Saturday, July 31, 2010

Markets Now Need Economic Numbers to Improve

Economic reports on jobs, manufacturing and the consumer could be what trips up stocks in the week ahead, deflating some of July's 7 percent gain.  More than 100 of the S&P 500 companies report earnings. Investors may, however, pay more attention to any other measure that casts light on the strength of the economy or the consumer, including Tuesday's important monthly auto sales. The July employment report, released Friday, is the most important economic report.

"We're going to lose that catalyst we had, which was better than expected earnings," said Jefferies managing director Art Hogan. "The problem is we've run out of steam."

"We probably will have more inclination to be concerned about the pace of the economy and will trade off on it," said Hogan. "...If we're shifting our focus to economic data versus earnings, the tendency of that has been to be a negative catalyst rather than a positive catalyst." 

The S&P 500 companies reporting so far have seen quarterly profit increases of 45 percent on average. Of those companies, 75 percent topped earnings estimates and 64 percent beat revenue expectations. A mix of consumer, media, insurers and financial companies dominate the coming week's calendar.
Stocks in the past month have seen an earnings bounce, as they struggled against a patch of weaker economic reports. The market was nearly flat Friday, overcoming an initial sell off after second quarter GDP of 2.4 percent disappointed some investors and sent economists to work adjusting their second half forecasts.

Mark Zandi of Moody's is one of those looking to revise his third quarter GDP forecast, and he may trim it to under 2 percent. "One very big concern was a very large contribution of inventories to Q2 and that sets us up for a soft Q3. That's consistent with the idea the economy is growing but still below trend, and that gets to the employment report of next week," he said.  Zandi expects a decline of 50,000 non farm payrolls for July, including the elimination of 150,000 government census workers. He expects to see private payrolls grow by 100,000. In June, the economy added 41,000 non farm payrolls. 

Stephen Stanley, chief economist at Pierpont Securities, expects a decline of 100,000, including a reduction of about 150,000 census workers. He said some consumer driven data in the coming week may show some signs of improvement.  "June was clearly a very soft month for the economy. My sense is July is better. The reports on auto sales are going to be up for the month...The weekly numbers suggest consumers were spending at the mall again," he said.

Friday, July 30, 2010

GDP Up 2.4%

U.S. economic growth slowed in the second quarter as a capital investment drive by businesses sucked in imports at the fastest pace since the first quarter of 1984.

Gross domestic product expanded at a 2.4 percent annual rate, the Commerce Department said in its first estimate on Friday, after an upwardly revised 3.7 percent growth pace in the January-March quarter.
Analysts polled by Reuters had forecast GDP, which measures total goods and services output within U.S. borders, growing at a 2.5 percent rate in the second quarter. The government had previously estimated a 2.7 percent growth rate for the first three months of this year.
"The anticipated slowdown in the economy is happening. Will business investment fall off a cliff next quarter if domestic consumer spending continues to flag?" said Lee Olver, managing director of financial strategies at Madison Williams & Co. in Houston.

The economy, which is digging out of its longest and deepest recession since the 1930s, has now grown for four straight quarters. However, growth has been too tepid, making little impact on a high unemployment rate.

The sluggish economy and a 9.5 percent unemployment rate are eroding President Barack Obama's popularity and dimming Democrats' prospects in November's mid-term elections.  A Reuters-Ipsos poll this week showed only a 34 percent approval of Obama's handling of the economy and jobs compared to 46 percent who deemed it unsatisfactory.  This is a sharp decline from early 2009, shortly after he took office, when more than half of those surveyed approved of Obama's handling of the worst financial crisis in decades.
In other economic news, a report showed that business activity in the Midwest was stronger than expected in July.

Growth in the last quarter was held back by a 28.8 percent surge in imports, which eclipsed a 10.3 percent rise in exports. The widening trade deficit lopped off 2.78 percentage points from growth, the largest subtraction since the third quarter of 1982.  While the import surge subtracted from GDP, growing imports and robust business spending suggest strength in underlying demand.

