January 13, 2009: Morning Call
Fair Value: SP500 – 867.09; NDX: 1201.32; DOW – 8430.47
Technical Levels:
SPX: 685, 752-755, 848-852 support/899-908, 998-1002 resistance
Events:
Pre-market EPS: INFY (.55/1.18B); STT (1.05/2.49B)
08:00: Fed’s Bernanke speaks at London School of Economics
08:30: US Trade Balance (November): -52.0B
08:30: MOS Analyst Day
10:00: IBD/TIPP Economic Optimism
14:00: Monthly Budget Statement (December): -42.5B
17:00: ABC Consumer Confidence
17:00: Fed’s Lacker speaks on the economic outlook
Post-market EPS: LLTC (.34/257.4M)
Foreign Market Summary/Key Macro News/Commentary:
The S&P and NASDAQ futures are both trading 5 points below fair value at 7:30am ET. The futures were 11 below fair value at 6am ET. Asian markets closed lower (Japan down 4.8%, Australia down 0.78%, Hong Kong down 2.1%, Shanghai down 2.3%, India down 0.42%). Basic Material and Energy sectors were once again the weakest sectors in Asian trading. European markets are down 2.1% extending the losing streak to 5 sessions. Shares have extended initial declines and are current trading at session lows, currently down between (2%) and (2.5%). Mining and Steel shares were again amongst the leading decliners. Decliners on the FTSE 100 lead advancers 9-1.
Impact Research Calls/Market Moving News:
JPM (24.91): JPMorgan Chase moves Q4 earnings release to 15-Jan from 21-Jan: JPM announced it will be ready to issue Q4 earnings on Thursday, January 15, at 6:30 ET, rather than on Wednesday, January 21, the previously scheduled date. JPM IR is telling investors the reason for the changed date is to allow Jamie Dimon to attend the Presidential Inauguration. Fox Pitt is speculating that there is a chance that JPM may be involved in the MS/Citibank brokerage division joint venture deal either in competition with MS or less likely taking a stake in the joint venture. Fox-Pitt is also saying positive market commentary is unlikely. Fox-Pitt cuts their Q4 estimate to a loss of 6 cents from a profit of 25 cents (consensus is for a loss of a penny). 2009 numbers are cut to 2.47; consensus is 2.28.
FSLR (149.93): First Solar downgraded to hold from buy at Citi: Price target decreased to $170 from $205. The firm cites valuation, as well as concerns about inventories and margins.
AA (10.06): Alcoa reports Q4 EPS ($0.28) continuing ops ex-items vs Reuters ($0.14: Note the earnings figure excludes $0.88 in restructuring, impairment and special charges. GAAP EPS was ($1.49), including $1.15 in charges. Recall the company outlined expectations for $900-950M in charges with last week's restructuring announcement. Company reports revenues of $5.69B vs Reuters $5.13B.
CSX (32.22): CSX Corp guides Q4 EPS to $0.90- ex items vs Reuters $1.00: EPS excludes a noncash impairment charge of approximately $0.27 per share related to the write-down of its investment in The Greenbrier resort. The company guides Q4 revenue to $2.7B vs Reuters $2.75B.
KLAC (21.46): KLA-Tencor guides Q2 revenue to $390-$400M vs Reuters $420.0M: Company also sees new bookings in the quarter of $235-$245M. KLAC says global economic uncertainty, weak consumer demand, and turbulent financial markets have led customers to scale back production operations and reduce capital expenditures, adding that business conditions in its markets have deteriorated sharply in recent weeks, leading to unanticipated shortfall in quarterly new orders, revenues and earnings for KLA-Tencor. KLA-Tencor guides Q2 (Dec) bookings $235-245M. Represents a sequential decline of 26% versus 30-Oct guidance for flat plus/minus 10 points. Full results will be reported on 29-Jan after the market closes
LXK (28.35): Lexmark guides Q4 EPS to $0.71-0.76 vs prior $0.70-0.80, both ex-items and Reuters $0.80. The company guides Q1 EPS to $0.65-0.75 vs Reuters $0.73. Sees Q4 revs down appx 17% y/y, or $1.087B (from calculation) vs Reuters $1.14B. Sees Q1 revenues lower by mid to high teens on a percentage basis, or under $1B (from calculations) Reuters $1.06B
Oppenheimer remains cautious on semiconductors after checks: The firm says their recent checks reveal continued order weakness and cancellations. Oppenheimer expects the January earnings season to be one of the ugliest on record, with IDM inventories and DSO up and Q1 revenues down Q/Q roughly twice-normal seasonality. Oppenheimer cuts estimates for the group ahead of Q4 earnings reports and is now at or near Street lows across most names.
DE (41.56): Deere & Company comments on December retail sales: Utility tractors: Deere sales were down more than the 21% decrease for the industry; November inventories were lower than the industry's level of 47% of ttm sales. Row crop tractors: sales were flat versus the industry's 2% decrease; November inventories were lower than the industry's level of 25% of ttm sales. 4WD tractors: sales were up more than the industry's 23% increase; November inventories were lower than the industry's level of 16% of ttm sales. Combines: sales were down double digits compared to the industry's 2% increase; November inventories were lower than the industry's level of 8% of ttm sales. In Western Europe, retail tractor sales were down low double digits while combine retail sales saw a double-digit increase. Construction and forestry equipment sales were down double digits on both a first in the dirt and settlement basis. Commercial and consumer equipment sales were down double digits.
DE (41.56): JP Morgan downgrades DE to neutral from overweight.
RYL (17.64): Ryland Group downgraded to hold from buy at Deutsche Bank
Regional Banks sector lowered to underweight from market weight at Keefe, Bruyette & Woods: Firm believes regional banks are not pricing in a long and deep recession, which the firm expects
NVDA (7.61): NVIDIA estimates lowered at UBS following checks
Firm's latest industry checks suggest weak GPU sell-in. Estimates for '09/'10 are lowered. UBS reiterates sell rating. Target is $7.50.
CEOs increasingly on the chopping block – WSJ: The Journal notes that CEOs at six major US companies - Seagate (STX), Tyson Foods (TSN), Borders (BGP), Orbitz (OWW), Chicos (CHS) and Bebe Stores (BEBE) - have lost their jobs in the last eight days. The paper adds that an informal survey of management consultants, recruiters, investors and governance specialists suggests that several other CEOs may be vulnerable, including Rick Wagoner of General Motors (GM); Vikram Pandit of Citigroup (C); Jonathan Schwartz of Sun Microsystems (JAVA); Steve Odland of Office Depot (ODP) and Ken Lewis of Bank of America (BAC). According to the article, 61 companies in the S&P 500 changed CEOs last year, up from 56 a year earlier.
INFY (25.88): Infosys reports Q3 EPS $0.58 vs Reuters $0.55: Company reports revenues of $1.17B vs Reuters $1.18B. Company added 30 new clients and 2,772 net employees during Q3. Guides Q4 EPS to $0.55 vs Reuters $0.55; guides revenues to $1.13-1.17B vs Reuters $1.18B. Guides full year EPS to $2.23 vs prior $2.24 and Reuters $2.19; guides revenues to $4.67-4.71B vs prior $4.72-4.81B and Reuters $4.71B.
MS (18.79); C (5.60): Morgan Stanley (MS) and Citigroup (C) to set aside up to $3B to keep top brokers -- NY Post: Without citing its source, the NY Post reports Morgan Stanley and Citigroup are looking at setting aside between $2B and $3B to keep top brokers at the wealth-management shop the two banking giants are close to combining.
Tuesday, January 13, 2009
Monday, January 12, 2009
January 12, 2009: Morning Call
January 12, 2009: Morning Call
Fair Value: SP500 – 887.12; NDX: 1223.44; DOW – 8599
Technical Levels:
SPX: 685, 752-755, 848-852 support/899-908, 998-1002 resistance
Events:
Pre-market EPS: SCHW (.26/1.29B); MTB (1.15/771.6M)
09:15: President Bush to hold press conference
11:00: CELG presents at the JPM Healthcare Conference (note: JP Morgan Healthcare Conference is Monday through Wednesday of this week. Most major biotech and pharmaceutical companies will be presenting).
12:40: Fed’s Lockhart speaks on US Economic Outlook
Post-Market EPS: AA (-0.06/5.20B)
Foreign Market Summary/Key Macro News/Commentary:
The S&P futures are trading 3 points below fair value while the NASDAQ futures are trading flat with fair value at 7:30am ET. Crude Oil is trading down almost 5% to 38.92 on concerns that demand may decline faster than OPEC is able to cut output. Two top Chinese officials also indicated that economic growth in the country could fall short of the 8% target. Asian markets closed lower (Hong Kong down 2.8%, Australia down 1.4%, India down 3.1%, Japan closed). Commodity and Industrial companies lead the decline in Asia (PTR dropped 4.8%, RTP fell 6%). Macau casino stocks pulled back as investors were disappointed that travel restrictions for Chinese visitors were not eased (this could impact WYNN and LVS). India continued to struggle, even though Satyam (SCS.IN) surged +44% on hopes the company's new board will draw up a rescue plan. Wipro (WPRO.IN) slumped (9%) after announcing it was barred from World Bank contracts for four years in June 2007. European markets are down 0.25% and have traded in a very tight trading range all morning. Decliners on the FTSE 100 lead advancers 7-3. UBS (UBS) traded lower on press reports it may post ($7.2B) loss for Q4.
Impact Research Calls/Market Moving News:
C (6.75): Citi may book $10B pretax gain by forming brokerage JV with Morgan Stanley (MS) – Bloomberg: A person familiar with the talks says the gain would result from writing up the value of Citigroup’s Smith Barney brokerage unit to the new price set by the deal. Another source says talks progressed over the weekend, and a deal may be announced by mid-week.
C (6.75): Citi maintained underperform by Oppenheimer's Meredith Whitney after reports of MS deal: The firm cites reports that Citi was near a deal to enter a joint venture with Morgan Stanley (MS). Whitney notes that based upon C's exposures to higher risk assets and the regulatory-capital demands on those assets, capital remains the focus of C's challenges. Whitney believes the deal would provide some near-term capital relief, however says more capital will likely be needed. Whitney also notes that she views this transaction as a positive for MS.
C (6.75): Page One article says Citi board backs CEO Vikram Pandit – WSJ: The article echoes what the New York Times reported earlier, that Richard Parsons is expected to replace Win Bischoff as Citi's chair this month. In an interview, Parsons utters platitudes about Pandit's performance. People familiar with the matter say Citi is expected to post a Q4 operating loss of at least $10B, and one says December was particularly unkind to the bank. The net loss will be closer to $6B (Bloomberg: loss of $3.52B). People familiar with the talks say federal officials told Pandit to downsize the company in December, feeling his integration strategy wasn't far-reaching enough.
