Photo:Peter Duhon, Creative Commons, Flickr
I stumbled out of bed last week, made a cup of coffee and turned on CNBC to get up to speed with the latest earnings results before heading out to work. The first thing I saw was a panel of talking heads discussing whether the Fed was going to cut interest rates at their next meeting. Both sides offered compelling arguments, and by the end of the discussion I felt more confused about the Fed than I did before turning on the TV.
At the conclusion of the panel discussion, the presenter started talking about Warren Buffett’s views on the Fed. Great! I thought. Surely Warren Buffett knows what the Fed is going to do. After all, he is the 2nd richest man in the world! CNBC showed a recorded clip of a microphone in Buffett’s face, as a (very good-looking) reporter asked him if the Fed was going to cut rates at their next meeting.
“I don’t know,” said Buffett with a hint of irritation. The reporter was clearly disappointed by his answer.
“But what would you buy if you don’t know what the Fed is going to do?” she probed. It was obvious that Buffett didn’t even have to think twice about answering her question.
“A good company is a company that will make money regardless of what the Fed does,” he said. “I try and find good companies, buy them and hold on.”
Last week was, to say the very least, a confusing week. Of the 123 U.S. companies that reported earnings results last week, 67 beat street estimates and 51 didn’t (down from 75 and 39, respectively, last year). On Monday, interest rate futures priced in a 30% chance of a 25bps Fed rate cut at the next meeting. By Friday, markets priced in a 90% probability. Investors were bombarded with TV specials on the 20-year anniversary of Black Monday, oil hit $90 a barrel, and news of a superfund to bail out credit markets reminded us that credit problems are far from over. We also learned that Turkey wants to attack rebels in Northern Iraq and Dick Cheney wants to attack Iran. And just in case you are not already suffering from information overload, Mr. Rupert Murdoch was kind enough to entertain us with another business channel.
As Warren Buffett points out, none of that really matters. Just find the best companies, buy them, and hold on. Going by this logic, you can’t go wrong with SunPower (SPWR – Last trade $113). Highlights from their Q3 earnings results released last week:
- Earnings per share of $0.33, easily beating street estimates of $0.28
- Revenues of $234.3 million, at the high end of management’s prior guidance of $205 million to $215 million, beating street estimates of $209.6 million.
- Guides FY07 earnings per share of $1.20 to $1.24 vs. street estimate of $1.18
- Guides FY07 revenues of $760 million to $770 million vs. street estimate of $742.8 million
- Guides FY08 revenues of $1.1 billion to $1.25 billion vs. street estimate of $1.15 billion.
- Management appears very bullish over Spain, noting 100MW of backlog. They are also bullish on Italian and U.S. markets.
- Management expects the polysilicon shortage to ease from 2008 as new production capacity ramps.
- Management received test results showing that their mass-produced solar panels have reached a total-area solar panel efficiency of 20.1%. This is the first time that a commercially available solar panel has breached the 20% efficiency barrier.
I spent about 10 minutes trying to find something negative to write about their earnings, and had no luck. SPWR’s strong Q3 results demonstrate the success of its vertically integrated business, and this integration insulates them from a potential industry shakeout. SPWR is a good company for the long haul. If you'd like to follow Warren Buffet's advice: buy it, hold on, and avoid the talking heads on TV.
Disclaimer: I don't own SPWR. I don't own a solar panel.