Filed under: Major movement, Good news, Industry, Valero Energy (VLO), Options, Technical Analysis, Oil

Valero Energy (NYSE: VLO) shares are trading higher along with most other refiners, as crude oil futures have dropped off from last week’s record highs, which could begin to help out refiner’s margins. Also moving VLO is news that a massive California refinery is coming back on line with no significant loss of production after a power outage yesterday morning. 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 VLO.

After hitting a one-year high of $78.68 in July, the stock hit a one-year low of $44.55 last week. VLO opened this morning at $45.06. So far this day the stock has hit a low of $45.01 and a high of $46.93. As of 12:45, VLO is trading at $46.86, up $2.30 (5.2%). The chart for VLO looks neutral and improving, while S&P gives the stock its highest 5 STARS (out of 5) strong buy rating.

For a bullish hedged play on this stock, I would consider a June bull-put credit spread below the $40 range. A bull-put credit spread is an options position that combines the buy 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 will make an 8.7% return in just six weeks as long as VLO is above $40 at June expiration. Valero would have to fall by more than 14% before we would start to lose money.

VLO hasn’t been below $40 at all in the past year and has shown support around $45 recently. This trade could be risky if the price of gasoline falls off if demand starts to lower, but even though there is a slowdown in the US, other global economies are still clamoring for energy, which could keep prices high.

Brent Archer is an options analyst and writer at Investors Observer. At publication time, Brent neither owns nor controls positions in VLO.

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Filed under: Industry, Wal-Mart (WMT), Target Corp. (TGT), Penney (J.C.) (JCP), Costco Wholesale (COST), Economic data, Liz Claiborne (LIZ)

In economics, inferior goods are defined as goods that are less in demand as consumers get richer but more in demand as consumers get poorer — which of course happens when the economy slows down. Inferior goods are often the basic goods and services such as bus rides, potatoes, instant noodles and so on. And with increased demand, the price of such goods, unless regulated, can actually increase in bad times. A recent example of this is the increase in the price of rice (although other forces were at work there as well).

Well, recently we’ve seen a trend in retail that showcases this clearly — discount retailers have been performing well relative to most other retailers. When retailers reported same-store sales for the month of April, Wal-Mart Stores Inc. (NYSE: WMT), Target Corp. (NYSE: TGT) and Costco (NASDAQ: COST) outdid their less fortunate counterparts as they have likely taken customers away from other retailers.

The trend that started a few months ago, with automobile sales (definitely a normal, not an inferior good) in the U.S. softening overall, has continued and even deepened as consumers have less disposable income after inflation and gas money is taken into account. With credit hard to come by, they’ve turned to cheaper alternatives. To wit, this day Wal-Mart — my “inferior retailer” — reported that first-quarter profits rose 6.9%. Conversely, Liz Claiborne (NYSE: LIZ) — the “normal retailer” — swung to a first-quarter net loss.

To be fair though, it’s the top line that matters if I’m looking at consumers’ changing habits and there WMT saw a net 10.2% sales increase while LIZ’s sales grew by much less during the quarter, 4.9% — actually, not that bad. Even AnnTaylor Stores Corp. (NYSE: ANN) raised its forecast Monday. Indeed, somehow retail — excluding auto sales of course — has managed to hold up quite well recently despite market conditions as today’s report indicates. Including autos, though, retail sales declined in April.

The question for investors is whether any retail stocks merit our attention right now. Some analysts actually believe so, saying that not only discount retailers like Wal-Mart stand to gain from a weakening economy, but even some department stores like J.C. Penney (NYSE: JCP) which generally have lower prices could do well in the current climate.

I don’t know about that. Call me skeptical or careful — either way, I wouldn’t jump on any retail at the moment, not the discount retailers and definitely not the higher-end stuff. I mean, even Wal-Mart had a cautious outlook when reporting this day, saying that as consumers wrestle with higher energy and food costs they will likely have even less money for other items. That sent WMT stock over 2% lower. And Liz? Liz has actually posted some improvements, such as a 28% jump in sales of its four “direct” brands, but it’s still in the midst of a large restructuring. LIZ shares are gaining over 1.5% today as the results handily beat expectations. But I still wouldn’t touch either stock.

