost cutting approach to share price appreciation, offering buyouts to thousands of employees and slowing store growth in North America and China. Best Buy hopes to cut capital costs by 50% over next year. Certainly ambitious!

For those workers who don't accept the buyouts, there will certainly be job cuts ahead at Best Buy Corporate. The outlook is much brighter for shareholders though, as cost cuts will certainly help profitability in a tough 2009 and the fact that Best Buy kept its lowered profit forecast in tact over the Christmas helped matters as well.

The company expects to meet its range of $2.30-$2.90 (a wide range to be sure for the year through February) and falls in line with analyst estimates of $2.47 for the year. The positives in this report propelled shares higher by $2.50 at the end, and the Fed rate-cut fueled shares to close higher by 18% ($4.21/share). This also notched the BBY P/E ratio to near 9, which is reasonable in most respects but perhaps not in this climate.

Nonetheless, the retailer should trade in a P/E range of high single-low double digits going into 2009, so while today's rise (and its recent climb from $17) makes Best Buy a less attractive on a valuation basis, the competitive landscape clearly leans heavily towards BBY, making it an attractive hold for when America rises from the consumer spending blues.

Those on the fence, it will likely be available for the mid 20s soon, which makes it a steal for the next year and a half.

Disclosure: Author is long BBY

Investor eyes to be on Goldman Sachs tomorrow

2008 will be remembered as the year Wall Street ceased to exist! The Investment Banking model essentially died with elaborate, excessive and downright dangerous investments in poor credit. The companies that have survived on their own, Morgan Stanley (MS) and Goldman Sachs (GS) had to change their business structure and take government money. A year to forget for all financial companies.

Write-downs have been aplenty, but somehow Goldman Sachs has been able to keep everything on the profitable level. While profitability has been in substantial decline for the firm lead by Lloyd Blankfein, Goldman was the one investment bank that could claim profits quarter after quarter. This time however, investors expect the party to end.

With Goldman on tap to report its quarterly results tomorrow morning, analysts are giving no chance of profitability by predicting about a $3/share loss. As bad as things were, Goldman was prior still expected to eek out a tiny profit. But with the market's latest downturn, the worsening of the US economy and the lack of business deals in a quarter marked with losses that eek has turned from black to red by those same analysts.

According to MarketWatch, analysts expect a $2.83/share loss for Goldman Sachs, while a similar number is seen from Zacks Investment Research, with an average loss of about $3.30/share expected. Goldman shares have been on a steady decline, but were propped from lows in the $50s to a near term high of about $80. Investors should note that Goldman has surprised before, and can surprise again. The first quarterly loss during the public history of the company seems inevitable via the collective of analysts but the size of the loss will determine Goldman's direction going into 2009. With shares sitting in the mid 60s, a positive (relatively speaking) result may spark shares back to near term highs.

While economists and market analysts expect 2009 to be tumultuous to say the least, the common perception is that the latter half of 2009 will proliferate a US recovery, spurred by President Barack Obama's infrastructure initiatives and a return to typical lending practices for the major banks. Goldman will be primed for a recovery rally with the market, but as it is transformed further into a bank, expectations will be muted for sometime to come.

With that in mind is Goldman a good investment? A resounding yes! The smartest folks on Wall Street work for a company that has seen all but one of its competitors go bankrupt or be bought up by larger financial institutions. MarketWatch analysts have an average target of $135, but $100 may be more reasonable over 2009, based on market recovery, which potentially finds Investors of Goldman netting a 54% gain.

The competitive landscape has surely changed but Goldman was left standing. It had always been the strongest in its field, and after investors digest tomorrow's results a case can be made whether it will continue to be.

Disclosure: Author owns GS