Filed under: Market matters, Citigroup Inc. (C), JPMorgan Chase (JPM), Money and Finance Today, Bank of America (BAC)

Yesterday I wrote about mutual funds at risk because of the mortgage mess. In response one of my readers (thanks Gary!) alerted me to an article in Fortune talking about how the safest of investment vehicles — money market funds - are caught up in the SIV problem. Again Bank of America (NYSE: BAC) comes to the top of the pack as hosting some of the riskiest investments for its investors through Columbia Cash Reserves Fund. Fortune reported that as of Oct. 12 this fund has about $640 million in Cheyene Finance, an SIV in trouble.

When I took a look at its most recent report to shareholders (Feb. 28,2007), I found Columbia Cash Reserves Fund had five of the biggest SIVs in its portfolio including Cullinan (HSBC Bank), K2 (Dresdner), Sigma (Gordian Knot), Links Finance (Bank of Montreal) and Sedna (Citibank International). In addition to these five, the other major SIVs are Centauri, Beta Finance and Five Finance — all managed by Citibank (NYSE: C) - Tango Finance managed by Rabobank International and Victoria Finance managed by Ceres Capital Partners.

Continue reading Money market funds at risk too - thanks to the mortgage mess

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Filed under: Newspapers, Personal finance

When Warren Buffett and Nassim Nicholas Taleb declare something related to investments a pile of nonsense, you best listen up.

In a brilliant column in The Financial Times, Taleb writes that the modern portfolio theory has the “the empirical and scientific validity of astrology (without the aesthetics), yet the lessons are ignored in what is taught to 150,000 business school students worldwide.”

He also takes the folks awarding the Nobel Prize in Economics to task for legitimizing these nonsense theories with that prestigious award.

What does all this mean for investors? Most financial advisors/planners/what used to be called brokers use MPT as the basis for constructing your portfolio — and they charge you big fees for doing this.

If you accept Taleb’s argument that it’s all a bunch of crap, you’ve taken the first step toward doing the smartest thing you can do for your financial future: ditch your broker and buy low-cost index mutual funds.

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Filed under: Merrill Lynch (MER), UAL Corp (UAUA), Options

Merrill Lynch (NYSE: MER) is recently down .65 to $65.86. MER is expected to report full 2Q EPS on 10/24. MER pre-announced on 10/5 “challenging credit market conditions will have an adverse impact on its net earnings for the third quarter. The company expects to report a net loss per diluted shares of up to $0.50 cents.” MER intra-day call option volume of 105,451 contracts compares to intra-day put volume of 74,332 contracts. MER November option implied volatility of 47 is above its 26-week average of 31 according to Track Data, suggesting larger risk.

UAL Corp (NASDAQ: UAUA) is recently up $1.58 to $49.71. UAUA reported 3rd quarter pre-tax income, excluding special items, of $498 million, 127% higher than the same period in 2006. Goldman Sachs CO says “Key on UAUA’s earnings call will likely be anticipated updates on the potential for a mileage plan spin-off or other shareholder-friendly actions.” WTI Crude oil is down 0.81% $85.31 according to Bloomberg. UAUA November option implied volatility of 50 is near its 26-week average according to Track Data, suggesting non-directional risks.

Daily options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.

Visit AOL Money & Finance for more earnings coverage

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Filed under: International markets, Good news, Competitive strategy, Colgate-Palmolive (CL)

As discussed, with the markets in a choppy/consolidation mode (or perhaps worse), the consumer product sector has appeal as a defensive strategy, and Colgate-Palmolive (NYSE: CL) is worth a review.

Colgate’s restructuring is working, and Wall Street expects 2007/2008 results to show it. In late 2004, CL initiated a 4-year cost reduction program including a +10% workforce reduction, new product roll-outs, an emphasis on larger-growth markets, and the more-adept deployment of marketing resources.

