Archive for November 1st, 2007
Filed under: Analyst reports, Analyst initiations
.gif) MOST NOTEWORTHY: Athenahealth, Brocade Communications Systems, Royal Bank of Scotland and Human Genome were today’s noteworthy initiations:
OTHER INITIATIONS:
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Filed under: Microsoft (MSFT)
Microsoft Corp. (NASDAQ: MSFT) has seen some strong stock price gains recently, closing yesterday up over $36. The world’s largest software company saw another outstanding quarter last week, and similar to Google, Inc. (NASDAQ: GOOG), the company just keeps on bypassing naysayers and reporting excellent quarters one after another. If the PC is dead and the operating system is becoming extinct, apparently nobody is telling Redmond.
On the back of great quarterly results, Microsoft’s shares have shot up to a six-year high, and it was the largest gainer on Halloween day among the Dow industrials. The $36.67 price from yesterday’s trading day was the highest since June 2001, with nearly 100 million shares traded. For a 30-year-old software company seen as un-innovative and boring (well, when compared to Google), Halloween day was a recent milestone in Microsoft’s history.
Even last Thursday, almost 290 million shares were traded after Microsoft’s Q3 results came back so strong. A Sanford Bernstein analyst said that he expected the company “to continue to exceed expectations” for a while, which added to the flurry of trading as Microsoft’s strong results and guidance caused visions of sugar plums to dance in the heads of many investors. Share buybacks, the incredible launch of Halo 3 and the Windows Vista distribution cycle were all cited as factors for strong future performance indicators. Who knew Microsoft would ever be considered a winner of “long-term performance” back in 2005 by analysts?
Disclosure: I own MSFT shares as of 11-1-07.
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Filed under: Analyst reports, Analyst upgrades and downgrades, Citigroup Inc. (C), Alcatel-LucentADS (ALU)
MOST NOTEWORTHY: Heelys, Citigroup, Alvarion, UBS AG and Alcatel-Lucent were today’s noteworthy downgrades:
- CIBC downgraded Heelys (NASDAQ: HLYS) to Underperformer from Sector Performer. The analyst has little confidence sales will recover following the recent drop.
- CIBC also downgraded Citigroup (NYSE: C) to Sector Underperformer from Sector Performer, as they believe the company may have to cut its dividend, raise cash or sell assets in order to raise $30B over the near-term; the firm believes such a move would pressure shares significantly.
- Merriman downgraded shares of Alvarion (NASDAQ: ALVR) to Neutral from Buy after the in-line results as they now believe increased competition will pressure gross margins and minimize operating leverage in FY08.
- Merrill downgraded shares of UBS AG (NYSE: UBS) to Neutral from Buy to reflect the potential of further write downs.
- Banc of America lowered its rating on Alcatel-Lucent (NYSE: ALU) to Neutral from Buy to reflect poor execution of the company’s turnaround strategy.
OTHER DOWNGRADES:
- Goldman removed Vimpelcom (NYSE: VIP) from its Pan European Buy List and downgraded shares to Neutral from Buy.
- Silicon Precision (NASDAQ: SPIL) was downgraded to Hold from Buy at ABN Amro.
- Lehman downgraded Amylin Pharmaceuticals (NASDAQ: AMLN) to Underweight from Equal Weight.
- Baird downgraded Dionex (NASDAQ: DNEX) to Underperform from Neutral.
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It doesn’t come as a surprise that the Fed cut interest rates yet again this week. As the asset backed securities market is freezing up in tandem with falling home prices, the Fed is trying everything it can to inject any sort of liquidity into the housing market. The major policy shift that did occur is their rhetoric of potentially holding off on anymore rate cuts for fears of inflation. We have inflation? I thought $800/ounce gold and $94/barrel oil is simply minor cost of living adjustments. Of course there is inflation that is vastly underreported by the Bureau of Labor and Statistics.