Thursday, July 29, 2010

2010 Q2 Earnings Reports- Friday, July 30th

Before the Bell

Chevron (CVX)- Oil Company

Q2 Actual Estimate Year Ago
EPS $2.70 $2.44 $0.87
Revenue $53.00 B $52.53 B $40.21 B

Merck (MRK)- Drug Manufacturer
Q2 Actual Estimate Year Ago
EPS $0.86 $0.83 $0.83
Revenue $11.35 B $11.45 B $5.90 B

Simon Properties (SPG)- Real Estate Company
Q2 Actual Estimate Year Ago
EPS $0.52 $0.46 ($0.08)
Revenue $934 M $917 M $904 M

Weyerhaeuser (WY)- Timber Company
Q2 Actual Estimate Year Ago
EPS $0.20 $0.14 ($0.59)
Revenue $1.81 B $1.68 B $1.39 B

AsiaInfo- Oversold, Take Advantage

Shares of AsiaInfo Holdings (ASIA) fell 23 percent in the first hour of trading on Thursday, following the release of 2010 Q2 earnings. The company reported in-line top line growth but missed EPS target of $0.36 by 7 cents.

Looking at the cold numbers, AsiaInfo Holdings (ASIA) doesn't look as bad. The company reported revenues of $65.6 million for the second quarter, an increase from previous quarter. But the problem is with earnings per share or EPS. The company delivered GAAP earnings of $0.29/share vs. consensus estimates of $0.36/share.

Another difficulty is the interpretation of the outlook. The company will consolidate books of Linkage as of the next quarter, throwing off current growth chart. These two handicaps certainly contribute to the twenty plus percent drop in stock value.  The intergation of Linkage is definitely costing ASIA much more than the comapny and analysts first expected, but this acquisition will help in the long haul.

I say that you can buy a little of ASIA right here.  The stock has traded sideways for the past one and a half hours- which appears could be a bottom in today's trading.  

AsiaInfo (ASIA) 20.01 -5.99(-23.02%)  52wk 15.55-32.60 

Take a Look at K and CL

There were very mixed earnings reports this morning, but the market seems to only be listening to the good reports as the major averages opened higher today.  Both Kellogg (K) and Colgate-Palmolive (CL) lowered their full year earnings estimates.  This is interesting because these companies are supposed to be recession resistant, but they seem to be struggling in this environment.

Colgate-Palmolive's (CL) second-quarter earnings rose to $1.17/share from $1.07 in the year-ago period. Net sales climbed to $3.81 billion from $3.76 billion.  Analysts polled were looking for $1.17/share on sales of $3.95 billion.  The consumer-products company also lowered its full-year earnings estimate due to currency related losses.

Kellogg (K), the cereals giant, cut its full-year forecast after reporting second-quarter earnings that fell below analysts expectations.  Kellogg said second-quarter profit fell to 79 cents a share from 92 cents a year earlier.  Sales dropped to $3.06 billion from $3.23 billion.  Analysts estimated profit of 94 cents a share on sales of $3.29 billion.

These were disappointing reports, but historically these companies have given investors a great return on investment.  Both K and CL raise their dividend on an annual basis and historically their increase in stock price has easily beat the S&P 500.  Over the past 10 year, the S&P 500 is down 21.5%;  while K is up 88% and CL up 40.5%.  In my opinion, these are two well run companies that have hit a little rough patch.  If you have a long term perspective on stocks, this could be a good time to start building a position in these names.  For the record, I do prefer K over CL.  Historically its the better performer and pays a better dividend.

Kellogg (K) 49.09 -2.43(-4.72%)  52wk 45.58-56.00 
Colgate-Palmolive (CL) 78.30 -5.56(-6.63%)  52wk 70.45-87.39

Wednesday, July 28, 2010

2010 Q2 Earnings Reports- Thursday, July 29th

Before the Bell

Exxon Mobil (XOM)- Oil Company
Q2 Actual Estimate Year Ago
EPS $1.60 $1.46 $0.84
Revenue $92.49 B $98.49 B $74.46 B

AstraZeneca (AZN)- Drug Company
Q2 Actual Estimate Year Ago
EPS -- $1.60 $1.64
Revenue -- $8.13 B $7.96 B

Kellogg (K)- Cereal Maker
Q2 Actual Estimate Year Ago
EPS $0.89 $0.94 $0.92
Revenue $3.06 B $3.29 B $3.23 B

Sony (SNE)- Electronics Maker
Q2 Actual Estimate Year Ago
EPS $0.29 ($0.15) ($0.39)
Revenue $18.66 B $18.76 B $16.67 B

Southwest Air (LUV)- Airline
Q2 Actual Estimate Year Ago
EPS $0.29 $0.27 $0.08
Revenue $3.17 B $3.15 B $2.62 B

After the Bell

Amgen (AMGN)- Biotechnology Company
Q2 Actual Estimate Year Ago
EPS $1.38 $1.30 $1.29
Revenue $3.80 B $3.74 B $3.71 B

Expedia (EXPE)- Travel Booking Website
Q2 Actual Estimate Year Ago
EPS $0.44 $0.42 $0.38
Revenue $834 M $845 M $770 M

MetLife (MET)- Insurance Company
Q2 Actual Estimate Year Ago
EPS $1.23 $1.00 $0.88
Revenue $12.80 B $13.05 B $12.23 B

Moody's Outlook Negative on Financials

On Tuesday, Moody's changed its outlook on Bank of America (BAC), Citigroup (C), and Wells Fargo (WFC) to negative, from stable, citing lessened government support for the institutions under new U.S. regulations.  A negative outlook indicates the banks are more likely to be downgraded over the next 12 to 18 months. The credit ratings agency also said it may cut its ratings on ten regional banks on reduced government support.