The results to-date? The CL train is on-time, with analysts generally seeing low-double-digit annual revenue growth through at least 2008, and probably longer. An eye-opening stat — Colgate is an enhanced, consumer products defensive play: 65% of CL’s revenue stems from personal, oral and home care sales outside North America. Hence, even if U.S. consumer goods sales slump badly (which is not likely) CL can look for international consumer product operations to support results. The Reuters F2007/F2008 revenue consensus estimates for CL are $13.5 billion / $14.4 billion. Colgate’s shares Tuesday afternoon traded 23 cents higher to $73.18

Continue reading Colgate’s (CL) restructuring is producing results

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Filed under: Earnings reports, Good news, Competitive strategy, UAL Corp (UAUA)

In another bit of good news for the airline sector, UAL Corp. (NASDAQ: UAUA) said earlier today that third-quarter profit rocketed almost 76% higher on a year-over-year basis to $334 million, or $2.21 per share. Excluding items, the parent of United Airlines (the country’s number-two carrier as measured by passenger traffic) would have banked $295 million, or $1.96 per share, topping Wall Street’s consensus expectations by eight cents.

Revenue rose 6.8% during the reporting period to $5.53 billion. This number also exceeded the consensus outlook, which came in at $5.36 billion. Revenue per available seat mile (money earned for carrying one passenger one mile) moved 8.2% higher in the quarter.

In a statement posted by the Associated Press, UAL Chairman/CEO Glenn Tilton noted that “We delivered excellent results this quarter driven by fundamental improvements across our core business.” According to Dow Jones, the company benefited by adding international flights and reducing domestic seat capacity by 4.6% on mainline routes. Increasing demand allowed for an across-the-board lift in ticket prices, which helps offset record-setting fuel costs endured by all airlines.

Continue reading United Airlines parent UAL posts rapid ascent in 3Q profit

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Filed under: RadioShack Corp (RSH), Options, Bear Stearns Cos (BSC)

Children’s Place (NASDAQ: PLCE) operates 899 The Children Place stores and 328 Disney Stores. PLCE is recently up $1.58 to $24.23 on renewed takeover speculation. Ex-chief executive, Ezra Dabah, a owner of 17.9% of PLCE, has said he’s considering buying the company and engaged Bear Stearns (NYSE: BSC) as his financial adviser. PLCE November option implied volatility of 76 is above its 26-week average of 45 according to Track Data, suggesting traders are positioning themselves for a high share price.

RadioShack (NYSE: RSH), a company with a presence of through approximately 6,000 stores, is recently up .33 cents to $19.78 on renewed & unconfirmed buyout speculation. RSH is expected to report EPS on 10/29. RSH call option volume of 5,206 contracts compares to put volume of 514 contracts. RSH November option implied volatility of 70 is above its 26-week average of 43 according to Track Data, suggesting larger price risks.

Daily options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.

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Filed under: Earnings reports, Southwest Airlines (LUV), US Airways Group (LCC), UAL Corp (UAUA), Options, Technical Analysis, JetBlue Airways (JBLU)

The airline sector is seeing nice gains today after positive earnings reports from JetBlue (NASDAQ: JBLU) and UAL Corp (NASDAQ: UAUA), and the declining oil futures are helping, too. US Airways (NYSE: LCC) is scheduled to report its third quarter earnings before the market opens on Thursday.

In light of major fuel price increases, US Airways has cut its capacity and is considering increasing fares in the next quarter. The airline had better-than-expected traffic over the past few months, and a Goldman Sachs analyst noted that LCC should benefit from fare hikes at low-cost carriers like Southwest (NYSE: LUV), as some customers are likely to defect to US Airways.

On average, analysts are expecting earnings of $1.75 per share, down from $2.74 last quarter, but up from from $1.09 in the year ago period. LCC has beat Wall Street expectations each of the last eight quarters. Though fuel prices have pressured the airlines as oil climbs well into the $80s, the solid earnings from others in the industry this quarter should bode well for the company. If you expect LCC to also report a positive quarter, then now could be a good time to take a look at a bullish hedged trade on the stock.