AA (10.81): Alcoa downgraded to sell from hold at Deutsche Bank, target cut to $8 – Bloomberg
XOM (77.57): Investors speculate if Exxon Mobil is ready to make a deal says the WSJ: Exxon has made no sizable acquisitions since the 1999 deal for Mobil. It is one of the few companies with the financial firepower necessary for a major deal because it did not chase the recent bull market in oil and exercised restraint. One analyst believes the company could gap away from competitors in 2009 through a major deal. CEO Tillerson says the company monitors opportunities all the time. DB's Paul Sankey says sitting still during the down cycle would not make much sense and would frustrate shareholders. One scenario speculated upon is that Exxon would buy Royal Dutch Shell (RDS.A) in order to gain more access to West African oil and greater presence in the international gas market though such a deal would face regulatory scrutiny and likely entail issuing billions in new shares to institutional foreign holders that might have to sell if they are not allowed U.S. exposure. Other speculation is a deal for BG Group (BG.LN) or a partnership with Petrobras (PBR).
SAY (1.00): Major clients preparing to abandon Satyam Computer - Economic Times: A source familiar with the matter says General Electric (GE), Satyam's largest client, is talking with other vendors about merging the existing Satyam team with their resources to ensure continuity of work. Spokesmen for Nestle (NESN.VX) and British Petroleum (BP.LN) say their companies are considering alternative solutions.
Barron's summary
Cover: First installment of the Investment Roundtable: Meryl Witmer likes KALU, AYE, AIZ and DFS; Fred Hickey likes MSFT, CDNS, GDX, AEM, DBA and FXI. Barron's Mutual Fund Quarterly. Lead Articles: American Physicians Capital (ACAP) is practically recession-proof; Positive on high dividend European companies such as PP.FP, BP, RDS.A, ADM.LN, AKZOY, BAS.GR, PSON.LN, AZN.LN, GSK.LN, NOK, DTE.GR, TEF, VOD, RWE.GR; Nuclear energy should prosper under an Obama Administration; Some banking stocks could rally from currently depressed levels; Other Voices suggests removing the corporate income tax and tariffs as a stimulus for the 21st century; Editorial suggests trying to keep the government out of the banking system and is glad that the music companies are finally agreeing to get rid of DRM in digital downloads. Columns: The Trader suggests taking some profits, positive on FTI Consulting (FCN), positive on a Morgan / Smith Barney deal; Euro Trader is positive on ASML Holding's (ASML) bonds; Asia Trader notes the concern that there may be more scandals to be uncovered in India; Commodities Corner says South American conditions could cause a continued rally in soybeans; Current Yield reviews last week in the credit markets; The Striking Price suggests that options will likely grow in popularity as buy and hold decreases as the primary stock investing option; Follow Up is cautious on Intel (INTC), positive on Linn Energy (LINE) and Intuitive Surgical (ISRG); Up and Down Wall Street considers the pronouncements from president-elect Obama, the coming budget deficits and the jobs report; Streetwise says the great unknowns is how far consumer spending will decrease and how much saving will increase and says the immediate money may have been made in the corporate bond market, positive on Thermo Fisher Scientific (TMO); D.C. Current says the Obama stimulus proposal is too big to oppose and while the economy needs help, it doesn't need this much help, much of it seems to be an attempt to buy popularity; Technology Trader reviews the Consumer Electronics Show; Plugged In is a tribute to money manager Eric Von der Porten; Gadget of the Week is the HP Touchsmart tx2z tablet PC.
Fair Value: SP500 – 887.12; NDX: 1223.44; DOW – 8599
Technical Levels:
SPX: 685, 752-755, 848-852 support/899-908, 998-1002 resistance
Events:
Pre-market EPS: SCHW (.26/1.29B); MTB (1.15/771.6M)
09:15: President Bush to hold press conference
11:00: CELG presents at the JPM Healthcare Conference (note: JP Morgan Healthcare Conference is Monday through Wednesday of this week. Most major biotech and pharmaceutical companies will be presenting).
12:40: Fed’s Lockhart speaks on US Economic Outlook
Post-Market EPS: AA (-0.06/5.20B)
Foreign Market Summary/Key Macro News/Commentary:
The S&P futures are trading 3 points below fair value while the NASDAQ futures are trading flat with fair value at 7:30am ET. Crude Oil is trading down almost 5% to 38.92 on concerns that demand may decline faster than OPEC is able to cut output. Two top Chinese officials also indicated that economic growth in the country could fall short of the 8% target. Asian markets closed lower (Hong Kong down 2.8%, Australia down 1.4%, India down 3.1%, Japan closed). Commodity and Industrial companies lead the decline in Asia (PTR dropped 4.8%, RTP fell 6%). Macau casino stocks pulled back as investors were disappointed that travel restrictions for Chinese visitors were not eased (this could impact WYNN and LVS). India continued to struggle, even though Satyam (SCS.IN) surged +44% on hopes the company's new board will draw up a rescue plan. Wipro (WPRO.IN) slumped (9%) after announcing it was barred from World Bank contracts for four years in June 2007. European markets are down 0.25% and have traded in a very tight trading range all morning. Decliners on the FTSE 100 lead advancers 7-3. UBS (UBS) traded lower on press reports it may post ($7.2B) loss for Q4.
Impact Research Calls/Market Moving News:
C (6.75): Citi may book $10B pretax gain by forming brokerage JV with Morgan Stanley (MS) – Bloomberg: A person familiar with the talks says the gain would result from writing up the value of Citigroup’s Smith Barney brokerage unit to the new price set by the deal. Another source says talks progressed over the weekend, and a deal may be announced by mid-week.
C (6.75): Citi maintained underperform by Oppenheimer's Meredith Whitney after reports of MS deal: The firm cites reports that Citi was near a deal to enter a joint venture with Morgan Stanley (MS). Whitney notes that based upon C's exposures to higher risk assets and the regulatory-capital demands on those assets, capital remains the focus of C's challenges. Whitney believes the deal would provide some near-term capital relief, however says more capital will likely be needed. Whitney also notes that she views this transaction as a positive for MS.
C (6.75): Page One article says Citi board backs CEO Vikram Pandit – WSJ: The article echoes what the New York Times reported earlier, that Richard Parsons is expected to replace Win Bischoff as Citi's chair this month. In an interview, Parsons utters platitudes about Pandit's performance. People familiar with the matter say Citi is expected to post a Q4 operating loss of at least $10B, and one says December was particularly unkind to the bank. The net loss will be closer to $6B (Bloomberg: loss of $3.52B). People familiar with the talks say federal officials told Pandit to downsize the company in December, feeling his integration strategy wasn't far-reaching enough.
AA (10.81): Alcoa downgraded to sell from hold at Deutsche Bank, target cut to $8 – Bloomberg
XOM (77.57): Investors speculate if Exxon Mobil is ready to make a deal says the WSJ: Exxon has made no sizable acquisitions since the 1999 deal for Mobil. It is one of the few companies with the financial firepower necessary for a major deal because it did not chase the recent bull market in oil and exercised restraint. One analyst believes the company could gap away from competitors in 2009 through a major deal. CEO Tillerson says the company monitors opportunities all the time. DB's Paul Sankey says sitting still during the down cycle would not make much sense and would frustrate shareholders. One scenario speculated upon is that Exxon would buy Royal Dutch Shell (RDS.A) in order to gain more access to West African oil and greater presence in the international gas market though such a deal would face regulatory scrutiny and likely entail issuing billions in new shares to institutional foreign holders that might have to sell if they are not allowed U.S. exposure. Other speculation is a deal for BG Group (BG.LN) or a partnership with Petrobras (PBR).
SAY (1.00): Major clients preparing to abandon Satyam Computer - Economic Times: A source familiar with the matter says General Electric (GE), Satyam's largest client, is talking with other vendors about merging the existing Satyam team with their resources to ensure continuity of work. Spokesmen for Nestle (NESN.VX) and British Petroleum (BP.LN) say their companies are considering alternative solutions.
Barron's summary
Cover: First installment of the Investment Roundtable: Meryl Witmer likes KALU, AYE, AIZ and DFS; Fred Hickey likes MSFT, CDNS, GDX, AEM, DBA and FXI. Barron's Mutual Fund Quarterly. Lead Articles: American Physicians Capital (ACAP) is practically recession-proof; Positive on high dividend European companies such as PP.FP, BP, RDS.A, ADM.LN, AKZOY, BAS.GR, PSON.LN, AZN.LN, GSK.LN, NOK, DTE.GR, TEF, VOD, RWE.GR; Nuclear energy should prosper under an Obama Administration; Some banking stocks could rally from currently depressed levels; Other Voices suggests removing the corporate income tax and tariffs as a stimulus for the 21st century; Editorial suggests trying to keep the government out of the banking system and is glad that the music companies are finally agreeing to get rid of DRM in digital downloads. Columns: The Trader suggests taking some profits, positive on FTI Consulting (FCN), positive on a Morgan / Smith Barney deal; Euro Trader is positive on ASML Holding's (ASML) bonds; Asia Trader notes the concern that there may be more scandals to be uncovered in India; Commodities Corner says South American conditions could cause a continued rally in soybeans; Current Yield reviews last week in the credit markets; The Striking Price suggests that options will likely grow in popularity as buy and hold decreases as the primary stock investing option; Follow Up is cautious on Intel (INTC), positive on Linn Energy (LINE) and Intuitive Surgical (ISRG); Up and Down Wall Street considers the pronouncements from president-elect Obama, the coming budget deficits and the jobs report; Streetwise says the great unknowns is how far consumer spending will decrease and how much saving will increase and says the immediate money may have been made in the corporate bond market, positive on Thermo Fisher Scientific (TMO); D.C. Current says the Obama stimulus proposal is too big to oppose and while the economy needs help, it doesn't need this much help, much of it seems to be an attempt to buy popularity; Technology Trader reviews the Consumer Electronics Show; Plugged In is a tribute to money manager Eric Von der Porten; Gadget of the Week is the HP Touchsmart tx2z tablet PC.
Thursday, January 8, 2009
January 8, 2009: Morning Call
January 8, 2009: Morning Call
Fair Value: SP500 – 903.84; NDX: 1239.57; DOW – 8730.12
Technical Levels:
SPX: 685, 752-755, 848-852, 899 support/ 998-1002 resistance
Events:
05:00: Euro-zone Unemployment Rate (November): 7.8% (in-line at 7.8%)
05:00: Euro-zone GDP (Q3 Final): -0.2% QoQ; 0.6% YoY (in-line at –0.2%)
05:00: Euro-zone Business Climate Indicator (Dec): -2.80 (weaker at –3.17)
05:00: Euro-zone Consumer Confidence (December): -26 (weaker at –30)
05:00: Euro-zone Economic Confidence (December): 72 (weaker at 67.1)
05:00: Euro-zone Industrial Confidence (December): -30 (weaker at –33)
05:00: Euro-zone Services Confidence (December): -13 (weaker at –17)
07:00: BOE Announces Interest Rate Decision (50 basis points as expected)
07:00: US Retailers release December Store Comps
07:45: ECB Rate Decision
08:30: Initial Jobless Claims (January 3): 540,000; Continuing Claims
08:30: MTW Analyst Day
10:30: EIA Natural Gas Storage Change
11:00: President-elect Obama delivers speech on the economy
11:30: MON R&D Pipeline Update Call
13:30: Treasury’s Kashkari speaks on TARP implementation
15:00: Consumer Credit (November): 0.5B
15:00: MSFT Analyst and Investor Meeting
16:00: Fed’s Hoenig speaks on Infrastructure Spending
17:00: CVX Q4 2008 Guidance Call
18:00: MSFT presents at the CES Conference
Post-market EPS: APOL (.98/913.0M)
Foreign Market Summary/Key Macro News/Commentary:
The S&P and NASDAQ futures are both 9 points below fair value following an earnings warning from WMT. European markets extended their losses to 2.0% following the WMT warning. European economic data also came in weaker across the board. Mining, Industrial, and Retail sectors are among the weakest sectors. Asian markets closed lower (Japan down 3.9%, Hong Kong down 3.8%, Australia down 2.2%, Indian markets closed). There were a number of profit warnings across the region. Thailand was the lone exception in the region reversing early losses. Macquarie Group (MQG.AU) and Telstra (TLS.AU) weighted on Australia. Hong Kong fell on resource shares. Bank of China (3988.HK) fell after Li Ka Shing sold $511M of shares yesterday. Lenovo (992.HK) plummeted on a profits warning. Cathay Pacific Airways (293.HK) dropped after revealing it had incurred fuel-hedging losses.