Another trend that is emerging is in the short sale market. Even as early as July of this year, the number of short sales in Southern California was approximately 5,000. A large jump from 2006 since we were in the double and triple digits then. So where do we currently stand? In a few short months we are now at a whopping 10,972 short sales. We’ve doubled the amount of short sales in only 4 months. As it stands, short sales are quickly approaching 10 percent of the entire Southern California inventory. But where are these short sales happening? Take a look at the chart below to see the breakdown of the 10,972 short sale homes:
Keep in mind that larger counties such as Los Angeles will obviously take a larger share of the market share. Let us break down the numbers even further for each respective county:
County Percent Short Sale to Overall County Inventory
Los Angeles 5.59%
Orange County 2.80%
San Diego 8.78%
Riverside 11.19%
Ventura 3.41%
San Bernardino 6.54%
For all the chatter that the Inland Empire is the land of foreclosures, other counties are quickly catching up. Housing bulls are now starting to argue that only certain counties will be impacted from the oncoming housing downturn. However the trend in the data tells us something very different. What we are seeing is simply the canary in the coal mine. This doesn’t imply that other counties are immune it simply means that they are a few months behind the overall curve. Like my previous prediction of every single county in Southern California going negative by the end of the year, my foresight wasn’t based on simply guessing but following leading indicators. For example looking at massive drops in sales in 2006 and future rate resets, we were able to easily predict this downturn. The next prediction I will make is by the middle of next year, every single county in Southern California will have double-digit short sales rates in proportion to the overall inventory.
Resetting into the New Year
This will happen for various reasons. First, we have an alarming number of mortgage resets that will occur in Q1 and Q2 of 2008. In fact, by most estimates this will be the largest amount of mortgage resets ever recorded. With the bulk of 2/28 loans being issued in August of 2005, we are hitting the wall of mortgage resets. It would be one thing if your payment increased by $200 a month and you had to layoff the cable to make up for the bill. It is another thing when your payment jumps by $1,500 or $2,000 a month. Unless you got a generous end of the year bonus or a significant raise, this will cause a lot more strain on the budget of many homeowners. There is also the lack of refinancing options. After all, the reason many people took these high risk loans was to cut down on their monthly payment. Even a 30 year conventional note with a low rate cannot compare with a 1 or 2 percent teaser loan.
The Housing Santa Clause isn’t Flying This Year
Next, we are entering the fall and winter doldrums. Fall and winter are always slow selling months. That is why having a horrible spring and summer is a shock for a housing market that for the past 10 years has always seen healthy times during these 6 months. The slow down during these times only creates pent up demand that will be hitting the market at the worst time of the year. Why is it that fall and winter are slow? For one, a large group of buyers are families with children in schools. They don’t want to take their kids out in the middle of the school year. Another reason is the shopping season and the oncoming hangover during January and February when the bills come due. There are other various psychological reasons such as temperature but suffice it to say that the next few months are never ideal for selling a home. On the flip side, whenever you are looking to buy a home winter is the absolute best time to go house shopping. If you can pick a rainy weekend day to attend an open house, even better. This tactic also works for buying new and used cars.
Tighter Credit and a Falling Market
It also doesn’t help that getting a mortgage is a lot harder now. Even early in 2007, you were able to get dangerous mortgage products that for all intents and purposes made no financial sense. In fact, these products were equivalent to buying stock on margin and making a speculative bet. The bet was hoping that before your rate reset, you would be able to sell and profit a nice sum of equity ala Donald Trump. Plus, we had a hard selling real estate complex that used absurd housing mantras that much of the public ate up like strawberry cheesecake. “Housing never goes down!” or “Renting is flushing money down the toilet” became battle cries for the lieutenants of the housing machine. Try digging up an article from a housing bull showing that incomes and local area prices make any economic or fundamental sense. That is why hyperbole become the rubber stamp of moving homes. There were many participants in this credit and housing orgy. Now that the market is falling, all rules predicated on pure appreciation need to be thown out the window. It turns out in this decade long Pollyanna of housing there was no room left for the mere option of a declining market.
