The McGraw-Hill Companies (NYSE: MHP), a distributor of business information and educational materials which counts Scholastic (NASDAQ: SCHL) as a related stock, issued third-quarter results earlier today. Sales contracted over 8%. Net income on a dollar basis dropped almost 14%. Earnings per diluted share decreased a very unlucky 13% to $1.07. At least expectations were taken out. Earnings.com indicates a beat of two pennies for per-share profit.
The declines are pretty understandable. When you think about McGraw-Hill, you understand fairly quickly that the company's business model is tied closely to the economy. Education markets must be tough given all the budget cuts happening in school systems across the country. Plus, spending by administrators is probably done these days very slowly and carefully.
Scholastic (NASDAQ: SCHL), the publisher of the Harry Potter books, issued its first-quarter numbers on Thursday. Although things do seem to be improving, I can't say I was wholly enchanted by the data.
Net sales from continuing operations rose 14%. Okay, that's a good start. Double-digit rises are always respectable. But then we get to the bottom line. Scholastic, which is a related business to McGraw-Hill (NYSE: MHP), lost 68 cents per share from continuing operations. Now, sure, the loss was considerably less severe than the year-ago black ink of $1.13 per share. But I always get nervous when I read about losses. Can't help it.
Just call it 'one win, one loss' with these two shorts, first recommended on May 13, 2009. McGraw-Hill Companies (NYSE: MHP). Hold Short, first recommended on May 13, 2009 at a price of $29.89. After flirting with the Buy/Stop Loss at $36, MHP has resumed the predicted path: down. Belt-tightening by states, school districts, and by other education institutions does not bode well for MHP's education publishing wing. Cover Short on a bounce off $20 or $15. Buy/Stop Loss if you were to sell shares in this company: $36.
Moody's (NYSE: MCO) closed down $1.84 to $24.26. A U.S. District Court judge declined to reject a lawsuit against Moody's (MCO) and McGraw Hill's (NYSE: MHP) Standard & Poor's, according to Bloomberg. MCO September and October option implied volatility of 58 is near its 26-week average according to Track Data.
McGraw-Hill closed down $3.30 to $29.01. MHP September and October option implied volatility of 44 is below its 26-week average of 50 according to Track Data, suggesting decreasing price movement.
Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.
Investor and trader Mishko Janusevich had a mantra that he used to repeat while outlining the top, new stock shorts that appeared that day, as determined by technical indicators.
He would stand next to the overhead projected stock chart at the front of the trading room and recite, "You see this stock? You see that it's dropped $8 in past two days? You think it can't drop any more? SELL THAT STOCK it's dropping more!!"
Short these shares if you can tolerate high-risk and are an experienced investor that does not remove Buy/Stop Losses:
ING upgraded Roche (OTC: RHHBY) to Buy from Hold as it believes Roche will not pay more than $100/share for Genentech (NYSE: DNA) and that the Avastin adjuvant data due April 2009 provides significant upside potential.
Oppenheimer upgraded Motorola (NYSE: MOT) to Outperform from Perform on valuation as it believes sentiment is at an all-time low and the stock has limited downside. The firm set a $5 target on shares.
Morgan Stanley upgraded Comerica (NYSE: CMA) to Equal Weight from Underweight citing valuation that adequately reflects credit deterioration in its commercial-heavy loan portfolio and aggressive government action.
Forbes laid off almost 20 people to save money. It is putting its online newsroom and print writers together. Yesterday, McGraw-Hill (NYSE: MGP), the publisher of BusinessWeek,cut several hundred people. US News, which used to have a strong business and personal finance section, is going from weekly to monthly to save money. There are rumors in the market that SmartMoney, a joint venture between Dow Jones and Hearst, is losing money.
The horrible thing about all of this and the layoffs at business sections of newspapers, is that the reporters who work the business and financial beats are writing their own obituaries. As they chronicle the demise of print media, the slowing of Internet advertising, and deepening recession, they have to go to work every day hoping that they will not find a pink slips on their desks.