Impact Research Calls/Market Moving News:
WMT (55.54): Wal-Mart reports Dec comps +1.7% vs First Call +2.8%; cuts Q4 guidance: The company reports December revenues (0.1%) to $46.51B. Guides Q4 EPS to $0.91-$0.94 vs prior $1.03-$1.07 and Reuters $1.07. Dec. comps, with fuel, +1.2%. The company reports December revenues (0.1%) to $46.51B. Guides Jan comps. to flat to +2%. WMT says the current economy remains challenging and that retailers have already seen customers pull back on discretionary spending. WMT says Dec traffic was positive, though weather conditions slowed sales in several areas of the country the week before Christmas, forcing the closure of 40 stores for periods ranging from two hours to nine days. Electronics sales were solid, while apparel and jewelry were soft. WMT shares are trading down 7.5% in the pre-market.
JCG (11.69): J. Crew Group guides Q4 EPS to ($0.24)-($0.29) vs prior $0.05-0.10 and Reuters $0.07: The company's Q4 outlook currently reflects comparable store sales in the negative mid teen range and direct sales in the negative mid-to-high single digit range. This revised guidance reflects the aggressive inventory actions taken to clear fall and holiday inventory during Q4. JCG expects to end the year with cash of approximately $135M versus $132M last year, $100M of long-term debt versus $125M last year and no borrowings under its $200M working capital facility.
COST (50.12): Costco reports Dec comps (4.0%) vs consensus (4.0%), First Call (4.2%): The company reports December revenues (2.0%) to $7.4M. US December comps were (2%); int'l (11%). US December comps (excluding the impact from gasoline deflation and foreign exchange) were +2%; int'l +9%.
Retailers cutting prices early, often – WSJ: The newest trend is for retailers including J Crew (JCG) and Bebe Stores (BEBE) to cut prices on early spring merchandise before it hits store shelves. Some deals, like those offered at Old Navy (GPS) and Ann Taylor (ANN), require shoppers to purchase more than one item to get discounts of roughly 50%. Wal-Mart (WMT) announced earlier today it was cutting prices on health-related items like exercise machines.
GPS (13.56): Gap Inc reports Dec comps (14.0%) vs consensus (9.8%), reduces full year guidance: The company reports December revenues (12.3%) to $1.93B. Comps by division: Gap North America: (12%), Banana Republic North America (15%), Old Navy North America: (16%), International: (5%). Guides full year EPS to $1.27-1.30 vs prior $1.30-1.35 and Reuters $1.33.
ANF (23.74): December comps weaker at –24.0% vs. street at –22.9%. ANF also says Q4 earnings will be significantly below the previous 1.00 to 1.05 guidance range. The company does not provide new guidance in the press release.
SAY (1.00): Satyam Computer scandal casts doubt on India as whole – WSJ: The news of fraudulent books at a company whose name in Sanskrit ironically means "truth" raises questions about corporate governance and accounting standards in the country. Bankers and analysts agree that in many cases companies' rapid evolution from small operations keeping multiple sets of books to avoid taxes to international ones may have outpaced their abilities to develop internationally acceptable corporate governance.
INTC (14.44): Intel downgraded to hold from buy at Argus Research: The firm expects 2009 to be a very difficult year for the company. However, their long-term rating remains buy as they anticipate a rebound towards the end of the year and into 2010.
ICE (64.08); GFIG (4.81): Deutsche Bank downgrades GFIG and ICE: Shares are downgraded to hold from buy. Target for GFIG is reduced to $5 from $6. ICE target reduced to $65 from $88.
ICE (64.08); CME (198.69): IntercontinentalExchange (ICE), CME Group (CME) Q4 estimates reduced below at Wachovia: Firm cites weaker trading trends as catalyst
MTW (9.50): MTW sees 2009 EPS of 1.35 to 1.60 versus street consensus of 2.71. For full year 2009, the company anticipates a revenue reduction of approximately 20% for its Crane segment, which will be offset by an approximate 200% revenue increase by its Foodservice segment.
M (11.31): Macy's to close 10 locations – WSJ: Citing a source familiar with the matter, the Journal reports that Macy's is expected to announce as soon as Thursday that it will close 10 locations. The article notes that Macy's has 860 department stores. M comps decline 4% vs. street consensus of a 5.8% decline.
EMC (11.18): EMC guides Q4 revenue to $4B vs Reuters $3.96B: EMC announced that it expects Q4 revenues of approximately $4B and also that, excluding the restructuring charge of $0.10, it reaffirms non-GAAP earnings per diluted share of $0.23 to $0.24 vs Reuters $0.23. EMC shares are trading up 4% in the pre-market.
Fair Value: SP500 – 903.84; NDX: 1239.57; DOW – 8730.12
Technical Levels:
SPX: 685, 752-755, 848-852, 899 support/ 998-1002 resistance
Events:
05:00: Euro-zone Unemployment Rate (November): 7.8% (in-line at 7.8%)
05:00: Euro-zone GDP (Q3 Final): -0.2% QoQ; 0.6% YoY (in-line at –0.2%)
05:00: Euro-zone Business Climate Indicator (Dec): -2.80 (weaker at –3.17)
05:00: Euro-zone Consumer Confidence (December): -26 (weaker at –30)
05:00: Euro-zone Economic Confidence (December): 72 (weaker at 67.1)
05:00: Euro-zone Industrial Confidence (December): -30 (weaker at –33)
05:00: Euro-zone Services Confidence (December): -13 (weaker at –17)
07:00: BOE Announces Interest Rate Decision (50 basis points as expected)
07:00: US Retailers release December Store Comps
07:45: ECB Rate Decision
08:30: Initial Jobless Claims (January 3): 540,000; Continuing Claims
08:30: MTW Analyst Day
10:30: EIA Natural Gas Storage Change
11:00: President-elect Obama delivers speech on the economy
11:30: MON R&D Pipeline Update Call
13:30: Treasury’s Kashkari speaks on TARP implementation
15:00: Consumer Credit (November): 0.5B
15:00: MSFT Analyst and Investor Meeting
16:00: Fed’s Hoenig speaks on Infrastructure Spending
17:00: CVX Q4 2008 Guidance Call
18:00: MSFT presents at the CES Conference
Post-market EPS: APOL (.98/913.0M)
Foreign Market Summary/Key Macro News/Commentary:
The S&P and NASDAQ futures are both 9 points below fair value following an earnings warning from WMT. European markets extended their losses to 2.0% following the WMT warning. European economic data also came in weaker across the board. Mining, Industrial, and Retail sectors are among the weakest sectors. Asian markets closed lower (Japan down 3.9%, Hong Kong down 3.8%, Australia down 2.2%, Indian markets closed). There were a number of profit warnings across the region. Thailand was the lone exception in the region reversing early losses. Macquarie Group (MQG.AU) and Telstra (TLS.AU) weighted on Australia. Hong Kong fell on resource shares. Bank of China (3988.HK) fell after Li Ka Shing sold $511M of shares yesterday. Lenovo (992.HK) plummeted on a profits warning. Cathay Pacific Airways (293.HK) dropped after revealing it had incurred fuel-hedging losses.
Impact Research Calls/Market Moving News:
WMT (55.54): Wal-Mart reports Dec comps +1.7% vs First Call +2.8%; cuts Q4 guidance: The company reports December revenues (0.1%) to $46.51B. Guides Q4 EPS to $0.91-$0.94 vs prior $1.03-$1.07 and Reuters $1.07. Dec. comps, with fuel, +1.2%. The company reports December revenues (0.1%) to $46.51B. Guides Jan comps. to flat to +2%. WMT says the current economy remains challenging and that retailers have already seen customers pull back on discretionary spending. WMT says Dec traffic was positive, though weather conditions slowed sales in several areas of the country the week before Christmas, forcing the closure of 40 stores for periods ranging from two hours to nine days. Electronics sales were solid, while apparel and jewelry were soft. WMT shares are trading down 7.5% in the pre-market.
JCG (11.69): J. Crew Group guides Q4 EPS to ($0.24)-($0.29) vs prior $0.05-0.10 and Reuters $0.07: The company's Q4 outlook currently reflects comparable store sales in the negative mid teen range and direct sales in the negative mid-to-high single digit range. This revised guidance reflects the aggressive inventory actions taken to clear fall and holiday inventory during Q4. JCG expects to end the year with cash of approximately $135M versus $132M last year, $100M of long-term debt versus $125M last year and no borrowings under its $200M working capital facility.
COST (50.12): Costco reports Dec comps (4.0%) vs consensus (4.0%), First Call (4.2%): The company reports December revenues (2.0%) to $7.4M. US December comps were (2%); int'l (11%). US December comps (excluding the impact from gasoline deflation and foreign exchange) were +2%; int'l +9%.
Retailers cutting prices early, often – WSJ: The newest trend is for retailers including J Crew (JCG) and Bebe Stores (BEBE) to cut prices on early spring merchandise before it hits store shelves. Some deals, like those offered at Old Navy (GPS) and Ann Taylor (ANN), require shoppers to purchase more than one item to get discounts of roughly 50%. Wal-Mart (WMT) announced earlier today it was cutting prices on health-related items like exercise machines.
GPS (13.56): Gap Inc reports Dec comps (14.0%) vs consensus (9.8%), reduces full year guidance: The company reports December revenues (12.3%) to $1.93B. Comps by division: Gap North America: (12%), Banana Republic North America (15%), Old Navy North America: (16%), International: (5%). Guides full year EPS to $1.27-1.30 vs prior $1.30-1.35 and Reuters $1.33.
ANF (23.74): December comps weaker at –24.0% vs. street at –22.9%. ANF also says Q4 earnings will be significantly below the previous 1.00 to 1.05 guidance range. The company does not provide new guidance in the press release.