Moody's has boosted its debt and bank deposit ratings on large financial institutions since early 2009 on the assumption that they would receive government support in a time of trouble because of the risks they pose to other financial firms and the economy as a whole.  The new financial reform bill, however, is intended "clearly to eliminate government—i.e. taxpayer-support to creditors," Moody's said. Some support, however, is likely to remain for large institutions as regulators work to implement new laws, it added.  "Over the next 12 to 24 months ... we expect that our support assumptions for systemically important banks will likely revert to pre-crisis, or even lower, levels—though we do not anticipate that we would completely eliminate support from these firms' senior debt and deposit ratings," Moody's said.

Moody's rates Bank of America's senior debt A2, the sixth highest investment grade, Citigroup A3, the seventh highest investment grade and Wells Fargo A1, the fifth highest investment grade.  Moody's also said it may downgrade subsidiaries of BB&T, Fifth Third, KeyCorp, PNC, Popular, Regions Financial, SunTrust Banks, US Bancorp, and Zions Bancorp.

Expect a Market Sell-Off

After four days of having the broader market indexes (DJIA, S&P 500, NASDAQ) up nearly 4.5%, I expect there to be some profit taking over the next couple of days. With lackluster earnings reports from Boeing (BA), Aetna (AET), and others, as well as a durable goods number falling short of estimates as demand remains weak, it could be the catalysts traders were looking for to take some profits. And I personally do not think this, but many traders still feel that a double dip recession is very likely. The one metric that has me worried is the Treasury market. Yesterday, a two year Treasury auction supposedly went better than expected, but still its the lowest yield ever on a two year Treasury- with a 0.665% return. This auction shows, that even though the stock market has had a nice rally the past few days and Q2 earnings have been much better than expected, investors are still very cautious. Like I said, I do not think we will have a double dip recession, but I do feel a pull back in the stock market will happen. So, I would not commit new capital into this market right now- wait for the market to sell-off. I think you could see 2.5%-3.5% shaved off this market over the next 3-5 trading days. Also, this sell-off may be delayed if we do have a collection of good earnings before the bell someday this week.

Tuesday, July 27, 2010

2010 Q2 Earnings Reports- Wednesday, July 28th

Before the Bell

Boeing (BA)- Aerospace Company
Q2 Actual Estimate Year Ago
EPS $1.06 $1.01 $1.41
Revenue $15.57 B $16.13 B $17.15 B

Allegheny (ATI)- Iron and Steel Manufacturer
Q2 Actual Estimate Year Ago
EPS $0.36 $0.37 $0.03
Revenue $1.05 B $954 M $710 M

Corning (GLW)- Diversified Technology Company
Q2 Actual Estimate Year Ago
EPS $0.58 $0.52 $0.39
Revenue $1.71 B $1.65 B $1.40 B

Dominion (D)- Electricity Company
Q2 Actual Estimate Year Ago
EPS $0.72 $0.67 $0.68
Revenue $3.33 B $3.47 B $3.45 B

WellPoint (WLP)- Healthcare Company
Q2 Actual Estimate Year Ago
EPS $1.67 $1.55 $1.50
Revenue $14.22 B $14.60 B $15.27 B

After the Bell

Akamai (AKAM)- Internet Service Company
Q2 Actual Estimate Year Ago
EPS $0.34 $0.34 $0.40
Revenue $245.3 M $243 M $205 M

O'Reilly Automotive (ORLY)- Autoparts Store
Q2 Actual Estimate Year Ago
EPS $0.71 $0.74 $0.63
Revenue $1.38 B $1.35 B $1.25 B

Visa (V)- Credit Card Company

Q2 Actual Estimate Year Ago
EPS $0.97 $0.93 $0.67
Revenue $2.03 B $1.97 B $1.65 B