What happens to these people?. They will not find jobs in the traditional media, but there is a model in the newspaper industry that may given them some hope. In many cities where dailies are struggling to survive and layoffs are plentiful, out-of-work writers are banding together to start websites to compete with the local press. Setting up these websites is cheap. The reporters already know their subjects as well as anyone else. They only need very modest ad revenue to do relatively well.
Business reporters may go the same route. Look for a lot of new, smaller financial websites to open staffed by laid off writers and watch them give the traditional press a run for its money
Douglas A. McIntyre is an editor at 24/7wallst.com.
When I visited the offices of LinkedIn about six months ago, the place was frenetic with activity as the business networking site was in the midst of surging growth.
Investors wanted a piece of it, naturally, and indeed today LinkedIn announced a Series D funding of $22.7 million. The investors include a mix of VCs as well as strategics: Goldman Sachs (NYSE: GS), The McGraw-Hill Companies (NYSE: MHP), SAP Ventures (NYSE: SAP) and Bessemer Venture Partners.
The deal indicates that LinkedIn's growth prospects remain intact. After all, in the current tough economic environment, business networking is critical.
LinkedIn's investor roster also shows that the company is likely to expand into new categories. For example, with the support of SAP, LinkedIn can make inroads into on-demand enterprise computing.
Dan Nye, who is the CEO of LinkedIn, wrote this in his blog:
"I'd like to reiterate our commitment to creating the right partnerships to help us build a great service for over 30 million professionals on LinkedIn today - a number that's growing by leaps and bounds each month. This funding strengthens LinkedIn further, and will help us to continue creating additional services for professionals to connect and collaborate more effectively, around the world. Services that allow you to connect with the people you trust, build out a robust online professional profile and collaborate with members of your professional network on LinkedIn." Tom Taulli is the author of various books, including The Complete M&A Handbook and The Streetsmart Guide to Short Selling: Techniques the Pros Use to Profit in Any Market. He is also the founder of BizEquity, a valuation website.
The Wall Street Journal (subscription required) has obtained a draft version of the SEC's report on bond-rating firms and their role in the credit bubble, and some of the stuff is pretty scary.
In one e-mail, a staffer at Standard & Poor's, which is own by McGraw-Hill (NYSE: MHP) told another that "we rate every deal," and that "it could be structured by cows and we would rate it."
Another wrote that "rating agencies continue to create" an "even bigger monster -- the CDO market. Let's hope we are all wealthy and retired by the time this house of cards falters. ;O)"
Yes -- complete with the smiley face. If this seems reminiscent of disgraced analyst Henry Blodget's e-mails bashing stocks he was publicly pumping during the dot-com bubble, that's because it's exactly the same. The lesson here, once again, is this: e-mails ever really get deleted permanently and, if you're being shady or doing something unethical, make a phone call, talk with the person in a dark alley, or send them a letter that they can promptly discard. Don't send an e-mail!
Of course, S&P's investment-grade ratings on CDOs stuffed with dodgy loans turned out to be wildly optimistic, and the house of cards has done more than falter -- it's brought down Bear Stearns and wreaked havoc on the economy.
The roots of Reed Elsevier go back to the late 1800s. And since then, it has become a publishing empire. And a big part of the growth has come from M&A.
Well, now the company is engaged in another key deal. That is, Reed Elsevier is engaged in an auction to sell its Reed Business Information (RBI) division.
It's an attractive asset. For example, RBI has such publications like Variety and New Scientist. In all, there are about 80 publications and annual revenues come to about $2 billion.
Now, RBI's goal is to get $2 billion to $2.5 billion. However, in light of the tough economic situation, this could be optimistic. Keep in mind that RBI may provide some financing help to potential buyers.