SAY (1.00): Satyam Computer scandal casts doubt on India as whole – WSJ: The news of fraudulent books at a company whose name in Sanskrit ironically means "truth" raises questions about corporate governance and accounting standards in the country. Bankers and analysts agree that in many cases companies' rapid evolution from small operations keeping multiple sets of books to avoid taxes to international ones may have outpaced their abilities to develop internationally acceptable corporate governance.
INTC (14.44): Intel downgraded to hold from buy at Argus Research: The firm expects 2009 to be a very difficult year for the company. However, their long-term rating remains buy as they anticipate a rebound towards the end of the year and into 2010.
ICE (64.08); GFIG (4.81): Deutsche Bank downgrades GFIG and ICE: Shares are downgraded to hold from buy. Target for GFIG is reduced to $5 from $6. ICE target reduced to $65 from $88.
ICE (64.08); CME (198.69): IntercontinentalExchange (ICE), CME Group (CME) Q4 estimates reduced below at Wachovia: Firm cites weaker trading trends as catalyst
MTW (9.50): MTW sees 2009 EPS of 1.35 to 1.60 versus street consensus of 2.71. For full year 2009, the company anticipates a revenue reduction of approximately 20% for its Crane segment, which will be offset by an approximate 200% revenue increase by its Foodservice segment.
M (11.31): Macy's to close 10 locations – WSJ: Citing a source familiar with the matter, the Journal reports that Macy's is expected to announce as soon as Thursday that it will close 10 locations. The article notes that Macy's has 860 department stores. M comps decline 4% vs. street consensus of a 5.8% decline.
EMC (11.18): EMC guides Q4 revenue to $4B vs Reuters $3.96B: EMC announced that it expects Q4 revenues of approximately $4B and also that, excluding the restructuring charge of $0.10, it reaffirms non-GAAP earnings per diluted share of $0.23 to $0.24 vs Reuters $0.23. EMC shares are trading up 4% in the pre-market.
Tuesday, January 6, 2009
January 6, 2008: Morning Call
January 6, 2009: Morning Call
Fair Value: SP500 – 924.40; NDX: 1263.90; DOW – 8907.88
Technical Levels:
SPX: 685, 752-755, 848-852, 899 support/ 998-1002 resistance
Events:
04:00: Euro-zone PMI Services (December Final): 42.0; Composite: 38.3 (Services in-line at 42.1; Composite in-line at 38.2)
05:00: Euro-zone CPI Estimate (December YoY): 1.8% (actual: 1.6%)
09:00: MOS Earnings Call
10:00: ISM Non-Manufacturing (December): 37.0
10:00: US Factory Orders (November): -2.2%
10:00: US Pending Home Sales (November): -1.0% MoM
12:00: Apple Macworld Conference
14:00: Minutes of December 16 FOMC Meeting
17:00: ABC Consumer Confidence
Foreign Market Summary/Key Macro News/Commentary:
The S&P and NASDAQ futures are both trading 10 points above fair value at 7:30am ET. European markets are up 1.0% on increased confidence that the BOE and ECB will lower interest rates following more contained consumer price data (Euro-zone CPI came in at 1.6% vs. consensus of 1.8%, well below the 2% ECB ceiling). European markets were modestly lower at 4am but turned around after the PMI services data came in-line with expectations. The dollar is sharply higher against the Euro on increased confidence that the BOE and ECB will aggressively cut interest rates. Crude oil has crossed 50 this morning despite the strength in the dollar. Mining and Energy stocks continue to be the best performing sectors. Solar-related stocks are lower following an earnings warning from LDK. Asian markets closed modestly higher (Japan up 0.40%, Australia up 1.5%, Hong Kong down 0.35%, India up 0.59%).
US and European markets are up approximately 10% since the intra-day lows on December 29, 2008. I have been surprised by the magnitude of this recent advance and expected the market to be weaker heading into the New Year. I continue to have very little conviction on the short-term outlook (I would be long OTM puts instead of being short equities or futures given the low conviction) mainly because we are in a quiet period with very little significant economic and earnings news until the December jobs report on Friday and Q4 numbers later this month. Market participants are clearly positioning for a sharp recovery in the global economy in the second half of 2009 (Commodity prices are up sharply, Treasury Bonds are falling, Credit and MBS spreads have tightened modestly and Coal, Steel, Mining, and Energy sectors are leading the broader equity averages around the world). During this bear market, there have been numerous counter-trend rallies that had similar characteristics. Each of these tactical advances failed because the economic data and earnings results failed to support the global re-inflation thesis and traders got shook out of their long positions. Maybe this time will be different but I doubt it because the earnings outlook has not bottomed (the economy may have bottomed in December but the earnings outlook did not). I recognize that the path of maximum frustration likely remains to the upside because performance anxiety could easily spark a stronger underlying bid. But, risk is high and I would remain cautious.
Impact Research Calls/Market Moving News:
AAPL (94.58): Oppenheimer upgrades AAPL to outperform from perform citing comments regarding Steve Job’s health. Price target is 135.
AAPL: BMO Capital lowers estimates and price target to 108 from 120. Key Points: “1. We are lowering estimates for Apple for all forecast periods owing to our view on the incremental consumer (including educational) pullback in spending. We have reduced estimates in all product categories. We have made only modest changes to our December quarter forecast - primarily by lowering our assumed iPhone unit shipments to 4.9 million from 5.6 million. Given deferred accounting, the impact of lower iPhone unit sales is primarily in CY2009, not the December 2008 quarter. Net, our FY2009 EPS estimate moves to $4.60, from $5.11 and compares with the Street at $5.12.2. March guidance - how low can they go? For the March quarter, we project $7.9 billion in revenues and $1.02 in EPS, versus Street estimates of $8.4 billion in revenues and EPS of $1.15. As is typically the case, we believe that Apple will guide under Street/our estimates. The impact to the stock is not if it guides below, but by how much - meaning we believe that if Apple guides well below Street estimates, the stock will be negatively impacted in the short-term. As we look at historical trends (Exhibit 2), we believe that Apple will guide revenues to around $7.1-$7.5 billion in revenues, or a 24%-28% q/q decline, compared with Street December revenue estimates of approximately $9.9 billion. Over the past three years, Apple's average q/q decline in revenues, per guidance, has been 28%, which would suggest revenue guidance of $7.1 billion for the March quarter. We are above what we believe Apple's March revenue guidance range will be given that the recognition of deferred revenues will add about 580 basis points (bp) of q/q revenue growth. In other words, we project 18.5% q/q revenue decline for the March quarter, but if we eliminated the impact of deferred revenues, our q/q revenue decline would be 24.3%. For EPS, Apple has guided March EPS to decline q/q by an average of 46% over the past three years. Assuming that Apple reports EPS of $1.40 in the December quarter, this would suggest March quarter EPS guidance of $0.75. While Apple has on average guided EPS to decline by 46% q/q over the past three years, reported EPS has declined by 28%, which would suggest EPS of about $1.00 for the March quarter, about in line with our estimate. Further, we believe that the impact of incremental deferred revenue will add $0.10 in q/q EPS strength in the March quarter compared with December, which would suggest EPS closer to $1.10, when Apple reports the March quarter. Nevertheless, we believe that Apple will guide March quarter EPS to be in the range of $0.75-$0.85, which we believe ignores the positive impact of deferred revenues. 3. New valuation: $108, down from $120. Based on our estimate changes, we are lowering our target price to $108 from $120, based on three methods. First, we apply a 1x PEG to our CY2009 estimate (16x P/E) plus cash, which yields a target price of $101. Second, we apply a 12x-13x our CY2009 EBITDA estimate, which yields a target price of approximately $107. Finally, our five-year DCF, with major assumptions listed in Exhibit 3 below, yields a target price of $119. Our simple average is approximately $108, versus our previous target of $120. We note that Apple, like many of our stocks, currently benefits from negative sentiment, and recognition by buy-side investors that current Street estimates are too high. However, we don't think Apple will trade well between Macworld and its earnings conference call, with realistic concerns about March quarter guidance. We believe that buying the stock owing to weakness from guidance will prove profitable, given that Apple is typically overly conservative.”
AAPL (94.58): Apple's Jobs 'hormone imbalance' raises question of cancer, says the LA Times: The Times says the disclosure about having a hormone imbalance indicates he could be dealing with a recurrence of pancreatic cancer, according to some doctors. Dr. Heinz Lenz of USC's Keck School of Medicine says Jobs' description of his illness suggests his tumor "may be acting up a bit".
NUE (47.32): Nucor downgraded to neutral from buy at UBS: Though downgraded, the price target is increased to $50 from $48. Firm notes a limited upside and estimates are lowered in conjunction with the firm's lower steel price and volume forecasts
ICE (73.00): IntercontinentalExchange downgraded to neutral from buy at UBS: Price target decreased to $75 from $85. Firm notes weaker OTC volumes, a negative shift in futures pricing, and less expense flexibility in the near term. Estimates are lowered.
ICE (73.00): IntercontinentalExchange downgraded to neutral from buy at Goldman Sachs: The stock is also removed from the Conviction Buy List. Target is reduced to $80 from $100.
MOS (37.67): Mosaic reports Q2 EPS $1.53 ex-items vs Reuters $1.41: Note earnings exclude a $0.41 inventory valuation write-down and a $1.03 gain related to the sale of its interest in Saskferco. Company reports revenues of $3.01B vs Reuters $2.74B.
GRMN (22.00): Garmin downgraded to sell from neutral at Goldman Sachs: The stock is also added to the Conviction Sell List
DVN (70.98); NXY (19.63): Devon Energy (DVN), Nexen (NXY) downgraded to equal-weight from overweight at Barclays Capital: Firm also reduced its rating on the sector (large cap E&P names) to neutral from positive
Fair Value: SP500 – 924.40; NDX: 1263.90; DOW – 8907.88
Technical Levels:
SPX: 685, 752-755, 848-852, 899 support/ 998-1002 resistance
Events:
04:00: Euro-zone PMI Services (December Final): 42.0; Composite: 38.3 (Services in-line at 42.1; Composite in-line at 38.2)
05:00: Euro-zone CPI Estimate (December YoY): 1.8% (actual: 1.6%)
09:00: MOS Earnings Call
10:00: ISM Non-Manufacturing (December): 37.0
10:00: US Factory Orders (November): -2.2%
10:00: US Pending Home Sales (November): -1.0% MoM
12:00: Apple Macworld Conference
14:00: Minutes of December 16 FOMC Meeting
17:00: ABC Consumer Confidence
Foreign Market Summary/Key Macro News/Commentary:
The S&P and NASDAQ futures are both trading 10 points above fair value at 7:30am ET. European markets are up 1.0% on increased confidence that the BOE and ECB will lower interest rates following more contained consumer price data (Euro-zone CPI came in at 1.6% vs. consensus of 1.8%, well below the 2% ECB ceiling). European markets were modestly lower at 4am but turned around after the PMI services data came in-line with expectations. The dollar is sharply higher against the Euro on increased confidence that the BOE and ECB will aggressively cut interest rates. Crude oil has crossed 50 this morning despite the strength in the dollar. Mining and Energy stocks continue to be the best performing sectors. Solar-related stocks are lower following an earnings warning from LDK. Asian markets closed modestly higher (Japan up 0.40%, Australia up 1.5%, Hong Kong down 0.35%, India up 0.59%).
