Archive for May, 2008
Filed under: Good news, Industry, Nokia Corp. (NOK), Texas Instruments (TXN), Options, Technical Analysis
 Texas Instruments (NYSE: TXN) shares are trading higher after Nokia (NYSE: NOK) reported that its single-chip plan is still on track despite Infineon (NYSE: IFX), a supplier for NOK, announcing yesterday that it is seeing some delays. TXN is supplying NOK with GSM single chips for its mobile handsets and may be called upon to pick up the slack during this delay. If you think that the stock won’t fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on TXN.
After hitting a one-year high of $39.63 in July, the stock hit a one-year low of $27.51 in March. TXN opened this morning at $32.36. So far today the stock has hit a low of $32.32 and a high of $33.00. As of 1:17, TXN is trading at $32.73, up 0.24 (0.7%). The chart for TXN looks bullish and steady, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.
For a bullish hedged play on this stock, I would consider an October bull-put credit spread below the $27.50 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn’t do what you think but still leverage nice returns. For this particular trade, we’ll make a 13.6% return in just five months as long as TXN is above $27.50 at October expiration. TXN would have to fall by more than 16% before we would begin to lose money. Learn more about this type of trade here.
TXN hasn’t been below $27.50 at all in the past year and has shown support around $32 recently. This trade could be risky if the company’s earnings (due out in mid-July) disappoint, but even if that happens, this position could be protected by the support the stock might find around $28, where it found support over the past two months.
Brent Archer is an options analyst and writer at Investors Observer.
DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that might include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in TXN, NOK, or IFX.
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Economist warns, ‘There is no free lunch’
Filed under: Major movement, Newsletters, Commodities, Housing, Federal Reserve, Recession
“The markets seemed on the verge of a major sea change,” says economist David Smith. In his Cyclical Investing Quarterly, he offers a fascinating review of his concerns for the risks that lie ahead.
“Recent economic data provides considerable foundation for Main Street fears and little support for Wall Street hopes.
“Two of the economy’s mainstays, housing and autos, continue to tank and consumers are being squeezed between falling real incomes and rising cost of living - notably in energy and food, the two components eliminated from the ‘core’ inflation indices by those who claim inflation is ‘under control.’
“The consequences of these economic stresses can be seen in falling consumer confidence, weak consumer spending, rising bankruptcies among retailers and defaults among un-creditworthy borrowers.
“The knock-on effects include a global crisis in the financial sector, a pullback in U.S. business spending,
mounting layoffs and an uptrend in unemployment, all of which, in my view, pretty much puts the nail in the coffin of the Goldilocks scenario.
“This view is seconded by chief executive officers in the financial-services industry, who put the likelihood of a recession at 88%, with one in three putting the odds at 100%.
“Meanwhile, US and European central banks are flooding capital markets with liquidity in an effort to prevent credit markets from seizing up. As I’ve often said, ‘There is no free lunch.
“This flood of new money will eventually come back to haunt us as inflation, about which the ECB and Bank of England show due concern, and, if the recent plateau in U.S. money supply is any indication, so too does the Fed.
“For investors, the threat of inflation means bond yields will probably climb (and bond prices fall), overriding the contrary pressures associated with economic weakness. My advice, keep your maturities short.
“Wall Streets hopes of an economic rebound in the second half are predicated on a revival in consumer spending, which in turn would encourage business to invest in new plant and equipment.
“The key drivers reinvigorating consumer spending, the theory goes, are $600 per person rebates from the Treasury and lowered short-term interest rates. It seems unlikely that a $600 per person windfall will make much of an impact.
“When the effects of this ’shot-in-the-arm’ wear off, American consumers will still be facing the grim realities of falling house prices; high food, gas, medical and college expenses, stagnant incomes and record levels of personal debt.
“Lower interest rates are unlikely to persuade households up to their eyeballs in debt to borrow and spend liberally, nor will they inspire shell-shocked banks to liberalize their credit standards.
