Monday, November 2, 2009

November 2, 2009: Morning Call

November 2, 2009: Morning Call

Fair Value: SP500 – 1033.01; NDX: 1665.66; DOW: 9664.03

Technical Levels:

SPX: 875-880, 910, 953, 986, 1003, 1039-1044 support/1066, 1110 resistance


Pre-market EPS: CLX (.95/1.37B); F (-.13/27.41B); HUM (1.77/7.77B); SYY(.45/9.18B)
04:00: Euro-zone PMI Manufacturing (Oct. Final): 50.7
08:15: HGSI BENLYSTA Pivotal Phase 3 Trial Results
10:00: ISM Manufacturing (Oct): 53.0; Prices Paid: 64.0
10:00: Pending Home Sales (Sep): 0.4% MoM
10:00: Construction Spending (Sep): -0.3%
11:00: F earnings call
11:45: SPWRA presents at Wedbush Clean Technology Conference
15:15: Fed’s Tarullo speaks on executive pay
16:30: STP presents at Wedbush Clean Technology Conference
Post-market EPS: APC (-.34/1.92B); CHK (.65/1.81B); KGC (.12/562.8M); PFG(.65/2.49B); VMC (.38/808M)

Foreign Market Summary/Key Macro News/Commentary:

The S&P and NASDAQ futures are both trading 5 points above fair value at 7:30am ET. The Euro is bouncing against the dollar after trading lower 5 of the previous six sessions. Basic material, energy, and gold stocks are rallying in Europe following a better than expected Chinese PMI report (55.2 vs. 54.7). The Australian dollar is also trading higher on expectations the central bank will raise interest rates tomorrow. European markets are trading modestly higher (up 0.20% to 0.50%) after opening down 0.25% to 0.50%. Strength in commodities and the Euro is offsetting weakness in some financial stocks; RBS is trading down 7% on concerns that the EU will force the bank to sell more assets than previously planned. Asian markets closed lower with the exception of Shanghai, which rallied 3% (Japan down 2.3%, Hong Kong down 0.61%, South Korea down 1.3%). Markets in China bucked the trend lower due to the strong PMI data. HSBC (5.HK) fell on a report the bank’s provisions for bad debts in the US may stay high for the near future, and Hong Kong fell as home sales dropped. Steelmaker, technology, and automobile sectors all took South Korea lower. Most financial and resources stocks led Australia lower. The yen’s strength and a desire to avoid risk took Japan down in advance of tomorrow’s holiday. India was closed for Gurunanak Jayanti.

Research Calls/Market Moving News:

AAPL (188.50): Chinese reception of Apple's iPhone is tepid says the WSJ: There were no signs of the sort of sellout reception that met the launch of the phone in other countries. As of Sunday night, many stores still had the phone in stock. Apple and China Unicom declined to disclose sales figures.

F (7.00): Ford reports Q3 EPS $0.26 ex-items vs Reuters ($0.12): Company reports revenues of $30.90B vs Reuters $27.62B.

RIMM (58.73); PALM (11.61); MOT (8.57): Citi upgrades MOT; downgrades PALM, RIMM: Upgrade: Motorola (MOT) upgraded to buy from hold; target increased to $10.50 from $9. Shares area also added to Top Picks Live List. Downgrade: Palm (PALM) downgraded to sell from hold; target cut to $10 from $19.50. Research In Motion (RIMM) downgraded to sell from hold; target cut to $50 from $100.

TRA (31.77): CF Industries Holdings (CF) offers to acquire Terra Industries for more than $40.50/share: The offer of $32 in cash and 0.1034 of a CF share, including a $7.50 per share dividend declared by Terra, is worth $40.61/share based on CF's 30-Oct closing price

EAC (37.07): Denbury Resources (DNR) to acquire Encore Acquisition (EAC) for $50/share.

CIT (0.72): CIT Group files for bankruptcy; no operating subsidiaries, including Utah bank, will be included in the filings: The company will proceed with the prepackaged plan of reorganization. All operating entities are expected to continue normal operations. The company has filed in the U.S. Bankruptcy Court for the Southern District of New York and expects to reduce total debt by approx $10B.