At some point, of course, the economy will rebound and so will retail. The time to get back into this sector will be when the first signs of a recovery appear. But right now, no one is sure when that’ll happen and the expectation is for at least two more quarters of weak results. I might be missing the boat a tiny by waiting, but tell you the truth, I’m just a little more risk averse these days.

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Filed under: Earnings reports, Industry, Time Warner (TWX), Walt Disney (DIS), Viacom (VIA), News Corp’B’ (NWS), Economic data

News Corp (NYSE: NWS) did better than Wall Street expected. With one-time items backed out, the numbers were not quite as good, but were still impressive.

Hidden in among the numbers and news about the success of Fox and the company’s cable operations were comments by chief Rupert Murdoch that the economic climate is going to start to bite advertising. “There’s no doubt the consumer economy is stressed. You’re seeing it affected in advertising, more short-term planning and booking,” said the News Corp chairman and chief executive is quoted by Reuters as saying.

The observation should give pause to investors in News Corp and shareholders in other global media companies and advertising agencies. Murdoch’s operation are structured very much like Viacom (NYSE: VIA), Disney (NYSE: DIS), and Time Warner (NYSE: TWX).

There had been some hope that advertising expenditures would not fall as the economy slowed. First quarter results from several media shops were decent. But the unlucky consumer, hit by rising fuel and food prices cannot spend on forever. Murdoch knows that and just wanted to pass it along.

Douglas A. McIntyre is an editor at 247wallst.com and editor of the Ten Stocks Under $10 newsletter.

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Filed under: Forecasts, Good news, Industry, Ford Motor (F)

Billionaire investor Kirk Kerkorian stated he might up his stake in Ford beyond 5.5%, as he follows-through on his intention to purchase additional shares, Bloomberg News reported Friday.

Kerkorian, in a Friday SEC filing, reiterated that his Tracinda Corp. will pay $8.50 per share for 20 million additional shares of Ford (NYSE: F), which will give him a 5.5% stake, Bloomberg News reported. In the filing, Tracinda added that it may “from time to time, propose business strategies and, subsequent to the expiration of the offer, acquire additional shares.”

Shares of Ford rose 5 cents to $8.25 in Friday morning trading on the news.

A gold star for Ford

Independent stock analyst C. Leonard Bauer told BloggingStocks Friday Kerkorian’s stance is “a definite gold star” for Ford, concerning its turnaround program.

“Kerkorian’s decision, because of his investment history and knowledge of the auto sector, will telegraph to other institutional investors that it’s time to begin moderately adding to your Ford position,” Bauer stated. “Don’t misunderstand, this turnaround story is only about 30% complete, but at this stage you can make a good case for buying a modest share amount.” Bauer added that he does not have a rating on Ford nor own the company’s shares.

Ford installed former Boeing (NYSE: BA) executive Alan Mulally as part of an effort to re-vamp production and revise its fleet to compete in the global auto marketplace. Ford’s legacy cost reduction efforts have gone well; fleet revision progress has been slower, many analysts agree.


Huge headwinds

Further, in addition to the anemic-growth U.S. economy, Ford, like other U.S. automakers, must deal with the new, high-price gasoline era, which features gasoline above $3.40 per gallon in most regions of the United States. Oil Friday continued its seemingly relentless march higher, pushing through the $125 per barrel level for the first time in history.

Counter-intuitively, Bauer said the record-high gasoline prices might help Ford, in the long run.

“The high price does create a huge amount of short-term pain for the company, but the reality of high gasoline prices, the permanence of oil above $100 per barrel, tells Ford it has to create many, higher-mileage cars,” Bauer stated. “Fuel efficiency has to be at the core of their manufacturing model. It tells Ford executives, if you build tanks [inefficient SUVs], you’re done as a company. In that sense, $100 oil will lead to a stronger Ford, from a fleet standpoint.”

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Filed under: Bad news, Industry, Options, Technical Analysis, Lehman Br Holdings (LEH), Bear Stearns Cos (BSC)

Lehman Brothers (NYSE: LEH) shares are falling today as an SEC official has warned that future investment banks that get into trouble may not get the same bailout that Bear Stearns (NYSE: BSC) did. Director of Trading and Markets at the SEC Eric Sirri told the House Investment and Insurance Subcommittee that the liquidity help given to BSC may not necessarily be repeated if another bank has trouble. These words have dragged down LEH in trading yesterday afternoon and so far today. If you think this stock won’t be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on LEH.