“The only solution for the predicament in which most American consumers find themselves, is the reduction of record household debt. That is the ultimate answer to the economic malaise affecting the nation.
“Any policy that fails to contribute to the reduction of household debt is doomed to failure in the long run. Debt reduction can be accomplished only in four ways: earn more, spend less, sell assets or default.
Earning more is improbable, given the competitive pressures on wages from globalization and the disinclination of U.S. corporations to share the bounty of increased productivity with anyone other than top executives and shareholders.
Spending less may be forced upon American consumers, squeezed between stagnant incomes and rising cost of living. However, spending less, so as to pay down debt, will mean a recession, contrary to Wall Street hopes.
Selling assets primarily means selling homes, Americans’ main asset. Many Americans are doing just that, at drastically reduced prices, and in so doing are further depressing the market and dampening the economic outlook. Whether they’re then using the proceeds to pay down debt or sustain consumption is open to question. If they sell stocks and bonds, that too will have a detrimental economic effect.
Default is becoming an increasingly necessary solution to excessive household debt burdens. As one might anticipate, default has first become widespread among the least creditworthy borrowers - so-called ’subprime’ borrowers - but the practice seems to be extending up the ladder of creditworthiness. Credit card abusers are next.
As cascading defaults have spread, banks have become more reticent to lend, short-circuiting the borrow-and-spend dynamic that has sustained the economy for many years. To the extent that defaults are resorted to as a means of reducing debt, the economy will suffer.
“Bottom line: The band-aid solutions proposed by Washington, failing to address the underlying malaise associated with excessive personal debt, are unlikely to fulfill Wall Street’s hopes of a return to sustainable, moderate economic expansion. Accordingly, an economic contraction in the near-term seems baked into the cake.
“Whether the contraction will be inflationary or disinflationary, will depend on whether the Fed continues to flood the credit markets with new money, in which case serious stagflation will result, or whether it stands fast against inflation, in which case the economy will contract and inflation will abate.
“My ideal estimate of the situation is this: In attempting to revive the economy with a flood of new money in current months, the Fed has infected the economy with inflation. Given the lag between monetary action and economic reaction, we will probably witness more stagflation.
“The recent monetary plateau might indicate the Fed’s belated attempt to quash inflation. Again, given the lag between monetary action and economic reaction, if the Fed sticks to this course of action, the economy will be starved for fuel. So the outlook is for more stagflation followed by a serious economic contraction.”
Everyday, Steven Halpern’s TheStockAdvisors.com offers the latest market commentary and favorite investment ideas from the nation’s leading financial newsletter advisors.
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Filed under: Earnings reports, Google (GOOG), Campbell Soup (CPB), Limited Brands (LTD), salesforce.com inc (CRM)
 If you were paying close attention to this column last week, you would have sidestepped some of the pain and misery investors in many of the stocks discussed have suffered lately. Of late, we have seen the general direction of the markets turn positive, even in the face of news to the contrary.
Perhaps it is because investors have an appetite for stocks, since there seems to be few investment alternatives. Real estate is off limits and the yield on bonds and other fixed-income investments is pathetically low.
The theme for the week ahead is SMOOTH SAILING. In this week’s column, we delve into some stocks that will be announcing earnings, and that may benefit from the changing tide of investor sentiment. To be sure, there will be several areas of choppiness as we continue to be bombarded by the stormy realities of a turbulent economy.
Monday, Might 19
The chart for Campbell Soup (NYSE: CPB) looks M’m M’m good. Sporting a smooth line with nary a ripple over the past 12 months, management has done a great job at keeping both company earnings and share price up, even in the face of significant food inflation. While shares have been condensing during the past few months, recently they have been rising with a series of higher highs and higher lows. Be on the outlook for earnings of 44 cents per share on revenue expectations of $1.89 billion. Now that I think of it. That’s a lot of soup wrapped in tin-plated steel — one of many materials that has seen its price nearly double in the past six months.