HGSI (18.69): Human Genome (HGSI), GlaxoSmithKline (GSK.LN) announce positive results in Phase 3 trial of Benlysta (belimumab): The 819-patient BLISS-76 study met its primary efficacy endpoint by achieving a statistically significant improvement in patient response rate vs placebo plus standard of care at Week 52. Study results also showed that the drug was generally well tolerated.

HGSI (18.69): Human Genome fair value estimate raised to $40 from $30 at Leerink: The firm sees probability of approval for Benlysta of 95%, up from 85% previously. Leerink says the drug continues to show a nice response and does not believe the 1mg/kg does will be approved, removing a potential concern that physicians would use the lower dose to save money. Shares reiterated outperform.

HGSI (18.69): Bernstein comments on Human Genome following BLISS 76 interim data: The firm expects controversy about the data as it was not the unconditional success seen in the BLISS 52 trial. Bernstein does believe there is enough for the company to proceed to filing and presumably approval and launch in 2011. Though shares will likely be volatile, the firm believes the overall trend is higher. Shares remain outperform rated with a $32 target.

Barron's latest Big Money Poll is still bullish: Almost 60% are bullish or very bullish with a mean prediction of 10,187 on the Dow by the end of the year and 10,771 by the middle of 2010. They see the S&P ending the year at 1121 and 1190 by the middle of next while the Nasdaq will rise to 2371 by the middle of 2010. But almost 80% see stocks are fairly valued or overvalued today. They see three sectors outperforming in the next 6-12 months: technology, energy and health care. Expected poor performers are financials and consumer cyclicals. Favorite stock: MSFT, ABT, BAC, BRK.A, CVS, GE, GS, LM and QCOM. Most overvalued: AIG, AAPL, GOOG, CAT, AMZN, C, GE, GMCR, VZ and YHOO.

GOOG (536.12): Google seeks profit from YouTube by convincing rights holders to monetize rather than remove their copyrighted content – Guardian: The company is trying to get rights holders to use ContentID, a fingerprinting system that allows them to identify their material even when it has been altered. Rights holders can either block the rest of the world from using their content or put ads alongside it, generating revenue that YouTube takes a small piece of. They can also link to sites that sell DVDs or CDs. Without being more specific, Google says the majority of rights holders are choosing to monetize their content. Roughly 333M of 7B videos streamed per week on YouTube use ContentID.

GS (170.17): Goldman Sachs in talks to buy millions in tax credits from Fannie Mae reports the WSJ: The talks are running into opposition from the Treasury Department which may block any deal. The administration is leery of approving a deal that would allow Goldman to reduce its tax bill even though a deal would bring some respite to Fannie. Goldman is hopeful it will win approval this week. Exact details were not learned but some on Wall Street believe Goldman is seeking to buy $1B in credits.

C (4.09): NY Times wonders if Citi can stand on its own without government help: The government has bailed out the entity now known as Citigroup at least 4 times in the past. CEO Pandit says it is not a troubled bank but they have received a lot of government assistance. The bank hopes to sell off or get rid of the asset management unit, consumer lending and some companies recently acquired. With government help, the financial cushion at the bank has increased significantly. But the bank is not generating the profits to cover the potentially devastating write-downs to come. Says Citi was managed horribly over the last decade and regulators missed the many problems. Generally cautious article.

WSJ notes the large amount of cash on the books of U.S. companies: The cash level on balance sheets is the highest in 40 years. There is more cash and more as a percentage of assets. Nothing particularly new, the large amount of cash on the books of U.S. companies has been frequently mentioned for several months now. In Q2, at the 500 largest nonfinancial firms, there was about $994B in cash and short term investments totaling 9.8% of assets compared to $846B or 7.9% a year before. In Q3, of the 248 of those companies that have reported, cash has increased to 11.1% of assets from 10.1% in Q2. The increase has happened at a diverse selection of companies from Alcoa to Google to PepsiCo to Texas Instruments.

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