Blog Posts by Jennifer Carinci

Another year, another Berkshire Hathaway shareholder meeting from which legendary CEO & Chairman Warren Buffett emerges victorious.

There was plenty of shareholder enthusiasm coming into the event, fueled by the company’s latest earnings report released last Friday afternoon, the day before the main event.

Robert Hagstrom, chief investment strategist at Legg Mason Investment Counsel, who attends the meeting each year, described the weekend as particularly upbeat and easy, and carried a positive tone.

Buffett started the meeting presenting the quarterly balance sheet, and from there, he and vice chairman Charlie Munger fielded questions with ease.

“Even Doug Kass who was trying to slay the dragon, you’ve got to salute Doug for coming out as a short seller, I don’t think he’s wounded the animal by any stretch of the imagination,” said Hagstrom, from the floor of the exhibit hall just outside the Buffett stage site at the Century Link center in Omaha, Nebraska.

Kass launched questions that few would dare to touch on at such a widely followed event.

There’s nothing like fresh produce straight from the farm. Green markets are popping up all over the country to meet growing demand for high quality food. But if you don’t have the time or the patience, you certainly have options. FreshDirect is one of the largest online grocers that’s been clicking with consumers seeking quality.

Grocery delivery services aren’t new; they’ve existed as long as the stores themselves. While overall grocery store sales in the U.S. fell 2.1% last year, online grocer sales jumped over 8%, according to IBISWorld. Further, they estimate online sales to grow 9.5% annually into a $9.4 billion industry by 2017.

The largest is Peapod, a service that delivers goods specifically from grocery store chains Stop & Shop and Giant Foods. The company started in Illinois in 1989 and now covers 24 markets in 13 states. FreshDirect is the new kid on the block, started in New York in 2002.

Breakout sat down with the co-founders, Jason Ackerman and David McInerney, to digest exactly what sets FreshDirect apart.

“Forget the Internet for a moment, look at a Stop & Shop and Whole Foods (WFM),” says Ackerman, who also serves as CEO. “You’d be able to articulate that they’re very different stores. It’s the same thing. We are about really the best fresh food on the marketplace and that’s what makes us different.”

The company travels around the globe looking for the freshest meat, seafood, and produce. Unlike competitor Peapod, they’re not tied to any specific grocer. They believe this enables the service to be faster and fresher.

“Take strawberries. Those strawberries are bred and grown to have a three week shelf life,” explains McInerney, “to accommodate retailers that need to move them around and around and around until ultimately they end up at a consumers house. Our model takes out a lot of the distribution because we’re buying it directly from the farm. We can take entire truckloads from the farm into us, often pre-selling it before it even arrives in our facility because we take orders seven days out.”

FreshDirect told us exclusively about plans to take that freshness to a whole new level. The company will relocate from its Long Island City headquarters in Queens, to the Bronx, New York, where they’ll have a brand new facility and products that are ripe for the picking.

Amazon.com (AMZN) is set to report first-quarter earnings this Thursday after the market close. Consensus estimates peg the online retailer earning $0.09 a share on revenues of $16.18 billion.

Last quarter the company missed on profit, revenue and guidance, but was given a pass based on signs of improving operating margins. Amazon enthusiasts are bolstered by the company’s investment in building out fulfillment centers and adding content licensing agreements. Most seem undeterred by its sky-high valuation -- a one-year forward P/E of 74, making this one of the most expensive stocks in the land.

In the attached video, Gene Munster, sr. analyst at Piper Jaffray, explains his belief that the more fulfillment centers Amazon announces, the better the stock price will perform.

“Bottom line, that is a sign that margins are going to be drifting higher. And for this stock to work, we believe there needs to be the hope of margin expansion, not actual margin expansion," he explains. "We think that they will give some glimmer of that when they report their quarter.”

Munster calls the stock a long-term hold based on the fact that 7% of goods purchased in the U.S. are bought online; a number he says is going higher. He has an “overweight” rating on the stock with a $329 price target.

Further, this analyst will be listening for initiatives off the conference call that are a little outside of the box.

Facebook (FB) is still the most important social network for U.S. teens, but watch out, Twitter is quickly gaining share according to Piper Jaffray’s semi-annual teen survey. Among U.S. teens, 33% rank Facebook number one, with Twitter coming in a close second place with 30%. Most notable is the change from the previous Fall 2012 survey showing Facebook at 42% and Twitter at 27%. Instagram rounded out the top three with 17%, compared to 12% in the Fall.

“It is ultimately a long-term problem for Facebook,” says Gene Munster, senior analyst at Piper Jaffray, before reminding us that Facebook owns Instagram, so the two can be viewed collectively. It was last April that Facebook announced its $1 billion acquisition of the photo-sharing app company.

From that perspective, Facebook & Instagram combined lost 4% share to Twitter from the Fall 2012 to Spring 2013 (see chart below).

“Ultimately, near term there is still a big opportunity for Facebook to continue to add new ways to monetize the existing base; they’re under-monetized today,” says Munster. “This isn’t something you’re going to see in the numbers in the next couple quarters, but I’m sure if you’re Facebook and you’re looking at these trends, you’re probably taking notice and trying to figure out how you can navigate this brand amongst teens.”

Two key events after the close today will set the tone for the market early this week. Alcoa (AA) will release first-quarter earnings results, the first Dow component to do so, and Federal Reserve Chairman Ben Bernanke will deliver a speech at a Fed conference in Atlanta.