Excel Maritime Carriers (NYSE: EXM) is part of the shipping industry that has been cruisin’. Shares are up from a September 2006 low of $8 to a current level of $52. After floating down violently during the first quarter of 2008, shares have made a turnaround, as there are high expectations for the dry-shippers. It is curious how a company with such a big fleet of ships maintains such extreme profitability with oil prices above $120. Monday will set the course as earnings are estimated to be $1.79 per share for the quarter, up from 61 cents in the year-ago period. This is on revenues of only $61 million for a company that now has a market cap of $1.1 billion. If shares do not meet or beat, watch out below!!
While we are out at sea with the shippers, the big daddy DryShips (NASDAQ: DRYS) will be coming in with its quarterly numbers after the close. Expectations are running high, and First Call is estimating $4.05 per share, which is a 400% increase from the same period a year ago. The shares have a classical chart formation of a double-bottom with a break above the mid-term resistance. This bullish pattern has had all the makings of a solid run but might hit overhead resistance at this level. (Sorry I can’t go into more depth on chart pattern recognition here, but if you’re interested in learning more, you could read Chapter 3 of my book, The Disciplined Investor: Essential Strategies for Success.)
Tuesday, May 20
On the sundeck, silicon wafers are drawing in the sun’s energy and converting it to a more usable form by products made by China Sunergy (NASDAQ: CSUN). Analysts don’t predict that the company will be profitable this quarter, but that does not seem to matter these days as shares are being bid up 50% from a current consolidation point of $8. Look for an announcement showing a loss of 5 cents per share on $73 million of revenue.
After coming back from a long cruise, many people have thought of going back to living in a factory-built, modular home but did not know where to go for that special touch. Good news, as Palm Harbor Homes (NASDAQ: PHHM) might actually have the answer. Yet, shares have been watered down of late as the housing market has been difficult on all components within the sector. Yes, even the luxury modular home companies. Interestingly, analysts are seeing a loss approaching 34 cents per share on $123 million of revenues.
Wednesday, May 21
When the economy enters a time of recession, shoppers look for bargains. BJ’s Wholesale Club (NYSE: BJ) may have just the right bait to bring in the fish as they have 177 warehouse shopping stores in 15 says with a total of 8.8 million members. Sales have been consistent and earnings growth has been strong. With tiny debt and a chart that is showing a strong base, this could be a winner during this wave of the economic cycle. Watch the earnings release for clues as to the near-term direction. First Call is showing a 27 cents EPS for the period on big revenue of $2.26 billion.
Ever since Google (NASDAQ: GOOG) announced a partnership with Salesforce.com (NYSE: CRM), the tide has been rising for shares. Making new highs on a regular basis, Salesforce has one of the best on the web contact management solutions available for companies of any size. In the ultimate battle for the desktop over the webtop, Salesforce is a force to reckon with. The company has quarterly earnings expectations of 7 cents, which is sevenfold higher than last year, and revenue that is expected to grow to $235 million for the period. I suppose that’s what happens when a company has no competition and a great product.
There will be plenty of other announcements this day in the retail sector that will be watched carefully for further clues on the consumer and the general economy. Take note of the following as there has been a good deal of negative sentiment towards this sector:
Thursday, May 22
The day is loaded with more retail announcements. The ones to watch include:
Also look for the earnings from poultry producer Sanderson Farms (NASDAQ: SAFM). The company has been doing well, even into rising corn and feed prices. Estimates are for a loss of 7 cents on $435 million of revenue. Investors may get chicken if they see that the margins have been watered down this quarter. Even so, the balance sheet is strong and the outlook is stable.
Disclosure: Horowitz & Company clients may hold positions in some of the stocks mentioned as of the publish date.
Andrew Horowitz is a money manager and author of The Disciplined Investor: Essential Strategies for Success.
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Filed under: Venture capital industry, Investments
GodTube has reportedly received a $30 million investment from hedge fund GLG Partners, according to PaidContent. The news came on Sunday, unsurprisingly.