Good Housing Data- Buy Home Depot

After the home buyer tax credit expired, the housing data plummeted, dropping even more than analysts expected during the months that followed.  Recently though, the housing data has turned around.  Yesterday, new home sales rose sharper than expected, and this morning, home prices rose more than expected in May.  It may still be to early to buy the homebuilders since they are competing with tens of thousands of foreclosures- which are far cheaper in price than a new home.  A much safer way to play this good housing data is with Home Depot (HD).  HD management has done a great job turning this company around.  Its now a much leaner company, and the costumer service is far better than is was even five years ago.  Last time HD reported earnings, the company beat estimates and rose their FY 2010 guidance.  How about Lowe's (LOW), HD's main competitor.  Last time LOW reported earning, the company's earning were below estimates, and the guidance was on the lower end of estimates.  HD has a track record of paying a good dividend, which they raised at the beginning of this year.  The company announced a share buyback program last time they reported- I am sure they are taking advantage of these depreciated prices.  The stock is well off its 52 week high of 37.03, currently at 29.30.  HD has not announced when they will release Q2 earnings, but it should be around the middle of August.  This is a great company- well run- and seems to be making all the right moves.

HD 29.03  52wk 24.47-37.03

Monday, July 26, 2010

2010 Q2 Earnings Reports- Tuesday, July 27th

Before the Bell

DuPont (DD)- Chemical Company
Q2 Actual Estimate Year Ago
EPS $1.17 $0.93 $0.61
Revenue $8.62 B $8.23 B $6.86 B

BP (BP)- Oil Giant

Q2 Actual Estimate Year Ago
EPS -- $1.42 $0.94
Revenue -- $72.60 B $56.56 B

Lockheed Martin (LMT)- Defense Contractor
Q2 Actual Estimate Year Ago
EPS $1.96 $1.93 $1.90
Revenue $11.44 B $11.48 B $11.24 B

Under Armour (UA)- Athletic Apparel
Q2 Actual Estimate Year Ago
EPS $0.07 $0.03 $0.03
Revenue $204.8 M $190 M $165 M

US Steel (X)- Steel Manufacturer
Q2 Actual Estimate Year Ago
EPS $0.45 $0.63 ($3.28)
Revenue $4.68 B $4.63 B $2.13 B

Western Union (WU)- Money Transfer Company
Q2 Actual Estimate Year Ago
EPS $0.37 $0.32 $0.31
Revenue $1.27 B $1.28 B $1.25 B

After the Bell

Aflac (AFL)- Insurance Company
Q2 Actual Estimate Year Ago
EPS $1.35 $1.33 $1.20
Revenue $5.07 B $4.99 B $4.31 B

Aetna (AET)- Healthcare Company
Q2 Actual Estimate Year Ago
EPS $0.75 $0.74 $0.68
Revenue $8.50 B $8.49 B $8.67 B

Norfolk Southern (NSC)- Railroad
Q2 Actual Estimate Year Ago
EPS $1.04 $0.99 $0.60
Revenue $2.43 B $2.40 B $1.86 B

VVUS Turned into a Nice Trade

On July 16, Vivus' stock price got cut in half when its new weight loss drug, Qnexa, was rejected by a count of 9-7 by an FDA panel.  I said you could buy it because it has a descent pipeline, including an ED drug in Phase III testing. Also they have several investigational product candidates in late stages of clinical development.  I said you could buy at 5.20/share and look for about a 10% bounce.  Initially, the stock continued to sell off, but we got the bounce we were looking for.  It reached a high of 6.04/share on July 22.  I called it quits on this stock this morning at the open at 5.75/share.  No reason in staying in this volatile stock any longer, we got the 10% bounce. 

Trade dates: July 16, 2010-July 26, 2010
Bought: 5.20/share
Sold: 5.75/share
Gain: +0.55/share
% Gain: +10.58%

Look at ESRX and TEVA

On Friday afternoon, I told said that you could buy into this rally- specifically saying that McDonald's is a good buy on the pullback.  At the end though, I said to take a look at  Express Scripts (ESRX) and Teva Pharmaceutical (TEVA)- both have been beaten down lately.

ESRX- The Company operates in two business segments: PBM and Emerging Markets. The PBM segment consists of retail network pharmacy management and retail drug card programs, home delivery services, benefit plan design and consultation, etc.  The EM segment consists of distribution of pharmaceuticals and medical supplies to providers and clinics, etc.  This stock, like most healthcare stock have been sold off.  I think its way over done.  This is a growth company that shows no sign of slowing down.