This, after Friday's weaker than expected March jobs report led the S&P 500 and the Nasdaq to cap off their worst weekly losses of the year falling 1% and 2%, respectively. But the bad news comes with a twist. Any signs of economic weakness will presumably keep the Fed's historic stimulus measures in place.

Last week the Fed’s asset holdings swelled to $3.217 trillion, marking 11 consecutive weeks being above $3T. The Fed’s balance sheet is now almost 20% of GDP, nearly matching the record high during the Great Depression, according to Morgan Stanley economist and former Fed director of monetary affairs, Vincent Reinhart.

The Fed is holding key interest rates near-zero and buying $85 billion a month in treasuries and mortgage-backed securities. If they keep expanding at this rate, holdings are estimated to grow to 30% of GDP by the end of 2014.

Some Fed governors are starting to talk publicly about tapering off bond purchases, showing signs they’re growing weary of the impact on the economy.

"They're becoming increasingly irrelevant over the last couple of years, the economy is flushed with liquidity, rates are already at record-setting lows," says Jim Paulsen, chief investment strategist at Wells Capital Management. “I don’t think they’re improving fundamentals by adding liquidity to the system.”

Facebook (FB) shares can't seem to catch a bid leading up to Thursday’s Android event. In an invitation sent out last Friday, Facebook is looking to create some hype inviting the press to “come see our new home on Android.” Rumors have so far debunked the possibility of a handset launch and instead the Facebook Android strategy is assumed to be about prime home screen functionality.

For those looking for the next great thing out of the social networking giant, Lee Munson, chief investment officer at Portfolio LLC and author of Rigged Money, says the company should start with re-evaluating leadership.

“I don’ t think Zuckerberg really should be running the company, I think that it would be great if he had Chairman Emeritus [title] and he could go off and take some of his own money and invest,” says Munson, referring to Zuckerberg’s recent venture into the political arena. “I don’t think he should be CEO at this point.”

The Facebook co-founder and CEO recently began raising money for a Silicon Valley political advocacy group that intends to be active in matters affecting the U.S. economy and tech industry.

Munson believes the 28-year-old billionaire is becoming too distracted and would serve the company better in a smaller role. Specifically, he’d like to see Facebook exec Sheryl Sandberg be seriously considered to run Facebook. Sandberg, who has served as Chief Operating Officer since 2008, was previously the VP of global sales and operations at Google (GOOG).

Pinnacle Foods, known for producing some of the oldest consumer staples brands in your pantry and freezer, is now the third largest U.S. IPO by value this year. Shares of Pinnacle (PF) were met with strong investor appetite, opening higher by 11% in its debut on the New York Stock Exchange this morning.

The Parsippany, New Jersey-based company priced 29 million shares at $20 each; the high end of the expected $18 - $20 range. At that price, Pinnacle has an implied market value of $2.26 billion. They own brands including Duncan Hines, Vlasic, Mrs. Butterworth’s, Hungry-Man, and Celeste Pizza.

Investor demand is particularly interesting due to the company’s hefty $2.6 billion long-term debt load. But a targeted $0.18 dividend yielding 3.8% will likely make this an appealing consumer staple stock.

“What’s most important is that dividend is an indication of the incredible free cash flow of this company,” says Robert Gamgort, CEO of Pinnacle Foods, from the floor of the NYSE. “That’s something that we have some latitude on as we go forward in how we deploy that free cash flow.”

Blackstone (BX) bought the company in 2007 for $2.2 billion. The private equity firm isn’t selling shares in this offering, which raised $580 million. Gamgort explains that 100% of those proceeds will go towards paying down debt.

“We plan on growing our dividend on a normalized basis with our net income growth,” he says. “And what we’re looking at is, our dividend is a 50% payout of net income. So we’ll keep that 50% payout as locked in and let it grow with our income growth.”

Shares of Wal-Mart (WMT) are off 2% since Friday when a leaked email sounded the alarm on slowing sales. According to the email obtained by Bloomberg News, Jerry Murray, Wal-Mart’s VP of finance and logistics wrote:

"In case you haven't seen a sales report these days, February MTD (month-to-date) sales are a total disaster…The worst start to a month I have seen in my seven years with the company."

“Typically this is a buy opportunity and definitely not a sell opportunity because once that news hits, it’s so quickly that Wal-Mart falls apart, [that] the last thing you want to do is sell into that news because there’s going to be an overreaction,” says Matt McCall, founder and president of Penn Financial Group.

This “overreaction” comes ahead of Wal-Mart’s fourth-quarter earnings report due out Thursday morning. Analysts estimate the company earned $1.57 per share on $128.92 billion in revenues. And for 2013, consensus is $0.09 EPS growth.

“At this point, I’m not quite sure I’m buying in front of earnings because there’s a great chance they’re going to be bad...The question is ‘how bad are they and is it baked into the cake already?’”

The market is expecting the 2% payroll tax break to impact consumer spending, and we’ll start seeing just how much of bite the retailers themselves are bracing for when the bulk of the sector reports earnings in the coming weeks. The key will be to watch guidance.

“A lot of people, when they got their first paycheck, said ‘wow, I’m making less money than I was,’” says McCall. “Maybe for a couple of weeks they don’t go out and spend that money, [but] I don’t think it’s going to make that big of a difference long-term.”