Shorting it Out
The house is now making a margin call. The music is fainting away in the background and the piper is looking to be paid. Interestingly enough I have talked to a few people in the industry that have lived through a housing bear market and they are doing well. They are able to convey to their clients that they need to lower prices or risk not selling a home. They also have the knowledge of working with foreclosures and short sales, something many newbie agents have zero knowledge about. The brokers that are doing well have the ability to be realistic and adjust to the current market. Pining for the yesteryear housing bull market is only going to raise a sense of false expectation. Looking at the data, we are in for a long and drawn out housing bear market that most likely, will lead the country into recession. You can look at the current GDP numbers and think all this is irrelevant. This however is tantamount to driving forward looking backward because that only tells you were we have been, not were we are going. Don’t sell yourself short used to work in the past but we are in a different ballgame now.
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Filed under: Newsletters, Corning Inc (GLW), Verizon Communications (VZ), Bargain stocks, Stocks to Buy
“Corning Inc. (NYSE: GLW) still offer great value,” says Nathan Slaughter. In his Half-Priced Stocks newsletter, the advisor explains, “Corning is a 150-year-old company that is involved in some of today’s most exciting cutting-edge technologies.”
The advisor notes that in the 1870s, the company developed the glass used in Thomas Edison’s first light bulb. In later years, it was instrumental in advancements like the television cathode ray tube and even designed the surface of the Hubbell telescope.
Today, he points out, Corning is best known for the glass substrates used to make liquid crystal displays (LCD). In fact, the company dominates 50% of the global market for the thin glass panels used in computer monitors and televisions.
In addition, Corning does have a stake in a number of other fast-growing fields such as fiber optics, diesel engine pollution control, and scientific laboratory instruments. And, he adds, through its 50% ownership stake in Dow Corning, the firm boasts more than 7,000 silicone-based products that run the gamut from fuel additives to solar power cells.
Continue reading Corning: Bullish play on cutting-edge technologies
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Filed under: Analyst reports, Analyst upgrades and downgrades, IAC/InterActiveCorp (IACI), Newmont Mining (NEM), China Life Insurance ADS (LFC)
MOST NOTEWORTHY: DPL Inc, IAC/InterActiveCorp, F5 Networks, Community Health and Parametric Technology were today’s noteworthy upgrades:
- Baird upgraded DPL Inc (NYSE: DPL) to Outperform from Neutral following better-than-expected guidance.
- Citigroup upgraded IAC/InterActiveCorp (NASDAQ: IACI) to Buy from Hold as they believe HSN’s turnaround, Lending Tree’s stabilization and Ask’s profitability ramp should drive EBITDA growth acceleration in 2008. The company was also upgraded to Overweight from Equal Weight at Lehman following IAC’s better-than-expected Q3 report.
- Citigroup upgraded shares of F5 Networks Inc (NASDAQ: FFIV) to Buy from Hold, as they believe now is the time to buy the stock with sentiment at a low-point heading into an attractive 2008 product cycle.
- Stifel raised its rating on Community Health Systems Inc (NYSE: CYH) to Buy from Hold based on improved visibility from detailed 2008 guidance.
- Kaufman upgraded Parametric Technology Corporation (NASDAQ: PMTC) to Buy from Hold based on an impressive quarter and favorable industry trends.
OTHER UPGRADES:
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Filed under: Forecasts, Market matters, Money and Finance Today, Federal Reserve
The stock market rallied yesterday after word of the Fed’s rate cut spread, but don’t expect to hear that type of news again any time soon. Most economists think yesterday’s rate cut of 1/4 percentage point to 4.5% will be the last one until at least next Spring and by then some already are predicting that rates will go back up.