US and European markets are up approximately 10% since the intra-day lows on December 29, 2008. I have been surprised by the magnitude of this recent advance and expected the market to be weaker heading into the New Year. I continue to have very little conviction on the short-term outlook (I would be long OTM puts instead of being short equities or futures given the low conviction) mainly because we are in a quiet period with very little significant economic and earnings news until the December jobs report on Friday and Q4 numbers later this month. Market participants are clearly positioning for a sharp recovery in the global economy in the second half of 2009 (Commodity prices are up sharply, Treasury Bonds are falling, Credit and MBS spreads have tightened modestly and Coal, Steel, Mining, and Energy sectors are leading the broader equity averages around the world). During this bear market, there have been numerous counter-trend rallies that had similar characteristics. Each of these tactical advances failed because the economic data and earnings results failed to support the global re-inflation thesis and traders got shook out of their long positions. Maybe this time will be different but I doubt it because the earnings outlook has not bottomed (the economy may have bottomed in December but the earnings outlook did not). I recognize that the path of maximum frustration likely remains to the upside because performance anxiety could easily spark a stronger underlying bid. But, risk is high and I would remain cautious.
Impact Research Calls/Market Moving News:
AAPL (94.58): Oppenheimer upgrades AAPL to outperform from perform citing comments regarding Steve Job’s health. Price target is 135.
AAPL: BMO Capital lowers estimates and price target to 108 from 120. Key Points: “1. We are lowering estimates for Apple for all forecast periods owing to our view on the incremental consumer (including educational) pullback in spending. We have reduced estimates in all product categories. We have made only modest changes to our December quarter forecast - primarily by lowering our assumed iPhone unit shipments to 4.9 million from 5.6 million. Given deferred accounting, the impact of lower iPhone unit sales is primarily in CY2009, not the December 2008 quarter. Net, our FY2009 EPS estimate moves to $4.60, from $5.11 and compares with the Street at $5.12.2. March guidance - how low can they go? For the March quarter, we project $7.9 billion in revenues and $1.02 in EPS, versus Street estimates of $8.4 billion in revenues and EPS of $1.15. As is typically the case, we believe that Apple will guide under Street/our estimates. The impact to the stock is not if it guides below, but by how much - meaning we believe that if Apple guides well below Street estimates, the stock will be negatively impacted in the short-term. As we look at historical trends (Exhibit 2), we believe that Apple will guide revenues to around $7.1-$7.5 billion in revenues, or a 24%-28% q/q decline, compared with Street December revenue estimates of approximately $9.9 billion. Over the past three years, Apple's average q/q decline in revenues, per guidance, has been 28%, which would suggest revenue guidance of $7.1 billion for the March quarter. We are above what we believe Apple's March revenue guidance range will be given that the recognition of deferred revenues will add about 580 basis points (bp) of q/q revenue growth. In other words, we project 18.5% q/q revenue decline for the March quarter, but if we eliminated the impact of deferred revenues, our q/q revenue decline would be 24.3%. For EPS, Apple has guided March EPS to decline q/q by an average of 46% over the past three years. Assuming that Apple reports EPS of $1.40 in the December quarter, this would suggest March quarter EPS guidance of $0.75. While Apple has on average guided EPS to decline by 46% q/q over the past three years, reported EPS has declined by 28%, which would suggest EPS of about $1.00 for the March quarter, about in line with our estimate. Further, we believe that the impact of incremental deferred revenue will add $0.10 in q/q EPS strength in the March quarter compared with December, which would suggest EPS closer to $1.10, when Apple reports the March quarter. Nevertheless, we believe that Apple will guide March quarter EPS to be in the range of $0.75-$0.85, which we believe ignores the positive impact of deferred revenues. 3. New valuation: $108, down from $120. Based on our estimate changes, we are lowering our target price to $108 from $120, based on three methods. First, we apply a 1x PEG to our CY2009 estimate (16x P/E) plus cash, which yields a target price of $101. Second, we apply a 12x-13x our CY2009 EBITDA estimate, which yields a target price of approximately $107. Finally, our five-year DCF, with major assumptions listed in Exhibit 3 below, yields a target price of $119. Our simple average is approximately $108, versus our previous target of $120. We note that Apple, like many of our stocks, currently benefits from negative sentiment, and recognition by buy-side investors that current Street estimates are too high. However, we don't think Apple will trade well between Macworld and its earnings conference call, with realistic concerns about March quarter guidance. We believe that buying the stock owing to weakness from guidance will prove profitable, given that Apple is typically overly conservative.”
AAPL (94.58): Apple's Jobs 'hormone imbalance' raises question of cancer, says the LA Times: The Times says the disclosure about having a hormone imbalance indicates he could be dealing with a recurrence of pancreatic cancer, according to some doctors. Dr. Heinz Lenz of USC's Keck School of Medicine says Jobs' description of his illness suggests his tumor "may be acting up a bit".
NUE (47.32): Nucor downgraded to neutral from buy at UBS: Though downgraded, the price target is increased to $50 from $48. Firm notes a limited upside and estimates are lowered in conjunction with the firm's lower steel price and volume forecasts
ICE (73.00): IntercontinentalExchange downgraded to neutral from buy at UBS: Price target decreased to $75 from $85. Firm notes weaker OTC volumes, a negative shift in futures pricing, and less expense flexibility in the near term. Estimates are lowered.
ICE (73.00): IntercontinentalExchange downgraded to neutral from buy at Goldman Sachs: The stock is also removed from the Conviction Buy List. Target is reduced to $80 from $100.
MOS (37.67): Mosaic reports Q2 EPS $1.53 ex-items vs Reuters $1.41: Note earnings exclude a $0.41 inventory valuation write-down and a $1.03 gain related to the sale of its interest in Saskferco. Company reports revenues of $3.01B vs Reuters $2.74B.
GRMN (22.00): Garmin downgraded to sell from neutral at Goldman Sachs: The stock is also added to the Conviction Sell List
DVN (70.98); NXY (19.63): Devon Energy (DVN), Nexen (NXY) downgraded to equal-weight from overweight at Barclays Capital: Firm also reduced its rating on the sector (large cap E&P names) to neutral from positive
Monday, January 5, 2009
January 5, 2009: Morning Call
January 5, 2009: Morning Call
Fair Value: SP500 – 928.80; NDX: 1265.16; DOW – 8990.47
Technical Levels:
SPX: 685, 752-755, 848-852, 899 support/ 998-1002 resistance
Events:
04:30: Euro-zone Sentix Investor Confidence
10:00: Construction Spending (November): -1.3%
13:15: Fed’s Yellen leads panel discussion on sub-prime loan crisis.
14:00: GM US Auto Sales
14:00: SEC and SIPC officials testify on Madoff scam before House
15:30: Chrysler US Auto Sales
Post-Market EPS: MOS (1.52/2.74B)
Foreign Market Summary/Key Macro News/Commentary:
The S&P futures are trading 5 points below fair value while the NASDAQ futures are trading 10 points below fair value. European markets are up 0.50% but off the highs of the session. Volume is still on the light side in Europe. Telecom, Utilities, Technology and Financial stocks are outperforming while Auto’s, Gold, and Energy sectors are underperforming. Gold is down 20 bucks an ounce on strength in the dollar (dollar is up 2.5% against the Euro to 1.358). Asian markets closed higher (Hong Kong up 3.4%, Japan up 2.0%, Shanghai up 3.6%, India up 3.1%) excluding Australia, which fell 0.72%. The strong close in Friday’s session coupled with optimism about the Obama economic recovery package have contributed to the stronger tone in foreign markets.
Impact Research Calls/Market Moving News:
TLT (116.35); TBT (39.00): Barron's Cover says to get out of Treasuries now, other bonds beckon: Treasuries are offering some of the lowest yields since the 1940s. But prices of longer-term Treasuries could fall sharply if yields rise. Yields on 30-year Treasuries could easily top 4% by the end of the year. One sign of trouble is the resilient price of gold and the dollar has weakened recently. One way to go bearish on the Treasury market is through TBT or PST as well as shorting the TLT. Elsewhere in the bond market, however, things look enticing including municipals, corporate bonds, convertible securities, some mortgage securities and preferred stock. The yield differential between munis and Treasuries is unprecedented. The average junk bond issue trades for less than 60 cents on the dollar. Ways to play the junk market include HYG, FAGIX and many closed-end funds that are trading at double-digit discounts to NAV. Convertible securities from companies like C, CHK, VNO, F and RIG offer a nice combination of yield and equity kickers. For mortgage securities, it is probably better to stick with a mutual fund like TGMNX. If you need the safety of Treasuries, the best bet is probably TIPS through funds like VIPSX or the ETF TIP.
Obama Economic Recovery package will include hundred of billions of dollars worth of tax breaks—Bloomberg: “Obama is asking that tax cuts make up 40 percent of a stimulus package, the people say. The measure may be worth as much as $775 billion, a Democratic aide says, meaning tax cuts may constitute more than $300 billion of the legislation. The plan would attempt to boost consumer demand by spending $140 billion on tax breaks worth $500 for individuals and $1,000 for couples, according to a House Democratic aide. The change would come by altering tax-withholding rules, rather than through a rebate check as with the previous stimulus plan enacted last year, so that workers would see an immediate increase in their take-home pay. For businesses, the aide said, lawmakers will use similar measures they’ve employed in past stimulus bills, such as allowing companies to get refunds for taxes paid in any or all of the past five years by deducting losses they’ve incurred now; those losses can currently only be carried back two years. Congress is also likely to include incentives such as accelerated depreciation to encourage companies to buy equipment now rather than defer such investments. The plan also attempts to combat joblessness by offering companies tax breaks for hiring more workers, the aide said.”
C (7.14): Deutsche Bank analyst Mike Mayo cuts his 2009 and 2010 numbers on Citibank. 2009 estimate is cut to a loss of 1 dollar and the 2010 profit estimate is cut to 75 cents. Citibank 2009 consensus is for a loss of .08 cents and 2010 consensus is a profit of .98 cents.
AAPL ((90.75): Thomas Weisel reiterates their overweight rating and $160 price target. “Macworld will take place in San Francisco from Monday January 5, 2009 to Friday January 9, 2009. Phil Schiller, Sr VP of WW Product Marketing, will deliver the keynote presentation on Tuesday January 6, 2009 at 9AM PT (noon ET). While we do not expect AAPL to introduce a significant new product at Macworld, we do expect insight into the next generation desktop product (iMac). We expect Schiller’s keynote to highlight ongoing successes in each of AAPL’s key product areas (Macs, iPhones and iPods) with a particular focus on the successful ramp of App Store, iTunes and MobileMe as sustainable drivers of AAPL product sales. Importantly, we expect investors to come away from Macworld with increased confidence in AAPL’s long term growth story and specifically in AAPL’s ability to continue to gain market share despite (1) a likely diminished role for Steve Jobs as de-facto Promoter-in-Chief of APPL products and (2)The abolition of Macworld following this year’s event. Based on evidence of strong online sales in the Dec Q (unique traffic up 19% y/y during Dec 1-24, according to comScore) we do not expect AAPL to pre-announce negatively. We expect AAPL to provide evidence of strong, broad-based market share gains during the Dec Q when the company reports F1Q09 results in late January. We are reiterating our Overweight rating and our 12-month price target of $160 which is based on a on a 24x multiple on our FY10 EPS estimate of $6.57 and compares to a 25% EPS CAGR we expect AAPL to deliver from FY08 to FY12.