TEVA-  A global pharmaceutical company that develops, produces and markets generic drugs covering all treatment categories.  This stock is just off a 52 week low, and I think its an opportunity to buy into a great company.  Friday, the FDA OK'd a generic version of Sanofi-Aventis' (SNY) blood clot treatment Lovenox, boosting shares of Momenta (MNTA).  TEVA also is seeking to make a generic version. The FDA decision was seen as a sign the FDA is willing to approve a generic version of Teva's multiple sclerosis drug, Copaxone, as well as other complex biological drugs.  I see this as a positive catalyst for the stock, not a reason to sell.  

ESRX opened at 43.08/share
TEVA opened at 50.59/share

Sunday, July 25, 2010

$250,000 Bank Insurance Now Permanent

President Barack Obama signed the new Financial Reform bill Wednesday, and one immediate change will be the current $250,000 limit on FDIC insurance for bank deposits and NCUA Insurance for Credit Union (CU) deposits becomes permanent. That’s great news.

Without this new law the $250,000 per-bank or credit union limit would have expired at the end of 2013 and we would have reverted to the old standard $100,000 per bank or CU limit on deposit insurance coverage.  That means you no longer have to be careful about putting more than $100,000 in a long-term CD that would mature after 2013. Now you can keep up to $250,000 on deposit for any amount of time. 

That said, I wouldn’t necessarily rush to tie up big amounts of money in a long-term CD right now. With rates so low, that’s a long time to lock in a low rate. Better to keep your deposits shorter-term so you always have some money coming due that you can reinvest at higher rates. It may not happen this month, or during this year, but rates will indeed rise.

US Officials: BP CEO Hayward is Out

BP denies its embattled chief executive Tony Hayward will resign this week, as the company prepares to report its largest ever quarterly loss due to the Gulf oil spill.  But US officials confirmed weekend buzz that the embattled CEO is on his way out. They said they were brief by a senior BP representative last week that Hayward would be stepping down.  

The reports were swirling all weekend about Hayward's demise.  Citing unnamed sources, UK newspaper The Sunday Times reported that BP's board will decide on Hayward's fate when it meets on Monday.  And the Wall Street Journal reported that the company is getting close to naming American Bob Dudley, who has been heading up the company's Gulf spill response, to succeed Hayward.

A BP spokesperson confirmed only that the board is meeting ahead of the company's second quarter earning announcement on Tuesday, but clarified that the meeting is standard procedure — not a special meeting to discuss Hayward's fate.  "Tony Hayward is our chief executive and has the full support of the board and management," the spokesperson said. "We don't comment on speculation."  The company similarly refutes any speculation its chairman, Carl-Henric Svanberg may resign.  It has been widely speculated BP will move to replace its top leadership once the company permanently caps the ruptured Macondo well in the Gulf of Mexico in order to begin a new chapter. 

BP (BP): 36.86  52wk 26.75-62.38

2010 Q2 Earnings Reports- Monday, July 26th

Before the Bell

Enterprise Products (EPD)- Manufacturer of Pipelines
Q2 Actual Estimate Year Ago
EPS $0.46 $0.44 $0.32
Revenue $7.54 B $8.00 B $3.51 B

Lorillard (LO)- Tobacco Company
Q2 Actual Estimate Year Ago
EPS $1.73 $1.61 $1.71
Revenue $1.04 B $1.01 B $1.03 B

Alcon (ACL)- Medical Supplies Company
Q2 Actual Estimate Year Ago
EPS $2.21 $2.03 $1.94
Revenue $1.89 B $1.83 B $1.68 B

After the Bell

Legg Mason (LM)- Investment Services Company
Q2 Actual Estimate Year Ago
EPS $0.30 $0.31 $0.35
Revenue $674 M $652 M $613 M

Friday, July 23, 2010

Wall Street Blogger Returns Report

Date Call was MadeSymbolRecommended Purchase PriceCurrent PriceGain/Loss% Gain/Loss


Dr Pepper SnappleDPS37.7939.822.035.37%
Home DepotHD28.6328.25-0.38-1.33%
Eli LillyLLY33.7535.171.424.21%
Magellan Midstream Part.MMP46.1949.703.517.60%
Waste ManagementWM31.4633.592.136.77%
Proctor & GamblePG60.3261.911.592.64%
Johnson & JohnsonJNJ59.2457.63-1.61-2.72%

Chipotle Mexican GrillCMG142.76145.502.741.92%
Dr Pepper SnappleDPS39.1639.820.661.69%


Bank of AmericaBAC14.3613.74-0.62-4.32%

Express ScriptsESRX42.7543.070.320.75%
Teva PharmaceuticalTEVA49.1649.380.220.45%