Thursday, November 02, 2006

Items of the day

A swiftly turning Arrow

A few days ago, Arrow Electronics [ARW] (a finance wonk portfolio buy) lost some ground (along with many other companies) after a Goldman Sachs report suggesting that demand for motherboards, the primary circuit board used in personal computers, was "falling off a cliff." Declining demand for key computer parts would reflect badly on the electronics market, or so the theory went. Chip makers certainly did not react well that day, with Intel losing 3.1% and the Philadelphia stock Exchange Semiconductor Index dropping 1.9%.

Bank of America is out countering the Goldman report, saying that they believe "recent investor concerns over a weaker-than-expected Q4 for motherboards is overdone." They say their checks with Asustek, a Taiwan-based motherboard vendor, "is not indicative of falling demand or a poorer outlook with regards to Q4." In addition, the Semiconductor Industry Association today said global chip sales in the third quarter were $64.1 billion, an 8% increase from a year ago.

I would say ARW remains a BUY.


Pharmacist, Heal thy balance sheet!

Herb Greenberg was already worried about CVS, but he's even more worried now that the company plans on buying Caremark Rx. "In past columns, I've pointed out more mundane items, such as CVS' stated high level of debt to cash and the inferior quality of store-level sales relative to Walgreen, prodding some naysayers to wonder how CVS' operating margins are higher than Walgreen's," he writes. "Now CVS is pushing hard into the pharmacy benefit management business by acquiring Caremark to create a business that -- thanks to one deal layered upon another -- could make the newly combined company largely un-analyzable."

Too bad, healthcare and services will be a nice area to invest in for the future if the economy softens.

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