GodTube is a swiftly growing Christian on the internet video sharing and social networking website and previously received $2.5 million in funding, some from private investor Norm Miller of Interstate Batteries.
The site now has 2 million users per month and was launched less than a year ago in Dallas. CEO Chris Wyatt formerly acted as an executive producer at CBS.
While $30 million sounds like a big amount, the costs of broadband make it a normal investment for comparable video sharing sites. Recently, GLG invested in digital media companies Glam Media and Spinvox. This round of funding for GLG Partners is $150 million.
Also according to the article in PaidContent, GLG Partners and GodTube each declined comment on the rumored investment.
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Filed under: Industry, AMR Corp (AMR), Oil, Delta Air Lines (DAL)
In a move that might be imitated by huge US carriers like AMR (NYSE: AMR), Delta (NYSE: DAL) and Northwest (NYSE: NWA), British Airways will ground part of its fleet to save money because of the rising cost of fuel.
According to The Times of London, “The airline would park its oldest, least fuel-efficient aircraft.”
Analysts are concerned that British Airways may loss money for the next two years. By taking some aircraft out of service, the carrier could ameliorate some of that.
Wall Street might watch to see if large American companies have the sense to do the same thing. Most have debt loads big enough to move them toward Chapter 11, if fuel costs stay high and a rough economy hurts passenger traffic. Major airline mergers, some of which are fairly far along, will not solve the gas price problem. Taking jets out of service may, at least in part.
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Douglas A. McIntyre is an editor at 247wallst.com.
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U.S. home prices plunge 14.4% and expected to decline further
Filed under: Bad news, Economic data, Housing, Recession
The U.S. housing sector has registered another ignominious statistic. Home prices in a 20-city sample plunged 14.4% in March 2008 (PDF), on a year-over-year basis, according to the S&P / Case-Shiller U.S. National Home Price survey released Tuesday. Meanwhile, prices in a 10-city survey plummeted 15.3%.
It was the largest decline in the survey’s 20-year history, Case-Shiller said.
Economists surveyed by Bloomberg News had expected home prices in the Case-Shiller 20-city survey to decline 14.2% in March 2008 on a year-over-year basis.
The areas with the largest percentage declines were: Las Vegas, -25.9%; Miami, -24.6%, and Phoenix, -23.0%. Only one city in the survey — Charlotte, N.C. — appreciated, with prices there rising just a scant 0.8%.
Percentage price changes in other major U.S. cities were as follows: New York, -7.4%, Los Angeles, -21.7%, Chicago, -10.0%, Boston, -5.9%, San Francisco, -20.2%, Washington, D.C., -14.7%, Miami, -24.6%, and Seattle, -4.4%.
Economic Analysis: Another horrible U.S. housing sector statistic, and the sector remains in deep recession. Economists differ regarding whether the U.S. housing sector has bottomed: some see a housing recovery as early as Q4 2008, while others state it won’t begin until mid-2009. In either event, it’s going to be a while before new home builders can resume typical building schedules and get out there and make some money — a fact that advocates U.S. home prices are prone to continue to decline for at least the next two quarters, and probably longer.
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Filed under: Deals, Engagements
 After Yahoo! Inc. (NASDAQ: YHOO) reports its first-quarter earnings tonight, stories will flow about how the numbers could modify the price Microsoft Corp. (NASDAQ: MSFT) may eventually pay to acquire the Internet portal.
Apparently Microsoft CEO Steven Ballmer won’t be reading them. Speaking in Morocco on Tuesday, he stated the results won’t “affect the value of Yahoo! to Microsoft.” Negotiating tactics? Of course. And Ballmer didn’t state Microsoft wouldn’t raise its offer no matter what.
Besides, the report could still sway Yahoo! shareholders, who must sign off on any deal and might hesitate in backing a takeover at Microsoft’s standing offer of $31 a share, or $43 billion.