After hitting a one-year high of $82.05 in June, the stock hit a one-year low of $20.25 in March. This morning, LEH opened at $44.19. So far today the stock has hit a low of $41.67 and a high of $44.19. As of 12:40, LEH is trading at $42.67, down 0.97 (-2.2%). The chart for LEH looks neutral and improving, while S&P gives the stock a neutral 3 Stars (out of 5) Hold rating.

For a bearish hedged play on this stock, I would consider a June bear-call credit spread above the $50 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn’t do what you think but still leverage nice returns. For this particular trade, we will make a 14.2% return in six weeks as long as LEH is below $50 at June expiration. LEH would have to rise by more than 17% before we would start to lose money. Learn more about this type of trade here.

LEH hasn’t been above $50 since mid-February and has shown resistance around $47 recently. This trade could be risky if the company’s earnings (due out in mid-June) are a positive surprise, but even if that happens, this position could be protected by resistance HSY might find from its 50-day moving average, which is currently around $45.

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 may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in LEH or BSC.

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Filed under: Earnings reports, Bad news, Industry, Chicago Merc Exch Hld’A’ (CME), NYSE Euronext (NYX), Options, Technical Analysis

CME Group (NYSE: CME) shares are falling after competitor NYSE Euronext (NYSE: NYX) reported a first-quarter profit above analysts’ estimates. CME’s earnings that disappointed investors two weeks ago look even worse in light of NYX’s good results this morning. If you think this stock won’t be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on CME.

After hitting a one-year high of $714.48 in December, the stock hit a one-year low of $399.01 in March. This morning, CME opened at $487.00. So far this day the stock has hit a low of $476.27 and a high of $487.65. As of 12:40, CME is trading at $481.03, down $8.32 (-1.7%). The chart for CME looks neutral but improving, while S&P gives the stock a positive 4 STARS (out of 5) buy rating.

For a bearish hedged play on this stock, I would consider a June bear-call credit spread above the $550 range. A bear-call credit spread is an options position that combines the buy and sale of call options to hedge risk in case the stock doesn’t do what you think but still leverage nice returns. For this particular trade, we will make a 9.9% return in six and a half weeks as long as CME is below $550 at June expiration. CME would have to rise by more than 14% before we would begin to lose money. Learn more about this type of trade here.

CME hasn’t been above $535 since early February and has shown resistance around $523 recently. This trade could be risky if the stock has found a floor recently in the mid-$400s and starts to recover, but even if that happens, this position could be protected by resistance CME might find around $530, where it has topped out twice over the past 3 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 CME.

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Filed under: Industry, Consumer experience, Competitive strategy, Marketing and advertising, Private equity

So what do you do if your company produces mostly heavy, inefficient vehicles as gas soars past $4 a gallon? Some might state you should produce more efficient automobiles. But not Chrysler, which has instead opted to make gas cheaper, guaranteed!

Today, Chrysler CEO Bob Nardelli announced that anyone crazy enough to purchase a heavy, high-horsepower, low-mileage Chrysler product before Might 31 will be able to buy gas for no more than $2.99 a gallon for three years. Just take your shiny new Aspen or PT Cruiser to the gas station and use your special gas card; Chrysler will pick up the cost over $2.99 a gallon.

Some critics are calling this plan a cheap gimmick. But there’s no denying that Chrysler is at a disadvantage relative to General Motors (NYSE: GM) and Ford (NYSE: F) when it comes to offering new vehicles that get decent mileage. And it is light years behind the auto design leaders, Toyota (NYSE: TM) and Honda (NYSE: HMC). So it needs some kind of gimmick to help its dealers clear out the cobwebs that are quickly forming on their lots.

In recent years, Chrysler has relied heavily on trucks and SUVs for sales, and its hot new vehicles like the Challenger are gas guzzlers. (Hey, your Hemi sure is fast! Sorry about the 11mpg!) Its lineup is in desperate need of an overhaul and products that offer decent mileage. But developing new cars is difficult and very costly, and it’s not clear that Chrysler’s owner, Cerberus Capital Management, has the money to do it. The alternative — advertising and sales gimmicks, long favorites in Detroit — is cheap by comparison.

This promotion might work, at least for a few weeks. But it points to much bigger problem: Chrysler doesn’t have the goods to compete right now, and it’s not clear when it will, if ever.