Then again, there may be a way to get a stronger valuation: it looks like The McGraw Hill Companies (NYSE: MHP) is interested. All in all, RBI would be a nice fit for the firm, with some revenue and cost synergies.
McGraw-Hill (NYSE: MHP) shares opened lower today, but have rebounded as the day moved on after the European Union Internal Market Commissioner announced that bond and credit rating agencies, including MHP's Standard & Poor's, will face mandatory new European Union regulation as a result of these agencies' roles in the U.S. sub-prime mortgage crisis. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on MHP.
After hitting a one-year high of $71.97 last June, the stock hit a one-year low of $33.91 in March. This morning, MHP opened at $42.87. So far today the stock has hit a low of $42.10 and a high of $43.65. As of 12:00, MHP is trading at $43.60, down $0.13 (-0.3%). The chart for MHPlooks bullish and steady.
For a bearish hedged play on this stock, I would consider an August bear-call credit spread above the $50 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. This particular trade will make an 11.1% return in two months as long as MHP is below $50 at August expiration. McGraw-Hill would have to rise by more than 14% before we would start to lose money.
MHP hasn't been above $50 since October and has shown resistance around $45 recently. This trade could be risky if the company's earnings (due out in late-July) are a positive surprise, but even if that happens, this position could be protected by resistance MHP might find at its 200 day moving average, which is currently around $44 and falling. Brent Archer is an options analyst and writer at Investors Observer. At publication time, Brent neither owns nor controls positions in MHP.
MOST NOTEWORTHY: McGraw-Hill, Curis and Azure Dynamics were today's noteworthy initiations:
Jefferies initiated McGraw-Hill (NYSE: MHP) with a Buy rating and $49 target. The firm believes the downturn in credit markets has already been fully priced into shares and expects the stock to gain momentum throughout 2008 in anticipation of liquidity returning to credit markets.
RBC Capital initiated Curis (NASDAQ: CRIS) with an Outperform rating and $2.50 target based on the company's partnership with Genentech (NYSE: DNA) and potential upside from its pipeline.
Merriman started Azure Dynamics (OTC: AZDDF) with a Buy rating. The firm believes the company's focus is where customers see the most benefit from a medium-duty hybrid or market-appropriate solutions and finds the stock attractively valued.
MOST NOTEWORTHY: IberiaBank, Dynamic Materials and Barr Pharmaceuticals were today's noteworthy upgrades:
Keefe Bruyette upgraded shares of IberiaBank (NASDAQ: IBKC) to Market Perform from Underperform after the company announced that Pulaski has assumed the insured deposits of ANB Financial of Bentonville, Arkansas.
KeyBanc upgraded Dynamic Materials (NASDAQ: BOOM) to Buy from Hold citing stability in base business, valuation, and the added benefit associated with a European competitor being acquired.
Cowen raised Barr Pharma (NYSE: BRL) to Outperform from Neutral citing the recent pullback.
OTHER UPGRADES:
Goldman added McGraw-Hill (NASDAQ: MHP) to its Conviction Buy List.
RBC Capital raised RadioShack (NYSE: RSH) to Sector Perform from Underperform.
Sirius Satellite (NASDAQ: SIRI) was upgraded at Merrill Lynch to Neutral from Sell.
Merrill Lynch upgraded Sirius (NASDAQ: SIRI) to "neutral" from "sell" according toBriefing.com. The news service also reports that Citigroup downgraded EDS (NYSE: EDS) from "outperform" from "market perform".
Goldman Sachs downgraded ITV to "sell" from "neutral," according toMarketWatch.
Just call it 'one win, one loss' with these two shorts, first recommended on May 13, 2009.
Moody's.gif){kind=logo}
When I visited the offices of 
and 
. He is also the founder of 
The roots of 
. He also operates 
.gif){kind=logo}
The week in preview: Earnings from Walmart, Macy's, and other retailers
Six top trades for the rest of 2009
Comfort Zone Investing: Buffett buys Burlington