When the Fed announced the rate cut, it said that the economy was “roughly” balanced, with the risks of higher prices (inflation) and slower growth about equal — in other words, in a neutral position. The Fed is not leaning toward a rate cut or rate increase for the next meeting in December. We may have a better idea of what the Fed is thinking when Fed Chairman Ben Bernanke testifies before Congress’s Joint Economic Committee on Nov. 8.
But most economists believe we are on the high side of what Bernanke sees as an acceptable inflation rate — between 1 and 2%. The Fed’s preferred inflation measure rose to 1.8% in August and Commerce is expect to release a similar rate for September. Yesterday’s GDP growth rate of 3.9% surprised many economists, but they don’t expect it to last.
Continue reading Last Fed cut for awhile?
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Filed under: Bad news, Products and services, Wal-Mart (WMT)
 You might be surprised to hear Chinese suppliers complaining that the prices at Wal-Mart Stores, Inc. (NYSE: WMT) are too low, but that is just what this translated article appears to be saying. The complaint is related to the retailer’s classic fallback position of slashing prices across the board in order to boost sales whenever revenue performance is lagging.
Although Wal-Mart has tried to increase profits by recruiting a different kind of customer — one who is interested in more fashionable clothes and name-brand products and has the money to buy them — its classic price chops continue to serve as an old, reliable crutch. In other words, it will likely never recover from the “always low prices” mantra it has built for itself.
So it’s interesting that many of the retailer’s largest Chinese suppliers are now saying they can’t continue to supply Wal-Mart with the “low prices” it requires of them. It’s quite a retail epiphany when a Chinese supplier says that it can’t supply products as cheaply as a retailer requires. Only Wal-Mart has this kind of power, and if these vendor and supplier feelings are true, then signs of desperation are probably starting to swirl in the hallways of Bentonville right now.
Continue reading Wal-Mart prices too low, say Chinese suppliers
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Filed under: International markets, Exxon Mobil (XOM), Chevron Corp (CVX), ConocoPhillips (COP), BP p.l.c. ADS (BP), Technical Analysis, Commodities, Oil
 Oil at $120 per barrel?
Once unfathomable, it’s now possible, and in the near future — as in the summer 2008 — if current trends continue.
Economist H. David Wang told BloggingStocks that a convergence of “bullish events” could take oil “well over the century mark next year.” Oil traded early Thursday around $95.50 per barrel.
“We know about emerging market demand, and the various political issues which pose a threat to supply, but now there’s concern that OPEC won’t strive to increase production because of the falling dollar, because most oil transactions are priced in dollars,” Wang said. “That’s a concern. That’s exactly what the market does not need at this time. Up to now the market has factored-in OPEC cooperation. But now we hear OPEC talking about a lack of a need to raise production. If OPEC doesn’t raise production, we’re looking at $110 or even $120 per barrel oil by the summer of 2008.”
Continue reading Economist: Oil could hit $120 in 2008
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Filed under: NovaStar Financial (NFI), Commodities, Oil, Housing
 What a fantastic time to own oil, gold, or any currency other than the dollar! And what a wonderful world it must be for foreclosure lawyers! How can you profit? Buy non-dollar currencies, lock in your heating oil price, and consider shorting mortgage insurers.
The statistics are mind-numbingly awful. The price of oil hit a record $96 a barrel, up 300% from $24 in January 2001. Gold is near a record high at $800, the dollar is at record lows — for instance it takes $2.08 to buy a British pound. Housing, which has been tumbling from its peak in August 2006, is hurting too — with foreclosures up 100% in the last year. And the mortgage meltdown has led to big layoffs — my firm counts 70,087 finance layoffs by 42 companies so far this year.
There are three ways you can profit from this trend. First, you can buy currencies — like the pound and the Euro — which are getting stronger as the dollar weakens. Second, if you heat your house with oil, you can consider locking in a fixed price — because oil is clearly going to keep going up.
Continue reading What $96 oil, $800 gold, a 100% foreclosure spike, and a $2.08 British pound mean to you
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