Friday, November 16, 2007

Memo to Corporate: Always Be “Upbeat”

GWW held its annual analysts meeting on Nov. 14th at its HQ in Lake Forest, IL. The meeting was well attended by the buy and sell sides and was upbeat despite the company's expectation for slower economic growth in the balance of '07 and through '08…

GWW hosted a well attended (55 investors +) annual analyst meeting at its opulent headquarter in Lake Forest, IL. The tone was quite upbeat…

—Two of Wall Street’s Finest

For the record, “GWW” is the stock ticker for WW Grainger, the industrial distribution giant founded in 1927 with an eight-page catalogue, which today handles nearly a million products and has moved across borders into Mexico and Canada, as well as across the sea in a more recent and somewhat experimental effort in China.

Now, think not we make fun of Grainger itself, despite the “opulent” headquarters building referenced above.

Grainger is a well-run purveyor of anything you might need in the course of operating a production line, maintaining an industrial boiler, or keeping the lights on and the air conditioning running in an office building. Finance-wise, the business generates a healthy return on capital and grows steadily if not heroically.

No, we make fun of the word “Upbeat.”

“Upbeat” is a term much misused by Wall Street’s Finest, who seem to have an actual “Upbeat” key on their computer keyboards, somewhere between the “Enter” and “Page Down” keys.

In the peculiar language of that particular tribe of human beings constituting Wall Street’s Finest, “Upbeat” can mean anything from “Wildly optimistic” to “Grinning and bearing it.”

The trick is to read between the lines, ignoring the adjectives and focusing on the numbers.

In the case of Grainger, the two members of the analytical tribe quoted above are saying that, despite a less optimistic outlook for overall economic growth—something Grainger offers unusually good insight into, thanks to its business as the veins and arteries of the American economic lifeblood—the company actually gave better guidance for its own business in 2008 than the tribal elders might have expected.

Hence, “Upbeat.”

Other coded words and phrases in the tribal language of Wall Street's Finest, with translations provided by NotMakingThisUp, include:

1. “Management was cautiously optimistic” (management has no clue)

2. “Earnings were in-line” (the company barely made the number)

3. “We are tweaking our estimates” (we will be slashing our numbers next time)

4. The much-dreaded mother of all loaded phrases, “Our thesis is still intact” (sell every share you can, right now)

As for us, we remain “upbeat” in our expectations that Wall Street’s Finest will continue to provide fodder for these pages.

Jeff Matthews
I Am Not Making This Up

© 2007 NotMakingThisUp, LLC

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews' recommendations. This commentary in no way constitutes investment advice, nor is it a solicitation of business in any way. It is intended solely for the entertainment of the reader, and the author.


hundredyearstorm said...

We remain on the sidelines till further signs of a catalyst (time to buy, we'll upgrade once the stock has already doubled)

We prefer other names in the group (We've had buy ratings on competitors that haven't moved up yet, and we're sticking to our incorrect call)

For modeling purposes (Please give us the exact estimated tax rate to input into our very precise model which spits out dead wrong conclusions)

Alex Khenkin said...

the exact estimated tax rate - is this for real? Intelligent adults don't really say things like that, do they?
Small Investor Chronicles™

roi said...

“Our thesis is still intact” - that phrase was actually been used last week by some analyst prefering mhp over moody's, so what should i do if im holding moody's ? :)

roi said...

an actual example : "Credit markets have not reached an inflection point yet, in our view," he wrote. "Our longstanding thesis to favor Neutral-rated McGraw-Hill Cos. due its greater resilience in S&P and education upcycle is playing out."
by JPMorgan analyst Frederick Searby @ Forbes

roi said...

in light of earlier postings thought you might care to read probably did.