AAPL (90.75): Barron's The Trader notes all the dry powder, cautiously positive on Apple (AAPL): Column notes the tremendous amount of money parked in money market mutual funds, enough to absorb 42% of the S&P 500's market value. The typical trade of shorting Apple (AAPL) into the January MacWorld conference may not be the move this year given the anxiety over a poor Christmas season and modest expectations for show revelations. More than 30% of the market value is cash and the stock trades for a relatively low 17.7x '09 earnings
AAPL (90.75): Several technology blogs are publishing rumors that Steve Jobs will make an appearance at Mac World in order to quell rumors surrounding his health. There is no official news from AAPL nor do the technology blogs provide any factual information to support the rumor.
AMZN (54.26): Amazon.com upgraded to overweight from neutral at JPMorgan.
HMC (21.81); TM (66.37): December Japan vehicle sales fall for Honda (HMC), Toyota Motor (TM), Nissan (NSANY) – Bloomberg: The Japan Auto Dealers Association reports that Toyota's sales declined (17.8%) y/y to 77,157 vehicles, Honda's dropped (25.3%) y/y to 27,505 vehicles, and Nissan's fell (21.8%) y/y to 26,934 vehicles.
NY Times says commercial real estate may be the next source of trouble for banks:Vacancies in commercial real estate exceed 10% in virtually every major city and the Urban Land Institute sees '09 as the worst for the sector in almost 20 years. Borrowers may have trouble paying mortgages or refinancing as rental income drops. The industry's lobbying group is already at work in Washington seeking help from the government. Many big banks hold billions in securities tied to commercial real estate or invested directly in properties. There may be an even bigger problem among regional banks. The vacancy rate in Chicago could reach 17% in '09.
T (29.42); VZ (34.64): Telecom names, Verizon (VZ) and AT&T (T) downgraded at Bernstein: VZ downgraded to underperform from market perform and target reduced t0 $27 from $32. T downgraded to market perform from outperform and target reduced to $27 from $35. The firm cites strong Q4 outperformance and says the primary risk is to wireless.
Barron's summary
Cover: Get out of Treasuries now, other bonds beckon. Interview: Laszlo Birinyi, founder and president of Birinyi Associates, likes GE, AMZN and HES. Lead Articles: Hedge funds that survive the coming shakeout in the industry will need to be more transparent, use less leverage and show investors that they are properly investigating investment choices; Questar (STR) is a compelling mid-cap play on a natural gas recovery, stock could go into the 50s or higher; Political and other factors will delay any recovery in India for about 15 months or so, if you still need exposure try INFY or IBN; interview with Dilbert creator Scott Adams; Other Voices says new metrics are needed to understand and read the new knowledge economy; Editorial says that policy makers should respond as aggressively to rapidly rising markets as they do to declining markets. Columns: The Trader notes all the dry powder, cautiously positive on Apple (AAPL); Asia Trader is positive on the Chinese independent power producers including HNP, 0991.HK, 1071.HK, 0836.HK and 2380.HK; Euro Trader is positive on European defense names including FNC.IM, BAESY and HO.FP because of attractive valuations and continued high Pentagon spending; Current Yield notes some potential investments in the junk bond sector including issues from electric generation companies and health care including Hospital Corp and CYH as well as select telecoms like CBB and Q and would avoid chemical companies and media companies; Commodities Corner notes the efforts to offer Sharia compliant investment products; The Striking Price notes the potential for volatility in retails shares including SHLD, JWN, RSH and BBY; Follow Up is cautiously positive on DryShips (DRYS) and cautious on Dow Chemical (DOW); Up and Down Wall Street considers the success of Street forecasters; Streetwise notes some variations on Dogs of the Dow that include AA, AIG, BAC, C and GM or DOW, GE, X, COP and NSC; Economic Beat argues that we need to get to the bottom of boom and bust cycles; Technology Trader questions when a recovery will actually come to tech and suggests those companies trading close to their cash levels including AAPL, CSCO and MSFT.
Fair Value: SP500 – 928.80; NDX: 1265.16; DOW – 8990.47
Technical Levels:
SPX: 685, 752-755, 848-852, 899 support/ 998-1002 resistance
Events:
04:30: Euro-zone Sentix Investor Confidence
10:00: Construction Spending (November): -1.3%
13:15: Fed’s Yellen leads panel discussion on sub-prime loan crisis.
14:00: GM US Auto Sales
14:00: SEC and SIPC officials testify on Madoff scam before House
15:30: Chrysler US Auto Sales
Post-Market EPS: MOS (1.52/2.74B)
Foreign Market Summary/Key Macro News/Commentary:
The S&P futures are trading 5 points below fair value while the NASDAQ futures are trading 10 points below fair value. European markets are up 0.50% but off the highs of the session. Volume is still on the light side in Europe. Telecom, Utilities, Technology and Financial stocks are outperforming while Auto’s, Gold, and Energy sectors are underperforming. Gold is down 20 bucks an ounce on strength in the dollar (dollar is up 2.5% against the Euro to 1.358). Asian markets closed higher (Hong Kong up 3.4%, Japan up 2.0%, Shanghai up 3.6%, India up 3.1%) excluding Australia, which fell 0.72%. The strong close in Friday’s session coupled with optimism about the Obama economic recovery package have contributed to the stronger tone in foreign markets.
Impact Research Calls/Market Moving News:
TLT (116.35); TBT (39.00): Barron's Cover says to get out of Treasuries now, other bonds beckon: Treasuries are offering some of the lowest yields since the 1940s. But prices of longer-term Treasuries could fall sharply if yields rise. Yields on 30-year Treasuries could easily top 4% by the end of the year. One sign of trouble is the resilient price of gold and the dollar has weakened recently. One way to go bearish on the Treasury market is through TBT or PST as well as shorting the TLT. Elsewhere in the bond market, however, things look enticing including municipals, corporate bonds, convertible securities, some mortgage securities and preferred stock. The yield differential between munis and Treasuries is unprecedented. The average junk bond issue trades for less than 60 cents on the dollar. Ways to play the junk market include HYG, FAGIX and many closed-end funds that are trading at double-digit discounts to NAV. Convertible securities from companies like C, CHK, VNO, F and RIG offer a nice combination of yield and equity kickers. For mortgage securities, it is probably better to stick with a mutual fund like TGMNX. If you need the safety of Treasuries, the best bet is probably TIPS through funds like VIPSX or the ETF TIP.
Obama Economic Recovery package will include hundred of billions of dollars worth of tax breaks—Bloomberg: “Obama is asking that tax cuts make up 40 percent of a stimulus package, the people say. The measure may be worth as much as $775 billion, a Democratic aide says, meaning tax cuts may constitute more than $300 billion of the legislation. The plan would attempt to boost consumer demand by spending $140 billion on tax breaks worth $500 for individuals and $1,000 for couples, according to a House Democratic aide. The change would come by altering tax-withholding rules, rather than through a rebate check as with the previous stimulus plan enacted last year, so that workers would see an immediate increase in their take-home pay. For businesses, the aide said, lawmakers will use similar measures they’ve employed in past stimulus bills, such as allowing companies to get refunds for taxes paid in any or all of the past five years by deducting losses they’ve incurred now; those losses can currently only be carried back two years. Congress is also likely to include incentives such as accelerated depreciation to encourage companies to buy equipment now rather than defer such investments. The plan also attempts to combat joblessness by offering companies tax breaks for hiring more workers, the aide said.”
C (7.14): Deutsche Bank analyst Mike Mayo cuts his 2009 and 2010 numbers on Citibank. 2009 estimate is cut to a loss of 1 dollar and the 2010 profit estimate is cut to 75 cents. Citibank 2009 consensus is for a loss of .08 cents and 2010 consensus is a profit of .98 cents.
AAPL ((90.75): Thomas Weisel reiterates their overweight rating and $160 price target. “Macworld will take place in San Francisco from Monday January 5, 2009 to Friday January 9, 2009. Phil Schiller, Sr VP of WW Product Marketing, will deliver the keynote presentation on Tuesday January 6, 2009 at 9AM PT (noon ET). While we do not expect AAPL to introduce a significant new product at Macworld, we do expect insight into the next generation desktop product (iMac). We expect Schiller’s keynote to highlight ongoing successes in each of AAPL’s key product areas (Macs, iPhones and iPods) with a particular focus on the successful ramp of App Store, iTunes and MobileMe as sustainable drivers of AAPL product sales. Importantly, we expect investors to come away from Macworld with increased confidence in AAPL’s long term growth story and specifically in AAPL’s ability to continue to gain market share despite (1) a likely diminished role for Steve Jobs as de-facto Promoter-in-Chief of APPL products and (2)The abolition of Macworld following this year’s event. Based on evidence of strong online sales in the Dec Q (unique traffic up 19% y/y during Dec 1-24, according to comScore) we do not expect AAPL to pre-announce negatively. We expect AAPL to provide evidence of strong, broad-based market share gains during the Dec Q when the company reports F1Q09 results in late January. We are reiterating our Overweight rating and our 12-month price target of $160 which is based on a on a 24x multiple on our FY10 EPS estimate of $6.57 and compares to a 25% EPS CAGR we expect AAPL to deliver from FY08 to FY12.
AAPL (90.75): Barron's The Trader notes all the dry powder, cautiously positive on Apple (AAPL): Column notes the tremendous amount of money parked in money market mutual funds, enough to absorb 42% of the S&P 500's market value. The typical trade of shorting Apple (AAPL) into the January MacWorld conference may not be the move this year given the anxiety over a poor Christmas season and modest expectations for show revelations. More than 30% of the market value is cash and the stock trades for a relatively low 17.7x '09 earnings
AAPL (90.75): Several technology blogs are publishing rumors that Steve Jobs will make an appearance at Mac World in order to quell rumors surrounding his health. There is no official news from AAPL nor do the technology blogs provide any factual information to support the rumor.
AMZN (54.26): Amazon.com upgraded to overweight from neutral at JPMorgan.
HMC (21.81); TM (66.37): December Japan vehicle sales fall for Honda (HMC), Toyota Motor (TM), Nissan (NSANY) – Bloomberg: The Japan Auto Dealers Association reports that Toyota's sales declined (17.8%) y/y to 77,157 vehicles, Honda's dropped (25.3%) y/y to 27,505 vehicles, and Nissan's fell (21.8%) y/y to 26,934 vehicles.
NY Times says commercial real estate may be the next source of trouble for banks:Vacancies in commercial real estate exceed 10% in virtually every major city and the Urban Land Institute sees '09 as the worst for the sector in almost 20 years. Borrowers may have trouble paying mortgages or refinancing as rental income drops. The industry's lobbying group is already at work in Washington seeking help from the government. Many big banks hold billions in securities tied to commercial real estate or invested directly in properties. There may be an even bigger problem among regional banks. The vacancy rate in Chicago could reach 17% in '09.