Continue reading Competitors lift US Airways (LCC) ahead of Thursday’s earnings

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Filed under: Earnings reports, Forecasts, New York Times’A’ (NYT)

A week after Morgan Stanley (NYSE: MS) walked away from the New York Times (NYSE: NYT) after futilely trying to reshape its direction, the Times re-energized its brand a bit with a strong 3rd quarter earnings report. Net income finished up 6.7%, while earnings per share were $.10, well above the .05 expectations of analysts polled by Thompson Financial.

The strong earnings came from the News Media Group, which realized an increase in operating profit of 42.9%. Tighter costs controls, an NYT price increase and increased rental income in its new headquarters all contributed to increasing revenues.

The internet side of the business, the About.com group, brought in 34.9% more in revenue. However, due to costs associated with the integration of of ConsumerSearch.com and investments in new business, the expense side of this sector grew also, resulting in a decrease in operating income of 2%. At present, this group contributes only 3% of the total revenues, demonstrating that the company is still firmly grounded in paper and ink.

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Continue reading New York Times (NYT) 3rd quarter earns headlines

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Filed under: International markets, Forecasts, Commodities, Oil

Insights summarizes an idea or business official making financial news, and emphasizes the impact on the typical investor.

Oil industry expert T. Boone Pickens has made news again, and also generated some chatter in Wall Street circles, but this time not for an oil price prediction.

Earlier, Pickens predicted that crude oil, which Tuesday traded around $85 per barrel, would hit $100 — perhaps as early as Q4 2007.

This time Pickens made headlines by stating to Bloomberg News that global oil production has already peaked at 85 million barrels per day. In other words, “peak oil” has already arrived. Pickens, chairman of BP Capital LLC, spoke at a conference sponsored by the Association for the Study of Peak Oil & Gas, a non-profit research group.

Continue reading Insights: Pickens says global oil production has peaked

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Filed under: Earnings reports, Technical Analysis, Stocks to Buy

No matter what the season, there is an outfit in Medina, Minnesota, that has your recreational and utility transport needs covered. Polaris Industries (NYSE: PII) is the world’s #1 maker of snowmobiles and the #2 producer of four- and six-wheeled all-terrain vehicles.

Polaris also offers Victory-brand motorcycles, replacement parts, accessories, recreational clothing and finance services. Polaris has distribution facilities and dealerships across North America, Europe and New Zealand. It operates a joint engine building venture with Fuji Heavy Industries. Honda Motor Company (NYSE: HMC) is a major competitor.

Investors were pleased last week, when the company reported Q3 EPS of $1.07 and revenues of $544 million. The Street had been looking for $1.02 and $526.7 million. The sales figure was a record quarterly high. The gross margin percentage improved 160 basis points to 22.5 percent, due primarily to positive product mix and currency impacts. Management also guided FY07 EPS to $3.05-$3.10 ($3.01 consensus) and FY07 revenues to about $1.74-$1.76 billion ($1.71 billion consensus). The stock popped on the news and then passed into a bullish “flag” consolidation pattern. Prices frequently exit flags moving in the same direction they were traveling when they entered them. In this case, that would be to the upside.

Brokers recommend the shares with three “strong buys,” four “buys,” six “holds” and two “sells.” Analysts expect a 15% average annual growth rate through the next five years. The PII P/E ratio (17.34), PEG ratio (1.19), Price to Sales ratio (1.07), Price to Cash Flow ratio (10.35), Price to Free Cash Flow ratio (17.94), Return on Assets (13.89%), Return on Investment (27.70%) and Return on Equity (42.88%) compare favorably with industry, sector and S&P 500 averages. Institutions own about 92 percent of the outstanding shares. The stock is one of those used to calculate the S&P 600 SmallCap Index. Over the past 52 weeks, it has traded between $41.97 and $58.78. A stop-loss of $45.70 looks good here.

Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com.

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