The market sold off today as it couldn't keep ignoring the data and finally had to come to grips with where the bad macro news had touched it. The biggest negative was the Fed's Beige Book report which failed to titillate the market like either Money McBags' book report on the Kama Sutra (which he described as both thought provoking and delicious) or Fonzie's little black book.
In Bernanke's beige book we found out that economic activity has slowed in some areas and that Federal Reserve Bank President of Cleveland Sandra Painalto doesn't let you get to second base on the first date (Newsflash Sandy: If you ever want to get out of Cleveland, you're going to need to loosen up a bit, lower your reserve standards, and give Bennie B. some of that gold you've been hoarding). Eight of the twelve regions tracked by the Fed saw growth including New York, Richmond, and Andy Roddick's pants (he is married to her, you know that right?), while Atlanta and Chicago saw a slowdown, and Cleveland and Kansas City held steady. The Fed cited high unemployment, an ailing housing market, and consumers being more fucked than Lisa Ann in I'm a MILFaholic as reasons for the slower than hoped for recovery.
In other macro news, durable goods orders fell by 1% in June while analysts had guessed they would rise by 1% which makes guesses just an absolute value sign away from being correct which is a fuckload better than usual. Orders for long lasting goods like machinery, metals, and herpes were down the most they have been in almost a year and a half. Even worse, non-defense aircraft orders tumbled 25.6% after falling 30.2% last month as airlines brace for the continuing growth of staycations and poverty.
Finally, mortgage applications fell 4.4% last week but were led by a 5.9% drop in refinancings as rates ticked up 10bps and anyone who still owns a non-foreclosed upon home has pretty much already refinanced it. Surprisingly new home purchase mortgage applications were up 2% but since the majority of those will likely be rejected, that 2% number is more fictitious than the easter bunny, santa claus, or male affectionate lesbians.
In stock news, RIMM jobbed it's way up today despite the bad taste it has left in investors' mouths as of late. Rumors are that the company will be launching a new operating system and potentially a new keypad before officially giving up to AAPL and thus becoming the second biggest thing to ever be defeated at Waterloo (fyi, RIMM's headquarters are in Waterloo, Ontario).
Also, BA nosedived a bit after reporting a strong bottom line but a weak topline which was down 10% from last year. The company did reaffirm guidance which was slightly below analyst guesses but BA promised their new 787 would be more spacious and thus allow more opportunities for flyers to join the mile high club. And finally, Moody's lowered their ratings on banks BAC, C, and WFC from stable to negative citing lessened government support for banks under new regulations and something about shitty track records which means those banks are going to eventually need that lessened government support. And if any company knows what a poorly run company who sucks at their jobs looks like, it is certainly Moody's who never saw a huge market collapse it couldn't misinterpret.
In small cap news, beta sold off as these stocks had run strongly over the past week or so as if they were trying to catch a glimpse of the delightful Melissa Archer and thus it's not surprising that investors would want to take profits. CTGX reported last night and results were pretty much inline with Money McBags' expectations. The company grew revenue 21% thanks to both strong staffing and health care services businesses. Health care services is now 27% of revenues and should start driving this business like Nipsey Russell drove all of the housevies crazy on the Hollywood game show circuit in the 1970s. In addition to a solid topline, SG&A was down 120bps, operating margins were up from 3.6% to 4.3%, and EPS went from $.09 to $.12.
The stock sold off on the day though due to the general market taking it in the yingus and lowered full year EPS guidance by CTGX due to a reduction in demand for solutions work from one of their large customers in their energy practice. Excuse me while Money McBags yawns on this one. Full year revenue guidance was increased to $320MM to $328MM from $314MM to $322MM (which is 18% growth) while eps guidance was reduced to $0.45 to $0.51 from $0.47 to $0.55 and although it is down, it is still a 26% increase from 2009. But the point is, Money McBags gives less of a shit about 2010 guidance than he does about Alan Greenspan's thoughts on the housing, Nassim Taleb's thoughts on lyrical prose, or Audrina Patridge's thoughts on anything other than which hole to enter.
As said frequently in this space, the coming electronic medical records implementations (and they are coming because the government has mandated them, not just because they ran in to Sonya Kraus in the hallway) are going to be huge for CTGX. As the CEO said in the press release: "We believe we are still in the early stages of the significant increases in demand expected for EMR assessments, systems implementation, and development work."
This Q, EMR was 1/2 of their health care business which was ~$10MM in revenue and means they were working on 13-20 installations at ~$2MM-$3MM a project annually. But the thing is, only ~10% of hosptials have EMR and they are MANDATED by the fucking government to have them at least underway by 2014 so this business should scale faster than a business selling bronzer, or Valtrex, on the Jersey Shore.
Money McBags has gone through his valuation on CTGX here on When Genius Prevailed many times, so feel free to throw it in the search box, but this company is set for strong growth over the next few years so use this sell off as a potential buying opportunity. Obviously the lack of trading volume and the fact that CTGX's boring staffing business is still ~70% of their revenues is a concern, but as long as EMR is on the way and this company isn't full of shit about their ability to service that sector as aplombly as Bunny De La Cruz services the ding dong sector, the company should see solid growth.
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