T (29.42); VZ (34.64): Telecom names, Verizon (VZ) and AT&T (T) downgraded at Bernstein: VZ downgraded to underperform from market perform and target reduced t0 $27 from $32. T downgraded to market perform from outperform and target reduced to $27 from $35. The firm cites strong Q4 outperformance and says the primary risk is to wireless.
Barron's summary
Cover: Get out of Treasuries now, other bonds beckon. Interview: Laszlo Birinyi, founder and president of Birinyi Associates, likes GE, AMZN and HES. Lead Articles: Hedge funds that survive the coming shakeout in the industry will need to be more transparent, use less leverage and show investors that they are properly investigating investment choices; Questar (STR) is a compelling mid-cap play on a natural gas recovery, stock could go into the 50s or higher; Political and other factors will delay any recovery in India for about 15 months or so, if you still need exposure try INFY or IBN; interview with Dilbert creator Scott Adams; Other Voices says new metrics are needed to understand and read the new knowledge economy; Editorial says that policy makers should respond as aggressively to rapidly rising markets as they do to declining markets. Columns: The Trader notes all the dry powder, cautiously positive on Apple (AAPL); Asia Trader is positive on the Chinese independent power producers including HNP, 0991.HK, 1071.HK, 0836.HK and 2380.HK; Euro Trader is positive on European defense names including FNC.IM, BAESY and HO.FP because of attractive valuations and continued high Pentagon spending; Current Yield notes some potential investments in the junk bond sector including issues from electric generation companies and health care including Hospital Corp and CYH as well as select telecoms like CBB and Q and would avoid chemical companies and media companies; Commodities Corner notes the efforts to offer Sharia compliant investment products; The Striking Price notes the potential for volatility in retails shares including SHLD, JWN, RSH and BBY; Follow Up is cautiously positive on DryShips (DRYS) and cautious on Dow Chemical (DOW); Up and Down Wall Street considers the success of Street forecasters; Streetwise notes some variations on Dogs of the Dow that include AA, AIG, BAC, C and GM or DOW, GE, X, COP and NSC; Economic Beat argues that we need to get to the bottom of boom and bust cycles; Technology Trader questions when a recovery will actually come to tech and suggests those companies trading close to their cash levels including AAPL, CSCO and MSFT.
Friday, January 2, 2009
January 2, 2009: Morning Call
January 2, 2009: Morning Call
Fair Value: SP500 – 900.16; NDX: 1212.87; DOW – 8731.57
Technical Levels:
SPX: 685, 752-755, 848-852 support/ 899-908, 998-1002 resistance
Events:
04:00: Euro-zone PMI Manufacturing (December Final): 34.5 (weaker at 33.9)
10:00: ISM Manufacturing (December): 35.4; Prices Paid: 20.0
Foreign Market Summary/Key Macro News/Commentary:
The S&P and NASDAQ futures are both trading 4 points above fair value at 7:30 am ET. Asian markets: The majority of Asian markets that were open started off the New Year by advancing in light trading (Hong Kong up 4.5%, South Korea up 3.2%, India up 0.55%, Australia down 0.25%). Optimism that government policies would mitigate regional effects of the global recession reigned. Hong Kong rose on news of the Chinese government’s decision to issue 3G licenses, with gains in China Unicom (762.HK), China Telecom (728.HK), China Mobile (941.HK) and telecom-equipment maker ZTE Corp (168.HK). India is up 3.2% in the first two trading sessions of the year after the Reserve Bank of India cut interest rates to 5.5% from 6.5%, the fourth rate cut in less than three months. India is also set to announce its second stimulus package in the past month. European markets are up 1.6% with Mining, Steel and Financial sectors leading the rally. France, Germany and EuroZone Dec final Manufacturing PMI all came in lower than preliminary estimates. UK Dec Manufacturing PMI 34.9 vs consensus 33.6.
Impact Research Calls/Market Moving News:
Steel industry looks for $1T public investment program to lift demand – NYT: Executives are lobbying for infrastructure projects that would require steel to form a large part of Barack Obama's stimulus plan. Economists in the Obama camp say the proposals will include significant spending drawing on heavy industry. Daniel DiMicco, chairman/CEO of Nucor (NUE), says steelmakers want a "buy America" clause in every provision of the plan.
BAC (14.08): Bank of America (BAC) completes purchase of Merrill Lynch: Recall the deal was anticipated to close by the end of 2008. MER shareholders received 0.8595 shares of BAC for each share of MER.
WFC (29.48): Wells Fargo completes Wachovia merger: Wells Fargo & Co. said it had closed on its purchase of Wachovia, making it the fourth-largest U.S. bank measured by assets.
RIMM (40.58): Orange (FTE.FP) may withdraw Blackberry Bold from market – Guardian: Without revealing sources, the paper says Orange is understood to be considering pulling the device from its lineup because of persistent problems and uncharacteristically high return rates accompanied by complaints on a wide range of issues. The article says the news will be of particular concern to RIMM because of the barrage of criticism the preceding model, the Storm, has received.
Barron's Weekday Trader is positive on coal stocks: Barron's notes that major US coal producers will see their revenues and profits rise in 2009 due to the fact that roughly 85% of US coal being produced next year has already been locked into contracts at prices above 2008 levels. The article also points out that stocks of the six largest companies in the industry have plunged 70-85% over the past six months, versus a decline of roughly 30% for the S&P 500.
Fair Value: SP500 – 900.16; NDX: 1212.87; DOW – 8731.57
Technical Levels:
SPX: 685, 752-755, 848-852 support/ 899-908, 998-1002 resistance
Events:
04:00: Euro-zone PMI Manufacturing (December Final): 34.5 (weaker at 33.9)
10:00: ISM Manufacturing (December): 35.4; Prices Paid: 20.0
Foreign Market Summary/Key Macro News/Commentary:
The S&P and NASDAQ futures are both trading 4 points above fair value at 7:30 am ET. Asian markets: The majority of Asian markets that were open started off the New Year by advancing in light trading (Hong Kong up 4.5%, South Korea up 3.2%, India up 0.55%, Australia down 0.25%). Optimism that government policies would mitigate regional effects of the global recession reigned. Hong Kong rose on news of the Chinese government’s decision to issue 3G licenses, with gains in China Unicom (762.HK), China Telecom (728.HK), China Mobile (941.HK) and telecom-equipment maker ZTE Corp (168.HK). India is up 3.2% in the first two trading sessions of the year after the Reserve Bank of India cut interest rates to 5.5% from 6.5%, the fourth rate cut in less than three months. India is also set to announce its second stimulus package in the past month. European markets are up 1.6% with Mining, Steel and Financial sectors leading the rally. France, Germany and EuroZone Dec final Manufacturing PMI all came in lower than preliminary estimates. UK Dec Manufacturing PMI 34.9 vs consensus 33.6.
Impact Research Calls/Market Moving News:
Steel industry looks for $1T public investment program to lift demand – NYT: Executives are lobbying for infrastructure projects that would require steel to form a large part of Barack Obama's stimulus plan. Economists in the Obama camp say the proposals will include significant spending drawing on heavy industry. Daniel DiMicco, chairman/CEO of Nucor (NUE), says steelmakers want a "buy America" clause in every provision of the plan.
BAC (14.08): Bank of America (BAC) completes purchase of Merrill Lynch: Recall the deal was anticipated to close by the end of 2008. MER shareholders received 0.8595 shares of BAC for each share of MER.
WFC (29.48): Wells Fargo completes Wachovia merger: Wells Fargo & Co. said it had closed on its purchase of Wachovia, making it the fourth-largest U.S. bank measured by assets.
RIMM (40.58): Orange (FTE.FP) may withdraw Blackberry Bold from market – Guardian: Without revealing sources, the paper says Orange is understood to be considering pulling the device from its lineup because of persistent problems and uncharacteristically high return rates accompanied by complaints on a wide range of issues. The article says the news will be of particular concern to RIMM because of the barrage of criticism the preceding model, the Storm, has received.
Barron's Weekday Trader is positive on coal stocks: Barron's notes that major US coal producers will see their revenues and profits rise in 2009 due to the fact that roughly 85% of US coal being produced next year has already been locked into contracts at prices above 2008 levels. The article also points out that stocks of the six largest companies in the industry have plunged 70-85% over the past six months, versus a decline of roughly 30% for the S&P 500.
Monday, December 29, 2008
December 29, 2008: Morning Call
December 29, 2008: Morning Call
Fair Value: SP500 – 869.51; NDX: 1186.94; DOW – 8469.84
Technical Levels:
SPX: 685, 752-755, 848-852 support/ 899-908, 998-1002 resistance
Events:
No Events
Foreign Market Summary/Key Macro News/Commentary:
The S&P futures are trading 2 points above fair value while the NASDAQ futures are trading 10 points above fair value at 7:10 am ET. Crude Oil is up 7% to 40.50 due to escalating violence in the Gaza strip between Israel and Hamas. The dollar is down 2.0% against the Euro to 1.43 due to the rally in crude. Asian markets closed higher (Japan up 0.09%, Hong Kong up 1.02%, Australia up 1.09%, Indi up 2.19%). Energy and commodity leveraged sectors rose on a strong rebound in commodity prices, bolstered by the unsettled situation in the Gaza Strip. Hong Kong rose as declines in banks and property stocks failed to outweigh gains in China Mobile (941.HK) and oil companies. CITIC Pacific (267.HK) added 7% on news that its parent secured a majority stake. European markets are higher in thin trading led by energy and commodity stocks. London is up 2.4%. Shares have remained range bound following the initial gains, slightly below the highs of the session. Advancers on the FTSE 100 lead decliners 4-1.
Impact Research Calls/Market Moving News:
ROH (63.56): Kuwait ends deal with Dow Chemical-Kuwait Petroleum Corporation (KPC) and Petrochemicals Industries Company (PIC) have informed Dow Chemical that the Kuwait Supreme Petroleum Council (SPC) has decided to reverse its approval of the agreement over joint venture K-Dow Petrochemicals. Dow is in the process of evaluating its options. The WSJ reports that the agreement would have provided Dow with $9B that it was going to use to complete its purchase of Rohm & Haas (ROH).
CSCO (16.27): Cisco Systems is making a push into digital entertainment reports the NY Times: At the Consumer Electronics Show, the company will introduce a new line of products, including a wireless digital stereo system. The company aims to take on Apple, Sony and other consumer electronics giants. It is working on a means of getting Internet video onto TV screens more easily and has a big bet on consumers using a version of its Telepresence for high-definition video chat through TV screens. The company says consumer electronics are only now beginning to take advantage of broadband connections and home networks. The company says it is trying to get media companies to take a more expansive view of digital rights and relax some of the restrictions tying content to a device. If services such as consumer video conferencing takes off, Cisco would stand to profit not just from the technology but also because video is a bandwidth hog and the internet access providers would need to buy more Cisco equipment to meet the increased bandwidth demand.