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Filed under: Press releases, Industry, Politics

Bipartisan legislation aimed specifically at increasing government regulation of railroads threatens to hamstring 25 years of successful growth and investment by that industry. The Railroad Antitrust Enforcement Act of 2007 (H.R.1650) would effectively undo specific and narrow antitrust process exemptions that were provided for the railroads by the Staggers Rail Act of 1980. The Staggers act effectively halted what had previously been a big and staggering decline by American railroads. Currently, the railroads are effectively and efficiently regulated by the Surface Transportation Board.

The American Association of Railroads reported in a press release, “Since Staggers, railroads and their customers have benefited enormously. Railroads have reinvested $420 billion back into their systems since 1980. The result has been improved service and safety, and nearly double their traffic volumes — all while lowering average rates by more than 50 percent in inflation-adjusted terms. That means the average rail [shipping customer] can move twice as much freight this day for the same price as in 1980.” AAR further reports that a just-released Morgan Stanley survey found customer satisfaction with rail service is at a historical high.

It should also be noted that the devastating decline suffered by the railroads prior to passage of Staggers is arguably the lynch pin of this nation’s inability to establish reliable, desirable, and profitable mass transit for commuters by rail. The rate of investment by our freight railroads since 1980 could be one facet in bringing effective local and nationwide passenger rail service back within our grasp. The passage of H.R.1650 might effectively destroy any further hope of developing high-speed, cross-continental passenger rail service and the further expansion of local commuter rail services.

In an age when surface transportation is becoming incredibly more pricey and our airlines are in dangerous distress, do we really need to limit our options by passing legislation which could severely injure a system that works? You may wish to take into account contacting your legislators in an effort to cease H.R.1650 dead in its tracks.

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Filed under: Bad news, Industry, Employees, Citigroup Inc. (C), Bear Stearns Cos (BSC)

The layoffs on Wall Street are not over. As a matter of fact, they may just be beginning. Many of the people at Bear Stearns (NYSE: BSC) are already gone. Citigroup (NYSE: C) says it will cut operating expense by 20%. Some of that has to be people.

UBS (NYSE: UBS) may now be looking at a plan to cut 8,000 people. A lot of that will come in the firm’s banking division. According to Bloomberg, “The company will probably say it’s eliminating between 2,500 and 3,000 jobs in its investment bank, more than 10 percent of the division, two people familiar with the matter said May 2.”

UBS has been under some pressure to break itself into pieces to “unlock shareholder value.” It is not quite clear how that would work, but management is against it.

The word from UBS is a particularly sad reminder of how the actions of a relatively few traders and executives who bet on mortgage-backed securities will cost tens of thousands, if not hundreds of thousands, of people in the financial community around the world their jobs. Those who are to blame probably already have new employment. At least they can say they were “creative thinkers” when they go for job interviews.

Douglas A. McIntyre is an editor at 247wallst.com.

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Filed under: Deals, Press releases, Industry, Competitive strategy, Boeing Co (BA), Lockheed Martin (LMT)

Focus LLC, investment banking service provider, has announced the acquisition of U.K. based Avialec by Kapco-Valtec, in a move aimed in part at expanding Kapco-Vatec’s marketing base. Avialec, based in Petersfield, England, is a provider of electrical components to the aerospace industry. Building on eight years of growth, Avialec company leadership sought the benefit of increased aerospace industry clout which Kapco-Valtec presents.

Barrie Prescott, CEO of Avialec stated in the Focus LLC press release, “I had decided it was time to put Avialec under the wing of a larger progressive organization with financial firepower to realize the many opportunities before us … FOCUS was the perfect firm to help us realize our goals.”

Kapco-Valtec, a leader in aerospace supply chain management, shall provide market leverage for Avialec to realize it’s expected growth potential, while gaining the benefit of greater exposure to Avialec’s major accounts in the U.K. Likewise, Kapco-Valtec shall provide broader exposure of Avialec to U.S. aerospace accounts.

The Focus LLC investment bankers press release stated: “As is the case with the growing number of international M&A transactions, this deal is a win-win for both companies. We were pleased to be able to complete the transaction in just over four months, said Manan Shah, a FOCUS Partner.”

For further information regarding this acquisition and the services of Focus LLC, please visit the Focus website at www.focusbankers.com.

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