Continue reading at TechConfidential.com.
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Filed under: Analyst reports, Industry, Google (GOOG), News Corp’B’ (NWS)
For some time there has been an uneasy feeling that Web 2.0 companies were having trouble making money. A number of the companies are private and not much is said about how their financials work. Digg.com does not issue quarterly statements.
But some of the new age companies like MySpace, which was bought by News Corp (NYSE: NWS) and YouTube, which was bought by Google (NASDAQ: GOOG), have enough of their financials available for Wall Street to get an idea of what is going on.
Based on comments from Google and News Corp, their huge Web 2.0 sites are not big money-makers. MySpace does well under $1 billion in annual revenue. Its smaller rival, Facebook, was recently valued at $15 billion. That number now looks very high.
According to the FT, “The shortage of revenue among social networks, blogs and other “social media” sites that put user-generated content and communications at their core has persisted despite more than four years of experimentation aimed at turning such sites into money-makers.”
Facebook, YouTube and MySpace may draw tens of millions of visitors each month, but they can’t make a dime. Marketers are not interested in amateur video and postings from people who spend 20 hours a day on PCs and are afraid to leave their homes.
Douglas A. McIntyre is an editor at 247wallst.com and author of the Ten Stocks Under $10 newsletter.
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Filed under: Good news, Products and services, Competitive strategy, Apple Inc (AAPL), Amazon.com (AMZN), Marketing and advertising
Napster (NASDAQ: NAPS) announced Tuesday that the company has removed all digital rights management technology from its store and will start selling unprotected MP3 files immediately. Napster has also gained the support and backing from all four of the major record labels on top of existing deals with independent labels. This is something other stores like Apple (NASDAQ: AAPL)’s iTunes Store and Amazon.com (NASDAQ: AMZN)’s MP3 Store have yet to secure.
According to Billboard, Napster will have a similar deal with Sony BMG that it has with Amazon where the label is the seller and the store only receives a commission. In addition, Napster’s six million song catalog far outpaces that of any other store. Amazon comes close, but is four million songs behind. Unlike iTunes, though, Napster won’t offer a service to grant users to upgrade existing DRM-encoded files to the new DRM-free files.
Napster executives, however, remain committed to the subscription-based model that the store has operated under for the past few years, hoping to utilize the new MP3 files as gateways to introducing customers to subscriptions. Billboard contends that Napster “is gambling that the proliferation of Internet-connected devices — such as mobile phones, home stereos and eventually automobile radios — will some day convince music fans that a monthly subscription to access all the music they want from any device is more compelling than buying it.”
At the end of the day, another digital music store offering DRM-free tracks is a good sign for digital growth, digital stores and the music industry. This is particularly evident here since all four major labels have signed on to offer Napster quite a big cache of tracks. The continued hopes for transitions to subscription services might be the next prolonged discussion, as the largest retailer iTunes and Apple have continued to steer clear of that model.
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Filed under: International markets, Forecasts, Industry, Economic data, Oil, Recession
 When oil was at $65 a barrel, almost no one believed it would double. There were a few nuts making the case, but they were ignored like Galileo was when he said the Earth moved around the sun.
Now, it is hard to find analysts who do not believe oil is going to move over $140 a barrel, and, perhaps above $200. Their reasoning is sound enough. Demand in emerging nations like China and India is still increasing. While crude use in the U.S. may be off slightly, it’s not off enough to matter. Supplies may be drying up as fields in the Middle East, Mexico, and Russia age. A political catastrophe in Nigeria or Venezuela could cut production.
Against all that, a case for a sharp drop in oil prices is quietly forming and its logic is powerful but poorly understood.
The first argument that oil is too high is that it has been pushed up in part by speculators rushing to cover bets that crude will fall. It is a bit like a “short squeeze” in stocks. Once the “covering” is done, oil prices will face less pressure on the upside.
Perhaps the strongest rationale for a drop in crude is that supply is more abundant than it seems. Petr
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