China official says 2008 GDP growth will exceed 9% - Dow Jones: In a speech 27-Dec, National Bureau of Statistics chief economist Yao Jingyuan said despite downward pressure in Q4 and declining growth rates in the year's first three quarters, the annual growth rate will remain above 9%. He said the country will maintain "stable economic growth" for next year, and he expects the CNY4T economic stimulus plan to start having an effect in H2/09. Recall there is worry that China will be unable to keep 2009 growth above 8%, which some experts consider to be the minimum necessary to avoid social unrest in the country
HPQ (34.97): Barron's Cover is positive on Hewlett-Packard and CEO Mark Hurd: CEO Hurd can't offer any predictions as to when the current financial mess will end but does predict that HP will have modest earnings growth through next year. He says he is even more focused on profitability now. Under Hurd, the company has diversified its revenue and profits. He is known for cost-cutting but also for gaining market share. Barclays Ben Reitzes thinks the shares could climb to $47 once the broader market settles down. Recurring revenue accounts for about a third of revenue and about half of estimated '09 earnings. About 60% of sales are overseas. HP trades for 8.18x estimated '10 earnings while Dell (DELL) trades for 8.32x estimated '10 numbers and IBM (IBM) trades for 9x expected '09 numbers. Chuck Jones of Atlantic Trust thinks the shares could go into the low $50s when the market returns to normalcy. Bernstein's Toni Sacconaghi thinks the concerns over consumer exposure are overblown since inkjet supplies account for about 98% of the consumer profits. He sees the shares going to $40. The biggest help for margins and profits should come from the EDS acquisition where the long-term contracts and high operating margins should take some of the pressure off printing supply sales. HP says no material customer has exited after the acquisition.
AAPL (85.81): Barron's Technology Trader notes the risks to Palm and RIMM with the iPhone now selling at Wal-Mart: The move by Wal-Mart (WMT) to start selling the Apple (AAPL) iPhone seems to be a bet that all types of consumers will buy relatively complex pieces of computing. The move could drive a wedge between Apple and competitors RIMM, Nokia and Palm.
Barron's summary:
Cover: Positive on Hewlett-Packard (HPQ) and CEO Mark Hurd, shares could climb into the $40s. Interview: Mark Roberts, founder of Off Wall Street Consulting Group, likes BRS, PHH and ASML and would short HRC, SYK and PSYS. Lead Articles: Conditions are worse for credit card issuers than investors realize, COF is the best positioned of the pure plays for funding; The concerns over Linn Energy LLC (LINE) seem misplaced, stock could go into the $20s; Streetwise notes that reversion to mean plays are no longer sure things, suggests going long RIG and shorting NE; the selloff in Millicom (MICC) seems overdone, stock could rise by more than 25%; positive on preferred stocks, especially adjustable rate preferreds from financials; Other Voices says it is time that Americans stopped lying about correctly timing the market and admit that they were caught just like everyone else; Editorial suggests ways to exit the current financial mess including ending tax subsidies or specialized treatment, except for an energy tax to make the U.S. frugal energy consumers, and opening up all markets to true competition. Columns: The Trader is positive on Saks Fifth Avenue (SKS), cautious on '09; Asia Trader looks at the current state of Asia and recounts the past year; Euro Trader recounts the many issues that seemed important in '08 but weren't; Current Yield sees a further contraction in corporate bond spreads, suggests LQD, FSICX, LSBRX and RPSIX as a way to play it; The Striking Price considers the merits of covered call writing; Commodities Corner notes the speculative frenzy that gripped many markets in '08; Preview notes the selling of oil and gas leases by Pennsylvania to companies like COG and XTO; Follow Up notes the systemic risks in China; Up and Down Wall Street considers the past year and notes the Dogs of the Dow for 2009 are BAC, GE, PFE, AA, DD, T, VZ, MRK, JPM and KFT with yields ranging from 4.32%-9.31%; Economic Beat suggests spending the Obama economic stimulus on infrastructure repair and helping out state and local budgets and not adding in an economic stimulus element; D.C. Current suggests that President Bush can restore some dignity to the Oval Office by not crassly profiteering once he leaves office; Speaking of Dividends is positive on REITs because of an IRS ruling to let them pay a significant portion of their dividends in stock, thereby conserving cash; Technology Trader notes the risks to Palm and RIMM with the iPhone now selling at Wal-Mart.
Fair Value: SP500 – 869.51; NDX: 1186.94; DOW – 8469.84
Technical Levels:
SPX: 685, 752-755, 848-852 support/ 899-908, 998-1002 resistance
Events:
No Events
Foreign Market Summary/Key Macro News/Commentary:
The S&P futures are trading 2 points above fair value while the NASDAQ futures are trading 10 points above fair value at 7:10 am ET. Crude Oil is up 7% to 40.50 due to escalating violence in the Gaza strip between Israel and Hamas. The dollar is down 2.0% against the Euro to 1.43 due to the rally in crude. Asian markets closed higher (Japan up 0.09%, Hong Kong up 1.02%, Australia up 1.09%, Indi up 2.19%). Energy and commodity leveraged sectors rose on a strong rebound in commodity prices, bolstered by the unsettled situation in the Gaza Strip. Hong Kong rose as declines in banks and property stocks failed to outweigh gains in China Mobile (941.HK) and oil companies. CITIC Pacific (267.HK) added 7% on news that its parent secured a majority stake. European markets are higher in thin trading led by energy and commodity stocks. London is up 2.4%. Shares have remained range bound following the initial gains, slightly below the highs of the session. Advancers on the FTSE 100 lead decliners 4-1.
Impact Research Calls/Market Moving News:
ROH (63.56): Kuwait ends deal with Dow Chemical-Kuwait Petroleum Corporation (KPC) and Petrochemicals Industries Company (PIC) have informed Dow Chemical that the Kuwait Supreme Petroleum Council (SPC) has decided to reverse its approval of the agreement over joint venture K-Dow Petrochemicals. Dow is in the process of evaluating its options. The WSJ reports that the agreement would have provided Dow with $9B that it was going to use to complete its purchase of Rohm & Haas (ROH).
CSCO (16.27): Cisco Systems is making a push into digital entertainment reports the NY Times: At the Consumer Electronics Show, the company will introduce a new line of products, including a wireless digital stereo system. The company aims to take on Apple, Sony and other consumer electronics giants. It is working on a means of getting Internet video onto TV screens more easily and has a big bet on consumers using a version of its Telepresence for high-definition video chat through TV screens. The company says consumer electronics are only now beginning to take advantage of broadband connections and home networks. The company says it is trying to get media companies to take a more expansive view of digital rights and relax some of the restrictions tying content to a device. If services such as consumer video conferencing takes off, Cisco would stand to profit not just from the technology but also because video is a bandwidth hog and the internet access providers would need to buy more Cisco equipment to meet the increased bandwidth demand.
China official says 2008 GDP growth will exceed 9% - Dow Jones: In a speech 27-Dec, National Bureau of Statistics chief economist Yao Jingyuan said despite downward pressure in Q4 and declining growth rates in the year's first three quarters, the annual growth rate will remain above 9%. He said the country will maintain "stable economic growth" for next year, and he expects the CNY4T economic stimulus plan to start having an effect in H2/09. Recall there is worry that China will be unable to keep 2009 growth above 8%, which some experts consider to be the minimum necessary to avoid social unrest in the country
HPQ (34.97): Barron's Cover is positive on Hewlett-Packard and CEO Mark Hurd: CEO Hurd can't offer any predictions as to when the current financial mess will end but does predict that HP will have modest earnings growth through next year. He says he is even more focused on profitability now. Under Hurd, the company has diversified its revenue and profits. He is known for cost-cutting but also for gaining market share. Barclays Ben Reitzes thinks the shares could climb to $47 once the broader market settles down. Recurring revenue accounts for about a third of revenue and about half of estimated '09 earnings. About 60% of sales are overseas. HP trades for 8.18x estimated '10 earnings while Dell (DELL) trades for 8.32x estimated '10 numbers and IBM (IBM) trades for 9x expected '09 numbers. Chuck Jones of Atlantic Trust thinks the shares could go into the low $50s when the market returns to normalcy. Bernstein's Toni Sacconaghi thinks the concerns over consumer exposure are overblown since inkjet supplies account for about 98% of the consumer profits. He sees the shares going to $40. The biggest help for margins and profits should come from the EDS acquisition where the long-term contracts and high operating margins should take some of the pressure off printing supply sales. HP says no material customer has exited after the acquisition.
AAPL (85.81): Barron's Technology Trader notes the risks to Palm and RIMM with the iPhone now selling at Wal-Mart: The move by Wal-Mart (WMT) to start selling the Apple (AAPL) iPhone seems to be a bet that all types of consumers will buy relatively complex pieces of computing. The move could drive a wedge between Apple and competitors RIMM, Nokia and Palm.
Barron's summary:
Cover: Positive on Hewlett-Packard (HPQ) and CEO Mark Hurd, shares could climb into the $40s. Interview: Mark Roberts, founder of Off Wall Street Consulting Group, likes BRS, PHH and ASML and would short HRC, SYK and PSYS. Lead Articles: Conditions are worse for credit card issuers than investors realize, COF is the best positioned of the pure plays for funding; The concerns over Linn Energy LLC (LINE) seem misplaced, stock could go into the $20s; Streetwise notes that reversion to mean plays are no longer sure things, suggests going long RIG and shorting NE; the selloff in Millicom (MICC) seems overdone, stock could rise by more than 25%; positive on preferred stocks, especially adjustable rate preferreds from financials; Other Voices says it is time that Americans stopped lying about correctly timing the market and admit that they were caught just like everyone else; Editorial suggests ways to exit the current financial mess including ending tax subsidies or specialized treatment, except for an energy tax to make the U.S. frugal energy consumers, and opening up all markets to true competition. Columns: The Trader is positive on Saks Fifth Avenue (SKS), cautious on '09; Asia Trader looks at the current state of Asia and recounts the past year; Euro Trader recounts the many issues that seemed important in '08 but weren't; Current Yield sees a further contraction in corporate bond spreads, suggests LQD, FSICX, LSBRX and RPSIX as a way to play it; The Striking Price considers the merits of covered call writing; Commodities Corner notes the speculative frenzy that gripped many markets in '08; Preview notes the selling of oil and gas leases by Pennsylvania to companies like COG and XTO; Follow Up notes the systemic risks in China; Up and Down Wall Street considers the past year and notes the Dogs of the Dow for 2009 are BAC, GE, PFE, AA, DD, T, VZ, MRK, JPM and KFT with yields ranging from 4.32%-9.31%; Economic Beat suggests spending the Obama economic stimulus on infrastructure repair and helping out state and local budgets and not adding in an economic stimulus element; D.C. Current suggests that President Bush can restore some dignity to the Oval Office by not crassly profiteering once he leaves office; Speaking of Dividends is positive on REITs because of an IRS ruling to let them pay a significant portion of their dividends in stock, thereby conserving cash; Technology Trader notes the risks to Palm and RIMM with the iPhone now selling at Wal-Mart.
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